When billionaires like Bill Gates give away 'virtually all' their wealth, where does it go?
Microsoft co-founder Bill Gates said last month he plans to donate "virtually all" of his fortune to his and ex-wife's philanthropic organization, the Bill and Melinda Gates Foundation. The pledge, he said, will remove him from the list of the world's richest.
The country's top donors gave more than $33.4 billion in 2021, according to the Chronicle of Philanthropy, and Forbes estimates that the country's top 25 donors gave $169 billion over their lifetime. But when the super-rich give, where do those billions go?
Most donations from major donors went to private foundations last year, according to the Institute for Policy Studies analysis of the 50 largest donors in 2021. And the second largest portion went to donor-recommended funds.
Private foundations are required to give away 5% of their endowment annually, while donor-recommended funds have no mandatory payout. One criticism of donor-recommended funds is that the money can sit there for years before it's used, although that's not usually the case, said David Campbell, a professor of public administration at Binghamton University.
Gates pledged last month to allocate $20 billion to his foundation's endowment, with a goal of enabling the organization to spend $9 billion a year by 2026.
"The funds will allow the foundation to deepen and accelerate existing programs and provide operational flexibility," the foundation said in an email. "The pandemic has proven that progress is fragile, and our ability to allocate additional resources will increase the reach and impact of our programs."
But Chuck Collins, director of the Charity Reform Project at the Institute for Policy Studies, said donations to private foundations and donor-recommended funds remain under the control of the donor and come with generous tax benefits.
"Bill Gates says he's going to donate $20 billion, but his intention is to pay it back quickly and not have it in his foundation forever," Collins said. “But usually people think of foundations as a kind of multi-generational affair. ... Essentially, wealthy people are choosing not to pay their taxes, cutting their taxes and creating an intermediary that they continue to control.”
Philanthropist and author MacKenzie Scott has distinguished herself from her peers by donating money directly to charities without strings attached. Since she committed to giving away most of her wealth in 2019, she has donated an estimated $12 billion to more than 1,200 charities.
Scott is among billionaires who have joined the Giving Pledge, an initiative created by Gates, French Gates and Warren Buffett to encourage ultra-wealthy people to donate most of their wealth to charity. As of December, 231 philanthropists from 28 countries have signed the pledge.
Tax benefits for the super rich
Critics of billionaires' preferred method of giving argue that the tax system subsidizes ultra-wealthy donors relative to the rest of the population, Campbell said.
"Wealthy individuals of all kinds get a significant tax benefit on their donations, and it's a tax benefit that most Americans don't get," Campbell said. "You only get that tax benefit if you itemize your taxes, and you can deduct any contribution you make if your contribution is above the minimum, the standard deduction, and thus essentially billionaires who are taxed the highest in tax." Code will be able to deduct their contributions at that level.”
But Phil Buchanan, president of the Center for Effective Philanthropy, said many criticisms of the tax system are confused with criticisms of philanthropy.
For example, Buffett, a business tycoon and philanthropist, once said he pays a lower tax rate than his secretary. But the problems with the tax system are separate government failures from philanthropy, Buchanan said.
"The question then becomes, 'Okay, what do we want from ultra-rich people?'" Buchanan said. “They can spend even more money on yachts and houses, they can just pass their wealth on to themselves, to their children and grandchildren, or they can try to do something to make an impact on society and make it fairer and fairer to shape the world."
Buchanan said that setting up a foundation can be a prudent way for multi-billionaires to donate because of the large amounts of money they donate.
"I don't think everyone should start a foundation," said Buchanan, author of Giving Done Right: Effective Philanthropy and Making Every Dollar Count. starting a foundation and realizing that it will take time to give your resources away to grow them in an effective way.”
Since 1994, the Bill and Melinda Gates Foundation and previous Gates family foundations have provided $65.6 billion to support various causes, including fighting malaria and coronavirus, according to the organization's website.
"We believe that people in positions of great wealth and privilege have an obligation to give back their resources to society in ways that have the greatest impact on reducing suffering and improving lives," the foundation said. "We hope that others will also step up at this moment and accelerate their giving."
The foundation said it will expend all of its resources within 20 years of the deaths of Gates and Melinda French Gates.
Buchanan noted that very wealthy donors and foundations have played a huge role in bringing about change, from supporting vaccine development to funding organizations that are pillars in their communities.
But one of the biggest mistakes big donors and foundations make, he said, "is thinking they know more about how to solve some of the toughest problems than they actually do."
"The problems that philanthropy often tries to solve are, by definition, the most difficult problems," Buchanan said. "But sometimes donors come in and say, 'Well, I made a million dollars on this app or this technological innovation, and I'm going to disrupt poverty just like I disrupted the taxi industry or something. It is not so easy."
Decline in donations from American households
Buchanan worries that "overly general" criticism that fails to distinguish between specific failures and philanthropy overall may be a factor in the decline in American household giving.
According to a report by the Institute for Policy Studies, donations from US households have steadily declined over the past few decades. From 2000 to 2018, the percentage of households donating to charity fell from 66% to under 50%.
One consequence of the decline in low- and middle-income donors is that the nonprofit sector is becoming more dependent on large donors, Collins said.
"If this trend continues, philanthropy will essentially become a taxpayer-subsidized form of private power and influence for the ultra-rich," Collins said.
For Campbell, the debate surrounding billionaire giving detracts from the discussion about the importance of giving regardless of income.
"What really interests me in the end is that I think the rest of us, regardless of what billionaires do, really need to make a point of just giving," Campbell said. “Giving counts. And that's why I don't want cynicism about billionaires leading the rest of us to think that giving isn't a good thing, because we can really make a difference if we're generous with our giving."
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This article originally appeared on USA TODAY: When billionaires donate: Like Gates, others send fortunes to charity
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