The heir, author, and researcher talks to Craig Kennedy and Michael E. Hartmann about philanthropy in America, including its “top-heaviness,” what could perhaps be done about it, and whether any charitable reform might be able to attract cross-ideological support.
In 1983, when Chuck Collins was 23, he attended a conference for people with inherited wealth that was co-sponsored by a local family office and private foundation. The grandson of Oscar Mayer was going to inherit a substantial amount of money upon turning 25, as he tells it in his book The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions, and he was “finally coming to terms with this reality.”
As Collins went on to fully assess the reality of the world of wealth, including what it does in and through philanthropy, he gave all the money away instead. He now directs the Program on Inequality and the Common Good at the liberal Institute for Policy Studies (IPS) in Washington, D.C., and co-edits Inequality.org.
He is the author of several books, including 2003’s Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes, written with Bill Gates, Sr.; 2016’s Born on Third Base: A One Percenter Makes the Case for Tackling Inequality, Bringing Wealth Home, and Committing to the Common Good; and last year’s The Wealth Hoarders, which is reviewed here.
Collins’ recent work for IPS, which also has a Charity Reform Initiative, includes co-authoring Gilded Giving 2022: How Wealth Inequality Distorts Philanthropy and Imperils Democracy with Helen Flannery.
Collins was kind enough to join us for a conversation last week. In the first part of our discussion, an edited transcript of which is here, we talk about the “Wealth Defense Industry,” the degree to which philanthropy is used and charity is abused by the wealthy, and what could perhaps be done about it.
In the second part, an edited transcript of which is below, the winsome Collins talks more about philanthropy in America, including its “top-heaviness,” what could perhaps be done about that, and whether any charitable reform might be able to attract cross-ideological support.
Hartmann: We’ll continue with Part 2 of our conversation with Chuck Collins, Craig Kennedy and I will. As we finished with Part 1, we were moving from references to some of the larger private foundations to talk a little bit about donor-advised funds (DAFs), what they do and how they do it, and what could perhaps be done to prevent what some might consider to be abuses. Chuck, if you could pick up where we left off on the discussion of DAFs there.
Collins: What’s interesting is donor-advised funds are the fastest-growing recipient of charitable dollars and the largest recipients of charitable dollars. These large, commercial donor-advised funds are sitting on tens of billions of dollars of charitable gifts. Their donors have gotten deductions as they put the money in, but there’s no payout requirements.
The problem is a design flaw—that’s a nice way to put it—that you get a tax break at the front end and you don’t have an incentive to pay it out. So let’s turn the dials and just say the money needs to be paid out in a timely way. That’s one big reform.
I would also make the case for some transparency—meaning that, again, these are our tax dollars at work. We should know where they’re going. This is not a “dark-money” situation where you get to give to a group and not have some public oversight or accountability. I would say that DAFs should be a little more transparent about how they’re giving. Some of the games are being played because DAFs are public foundations, so they can receive donations of complex assets. This is where that Wealth Defense Industry gets involved, the tax attorneys and the people who playing shell games with their money will use DAFs as a way to receive, and transfer complex assets—cryptocurrencies and, you know, your overvalued condo in Puerto Rico. All these things get dumped into these DAFs and they get huge deductions, and then the money’s just sort of sitting there.
Kennedy: How did this design flaw happen? I mean, it’s sort of weird that you’d allow people to give unlimited amounts of money, get massive tax breaks, and there is no requirement that the money be paid out. How did that happen?
Collins: The earlier ones were at community foundations. The whole idea was, in addition to giving money to the United Way or the Chicago Community Trust, you had an individual giving account. I think everybody thought a donor-advised fund would be like a revolving door. Your people are going to put their money in, they’re going to get their tax incentive, and then it’s going to revolve out. But then the architects, the Wealth Defense Industry, sort of got their talons into it and said this is another mechanism to hold on to power and wealth, and not pay taxes—and, oh, and you can use it to give to some good works, or some self-dealing work.
I think it was a design flaw that no one anticipated in 1969. Now, we have the Council on Foundations, we have the association of community foundations, these are the defenders of the status quo. Just like any association, whether it’s dentists or doctors or whatever, they’re all like, We know better, leave us alone. Don’t tell us what to do. That’s what we’re up against. You’ve got an entrenched sector that defends the way things are.
Hartmann: Chuck, are your arguments well-received or do you think they should be more well-received among conservatives? Maybe they would be populist conservatives, I don’t know. There’s criticism of philanthropy on both the right and the left.
Collins: I think it’s both a conservative and a broad principle that we have this vibrant, non-governmental, private sector—that a lot of important work happens in our society in that, and it should be broadly supported. We shouldn’t have institutions that get tax incentives to just sort of warehouse treasure in that way. I think there’s a bunch of points of our agenda, and that’s what would be fun to figure out, where we can we work together, lean on the wheel here, and where we can’t. But I think this whole idea that we, as a society, reduce some people’s taxes in order to make good civic work happen—that’s a pretty broad, American principle. Then how do we do that?
I appreciate how our poll shows common sense: you get a tax break, you give up “dominion and control.” A lot of what we see, all these games that people are playing, looks like maintaining control over wealth for generations. Think about a fourth-generation family foundation that is still entirely controlled by family members.
As for the huge amounts of treasure, I feel the same way about George Soros and the Koch brothers. It’s concentrated wealth and power that we’re subsidizing through the tax code and giving them privileged, private power.
Kennedy: What I think is so ironic is, if you look at the 50 largest foundations, I think you’d have to judge most of them as being liberal. Yet, for the most part, they’re often the quickest to come up with the arguments that there shouldn’t be increased payout requirements or there shouldn’t be restrictions on the creation of foundations in general, because the money would just go to the government. I mean, it’s sort of strange that good liberals believe that spending money privately is better than through the government.
Collins: During the first year of the pandemic, we proposed this idea of an emergency charity stimulus, right? Okay, we’re having a national emergency, the nonprofit sector is reeling. Let’s have a three-year increase in payout. Pay out 10% for three years, temporary. You would think the sky was falling.
Now, the good news was we probably had 500 donors and foundation leaders sign on to that proposal, so it’s not at all a monolithic group. There are plenty of foundations who are giving while living, who accelerated their payout, because both the returns were high and they saw the need.
But there’s still a lot of foundations who literally calibrate their grantmaking to treat the five-percent minimum as a ceiling. That’s because the finance people are dominating. Don’t touch the principal. I think that’s what holds us back.
Kennedy: You talk about the whole sector becoming top-heavy. Why don’t we move on to that?
Collins: We’ve been tracking this for about 10 years. It’s a troubling trend, which is giving by low- and middle-income people has been steadily going down. Almost all the growth in philanthropy—every year, Giving USA reports X hundreds of billions of dollars given to charity—most of that growth is because wealthy donors are giving more. So the nonprofit sector is spending more money trying to raise money from mega-wealthy donors and not walk on as many legs. We want our independent sector—whether it’s a university, or the Boys and Girls Club, or whatever—to walk on many legs, to have lots of small donors and maybe have a few generous big donors, a healthy mix.
When I first did fundraising, there was the 80/20 rule—you raise 80% of your money from 20% of your donors. Now it’s like the 99/1 rule. You’re raising 99% of your money from one percent of your donors. That begins to warp your mission. It begins to mean that you’re not investing in reaching a broader group of donors and that philanthropy becomes more of elitist than ever.
Kennedy: It also affects the governance of many of these institutions. There was a time where, say, in Chicago, the lyric opera or the symphony or the University of Chicago all had, I won’t call it a diverse group of people on their boards, but there wasn’t a sense that you had to be wealthy to be part of it. Now, most of them exclude anyone that can’t give a million dollars a year or some very large amount of money and that’s got to change the sensibility of these institutions.
Collins: It does, and it changes the sense of what priorities are, what strategies we as a society should pursue to solve problems, even define what are the problems. I think it leads to mission drift. Think about it. Put yourself in the seat of a head of a nonprofit or a college president, and you have only three major donors, and you want to meet them on a day when they don’t have indigestion. That’s a lot of power in one donor. I think one principle we could all agree on is broad support, broadly diversified. Is there anything we can do to create incentives for smaller donors to get back into being able to give charitable money?
Giving is what makes our society work. Generally, we are a generous people. We give when we see needs. A lot of people give without any tax consideration, right? At my general store here in Vermont, there’s always the jar. Somebody’s having an operation and needs money. It’s like the GoFundMe, the old GoFundMe is the jar at the store for somebody who needs surgery and people just put their money in. Nobody’s keeping their receipt to get a tax break. You want to basically say everybody should have an opportunity to give.
Kennedy: I always think that my model of good philanthropy goes back to when I was a kid in South Dakota. My dad and some of the men in the local area decided the town needed a swimming pool and they raised, with $50 contributions from about 500 people, enough money to actually do the work. They donated a lot of stuff, but there was no sense that you could go to a Gates or some other place and get the money to pay for it. It really came from local efforts. I used to see this a lot with the community organizations that the Joyce Foundation supported in Chicago. Often, we were 10% of their budget and the rest came from local churches and local fundraisers that they would do to support the work.
Collins: It’s one of the places where we don’t all agree, but while I think philanthropy is important, I don’t think it’s a substitute for a working tax system, in which wealthy people pay their fair share. So to build that local swimming pool, the taxpayers in the town could also get together and vote at the town meeting to put in a swimming pool.
We tax ourselves, we invest. What’s beautiful, I think, about our system is you can have a healthy, robust government—local, state, federal—and you can have this vibrant, independent sector, and look at the two of them. But right now, the rich are opting out of paying their taxes through giving huge amounts to charity, which is private. It’s their privately controlled power and influence. Whereas I would like to say, Look, you can’t build an infrastructure in this country with charitable foundations. When was the last time a foundation gave money for a bus line, you know? I want to protect the integrity of the tax system and have a robust independent sector.
Kennedy: Well, if it makes you feel better, the town pays for the swimming pool.
Does the politicization of charitable giving worry you? I mean, you see somebody like Soros and you may agree with his approach, but he goes out and pushes the idea of a certain kind of district attorney, certain kind of justice system, with huge amounts of money. You look at the role foundations played in the last election, often through legal vehicles, that nonetheless, impinge on the electoral process. You look at lobbying—some issues that I’m sure you agree with that I don’t, and vice versa—but isn’t that also a problem of this kind of top-heaviness in philanthropy?
Collins: In a way, it kind of looks like the ultra-wealthy of the left and the ultra-wealthy on the right are kind of duking it out and leaving the rest of us out of the conversation. We start to lose trust. You can see that on the left and the right.
We could probably all agree on transparency. You can’t give to certain things without attaching responsibility and identity to that. Or, just draw the line: there are certain kinds of organizations that if you want to support them, you can always give money outside the tax-incentive system.
People are finding ways, both on the right and the left, to channel money to things that polarize. I think we should have a little de-escalation on the money fueling some of these partisan divides. I think we’d be better off without that. There’s so much other meaningful work that needs to be supported.
Hartmann: Thank you so much for doing this with us, Chuck. We really very much appreciate it.