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Charity is Becoming Increasingly Undemocratic

Private philanthropy is on a collision course with democracy. Without intervention, billionaire philanthropists will soon be shaping public policy in competition with local and state governments, which will be facing austerity conditions in the wake of a resurgent Covid-19 pandemic.

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Charity is Becoming Increasingly Undemocratic

Private philanthropy is on a collision course with democracy. Without intervention, billionaire philanthropists will soon be shaping public policy in competition with local and state governments, which will be facing austerity conditions in the wake of a resurgent Covid-19 pandemic.
330M
people impacted
$39.4B
potential funding
the problem
Nature and Context

The growing concentration of wealth and power is distorting philanthropy and imperiling our democratic institutions. Top-heavy philanthropy—small-dollar donor declines combined with increasing numbers of ultra-wealthy mega-donors— poses growing risks to the independence of the nonprofit sector, the integrity of the tax system, and the health of our democracy. The giving sector is increasingly becoming a tax-subsidized province of the wealthy, who exercise considerable private power over the nonprofit sector and civic life as a whole (Collins & Flannery).

Symptoms and Causes

The proportion of US households that give to charity has declined significantly

  • From 2000 to 2016, the most recent data now available, the proportion of households giving to charity dropped from 66 percent to 53 percent.

The proportion of charitable contributions coming from high-income and wealthy donors has increased significantly in the last two decades

  • In the early 2000s, households earning $200,000 or more made up only 30 percent of all charitable deductions. By 2017, the most recent year available, this group accounted for 52 percent.

  • The percent of total charitable deductions claimed by households making over one million dollars grew from 12 percent in 1995 to 33 percent in 2017.

  • Between 1995 and 2015, the top 1 percent of income-earners went from claiming one eighth to a third of all charitable deductions.

Donor-Advised Funds and private foundations have both seen dramatic growth recently

  • Both of these giving intermediaries are favored by wealthy donors because of the significant tax advantages they offer.

  • The assets of private foundations grew 118 percent over the fifteen years between 2005 and 2019, from $551 billion to $1.2 trillion. Over the same period, the number of private foundations increased by 68 percent, from 71,097 to 119,791.

  • Donations to DAFs have increased even more rapidly, from $20 billion in 2014 to more than $37 billion in 2018—86 percent growth over just five years.

The proportion of all charitable dollars has tripled over

  • In 1989, just 4 percent of all charitable donations in the United States were given to foundations, rather than into direct working charities.

  • By 2019, foundations were receiving 12 percent of all donations.

the impact
Negative Effects

Risks of Top-Heavy Philanthropy

The charitable sector continues to experience a transition from broad-based support across a wide range of donors to top-heavy philanthropy increasingly dominated by a small number of very wealthy individuals and foundations. For most nonprofits, the one-two punch of the 2017 tax law changes and the COVID-19 crisis has only served to accelerate this shift. Increasing inequality in giving poses significant implications for the practice of fundraising, the role of the independent nonprofit sector, and the health of our larger democratic civil society (Collins & Flannery).

Risks to the Public

  • Warehousing of wealth in the face of urgent needs

  • An increasingly unaccountable and undemocratic philanthropic sector

  • The rise of tax avoidance philanthropy

  • Self-dealing philanthropy

  • The increasing use of philanthropy as an extension of power and privilege

Risks to Charitable Independent Sector Organizations

  • Increased volatility and unpredictability in funding

  • An increased need to shift to major donor cultivation

  • An increased bias toward funding boutique organizations and projects heavily directed by major donors

  • The increasing power of a small number of donors also greatly increases the potential for mission distortion

Economic Impact
Success Metrics
who benefits from solving this problem
Organization Types
  • Philanthropic organizations

  • Local and state governments

Stakeholders
  • Recipients of charitable giving

  • Small and medium-sized philanthropic organizations

  • Top-heavy philanthropic organizations

  • Local and state governments

  • Equity advocacy organizations

financial insights
Current Funding
Potential Solution Funding
ideas
Ideas Description

Policy Recommendations

Private philanthropy is on a collision course with democratic institutions. It is increasingly becoming a tax-subsidized province of the wealthy, exercising considerable private power over the nonprofit sector and civic life as a whole.

Without intervention, billionaire philanthropy will soon be in competition with local and state government institutions facing austerity conditions in the wake of a resurgent Covid-19 pandemic and corresponding economic shocks. And top-heavy philanthropy—small donor-declines combined with rising wealthy mega-donors—will only grow as a threat to the independence of the nonprofit sector.

The last time Congress overhauled the legal framework for the philanthropic sector was in 1969, a period when wealth was considerably less concentrated than at any other time in the last century. Now, more than 50 years later, it is time to modernize the rules governing philanthropy to:

  • Protect the independent sector from undue influence of wealthy donors.

  • Protect democracy and civil society, of which philanthropy is one aspect, from the undue influence of private power.

  • Prevent abuse of the tax system from charitable-giving vehicles primarily used for aggressive tax avoidance or as a means to maintain indefinite control over donated dollars.

Ideas Value Proposition
Ideas Sustainability
attributions
Data Sources

Chuck Collins & Helen Flannery, Gilded Giving 2020: How Wealth Inequality Distorts Philanthropy and Imperils Democracy - https://ips-dc.org/gilded-giving-2020-how-wealth-inequality-distorts-philanthropy-imperils-democracy/

Contributors to this Page

Giving Tech Labs team - giving.tech