Let’s make this a time of giving, not hoarding | News, sports, jobs

For as long as we can remember, the end of the calendar year marks the beginning of the giving season in America.

The holidays that brighten our darkest months also invite us to celebrate (and practice!) generosity. Food banks, youth groups, arts and civic organizations, and nonprofit programs rely heavily on the support they receive in November and December.

Year-end donations are a large amount for tax purposes, but many people donate without regard to whether they will receive a deduction. In fact, fewer than 10 percent of donors claim a tax deduction for charitable donations.

The super-rich who benefit from itemizing their tax returns say otherwise. They give more to large hospitals and universities where you can have your name on a building. This type of giving can also be valuable.

However, it is important to recognize a less visible difference.

Increasingly, wealthy donors are parking their money in institutions they control, such as private foundations and donor advised funds (DAFs). These intermediaries then theoretically donate money to nonprofit organizations.

However, private foundations are only required to “pay out” 5 percent of their assets annually to these other charities. And DAFs have no payout requirement at all. So wealthy donors claim their tax breaks immediately, but the donated funds may remain out of the picture for decades.

According to a new report we co-authored, Gilded Giving 2024: Saving Philanthropy from Wall Street, more than 35 percent of all charitable donations now go to one of these two intermediaries.

There is currently $1.7 trillion parked in private foundations and DAFs – money that could flow to working charities in time to solve problems. We estimate that by 2028, half of all donations will go to private foundations and DAFs.

As wealth has become concentrated in fewer hands over the past four decades, so has this kind of dubiously “charitable” giving—a trend we call “top-heavy philanthropy.” And it’s increasingly profitable for financial advisors to the super-rich.

Wall Street financiers promote DAFs as a way for donors to get immediate tax breaks in the year they give, but then sit on those funds and collect wealth management fees. The financiers have no financial incentive to ever direct the money to a mental health facility, food bank, community theater or other charity. It is more profitable for them to manage assets.

The rest of us subsidize this system. For every dollar a billionaire donates to charity, including to his own foundation or DAF, the rest of us donate up to 74 cents in lost tax revenue.

So how did we get a charitable system that works for multimillionaire donors and wealth managers, but not for non-profit charities, small donors and the taxpaying public? That’s partly because financial industry lobbyists and DAF sponsors are fighting vigorously against any change.

But a growing coalition of donors, nonprofit charities and people who care about tax justice are fighting back. They point out that lawmakers could easily set the rules to increase the flow of charitable funds, increase transparency and end the tax avoidance and self-dealing practices that currently corrupt philanthropy.

The message arrives. A 2024 Ipsos poll found that 71 percent of respondents believe Congress should increase the annual payout rate for private foundations and require the same for DAFs. Across the political spectrum, a clear majority of Americans believe that when a donor receives a tax break, they should give the money to a functioning charity in a timely manner.

So, big donors: you want a tax break? Make sure the money goes to a functioning charity – and quickly. Do you want other taxpayers to subsidize your donation preferences? Tell us where the money goes.

Don’t like these rules? Then don’t ask the rest of us to subsidize it. Let’s make sure that the time of giving is actually focused on giving and not hoarding.

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Chuck Collins directs the Inequality Program at the Institute for Policy Studies. Bella DeVaan is deputy director of the IPS Charity Reform Initiative. This comment was distributed by OtherWords.org.