Call for ‘Emergency Charity Stimulus’ as Billionaire Wealth Soars and US Nonprofits Sink

Yves here. Charity reform in the US is clearly overdue, particularly since self-promotion entities that pay for family weddings like the Clinton Foundation qualify as charities. But in the US, we have also come to expect charities to fund services and resources that should be provided by governments, from museums (whose entry fees now make them destinations solely for the well-off), public zoos ($25 each for people 13 and older to visit the Bronx Zoo), and higher education. And more specifically, looking at charity fixes to plug the stimulus hole is a sign of desperation over Washington’s reluctance to throw enough resources at an unprecedented crisis.

By Lisa Newcomb, staff writer at Common Dreams. Originally published at Common Dreams

As billionaires have seen their collective wealth increase by nearly $700 billion and ordinary Americans face increasing economic insecurity amid the Covid-19 pandemic, nonprofits in the U.S. that rely largely on charitable giving—increasingly from a small number of high-dollar donors—are struggling to survive under the current conditions.

According to the Washington Post on Monday, nonprofit leaders are warning that “one-third of organizations may not survive pandemic.”

While the rich have continued their philanthropic giving during the Covid-19 crisis, those donations don’t always have a direct line to nonprofits.

In op-ed published last week, Chuck Collins, a senior scholar at the Institute for Policy Studies where he co-edits, explains:

Unlike low- and middle-income givers, wealthy donors are more likely to park assets in private foundations and donor-advised funds, slowing its flow to working nonprofits on the ground. Between 2005 and 2019, the number of private foundations grew from 71,097 to 119,791, an increase of 68 percent. Over the same period, their assets grew 118 percent, from $551 billion to $1.2 trillion.

So while the 1% are, in fact, donating portions of their accumulated wealth, they’re giving to intermediary organizations, which slows the distribution of funds to nonprofits actually doing the work on the ground.

In addition, many nonprofits in particular rely on in-person events like galas, golf tournaments, and other functions for the bulk of their funding. Organizations large and small are feeling the effect of social distancing and stay-at-home orders aimed at curbing the spread of Covid-19.

“The cancellation or postponement of such in-person fundraising will deeply affect the way we raise funds,” Karen Addington, chief executive of Juvenile Diabetes Resesearch Foundation Ltd (JDRF) in the United Kingdom said in an April press release announcing the furlough of nearly 40 percent of JRDF’s staff.

While nonprofits that focus on social needs like rent assistance, healthcare, and nutrition/food services have seen a bump in donations during the Covid-19 pandemic, the needs of the communities and these groups serve is outpacing the giving.

“The explosion in the need for food, rental assistance and other charity quickly outstripped available resources,” reports the Washington Post, noting a local case-in-point. “The Greater Washington Community Foundation, the region’s largest funder, collected more than $8 million starting in March for its Covid-19 Emergency Response Fund — only to see requests for aid exceed $60 million.”

In a May letter sent to House Speaker Nancy Pelosi (D-Calif.), Senate Minority Leader Chuck Schumer (D-N.Y.), industry leaders from across the country urgedcongressional action:

In the midst of global pandemic and economic shutdown, there is no justification for allowing the country’s wealthiest dynasties to continue to hoard tax-advantaged funds that have already been designated as charitable contributions in anticipation of some future need, when there are so many urgent needs now. While this change is a deviation from the status quo, it is a modest one. Congress’s purpose in incentivizing these foundations and funds with tax deductions in the first place was to support charitable efforts. There has clearly not been a moment in the past fifty years in which the full deployment of our charitable sector was more necessary.

America is in an unprecedented crisis. The world of philanthropy must step up and do more, faster. Congress must insist on it.

Now, as Congress debates the next Covid-19-related stimulus bill, Collins joins a chorus of experts calling for lawmakers to include nonprofits as beneficiaries.

“Congress should implement an Emergency Charity Stimulus — a three-year emergency mandate to require private foundations to double their payout from 5 percent to 10 percent and establish a temporary 10 percent payout requirement for [Donor-Advised Funds] DAFs. This would move an estimated $200 billion off the sidelines and into front-line working charities without increasing taxes or adding to the deficit,” he wrote.

The call comes as The Giving Pledge, a movement started by Bill Gates and Warren Buffet that encourages billionaires to give away half of their wealth, nears its 10th anniversary.

“Many Giving Pledge members will fulfill their Pledge by plopping assets into private family foundations controlled by their heirs, possibly in perpetuity,” Collins wrote. “Voluntary efforts are insufficient. It is time for Congress to update the rules governing philanthropy to discouraging the warehousing of trillions, increase the flow, and protect the nonprofit sector and the integrity of the tax system from abuses.”

To that end, Collins and The Inequality Project propose broad reforms to United States charitable laws:

  • Levy a wealth tax on closely held private foundation assets and establish a lifetime cap on charitable deductions.
  • Make private foundation payout requirements meaningful and increase the flow of funds to working charities. Eliminate the perpetual private foundation as it is currently constituted.
  • Require donor-advised funds to have a payout and increase transparency and reporting.
  • Implement a universal giving credit to broaden giving by the non-wealthy.
  • Prevent abuses and encourage transparency with reforms requiring board independence, banning compensation of family members, and donor disclosures.
  • Create a new federal oversight agency for foundations and charities, funded by foundation excise taxes.

“Just as we don’t want an economy that produces billionaires, we don’t want a charity sector that creates billionaire-controlled foundations,” Collins concluded.

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  1. edmondo

    Damn, things must be bad. The head of the regional food bank just got his annual salary raised from 200K to $250,000. That a lot of coin to send out memos asking the volunteers to advise the manager of their local branch which pronoun you prefer to use to “declare” yourself. I had no idea I had options.

  2. 430 MLK

    Like the restaurant industry, the non-profit industry has floated a number of already-marginally wealthy folks in my city who have used their status as ‘community activists’ to really [family blog] the city’s priorities. There are several levels: our “Bluegrass Community Foundation,” which is sort of a financial holding-ground for city and federal grants and the high-net earners in the city (who park excess funds into the Foundation for them to manage as they see fit), represents the wealthy who establish city consensus. These people interact w/ our Mayor and high-level city planners, and often will end up running for elected office as thoughtful city servants.

    These upper-level non-profit foundations then use their grant bank-roll to trickle out grants like ‘neighborhood art-creation’ and ‘affordable housing for (imported) artists’ to the next level of non-profits (our neighborhood CDCs, Neighborhood/Homeowner Associations, single-issue non-profits) as a way to engage issues like gentrification, low-wage jobs, food insecurity, etc. These next level of nonprofits are sort of the petit bourgeoisie of the non-profit world. They are very cozy with the high-wealth donors and make sure to not focus on the _local causes_ of inequality. Often, you’ll see new, idealistic, naive local college (UK and Transylvania U) graduates working these, and they’re often organized by spouses of wealthy families and situate themselves in hip, gentrifying areas to be closer to the outgoing residents they mine for data and prestige. These people are the foot-soldiers driving the local media conversation regarding city needs set by the upper-foundation groups, particularly in our ‘alternative media’ (don’t worry about that $250 million spent on upgrading the convo center and adding box seats to Rupp Arena…our nonprofit got a $60,000 food study going on food deserts!).

    Then there are the third-level of non-profits, who you don’t hear much about. These groups get little funding and no media attention (and are often represented by graduates of the community college where I teach) and scrape by doing things like needle exchanges and micro-scale engagements with those in the lowest rungs of society who do not live in gentrifying areas.

    My sense is that this third level will continue getting the shaft until local governments shift their financial priorities from economic development for wealthy, jetsetting, college creatives and their financial backers…into economic development for city-bound residents who don’t ask for much beyond a steady job and a place to live. The policies set out in the article above seem designed to funnel money into the hands of the 2nd level, the petit non-profiteers, as a way to sustain their business model.

    1. Ejf

      You have very well described the nonprofit racket of Mpls/St Paul. I saw it grow from 2000-2005.
      It’s nearly the same here in Albuquerque, NM, though not as well-tiered though it’s getting there.

    2. a different chris

      >until local governments shift their financial priorities from economic development for wealthy, jetsetting, college creatives and their financial backers…into economic development for city-bound residents

      aka never. Sigh.

    3. Maritimer

      I had experience with a non-profit here in Canada where we have the WE charity scandal underway:

      About twenty years ago a small “non-profit” showed up in our rural area. Smelling a rat, I investigated this “non-profit”. I found that the chief exec of this np was the daughter of a high placed exec at a major corporation. That corporation had two foundations which made deductible donations to the np. Checking the incorporation papers of the np, I found that there was a lot of boilerplate legal language which would prevent any outsiders from gaining control of the np. This np was involved in some project in Nepal! which of course necessitated lots of trips there and elsewhere. There were also looking to hook up with Government on any project possible.

      On thing I vividly remember in all this is going to the library and finding there a huge two volume publication listing all the Foundations in Canada.
      My conclusion from this experience which you can try in your local area was:
      1. Some of these nps are set up to employ sons/daughters of the well connected. See WE scandal mentioned above.
      2. There is probably a “revolving door” phenom of government, foundation, np,… Great career opportunity for the well connected!
      3. Of course, as indicated. the employees get tax deductions to the foundations controlled by the corporation and then these deductions are then passed on to family or other friends by the foundation. All financed by taxpayers.

      So, a vast racket operating under the guise of Good Works, Charity using the best instincts of Humanity for evil purpose. Of course, they have lavish charity dinners and other events to celebrate their malfeasance.

      1. 430 MLK

        Thanks Maritimer and the rest for these comments. I’m not on Twitter much, but I have run across a handle for Nonprofit Industrial Complex that referenced getting people to identify places like you found providing foundation information (board, who incorporated it, etc.). I’ll have to do some looking for Kentucky.

    4. JBird4049

      Somehow, this reminds me of the San Francisco Bay Area with all the endless streams of money going… somewhere and nothing seems to get better. Even though I am on the other end of California, I would describe Los Angeles as the same.

  3. Anonymous

    In the midst of global pandemic and economic shutdown, there is no justification for allowing the country’s wealthiest dynasties to continue to hoard tax-advantaged funds that have already been designated as charitable contributions in anticipation of some future need, when there are so many urgent needs now.

    Fiat is a risk-free public utility and large scale users/hoarders of it should PAY for that privileges, e.g. NEGATIVE interest.

    “Use it or lose it” should be the rule for hoarders.

    Funny that the so-called experts on fiat, the MMT School, fail to recognize this …

    1. Milton

      As opposed to what? Are you saying the U.S. should go back to the gold standard or perhaps, peg our currency to a basket of ’em? I am not seeing how this is an MMT issue except that if we did employ said toolset we might be able to provide needed services to our citizens.

      1. Fritzi

        I don’t have the impression that anonymous is arguing for the gold standard or against fiat at all here.

        Only that the current Fiat system is geared towards profiting the uberrich disproportionally, with zero risk vor them, and that Fiat, exactly because it is Fiat, could be designed differently.
        My impression is that he/she is thinking of something comparable to the Wörgler Schwundgeld, at least in it’s effect on the rich money hoarders.

        1. Anonymous

          and that Fiat, exactly because it is Fiat, could be designed differently. Fritzi

          Yes and well said. For example, our banking model is a relic of the corrupt Gold Standard and should be abolished in favor of the direct use of fiat beyond mere coins and paper Central Bank Notes.

          It’s really inexcusable that we continue with government privileged usury cartels when fiat is cheap enough for everyone to use. And a big part of those privileges is the free use of fiat by banks and other large users/hoarders.

          Like I said, the MMT School appears to not understand the consequences of inexpensive fiat or is unwilling to de-privilege the banks .

          1. Basil Pesto

            “MMT is bad because it doesn’t advocate abolishing the banking system”, real hearts and minds stuff there

            What you’re advocating is absolutely radical, not to say revolutionary, in a manner that makes MMT’s modest insights pale into insignificance. That’s fine as far as it goes, but you’re going to need a vastly more persuasive theoretical underpinning and practical political plan than “abandon the usury cartels!”and monomaniacal digs at… MMT whenever any tangential opportunity presents itself. As it stands, iirc Clive, no fan of banks as far as I can tell, earlier this year thoroughly argued why your idea is pie-in-the-sky at the very best.

  4. Michael Fiorillo

    The Gates Foundation’s “contributions” to education are solely designed to undermine and privatize the public schools and have it further enrich people like himself. It should be called Malanthropy, the process by which the wealthy use non-profit vehicles, subsidized by the tax code, to further their financial and political interests.

    During the (First) Great Depression, the US’ private charity system was overwhelmed, leading in part to some of the reforms of the New Deal… another harsh lesson that will have to be re-learned.

  5. Ping

    Anyone else bombarded and disgusted by ASPCA commercials using film of severely suffering dogs and cats to plead for funds? What they actually accomplish for animals is very limited and ambiguous, as is the website numbers reporting, which does not disclose the CEO makes 770,000 a year, more than 6 times the average and 38% of every dollar donated goes to high paid executives. And apparently much of the remainder in “investments”.,times%20the%20average%20nonprofit%20CEO.

    The shame is that these operations soak up contributions of well-intended donors that might otherwise go to animal welfare charities or rescues that perform the mission.

    1. Yves Smith Post author

      Those ads are a pet peeve (pun intended) of my 92 year old mother. Those ads apparently show only “before” animals, never ones they’ve helped….perhaps consistent with the notion that they’ve actually made no promise to do anything?

      1. Ping

        With qualified donation, they do promise to send you a tee shirt so you can advertise your support.

        A verified list of puppy mills they shut down and violators charged rather than just photographing those conditions for funds would be far more legitimate.

  6. Glen

    I work at a major multinational corporation which is constantly urging me to donate food, donate backpacks and school supplies, donate time, donate this/that. After a while you realize that it’s the rich telling the poors to help all those poors.

    TAX THE RICH AND CORPORATIONS. Make American Great Again back to 90% tax rates!

    1. Susan the other

      I think I’m echoing Richard Murphy when I agree with you. Just tax them. Tax all their excess wealth away. Maybe like Schumer implies, we should withhold the “charitable” designation for tax exemption until the funds have actually been given away to a charitable cause. Proof of payment.

  7. Sound of the Suburbs

    The USP of neoclassical economics – It concentrates wealth.
    Let’s use it for globalisation.

    Mariner Eccles, FED chair 1934 – 48, observed what the capital accumulation of neoclassical economics did to the US economy in the 1920s.
    “a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion of currently produced wealth. This served then as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied themselves the kind of effective demand for their products which would justify reinvestment of the capital accumulation in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped”

    The problem:
    Wealth concentrates until the system collapses.

    1. Sound of the Suburbs

      Wrap it in a new ideology and no will notice its dodgy, old 1920s economics.

      I helped the globalists out as they couldn’t think how to get this dodgy old economics back into the mainstream.

      I’ll do anything for money.

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