Tuesday Apr 07

Money Matters: In this Gilded Age Foundations Look More Like a Lump of Coal

Private foundations and donor advised funds control billions and actually spend billions every year. The dirty secret is that they effectively provide tax haven benefits for the super wealthy by giving them market rate deductions for highly appreciated assets that if otherwise disposed would generate capital gains taxes. From a purely tax planning angle, they are a great way for the Mark Zuckerbergs of the world to effectively shield other “realized” gains from selling stock while still allowing the “masters of the universe” control over how charitable dollars are spent. Even when crypto currency success blessed some, they were able to donate their winnings and take big deductions to offset gains from selling other crypto, only to see their DAF accounts plunge months later as Silicon Valley Community Foundation found out several years ago. And, unlike frauds like Maddoff’s Ponzi scheme, there is no “claw back” for charitable deductions.

With all the rising awareness of inequality, and the creation of monstrously large fortunes (I mean how many generations will it take to spend a billion dollars, not to mention tens of billions??), and the related inflow of billions into foundations, what are we hearing from the sector? Any monumental social contributions like the “green revolution” of the ‘50s? Any foundation funded social movements like civil rights in the ‘60s? Any breakthrough technologies? Newsworthy human rights work? Remarkable models of poverty alleviation? How about impact on corporate malfeasance like Nader’s work? (Check out the new film, Dark Waters, by the way — brilliant!)

No, this is not a period where the field of philanthropy in which I spent most of my career has much to show for itself.

The two big stories in recent months are a good indicator of where we are. First, Trump’s personally controlled family foundation (though we have learned that most of the funds came from others) has been shut down by the NY State Attorney General. Money has been taken away, a litany of illegal practices admitted to, and the family members banned from involvements in other charities. The lying and cheating that gave rise to this most draconian of outcomes seems to have glanced off the impervious Trumpian facade that even evangelicals seem determined to uphold.

The other big story has an even more sordid protagonist — Jeffrey Epstein, the recently departed convicted sex offender who apparently used foundations as a means to rehabilitate his tattered reputation following his 2008 conviction for trafficking underage girls for his sick tastes. After he was found dead in his cell from an apparent suicide following his arrest this fall, it emerged that he had been vastly inflating, if not inventing out of whole cloth, the good works his foundation supposedly supported. He somehow managed to game Wikipedia by numerous false claims and a complete falsehood that he did hundreds of millions of grant making annually, just behind Mark Zuckerberg it would seem.

There you have it — philanthropy in this Gilded Age has devolved into a game among the super wealthy for who can best use this uniquely American invention for his personal aggrandizement….and not get caught, or at least not suffer any consequences. Oh, you might argue that Trump got caught, but did he? His reelection campaign got to use “deductible” dollars for his campaign and other personal uses and then had the remainder taken away. Supposing for a moment that he really is a billionaire, it hardly amounts to a hand slap.

As I’m out of the field these days, it’s a bit of a reach to comment on how foundation leaders are reacting to these cases, but the enduring experience is one of silence. One doesn’t hear from prominent executives nor from the big industry association, the Council of Foundations. This is not unusual, nor unexpected. Foundations run the other way when things emerge that might lead to increased government scrutiny or oversight. The last big governmental effort to rein in foundations was the 1969 Tax Reform Act, largely a reaction to the perceived overstepping by the Ford Foundation that harbored exiles from the Kennedy and Johnson administrations with fellowships, positions in the foundation itself, and the like. Southern politicians — still largely Democrats in that era — were unhappy with foundation support for the civil rights movement and were part of the consensus that arose to limit lobbying and policy work of charities. The 1969 Act did many things including establishing limits on advocacy, politicking, and self-dealing. And it fueled the subsequent evolution of Donor Advised Funds by giving community foundations advantages over private foundations.

One of the ironies of this history is that regulation was inspired to constrain the work of liberal and progressive groups who have largely learned to live with the limitations. But it has been the rightwing that has so effectively used charitable structures to reshape American society. The concentrated efforts of the Federalist Society, Heritage Foundation, Competitive Enterprise Institute, and the American Legislative Exchange Council have fueled the rise of pro-corporate, anti-governmental politics with abysmal impacts on working people — often enhanced by the rise of social media and propaganda shops like Fox. From a purely economic point of view, this shouldn’t surprise one. Foundations have become the playthings of rich people — some with progressive values, but most with purely self-serving conservative principles.

What foundations celebrate is the fact of being neither government nor the private sector. With a purported commitment to the public interest, but ensured control of the assets and disbursements, the mega wealthy have turned an altruistic device into yet another tool to further the idea that government is bad, taxes wasteful, and unfettered capitalism some form of god-given perfection.

It’s not.

Drummond Pike, a frequent Organizers’ Forum participant and contributor to these pages, was the founder and CEO of Tides in San Francisco, and continues to be involved in philanthropy and social change.

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