Philanthropy Reinvented: Shaking Up the Establishment
Potential tax increases being considered by Trump could impact private foundations, potentially causing a decline in charitable giving.
In a surge of generosity and impact, the world's heavyweight philanthropists are redefining the scope of charitable giving. The Gates Foundation, with a plan to invest $200 billion in the upcoming two decades before dismantling, sets the stage for a new wave of urgent, accelerated donations. Billionaires like Chuck Feeney, Laurene Powell Jobs, and others are swiftly donating their wealth, demonstrating a shift away from legacy-focused foundations.
Foundations: The Classic Model Facing Headwinds
Historically, the private foundation has been the go-to vehicle for American philanthropy, from the Rockefellers and Carnegies to Bill Gates. In exchange for tax exemption, these foundations must distribute 5% of their assets annually for charitable causes, including support for rich institutions like colleges and religious organizations. However, this established model faces increasing scrutiny.
Donald Trump's proposed budget bill threatens the US philanthropy sector, with elevated taxes on the investment income of foundations. This 10% levy on foundations with assets over $5 billion signals tighter regulation in a market that's playing an ever-more critical role in plugging funding gaps left by government retreats. The expected passage of this bill is predicted to spur a shift from traditional foundations towards limited liability companies and donor-advised funds, providing fewer tax breaks but greater flexibility to donors.
The Trump Administration's Crackdown on Philanthropy
Trump's revised budget bill includes a 10% tax on the investment income of foundations with assets totaling over $5 billion, a significant jump from the current 1.39%. The new levy poses a major threat to the US philanthropy industry, jeopardizing the sector as it steps into the breach left by the state's diminished presence. Critics argue that these changes will put pressure on donors to make large charitable contributions quickly, both to hedge against new regulations and to showcase the value of philanthropy.
Anxious donors and charities in certain sectors are bracing for potential executive orders, such as restricting funding for projects abroad or redefining environmental causes as ineligible for charitable giving tax purposes.
The Debate over Philanthropy as a Force for Good
Controversy surrounds the impact of philanthropy, with critics arguing that institutional giving is disproportionately favoring well-off sectors of society and contributing to social inequality. Philanthropists tend to donate primarily to established institutions like universities, hospitals, and cultural organizations, instead of disadvantaged populations like children, minorities, and the disabled. Further criticism revolves around the top wealthiest donors exhibiting an unbalanced pattern of giving.
The Ebb and Flow of Philanthropic Giving
Philanthropic giving has escalated since the turn of the century but may be starting to decline post-pandemic. In the US, overall giving has risen by approximately 42% since 2003, reaching $557 billion in 2023—albeit a 2.1% drop from the previous year when adjusted for inflation. However, the percentage of American adults donating to charity has dropped significantly from 66.2% in 2000 to 45.8% in 2023, indicating shrinking resources among potential donors.
Despite the overall decline in giving, donations from the wealthiest donors have shown a recent uptick of £498 million, indicating that philanthropy may not be on its deathbed quite yet.
Hedge-Funders Lead the Pack
Member of the notoriously private duo of Quadrature Capital, Suneil Setiya and Greg Skinner, are the top philanthropists in the UK, giving away almost 14% of their wealth in 2023. Veteran philanthropist Chris Hohn and celebrities like Elton John and Harry Styles round out the top donors. Gifts like these, as a proportion of overall wealth, demonstrate a growing trend of impactful giving among the ultra-wealthy.
In conclusion, philanthropy is experiencing shifts in policies, demographics, and priorities, led by a new generation of diverse donors with a focus on urgent, transformative change. The growing influence of women, particularly MacKenzie Scott, and the rise of new, more flexible models of giving are redefining a field long driven by the technocratic philanthropy of figures like Bill Gates.
In response to the increased regulation and taxation proposed by the Trump Administration, there might emerge a shift from traditional foundations towards more flexible models such as limited liability companies and donor-advised funds for wealth management and personal finance.
In the UK, hedge-funders like Suneil Setiya and Greg Skinner are embodying this shift by donating a significant portion of their wealth, demonstrating an emerging trend of impactful giving among the ultra-wealthy, particularly in the field of wealth-management and philanthropy.
