Those of us in philanthropy know the names Rockefeller and Carnegie well. They are large foundations that distribute oodles of money, and have for the past century. But 100 years ago, those names were associated with something else diametrically opposed to saintly philanthropist. They were known as Robber Barons. Talk about successful spin.
They literally brought bags of cash to politicians, to buy their votes. They had the enormous sums of cash, so they felt that they should have all the power. And they did until strict laws were passed in the early 1900s that limited monopoly power. Large corporations were broken up to ensure competition and fair prices. And to guarantee that the political economy was not swayed in the direction of those with the enormous sums of cash.
During this election season, many candidates are speaking about how the economy is rigged, and how they will best fight for the middle class. For the first time ever, median household incomes for the bottom 90% actually DROPPED during an economic recovery (2009-2012). Ever. As in never before.
In his recent book, Saving Capitalism, Robert Reich details how the wealthiest members of U.S. society have changed the laws to increase their political and economic power at the expense of the rest of us. So what does this mean to those of us in philanthropy?
Tax deductions currently are allowed for non-profit organizations, including foundations. Tax deductible contributions can go to any non-profit that serves the following purposes: “charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety.” – Section 501(c)(3) of the U.S. Internal Revenue Code
To get a charitable tax deduction, individuals do not need to give money to a non-profit that serves a greater purpose or human need. Ironically, the social service safety net non-profit that is increasingly stressed is not a great candidate for foundation money, since they are not self-sustaining and will always have a need for another affordable housing voucher or food pantry distribution.
In 2011, there was approximately $54 billion in tax deductions/tax-free earnings. But very few charitable deductions ended up with serving the poor or needy of society. Most of it went to elite schools and arts institutions (operas, symphonies, art museums) that the wealthier among us frequent.
According to economist Richard Vedder, the annual government subsidy to Princeton alone was estimated at $54,000/student thanks to the charitable tax deduction, or almost the same amount as their tuition cost. Contrast public universities, with an annual government subsidy of $6,000, or 1/10th the Princeton amount.
This means the rich get richer, and the rest are getting poorer. The U.S. is becoming a meritocracy, and the tax laws have changed over time to mimic the landed gentry of Europe, where wealth is concentrated in the families of the upper class.
So what can an individual do to make a difference? Besides lobbying one’s federal elected officials, make a pledge to donate charitable dollars only to charities that serve basic human needs, until the economy rules become fairer with more equitable distribution. My colleagues in arts and university development offices do fine work. They raise money for scholarships and try to make their institutions accessible to those without a lot of money. But it is just not enough. We need a movement with people making very deliberate economic choices if we want to see real change towards social justice.
The last time the federal government broke up a large monopoly was AT&T in the1980s. Now many financial and Internet companies are too big to fail – meaning they exist in an oligarchic or monopolistic way which reduces competition and jacks prices. If the government isn’t going to represent all of its citizens, then we need to shake things up ourselves.
Let’s make charitable gifts really reflect charity, defined as “serving those in need.” Who is with me?