Another tumultuous year in which war and disaster devastated communities around the world is coming to an end. These misfortunes add to the misery of people already facing severe inequalities, climate disruption, property deprivation and marginalization.
As before, part of the global response to these crises included the “generous donations” of various philanthropists. In fact, their representatives, along with heads of state, CEOs, celebrities, royal families, and government officials, will participate in the United Nations Annual General Assembly in September and the United Nations Climate Change Conference (COP28) in November, and will be calling for solutions. ” Many of them will gather again under the same name at the World Economic Forum in Davos in late January.
But every year, the outcome of these events seems to be no different. Part of the reason is that the very way elites view problems and solutions is constrained by their gaze and worldview, which creates and perpetuates the crisis in the first place. But they are also ineffective because that is their purpose. They are structured to maintain the status quo rather than create deep systemic change.
The philanthropic sector was also created not to address the root causes of systemic problems, but to protect private economic interests.
It's time for the world to realize this. The sooner we do so, the sooner we can find better ways to truly incorporate philanthropy into the important and messy work of real social change.
How do the rich get even richer?
We all know that the rich are getting richer and control a large percentage of the wealth on earth. Oxfam's latest Global Wealth Inequality Report shows that since 2020, the richest 1% have gained almost two-thirds of all new wealth, almost twice as much as the bottom 99% of humanity. corresponds to
The wealthy pay virtually no taxes (often less than 3 percent of their income), and their billions continue to grow through compound interest. Over the next 20 years, most of this wealth will be transferred among the richest 1% of her family. In the United States alone, it is estimated that between $36 trillion and $70 trillion of wealth is transferred from generation to generation.
Calls for taxes on the wealthy are growing around the world, and this trend will become even more pronounced as large-scale wealth transfers occur across generations. One important way that wealthy people cope with this pressure is through philanthropy. Contributions to charity are celebrated and recognized as a form of 'giving back'.
Currently, the estimated value of global philanthropy is $2.3 trillion, or approximately 2% of global GDP, with most of that money held in endowments. This is larger than the annual GDP of countries such as Canada and Brazil.
If philanthropy is inherently good and there will be more philanthropy in the future, then what is there to worry about? Let's take a look at how philanthropy actually works.
For example, in the United States, one aspect of philanthropy is the 5 percent payout rule introduced into the U.S. tax code in 1976. According to these legal provisions, charitable foundations must donate only 5 percent of their total endowments in the form of: To maintain our nonprofit status, we make grants and program-related investments each year.
In reality, this rule is a ceiling, not a cap, on subsidies. The remaining 95% of endowments are treated as tax-free investment funds, which most foundations continue to grow.
Let's look at this in more detail. The average return on foundation gifts in 2020 was 13.1%. For example, a $100 million foundation would need to give away only $5 million a year, but the endowment amount would be $113 million minus $5 million, a year-end total of $100 million. Increases to $8 million. Next year, this enlarged $108 million pie of his will be $122 million less the approximately $5.4 million transferred, for a total of approximately $117 million. So $100 million becomes $117 million in just two years and continues to grow.
These donations, tax-free investment funds, are then funneled into the usual engines of extractive capitalism, such as stock markets, bonds, real estate, and fossil fuel companies, resulting in further wealth accumulation.
Although the 5 percent rule benefit originated in the United States, it has been exported around the world and continues to be promoted as a global model for philanthropy. This means that the foundation will grant the minimum amount needed while continuing to grow its endowment. Their wealth and power increases, while subsidies trickle down to those who do the hard labor.
You don't need an accountant or an economist to understand what this model means. Only a small portion of tax-exempt philanthropic funds actually goes to solving social and environmental problems, and the vast majority of it goes through extractive markets that offer consistently high returns on investment. is reinvested into activities that
Philanthropy as redistribution
In most countries, individuals or legal entities that donate to charity receive a direct tax deduction on their income based on the amount of the donation. As a result, philanthropy becomes an important part of a larger tax minimization strategy, further concentrating wealth.
A recent investigative report by The Nation estimates that Bill Gates may have received more money in the form of tax cuts than he gave in charitable grants through the work of the Gates Foundation.
Another example includes Mackenzie Scott, one of the largest philanthropic donors in the United States. In recent years, she has been praised for the size, variety and speed of her grants. According to the Bloomberg Billionaires Index, in 2023, her wealth continued to grow even though she donated large sums of money.
Despite receiving huge tax breaks and giving only a small portion of their donations as grants, philanthropists are highly regarded in our society as benevolent, generous, and generous individuals.
It's time to end the hero-worship of philanthropists and go beyond simple declarations to tax the wealthy. We need to start taxing donations.
Consider what could be done by imposing a tax on these large philanthropic donations. For example, democratically run Citizens' Funds, created with revenue from taxation of donations, support frontline communities, indigenous peoples, climate refugees, and even the ecosystems hardest hit by resource and wealth extraction. It could potentially redistribute billions of dollars into the system.
This could be the starting point for deeper structural changes in philanthropy. What is needed is a corresponding alternative approach, based on a shift in worldview, a real desire to deal with a biocentric economy and a global political crisis.
It is time to move from a system that protects the rights of individuals and organizations to one rooted in the redistribution of wealth to collectively commit to a future worth living.
The views expressed in this article are the author's own and do not necessarily reflect the editorial stance of Al Jazeera.
