STIFLED GENEROSITY: HOW PHILANTHROPY HAS FUELED THE ACCUMULATION & PRIVATIZATION OF WEALTH 1913 Income taxes & tax exempt status established: The beginning of the non-profit industrial complex 1917 Description: The Revenue Act of 1913 Intent: Federal income tax was Charitable contributions become tax deductible: established an income tax on the highest established to compensate for the Public resources become privatized incomes. At the same time, institutions reduction in tariff dues, which was also “organized and operated exclusively a part of the Revenue Act. Charitable for religious, charitable, scientific or organizations were defined as those Description: When filing their tax Intent: This tax policy was enacted educational purposes” were exempted whose net income does not benefit “any returns, individuals are now permitted after World War I as part of a stimulus from paying federal income tax. private stockholder or individual.” to deduct charitable contributions package to boost the economy. By from their taxable income. Initially, reducing an individual’s tax burden, they deductions were capped at up to 15 would have more money left to spend How Generosity Got Stifled:Public complex, in which the government has percent of taxable income. (and give away). charities and independent foundations the ability to monitor and control social had been in existence for decades, and movements, and a reliance on state/ operated for the public good. This Act foundation/corporate funding has How Generosity Got Stifled:The effect wealthy citizens could minimize their tax formally started the era in which tax derailed the course of social movements. of this policy has been a continued and burden, which has resulted in less money policy regulated philanthropic activities Non-profits can only be as radical as sustained diversion of previously taxed for the “commons” (resources for the good and incentivized charitable giving. These their donors, and must often shape their capital into private foundations, as the of all). wealthiest citizens regularly use this to laws created a distinct non-profit sector activities to align with donor interests. Source: Internal Revenue Service defined by their legal status. This was minimize their tax burden. By donating Source: Internal Revenue Service the beginning of the non-profit industrial money to charitable organizations, 1921 Gifts to grant-making charities become tax deductible: The creation of lawful tax shelters for the wealthy 1931 Description: Congress permits income Intent: By making contributions to First Donor Advised Fund launched: tax deductions for gifts to grant-making private foundations also tax deductible, Another wealth accumulation tool is created charities, including private foundations. Congress further incentivized wealthy Charitable gifts can now be made “for individuals to give directly to social Description: The first Donor Advised Intent: Donor Advised Funds offer the use of” charities and not just “to” safety programs in an effort to spur Fund is launched at the New York donors a greater tax deduction for charities. more philanthropy. Community Trust. The second such donations (compared to donations to fund was not created until 1935. A foundations), while allowing donors to How Generosity Got Stifled:This act no regulations in place to require private Donor Advised Fund is a philanthropic largely control where the funds go, even created a lawful tax shelter to accumulate foundations to disburse their assets/ vehicle established at a public charity. posthumously. There are no payout wealth by allowing wealthy individuals to money to advance the public good within It allows donors to make a charitable requirements for these funds. Instead of receive tax deductions for donations to a set amount of time, so the money could contribution, receive an immediate tax the funds being immediately disbursed private foundations. Individual taxpayers accrue interest within a private foundation benefit and then recommend grants to public charities, funds can sit in bank could deduct up to 50% of Adjusted Gross without any resources having to be from the fund over time. accounts for years before being in the Income (AGI, or an individual’s total gross dispersed to public charities. hands of public charities. income minus specific deductions). Until Source: Internal Revenue Service the Tax Reform act of 1969, there were How Generosity Got Stifled:Donor contributions made from Donor Advised Advised Funds have become tools to afford Funds are not required to be public the wealthy another lawful tax shelter. information, individuals or corporations In addition to cash, a donor can write off can conceal their support. Therefore, appreciated securities (investments that they have become an instrument of “dark 1953 have increased in value since the time they money.” U.S. Supreme Court recognizes corporate philanthropy: were bought) or to get a tax deduction for Source: nycommunitytrust.org/about/ the market value of the donation and avoid Corporations get their piece of the tax shelter history/#1930 capital gains taxes (taxes levied on profit from the sale of an investment). Because Description: In Smith v. Barlow, Intent: This ruling paves the way for the Supreme Court rules that the A. the growth of philanthropic and cause- P. Smith Manufacturing Company related giving in the private sector to can make a charitable donation minimize and avoid paying corporate to Princeton University, despite taxes. shareholder objections. Prior to the 1964 ruling, companies were only able to give Publicly supported charities distinguished from private to causes that directly benefited the company. foundations: Congress tries to course correct for the increase in “tax shelters for the elite” How Generosity Got Stifled:This ruling cost of donations because owners could reinforced the practice of a privileged few donate straight from corporate coffers Description: The Revenue Act of 1964 Intent: After years of public distrust (in this case, the directors of a corporation) instead of taking the money out in a codifies a distinction between publicly of endowed foundations for being lawfully being able to supercede the will taxable way prior to donating. supported charities (American Red “tax shelters for the elite,” Congress of many (in this case, the corporation’s Cross, Salvation Army, etc.) and private created this distinction after a growing shareholders) in the allocation of Source: en.wikipedia.org/wiki/AP_Smith_ Manufacturing_Co._v._Barlow foundations. number of tax lawyers and estate resources. It also lowered the effective planners had helped to proliferate private foundations as an instrument to accumulate wealth. 1969 How Generosity Got Stifled:This policy didn’t curtail efforts by wealthy individuals offered an incentive for donors to make to accumulate their wealth within private Private foundations recognized and regulated: direct charitable donations to public foundations rather than using their wealth Congress sets minimum standards for private charities working for the public good, for public good. instead of to private foundations only foundations to disburse money Source: Internal Revenue Service indirectly working for the public good by supporting public charities. However, it Description: The parameters of a Intent: As part of the growing backlash private foundation are established against private foundations becoming through the Tax Reform Act. For these a tax shelter for the elite, Congress organizations, this Act established set this mandate as a way to ensure a minimum payout of grants as a that private foundations were held 1981 percentage of assets – originally 6% to minimum standards for channeling Private foundation payout rate decreased: adjusted based on investment rates and their financial resources toward public “Legacy” gets defined as “existing in perpetuity” market yields. good, not just perpetuating wealth accumulation. Description: The “payout rate” for Intent: The flat payout rate was a private foundations, previously set compromise between reserving the How Generosity Got Stifled:The goal prevented concentration of ownership in 1969 as 6% adjusted based on wealthy elite’s privilege to practice of defining private foundations was an of a company inside one foundation and investment rates and market yields, philanthropy (as well as protecting the attempt to increase “tax payer benefit” imposed a 4% excise tax on the investment was lowered to a flat rate of 5% under industry of foundation professionals) by regulating an annual distribution rate income of foundations. pressure from foundation executives. and those who saw foundations’ tax- that was on par with investment yields so Source: Internal Revenue Service, Private subsidized assets as accountable to the that money gained would be spent, and Foundations Plus (privatefoundationsplus. public good. that wealth would be given away for the blogspot.com/2014/04/fixing-problem-of- public good rather than guarantee that foundation-payout.html) foundations last into perpetuity. It also How Generosity Got Stifled:The Tax regulations for annual payouts to be Reform Act of 1981 essentially protected adjusted based upon investment rates and private foundations as lawful tax shelters market yields, the private interest of the 1992 to exist in perpetuity. By removing the wealthy have superceded public interest. Fidelity Charitable Gift Fund created: Wall Street finds a cash cow in Donor Advised Funds 1998 Description: The Fidelity Charitable Intent: Community foundations had Full market value deductions of appreciated stock to Gift Fund is created by the mutual fund been the primary provider of Donor company Fidelity. This marks the entry Advised Funds until now. Financial private foundations become permanent: Smoke & Mirrors of financial service companies into the service companies are able to offer charitable giving marketplace. Fidelity lower fees than community foundations, Description: Congress allows donors Intent: Congress believed that fair quickly becomes the largest provider given the scale of assets already under to deduct the full market value of market value deductions would of Donor Advised Funds, and within ten management. appreciated stock to private foundations. encourage more charitable giving to years, Donor Advised Funds emerge [IRS Code Section 170(e)(5)] private foundations. as the second most popular charitable giving vehicle. How Generosity Got Stifled:Wealthy who are already exempt from paying donors now have another vehicle to taxes. Less money becomes available for How Generosity Got Stifled:Financial relationships and have an even higher minimize their tax burden. Investors government programs, as essentially no resources are diverted from community degree of anonymity for donors. Yet they typically need to pay capital gains taxes taxes are levied on appreciated stocks that foundations as donors shift to utilize are still legally considered public charities, on profits from stock sales. However, with have been donated. financial service companies, becoming allowing deductions of up to 50% of this policy, donors can avoid paying those further distanced from communities. Adjusted Gross Income (AGI). taxes by donating the appreciated stocks Source: Internal Revenue Service, General Explanation Of Tax Legislation Enacted Unlike community foundations, these (stocks that have increased in value since In 1998: Report Of The Joint funds do not require local boards or local Source: Internal Revenue Service the time of purchase) to public charities,

Stifled Generosity is a component ofResonance: A Framework for Philanthropic Transformation. For the full framework, visit justicefunders.org. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. STIFLED GENEROSITY: HOW PHILANTHROPY HAS FUELED THE ACCUMULATION & PRIVATIZATION OF WEALTH