The “Financialization” of Charity
From the Chronicle of Philanthropy:
Wall Street is engineering a not-so-hostile takeover of charity. That’s the message of a new report that examines the growing assets in donor-advised funds and foundations and the implications for the culture of giving. It projects that by 2028, DAFs and grant makers together will take in half of the dollars donated to charity by individuals. Already, they collect 35 percent. Assets held by DAFS and foundations will top $2 trillion by 2026, the report says, a warehousing of enormous wealth that benefits a growing array of intermediaries whose processing fees and asset-management commissions siphon off money intended to do good. The result? Altruism, the driving force of charity for centuries, is losing ground to profit motives and donors’ self-interest, the report contends, with philanthropy increasingly structured to benefit business, not charities. “Philanthropy has become captured by the wealth preservation industry,” declares the report by the Institute for Policy Studies, a critic of DAFs and a proponent for legislation to force DAFs and foundations to distribute more of their assets annually.
I have only skimmed the report entitled “Gilded Giving 2024: Saving Philanthropy from Wall Street.” The main point is that philanthropy is increasingly dominated by investment firms helping people preserve and build wealth rather than give it away. And our tax laws are helping that domination along by limiting tax deduction to itemizers and encouraging the indefinite “warehousing” of charitable contributions via DAFs and private foundations. Here is a sample from the Report:
“Financialization” or “financial capture” means, in economist Gerald Epstein’s words, “the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies.” Financial institutions have extended their influence into the realm of philanthropy, where the growth of assets shouldn’t be the main goal.
Our laws governing charity have long offered what law professors Dana Brakman Reiser and Steven A. Dean call the “Grand Bargain”: that charitable givers, in exchange for tax benefits, fulfill needs and serve our common good by maintaining sufficient transparency, donating at a sufficient cadence, and supporting causes that are sufficiently divested from the givers’ selfinterest. But now, Reiser and Dean explain: “No longer walled off from the influence of American capitalism by philanthropy law, for-profit philanthropy deploys the arsenal of business in service of charitable goals.”
It’s no secret that the people who give money away can do so because they have extra to spare. But our charity sector as a whole, once supported by a broad base of Americans, increasingly depends on wealthier and wealthier donors. According to IRS data, households earning $200,000 or more accounted for just 30 percent of itemized contributions in 2002. That share had grown to 74 percent by 2022, the most recent year available, accelerated by changes in the 2017 Tax Cuts and Jobs Act. And, according to the University of Indiana’s Philanthropy Panel Study, the percent of U.S. households giving to charity dropped from 62 percent in 2010 to 47 percent in 2020, just ten years later.
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As a result, philanthropy has become captured by the wealth preservation industry. Wealthy people use foundations and DAFs — charitable intermediary organizations that have quickly become some of the most popular destinations for donations — to get tax deductions immediately but maintain control over the money. They’re also starting to use financialized instruments such as LLCs, impact investing, and recoverable grants; there aren’t always charitable tax breaks for these but they nevertheless carry financial benefits for both donors and the financial industry. At last count, DAFs and foundations together take in 35 percent of all individual giving in the U.S. And if these two types of intermediaries continue to grow at the rate they have for the past five years, by the end of 2028, they will be taking in half of that giving.
darryll k. jones