I have been following Lucy Bernholz, a self-described philanthropy wonk, for ages it seems. She writes the blog Philanthropy 2173 and is a senior researcher at Stanford’s Center on Philanthropy and Civic Society. When I saw an interview with the AP about a how philanthropy isn’t all about money, I took a closer look.
And before I get into my post proper, if you are interested in hearing more, she is participating in a Zoom conversation on the topic on November 4 @4pm ET
Basically she says that there is more to philanthropy than giving money, though you wouldn’t know it from the way the news outlets and most non-profits focus on what billionaires are doing with their money. Or for that matter, the round up requests you get when you buy your groceries. The result is that our understanding of non-monetary methods of philanthropy are pretty much stifled. Alternatives aren’t just volunteering and donating blood and organs. It can be donating genetic material for disease research or giving photographs to organizations which document historical events like the Japanese internment during World War II.
When Bernholz was asked about how tax law has impacted philanthropy, she gave the following response:
A: It never came up in our conversations. Only when we brought it up. What’s fascinating about that is only 8% of Americans bother to take the charitable tax deduction on their tax return. Now, tax policy is pretty much the only policy idea the philanthropy industry has any interest in. They’re serving 8% of the population. And I know that 8% is not Mark Zuckerberg. It’s not Pierre Omidyar. It’s not Laurene Powell Jobs. They’ve all said: “We don’t care about the tax benefit. We’re gonna do an LLC, because that gives us more control and more anonymity.” So there’s some 8% who care. In poker, they’d call that a tell. If and until the nonprofit and philanthropic industries start advocating for really rich people to pay their taxes, I think the view of that whole industry as a wealth preservation mechanism is quite justified.
It was surprising to learn that only 8% of Americans take the deduction. Gallup polling has shown about 80% of Americans donated every year pre-Covid. Granted, not everyone may donate to a level at which it makes sense to claim the deduction, but surely more than 8% donate above that threshold.
We frequently hear that the U.S. government subsidizes non-profits by allowing that deduction, but it appears the subsidy isn’t as great as we may think if so few claim the deduction.
Bernholz mentions that many wealthy people have eschewed tax deduction and formed LLCs to distribute funds to maintain tight control. But there is also increased prevalence of donor advised funds (DAF) which do provide a deduction without any mandate to distribute the funds to charities, and therefore an heightened level of control as well. If you consider that a portion of that 8% claiming deductions may have never reached a charity because it is parked in a DAF that hasn’t distributed, the government is subsidizing non-profits even less than we might imagine.