May 8, 2014; Businessweek
Writing for Businessweek, Zachary Mider raises a point that advocates for the charitable deduction largely sidestep: With their charitable deductions, donors are making decisions about the purpose and use of funds that would otherwise have gone into government tax coffers and been allocated by representatives of the voting public. Moreover, some of the largest donors are not only highly influential or powerful, they’re often not very public.
Mider tells a story about a mystery donor who began putting hundreds of millions of dollars into a nonprofit addressing Huntington’s disease. In 2011, he devoted more than $100 million to H.D., more than the National Institutes of Health was putting toward the disease. The nonprofit that received the money was a bit perplexed, because the donor was anonymous and not available for discussion about spending priorities.
Through some sleuthing, Mider stumbled across two charitable trusts, the Gabriel Trust and the Endurance Funding Trust with a combined value of $9.7 billion—yes, billion—controlled by companies in Nevada and Utah, which in turn were controlled by other companies in Delaware that eventually were shown to be the creation of one Andrew Shechtel of Princeton, N.J., associated with a hedge fund called TGS known for “black box” investing. Shechtel was, it seems, secretly the H.D. donors, and he and his partners were actually generous givers—just completely unknown.
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Mider tells an interesting story about how Shechtel and his partners made their money and the varying paths their philanthropy took, including his partner Frederick Taylor’s support for progressively oriented causes through a philanthropic advisory firm called Wellspring Advisors run by Taylor’s brothers. Mider is clearly a good, dogged journalist who peeled back the layers of the Shechtel/Taylor/TGS/Wellspring onion, but the story raises important policy questions, especially since the Taylor brothers have been active in promoting enhanced charitable deductions for donors who give to programs targeting rare diseases or who donate securities to private foundations.
As Mider explains, “Because Congress offers tax deductions for philanthropy, this growing breed of donor is deciding the fate of billions of dollars that would otherwise flow to the government. Individual charitable deductions will cost the Department of the Treasury $43.6 billion in foregone revenue this year.” He makes a distinction between most foundations, like Carnegie and Gates, which want publicity for their donations and the likes of Shechtel, Taylor, and others. “By masking their philanthropy, they aren’t just shunning accolades and speeches at charity galas,” Mider writes. “They’re also avoiding public scrutiny of how they made their fortunes, and how they’ve chosen to give them away, including some donations with political consequences.”
The implication is this: Should wealthy people be permitted to donate anonymously and, like Shechtel and his partners, through layers of companies and lawyers that frustrate notions of public disclosure and review? Doesn’t the public deserve to know who is controlling the distribution of hundreds of millions or perhaps even billions of tax-exempt dollars, setting their individual priorities, good or bad, over the use of funds that were it not for the tax exemption would have been in federal tax coffers?
We are not talking about the donations of average Americans. These are charitable endowments controlled by people whose resources are so large that they can dictate—without much public review—priorities for or against specific issues. Maybe you like what Shechtel and Taylor have done with their charitable giving, maybe you don’t. Doesn’t the relevant question concern the quotient of democratic process behind these distributions?—Rick Cohen