To Increase Trust in Philanthropy, We Have to Put a Stop to "Billionaire Shell Games"

Several years ago, my spouse told me about something both fascinating and sad that he observed while we were walking around St. James Park in London on vacation. There was a shell game on a walkway near one of the bridges over the River Thames that had attracted a pretty large crowd. And while punters placing bets on the shell game pretty much always lost, the real action was taking place among what appeared to be a small, quick group of pickpockets working the crowd, as onlookers were too busy paying attention to the whirring hands and changing money in front of them to notice where their own wallets were going.

I hadn’t thought of that in a long time, but it came roaring back to mind while reviewing the Institute for Policy Studies’ November “True Cost of Billionaire Philanthropy” report and in a discussion with Chuck Collins, one of the report’s authors and the director of IPS’ Program on Inequality and the Public Good. And it wasn’t just the fact that Collins directly used the term, both in a recent co-authored piece here at Inside Philanthropy with Helen Flannery, and during our conversation, that made me think of those London hucksters.

Instead, what keeps occurring to me is this: While most mainstream media coverage of philanthropy limits its attention to big splashes like the Giving Pledge, or the $500 million Press Forward Initiative, or even MacKenzie Scott’s relatively admirable billionaire giving project, when it comes to philanthropy as a whole, U.S. taxpayers are losing out at least two times over.

The majority of taxpayers lose the first time when the charitable tax deduction shifts dollars out of public coffers and toward programming that is determined by an increasingly concentrated number of private individuals. Tax policy that subsidizes philanthropy isn’t inherently a loss for taxpayers (depending on who you ask), under the rationale that it builds civil society and diversifies how money is spent on societal needs. But the U.S. tax code, combined with current high levels of inequality, heavily favor the wealthy and leave the vast majority of us with no say in where the money goes. We may not always agree with how our government spends our tax money, but we at least have the option of holding our elected representatives accountable at the ballot box. As much as many of us appreciate MacKenzie Scott, that same accountability simply does not apply.

As the IPS report emphasizes, we lose a second time when the real shell games take place, as the current tax code allow donors to shuffle funds around post-deduction, obscuring how dollars are being used and even keeping them from fulfilling the promise of public benefit. This happens most notably when taxpayer-subsidized money is used to pay wealthy heirs for their time spent on foundation boards or moved into donor-advised funds with no transparency or payout requirement.

We’re not talking about small change here. According to IPS’ Cost of Philanthropy Report, the U.S. Treasury loses at least $73.34 billion, and possibly hundreds of billions of dollars a year, because of tax subsidies provided to the roughly 10% of Americans whose income is high enough to itemize their deductions. Perhaps one reason that lower-income people are giving less is that they’re getting tired of making their donations twice: once with the gift itself, and a second time when their taxes help fund giving by the rich, including the questionable practices they sometimes employ.

I’m not arguing that people shouldn’t receive a tax break when they give to their local food bank or nonprofit promoting children’s literacy. But it’s hard not to argue that if we’re going to use private donations instead of tax dollars to fund certain public goods, everyone who gives should receive the same benefit. And while there are reasonable arguments in favor of subsidizing the 14% of charitable giving that goes to private foundations, there is little to no reason that we should keep supporting the 27% of those dollars that are going into DAFs, so long as DAFs are able to avoid the basic accountability rules set in place for foundations.

At the same time, I’ve come to believe that taxpayer support of private foundations needs to start coming with a lot more strings attached. Private philanthropy does a lot of good. I’ve enthusiastically and happily covered a lot of those good works. I wouldn’t have this job if private philanthropy didn’t exist, and I love this job. Even so, the 5% payout requirement is overdue for an increase, and it’s hard to justify taxpayers supporting the common practice among foundations of paying already-wealthy family members for their service — the Hilton Foundation, for example, pays $35,000 each to at least six of Hilton’s heirs who are members of its board. And when I read in IPS’ report that private foundations gave $2.6 billion to DAFs in 2021 alone, I was ready to ask for a refund of whatever portion of my own taxes helped make that possible.

We’ve covered a lot of the pros and cons of DAFs here at IP so I won’t go over that ground again. It is important to acknowledge many DAF donors quickly move a lot of money to charity, and even voluntarily disclose their gifts. DAF funds have been used in innovative, beneficial ways, and with proper regulation, they could be a powerful, important tool for the sector. But one thing my conversation with Collins brought to the foreground is that DAFs are currently built atop a fallacy that donors yield control of that money once they’ve written the check and deducted the amount from their taxes. As Collins said, DAF donors become “advisors,” and “of course, if a DAF sponsor didn't follow the donor’s advice, they would be out of business in about one minute.” A DAF donor can’t withdraw the money to buy their next Bugatti. But they still direct where it goes, if it goes anywhere.

The flashy activities of billionaire donors have long distracted us from the ways our current tax code impacts both our own wallets and the money available to solve our collective problems, but more people are paying attention to the ways in which the game is rigged. That, too, has its societal costs.

As Independent Sector reported in September, fewer Americans trust nonprofits to do the right thing. Only 34% trust philanthropy, a number that has held steady over the past year while distrust in philanthropy increased to 26%. I can’t help thinking that the 40% of people who didn’t yet have an opinion are like the crowd on that London bridge, with their eyes directed elsewhere while the pickpockets went to work.

In our conversation, Collins made the important point that there is a danger that calling out philanthropic abuses may end up tarnishing nonprofits in the minds of the public. With that in mind, Collins said that his goal is to keep the focus on the fact that the billionaires’ shell games are actually keeping money from going to nonprofits that are doing vitally important and vitally beneficial work. Back on London Bridge, my husband didn’t blame the people who were being fleeced, either by the shell game or by the pickpockets. When it comes to the shell games being played by some the philanthrosphere, it’s up to all of us to remind the general public that nonprofits and taxpayers alike are standing together on the same losing side.

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