Debating The Givers: Do the Rules Around Philanthropy and Advocacy Need to Change?

Editor's NoteThe Givers: Wealth, Power, and Philanthropy in a New Gilded Age continues to generate discussion and also draw criticism. Here, Natalie Ossenfort and I engage in a dialogue about one of the book's proposals. Ossenfort is the Texas Director at Alliance for Justice, where she works with the organization’s Bolder Advocacy program to demystify advocacy rules for nonprofit organizations. See my earlier exchange with Sean Parnell, director of public policy for the Philanthropy Roundtable. 

Clipping Big Donors’ Wings Could Do More Harm than Good

Natalie Ossenfort

With President Trump bent on slashing scores of federal programs and billions of dollars from the budget, a new golden era for private philanthropy is about to dawn. In fact, the phenomenon is already apparent; problems created by government shortfalls are now being tackled by wealthy donors and foundations, seeking to promote innovative solutions to societal issues. Although these high-wealth donors cannot (and should not) serve as a replacement for government accountability, they provide critical resources to support organizations seeking to positively impact public policy.

But with the public applause for these efforts has come concern. Few have been as vocal about this development as the editor of this publication, David Callahan, who has raised the alarm that this new philanthropy is disproportionately amplifying the voices of the wealthy over those of average Americans.  We need clear-eyed critics like Callahan and others to force us to confront this uncomfortable fact, because the truth is that high-wealth donors do wield a tremendous amount of influence when they select which organizations should be the beneficiaries of their financial support.  But we must guard against going too far in response.

Callahan has suggested that to level the playing field, we should consider imposing limits on giving to nonprofits that work on policy issues and narrow the range of groups that qualify for tax-deductible gifts.  If donations to candidates aren’t tax-deductible, he maintains, then why should gifts to 501(c)(3) public charities that lobby for policy change be treated any differently? And why shouldn’t 501(c)(3)s that engage in policy advocacy be reclassified as 501(c)(4)s?

While these are valid questions, such changes would be most unfortunate. They could lead to the unintended consequence of chilling the participation of everyday people, who look to nonprofits as a mechanism to amplify their impact and influence public policy.  They are also unnecessary, since federal tax law already distinguishes between 501(c)(3) public charities, 501(c)(3) private foundations and 501(c)(4)s, each of which has very specific limitations on how much and what types of advocacy they may conduct.

Public charities, in particular, offer one of the best ways for everyday Americans to make their voices heard. They provide critical services in response to systemic problems and are given the flexibility to promote policy reforms that are directly responsive to community needs. They conduct innovative research that is used to fashion solutions to challenging problems. While they are subject to lobbying limits under the tax code, they offer individuals the opportunity to engage by volunteering, organizing and making tax deductible contributions. 

"But what about government?" you might ask—can’t everyday people express themselves in the voting booth instead of through nonprofit groups?  Yes, but voter turnout is down to an abysmal low, and elections only take place every two to four years for elected positions.

Meanwhile, charitable nonprofit organizations operate year-in, year-out, providing endless opportunities for people to express concerns and have their voices aggregated with others to make a bigger impact. These are the same nonprofits that give a voice to the members of our communities who may not have the financial resources to make substantial monetary donations, but who do have the time, passion and energy to speak up against inequality and injustice. These organizations provide a hub for community engagement and are effective at mobilizing citizens who crave reform and a voice in the political system, and whose individual voices are amplified by coming together for a common cause.

Also, while Callahan’s concern that wealthy donors are using philanthropy to influence public policy may be justified, it’s not a reason to shut down avenues of funding to nonprofits: It is certainly better for wealthy donors to give money to organizations that know firsthand the needs of their communities than to tip the balance away from community-based nonprofits and toward wealthy donors attempting to solve problems on their own by spending money single-handedly.  Putting additional limits on the gifts that public charities can receive or the work they can do would only succeed in starving the “real” experts on the ground of resources, leaving that wealth in the hands of individuals who may or may not know how best to spend them to help communities.   

As for the fear that government will be deprived of its rightful role, many nonprofits themselves have no desire to see government diminished. Because of their close connection with the communities they serve, many 501(c)(3) nonprofits have led the charge in ensuring that government is adequately addressing the needs of their constituents. Take, for example, the Mixteco/Indigena Community Organizing Project (MICOP), which recently organized indigenous farmworkers in a successful bid to secure a $200,000 Farmworker Resource Program in Ventura County, California. Or the Tahirih Justice Center (TJC), which stood up for the passage of a bill, signed by Governor Cuomo, that raises the age of consent for marriage in New York, protecting children from forced marriage arrangements.

As 501(c)(3) public charities, organizations like MICOP and TJC are already limited in the amount of legislative advocacy they are allowed to conduct, and any grants given to these organizations that are earmarked for lobbying are already ineligible for a tax deduction. Despite these facts, the tax code permits 501(c)(3) public charities to engage in some policy advocacy so that they can improve our communities and speak up when systems fail. By working hand-in-hand with their constituents to identify shortcomings in the law and suggest policy changes, they provide a voice to the voiceless in the policy arena.

So while it is certainly true that philanthropists like Mark Zuckerberg, Laura and John Arnold and George Soros have a unique ability to utilize their resources to encourage certain types of reform, it is also true that we need charitable organizations to ensure that our voices are not lost in a system of government that will continue to churn out new legislation with or without our input. This cannot be achieved by stifling the ability of 501(c)(3) public charities to embrace public policy or by discouraging donations to these organizations. Instead of limiting the ability of public charities to engage in policy advocacy, we should encourage foundations and other funders to support charitable organizations that work directly with the communities they serve.

At a time when government is mired in divisiveness and financial deficits, we need these groups to stand up and ensure that the voices of marginalized communities are heard. And private foundations and donors, who understand the integral role nonprofits play in the promotion of positive legislative change, are indispensable to this work.


We Need to Confront Donor Dominance of Civil Society and Its Negative Effects

David Callahan

I appreciate Natalie Ossenfort weighing in on the ideas I’ve expressed in my book, The Givers, and here in Inside Philanthropy.

Natalie and I both share the goal of wanting to live in a society where all voices can be heard. Both of us are especially keen to ensure that low-income communities and historically marginalized groups get a fair hearing in the corridors of power. 

Where we have some differences is on the role that philanthropy and the nonprofit sector play in advancing civic equality—and what charitable rules should look like. Natalie offers up a view of civil society and democracy that strikes me as right in some ways, but dated and nostalgic in other respects.

As someone who spent much of my career working in the progressive policy world, I share the view that nonprofit advocacy—backed by philanthropy—can be a powerful way for marginalized voices to be heard. There’s no shortage of examples of this, going back well over a century to the Abolitionist movement, if not before. The success of a funder-backed LGBTQ movement is just the latest success story in this regard, and, as Natalie shares, there are are plenty more localized stories of nonprofits working to empower those who don’t have power.  

For a long time, it never occurred to me that anything was wrong with the way that private wealth holders bankrolled civil society groups to influence public policy. I was deeply enmeshed in this myself for years, on the grantee side of the fence, as the co-founder of a progressive think tank.  

But my views have shifted.

After years of writing about growing inequality in the U.S., I developed a stronger appreciation of how economic inequities have translated into inequalities in political and civic life. It’s not a complicated story, really. An ever-larger and wealthier far upper class has become increasingly adept at using its financial resources to influence elections, public policy, community life, education at all levels, the media, arts and science, and more. As a result, the views of the wealthy have become increasingly amplified in public life, while ordinary Americans have found themselves sidelined.  

Many people are familiar with a key part of this story—namely, the growing dominance of money over electoral campaigns and the rising sway of lobbyists at every level of government.

What I came to realize is just how much philanthropy and civil society are also part of the story. Since the 1970s, a vast infrastructure of nonprofit policy and advocacy organizations has emerged that is mainly funded by philanthropic wealth holders—as opposed to ordinary citizens.

This represents a sea change in the nature of U.S. civil society. Whereas membership organizations used to be the most powerful civil society players when it came to public policy—channeling the views of everyday people in the way Natalie suggests—now, leading think tanks and advocacy groups tend to be the most powerful nonprofit players. Only a slim minority of these groups have big membership rolls or can be said to speak for large numbers of people. Most are sustained entirely by wealthy donors and foundations.

While some argue that all voices are heard in this new philanthropy-fueled nonprofit sector, I don’t think that’s true. It’s naive to imagine that the donors and foundation executives increasingly deciding which views are amplified in civil society are representative of the public at large. They’re not.   

The distortion of civil society and its negative effects is likely to get worse in coming years. Data on philanthropic giving shows that ordinary people are giving less to nonprofit groups while wealthy people are giving more, trends which mirror inequities in household income. Increasingly, the fundraising efforts of the sector revolve around cultivating rich donors and keeping them happy. Meanwhile, as government declines, nonprofits are coming to wield more influence in society—and over public policy.  

In an earlier time, when nonprofits mainly spoke for ordinary people, it made a lot of sense to ensure these groups could engage in a certain amount of of direct policy advocacy and lobbying. It still can make sense today, for the reasons that Natalie lays out. We do want broad-based civil society groups to be heard in the corridors of power.  

But we also have to confront the fact that a great many nonprofits seeking influence today are not such organizations. Instead, they serve as conduits through which wealthy donors and unaccountable foundation executives work to shape public policy outcomes. Philanthropy has become weaponized in new ways for political combat. Indeed, charitable tax-deductible giving can often be a more effective way to influence what government does than donations to candidates or super PACs.  

Anyone worried about the sway of money over politics in our second Gilded Age can’t ignore the growing role that philanthropy plays, here.  

It’s hard to know what to do about the politicization of philanthropy and the broader distortions of civil society by economic inequality. I’ve suggested that we should look to the democracy reform movement for guidance, and especially its efforts on campaign finance. That movement has sought to limit the clout of wealth holders while incentivizing more participation by ordinary citizens. Many proposals have been offered that seek similar outcomes in the charitable sector.

My own suggestion—to reclassify certain 501(c)(3)s as 501(c)(4)s—doesn’t seek to muffle the advocacy voice of nonprofits with broad membership bases or community support. Rather, I’m looking to discourage the flow of tax-deductible dollars into the growing universe of top-down policy and advocacy groups that seek to influence government and are almost entirely bankrolled by wealth holders. 

I don’t pretend that my ideas are easily implemented. And like Natalie, I’m worried about the unintended consequences of efforts to regulate philanthropy and the nonprofit sector. But I think these risks are worth taking, if we can figure out key details, since the negative consequences of today’s laissez-faire regulatory regime are now so apparent.

While it’s a longer discussion, I believe that low-income Americans and marginalized communities have been the net losers under this status quo. Advocates for social justice and greater equity scored much greater successes before the nonprofit sector was hijacked by organized philanthropy a few decades ago. Looking ahead, they stand to lose even more under lax rules as ever more wealthy people turn to philanthropy in ways that are likely to fortify upper-class dominance over U.S. society.  

Maybe I don’t have the right solutions to this challenge. But it’s not one that we can ignore. It’s especially important that progressives look past their current addiction to philanthropic dollars to grapple with the issue. It's progressives, after all, who historically have cared the most about civic equality and the corrosive effects of money in politics.