Philanthropy Can't Solve All Our Problems

And it might be making them worse.

I’m not sure that philanthropy is up for the challenges facing the world today. And it’s not just the climate crisis. It’s income inequality and racial justice. It’s automation dislocating massive swaths of the working population. It’s the erosion of civil discourse, the rural broadband divide, crumbling national infrastructure, homelessness, poverty, food insecurity, education access, and on and on and on.

For two decades I worked tirelessly to encourage the wealthy to be generous. To support organizations that I represented as generously as they were able to. And I think I did OK. But I also became more dismayed at how the wealthiest donors relentlessly pursued more wealth, more advantages for their families through mechanisms like legacy admissions practices, complicated tax-dodging trust provisions for their children and heirs, and access to invest in seed-stage companies coming out of major research universities.

This relentless pursuit of wealth has me convinced that fundraising professionals will never convince the world’s wealthiest individuals to empty their wallets, or their foundation, or their DAF to support global action on the existential issues listed above. What’s more disheartening is that the pace at which these individuals are accumulating wealth far outstrips the non-profit industry’s ability to administer any massive inflow of resources.

In fact, I am convinced that the philanthropy industry is an unspoken failure. We started out as a way for wealthy individuals to act charitably, to support our brothers, sisters, and allies. But because we opted to shield these donations from taxation, we created a monster: of family foundations and family offices, of titanic donations directed to donors’ most favored Institutions, and mega-foundations like Gates, MacArthur, Ford. These massive foundation fortunes and donations will not be taxed for the public benefit, rather they are being siphoned off into pet projects or institutions, favored by the nonprofit children of wealthy benefactors, and not recycled into the system that made these fortunes possible. The Philanthropy industry also birthed the abhorrent Donor Advised Fund, a cynical asset class producing fees for money managers from assets already donated. We tacitly support our national system of hardwired wealth - the US Trust and Estate system - where family fortunes are engineered to bypass as many state and federal tax laws as possible.

We even gave it a catchy name, “Planned Giving”. Even though in many ways it exists so future generations can maintain their status, wealth, and power. And on and on.

After dedicating my life and my career to encouraging generosity, I have concluded that we would all be better off with the convening and resource allocation engine of the federal government, who through our state and national Treasuries can tap into financial market resources, and do things like levy appropriate taxes on carbon to account for its destructive externalities and raise revenues to mitigate its century-old effects, reform a broken tax system to level the playing field for the most vulnerable, pay teachers, police, social workers, health care workers, elder care workers, and construction workers a living wage, and create a nationally secure election system to cement the nation’s faith in our democratic system?

It is my belief that the philanthropy industry has been a conscripted, unwitting partner in the hollowing out of our national capacity to support all Americans. We aid and abet a system that helps wealthy benefactors systematically avoid taxation by the federal and local governments.  And the consequences of a system of tax-advantaged philanthropy are real.  It’s kept many trillions of dollars away from public goods - roads, bridges, education infrastructure, social services, affordable housing, food security. It’s hidden these assets from taxation by parking them in ballooning endowments at universities and philanthropies, creating more fee-producing assets for the finance industry.  

Worse, the process of allocating these resources already makes tackling big issues almost impossible.  Boards of mostly white and privileged scions of wealth decide where, when and how much charitable support to provide to institutions. This is not an efficient or rational allocation of capital, rather it’s nepotistic and self-dealing. Sometimes these institutions or individuals are influenced by outstanding and persistent fundraising professionals or peer pressure, further distorting the capital allocation function.  It’s why Harvard raises $1B a year, every year.  It’s also why the soup kitchens and homeless shelters are broke.

Some people will say “but wait, the United States is the most generous nation on earth in terms of total donations.”  But yet we still donate less than 2% of the total US GDP.  In terms of funds detected to the common good, which might be a better example of true generosity, take Sweden, whose top personal tax rate of 57.2 percent applies to all income over 1.5 times the average national income.  

In comparison, the United States levies its top personal income tax rate of 43.7 percent (federal and state combined) at 9.2 times the average U.S. income (at around $500,000).  

We need a massive, coordinated effort to confront and overcome existential threats to our nation and our world.  Climate change threatens our coasts and natural ecosystems and has the potential to wipe out arable land producing food for billions - yes, billions - of people.  The prospect of 1B displaced and starving people looking for new lives will make the recent Haitian migrant crisis look like a bake sale. Voter roll purges hollow out truly democratic nations, and we’re seeing it now from the right, and misinformation campaigns fueled by social media will make future insurrections like the one experienced on January 6 look positively pedestrian.  And on and on.

But the reality is that we have helped wealthy people lower or avoid taxation through philanthropic and trust planning, lower-income, and estate taxes, the lack of a wealth tax, and a slashing of the corporate income tax.  Family offices are set up as fee-generating platforms for wealthy sons and daughters who “invest” family assets in tax-advantaged ways, further distorting wealth and further avoiding tax.  This system is profoundly ill-equipped to decarbonize a $5T (yes, TRILLION) annual global energy system in time to make a difference for climate change - let alone raise educational standards, address social equity, and reform our voting systems.  

In sum, we face multiple addictions: carbon, low taxes, wealth, and power.  It’s time we acknowledge these conditions and make some hard choices.  That might start with a philanthropic moonshot.  But in my mind it actually starts by curing our addiction to carbon through a carbon tax, eliminating the charitable tax deduction and implementing a much more progressive system of national taxation, a reform of our trust and estate system, and an acknowledgment that the system of private philanthropy we've built over the last century may be exacerbating these issues by reducing the taxable asset base of wealthy persons.

Let’s start a conversation about what good can come from rebuilding our national capacity through honest conversations about tax fairness, trust, and philanthropic reform.