Can We Be More Generous?

In recent years, I’ve heard a growing amount of criticism of philanthropy. I sense that much of this flak comes from the explosion of wealth inequality in our country, which has actually accelerated during the COVID-19 pandemic.

It’s certainly not a pretty picture to see American billionaires gaining $1 trillion (one trillion dollars!) in wealth just since mid-March, at the same time as hundreds of thousands of people were dying and tens of millions lined up at foodbanks or were left hanging on the extension of their unemployment benefits. Whether or not there’s anyone to “blame” for this situation, it certainly feels obscene to many.

The most significant way we address wealth inequality in America is via a progressive system of taxation. But philanthropy also plays a role, and it has since the earliest days of our country. America was formed with relatively weak central governments. Alexis de Tocqueville, in the early 19^th century, wrote that he found America uniquely blessed with countless “voluntary associations” that were a key to American culture and democracy. Philanthropy is an area of American innovation we can be proud of.

But where does American philanthropy stand today? In 2019, a record amount was donated here – $450 billion. But underneath that figure, there are some concerning trends. Though giving is growing among the wealthy, it is not elsewhere. The 2017 Tax Act increased the standard deduction and thus cut by more than half the percentage of tax filers who itemize, and thus who can benefit from the charitable tax incentives.  

And even among those who reduce their taxes with the charitable deduction, a significant portion of the funds they are donating aren’t reaching needy people today.  Instead, a lot of money is being warehoused, often long term, in donor-directed charitable vehicles like foundations and donor-advised funds. Foundations are only required to pay out a small amount of their assets each year, and there are no such regulatory restrictions on donor-advised funds.

Given that government loses out on revenue as donors put money in these charitable vehicles, we could seek to change the regulations so more funds get put to work immediately to benefit charitable causes. And indeed, calls for charitable reform are cropping up in the halls of Congress and in state houses. Whether any of this legislation will become law is anyone’s guess.

But outside of the world of government and tax regulations, I recently heard of an intriguing initiative that engages a different strategy for reform – social pressure. For many decades, Forbes Magazine has chronicled the richest Americans in its Forbes 400 issue. In recent years, the magazine has also tried to show who are the most charitable among the super-wealthy.

But up to this year, Forbes’ metric of generosity included a lot of money that didn’t go to working charities. Instead, much of these “charitable contributions” went into personal charitable vehicles (private foundations and donor advised funds). The total amount of warehoused charitable dollars – which are rewarded with valuable current tax deductions but do little societal good today – has been growing rapidly.

Beginning with this year’s Forbes 400, the magazine excluded such warehoused funds in their measurement of generosity. For those super-wealthy folks who want to be seen as among the most generous, they are now on notice that putting money into your foundation or donor-advised fund will not get you there. Instead, you need to give it away to nonprofit organizations now. Just warehousing charitable capital is doing nothing today to solve our significant and immediate societal needs.

The readers of the Forbes 400 will now be able to see who on the list has given away more than 20% of their wealth to on-the-ground charities helping people (like Warren Buffett and George Soros), 10-20% of their wealth (like Bill Gates and Michael Bloomberg) and who has given away less than 1% (time to step up, Jeff Bezos! You too, heirs to the Walmart fortune!). I hope these new “Philanthropy Scores” will help change the conversation about what it means to be charitable.

Though it’s easy to judge the super-rich, the reality is that many of the rest of us can afford to donate more than we do. There’s a large segment of America that has done well economically through the pandemic – with strong incomes, reduced expenses, and record asset valuations. This is a great moment for each of us to look at how much more we could donate before the end of 2020. The pandemic has many months to go, as it crushes lives and livelihoods in its wake.

What to do if you have the instinct to donate more, but you are not sure where? One way is to reach out to informed friends. A colleague emailed me last week to say she was considering a large year-end gift to the Foodbank organization here, and she wanted to know if they were well-run. I answered enthusiastically and told her our family just made a stretch year-end gift to that same organization.

Community foundations – like the Santa Barbara Foundation and the Fund for Santa Barbara – also provide philanthropic advisory services in their region. Jackie Carrera, CEO of the Santa Barbara Foundation, told me that a big part of the foundation’s mission is “to help people become informed and engaged philanthropists in our local communities.” Carrera says the Foundation works closely with donors to support their giving, “especially when they are new to the community, or are not familiar with the nonprofit sector in our community.”

The new kid on the block in terms of local philanthropic resources is The Giving List, just published by the Montecito Journal. I was blown away by the quality of this beautiful and well-written book that highlights the good works of many of our region’s most impactful nonprofit organizations. If you haven’t yet, spend some time leafing through it. Then if you have the capacity, act by making stretch year-end gifts to causes that inspire you – whether they are in the List or not.

In this moment of stress for nonprofits who are caring for our community during this unprecedented crisis, such gestures will be gratefully received.