Americans sent half a trillion dollars to charity last year—a substantial chunk of money to pay for worthy causes left unaddressed by the government and corporations.
But a huge portion of that money isn’t going to food pantries or scientific research or even churches. Instead, the ultrawealthy, including many billionaires who have pledged to give away their technology or stock-market-fueled fortunes, are funneling their wealth through opaque financial instruments, where it can sit for years tax free without touching an actual charity, according to a new report from the progressive think tank Institute for Policy Studies.
“There's a fair amount of charitable dollars that are not being deployed, where the donors have already gotten a tax break,” Chuck Collins, director of the Program on Inequality at IPS, told Fortune.
More than one-quarter of charitable giving in the U.S. last year went to donor-advised funds, or DAFs, according to the National Philanthropic Trust. DAFs are vehicles that give the donor an immediate tax deduction, but allow money to sit potentially for decades without being used for actual charitable work.
DAFs are the fastest-growing type of charitable investment, according to Fidelity. Among the ultrawealthy, they are the most popular, and many of the headline-grabbing billionaire donations in recent years have gone to DAFs.
In 2021, Bill Gates donated $15 billion; Elon Musk gave $5.7 billion, Jack Dorsey gave $700 million, and Mark Zuckerberg $700 million—but rather than individual charities, those donations all went to the donors’ DAFs or family foundations, IPS notes. Last year, more than two-thirds of the billionaires who signed the Giving Pledge, a nonbinding promise to give away the bulk of their wealth to charity in their lifetimes, gave either to donor-advised funds or their family foundations.
Proponents of DAFs say that their structure encourages giving: The tax deduction encourages wealthy patrons to dedicate money for charity even before they’ve decided which cause to support. “Donors may have good reasons to postpone grants,” a Stanford Law School article says.. In one hypothetical, a tech founder who “sells a startup for millions of dollars” may want to donate her takings but is too busy to immediately decide how to direct the funds; a DAF is a good choice for this person, the law article notes.
However, while DAFs could in theory grow the charitable pie, in practice, they too often allow the donor the illusion of charity while letting them keep control of their funds, critics say.
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