Americans continue to donate increasing amounts to charities each year, but a new study shows how wealth management funds and private foundations are hoarding a large percentage of charitable giving for profitable tax benefits.
Nationally, the U.S. raised over $3.6 billion on Giving Tuesday on Dec. 3, 2024. It marks a 16 percent increase from 2023, according to estimates from GivingTuesday Data Commons. Yet a new report from the Charity Reform Initiative of the Institute for Policy Studies shows lax regulation laws enable funds to be funneled into intermediaries and away from charities.
The report titled, “Gilded Giving 2024: Saving Philanthropy from Wall Street,” shows how Donor-Advised-Funds and private foundations act like charitable checking accounts. They help donors receive tax deductions while not requiring immediate disbursements of funds raised to the intended programs and projects.
For instance, federal law requires private foundations to release just 5% of funds raised each year, while DAFs don’t have to release a dime. In total, 35% of charitable giving goes to these entities even though they aren’t legally required to release much or any of the funds each year.
Charitable giving or wealth defense?
The report warns the power dynamic has led to a system in which charities and grassroots organizations are becoming dependent on fewer and fewer donors while falling prey to for-profit schemes.
“Our system effectively classifies pools of capital under management as charities — which both increases inequality and shortchanges groups on the ground doing actual charity work,” the report states. If current trends continue, half of all charitable giving will go to these wealth management funds next year.
Researchers who study how oligarchs–the mega-rich–use loopholes to mask wealth-building as charitable giving refer to these entities as “the wealth defense industry.”
In an interview with The Black Wall Street Times, the “Gilded Giving 2024” report’s co-author Bella DeVaan gave recommendations for how lawmakers, funders and communities can reverse these trends to ensure charitable giving reaches on-the-ground organizations in a timely manner.
“There’s no mandated timeline for when that money has to reach the general public. And so the trend that we see is that donor-advised-funds are ballooning in their wealth and their popularity over the last a little bit more than a decade,” DeVaan said.
Even though charitable giving to DAFs and private foundations are up, many charities are scavenging for resources. Meanwhile, grants disbursed from these entities have declined from $55.53 billion in 2022 to $54.77 billion in 2023.
“There’s so much money that’s just kind of lying fallow or warehoused in these tax benefited funds, and we feel like that’s a really kind of dangerous bottleneck that is depriving working charities that are meant to be benefited by these tax rules of the resources that they deserve,” DeVaan said.
How to move forward
As twice-impeached and first-time felony convicted President-elect Donald Trump prepares to take office, he’s already signaled plans to expand tax cuts across the board.
“My plan will massively cut taxes for workers and small businesses, and we will have no tax on tips, no tax on overtime and no tax on Social Security benefits,” Trump said a day before the Nov. 5 election. It follows his plans to revive his 2017 tax cuts, which largely favored large corporations.
To pay for the loss in government revenue, his incoming administration has signaled plans to cut spending on social programs. The incoming president–who is an oligarch himself–has plans that critics warn will exacerbate inequality. Meanwhile, DeVaan said the new administration’s approach can be an opportunity for the philanthropic sector to step up in a more equitable way.
“There’s going to be extension of a lot of provisions from the Trump Tax Cuts and Jobs Act. And we really think that that’s an incredible opportunity to remind everybody that philanthropy is on the table, you know, not just for partisan targeting or censorship efforts, but to really meaningfully contend with the perils of concentrated wealth in the sector,” she said.
DeVaan stressed the importance of following the recommendations for charitable giving listed in the “Gilded Giving 2024” report.
The recommendations include:
- Enacting tougher regulations to ensure donations to charity actually reach working charities in a timely manner.
- Enacting reforms to eliminate the shell games and tax dodges that financial advisors craft to diminish and delay the flow of funds to qualified charities.
- Organizing a coalition of smaller DAF-sponsoring organizations such as community foundations, nonprofit professionals and donors who want to reverse the imbalance of power to pressure Congress and state governments into taking action.
- Uplifting the positive examples of DAF sponsors who already exemplify generous and steady charitable giving, even though laws do not yet require it.
“Our polling really shows that not enough people of the American public understand the democratic threats and the sort of threats of inequality that plague the philanthropic sector,” DeVaan told The Black Wall Street Times.
“So we just want people to think about how their lives are affected by this. And then people who participate in giving through donor advised funds to take on a role of like a conscientious shareholder, and think ‘hey, I don’t want a DAF that I participate in to operate this way.'”
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Very, very informative. Learned more of the greed of profit driven American business. I , however, hope Black America has involvement in the mentioned “wealth defense “ fund. Or, it will soon be a “wealth defense gap” . ?