How did we get here? Institutional philanthropy in context

The field of organized philanthropy in the United States is only one century old. Philanthropy was first envisioned in the late 1800s as a vehicle for private citizens to provide financial support to help others in society, such as the poor, where government fell short. As tax policies and regulations were implemented, and especially as they were interpreted, the driver behind individual and institutional philanthropy shifted from creating social change to avoiding tax payments and accumulating wealth.

Philanthropic practice has largely been shaped by estate planners and tax accountants who encouraged wealthy clients to take advantage of philanthropic instruments (e.g. private foundations and Donor Advised Funds) to shelter their wealth. Philanthropic vehicles became a mechanism to “invest” their resources, maintain donor control and receive financial benefit, rather than be assessed higher taxes. [5] This may explain why so much of philanthropy’s cultural “source codes” – i.e., a set of influences shaped by an organization’s founders and leaders – are rooted in banks and for-profit corporations. [6]

These histories and practices have resulted in a field with little regulation and no accountability to communities. To share these revelations with our peers in the field, Justice Funders created Stifled Generosity: How Philanthropy Fueled the Accumulation and Privatization of Wealth (see next section). We believe that by reflecting on these last one hundred years, we can learn from them and be intentional about how we want the next one hundred years to progress.

Nineteen thirteen (1913) is often cited as the year in which the non-profit industrial complex [7] began, when two components of the Revenue Act of 1913 became inextricably linked:

  1. the creation of a new classification of organizations doing social good (i.e. tax-exempt charitable organizations, a.k.a. “nonprofits”); and
  2. an income tax mandate on the highest-income private citizens.

Donations to charitable organizations became tax deductible, which was meant to encourage philanthropy among wealthy individuals as a mechanism to minimize income tax payments under the new law. This has resulted in our current reality, in which nonprofits have become dependent on the charity of foundations and, as a result, can only be as radical as their funders. While the intention by policymakers in 1913 may have been to incentivize private support for “the commons” (a.k.a. resources for the good of all), tax loopholes and regulations over the last 100 years have resulted in an outcome that has not fully met that intention. Rather, it has led to the accumulation and privatization of wealth in the name of the public good.

For example, wealthy individuals and families can receive tax deductions by diverting their financial assets into private foundations. Until 1969, there were no legal minimum standards for disbursing those funds towards the public good. Even now, foundations are only required to disburse 5% of their assets annually. The remaining 95% can be invested in companies – including those that cause social, economic and environmental degradation – to maximize profit and further accumulate wealth. Due to tax loopholes that allow foundations to earn more in interest from market-based investments than they are required to disburse, foundations as tax shelters are able to exist in perpetuity.

Another example of a mechanism for accumulating wealth is the Donor Advised Fund (DAF), which is the fastest growing philanthropic instrument. [8] When donors make a financial contribution to a DAF, they receive an immediate tax benefit while maintaining control of when and to where those funds are disbursed. With no legal minimum standard for disbursement, funds can remain in a DAF indefinitely without ever being used for “charitable causes.”

Like all other forms of wealth in the U.S., philanthropic wealth can be directly traced back to industries that relied on economic practices of extraction and exploitation, such as the theft of Indigenous land and genocide of Indigenous people, the kidnapping and enslavement of millions of African people, the systemic undervaluing of “women’s work” and the destruction of natural systems and the web of life. Because philanthropic wealth comes from these historic (and current) extractive practices, we must recognize that grants alone (which most foundations limit to 5% of their financial assets) are insufficient to eradicate the harm these practices have caused.

We must further acknowledge that our most pressing issues cannot be resolved by either investment or grantmaking practices that reinforce the most harmful aspects of our extractive economy. Rather, foundations must deploy ALL of their resources, financial and otherwise, to first engage in restorative economic practices [9] to repair the harms that have been done and to ultimately build a new, regenerative economy.


6. The Source Codes of Foundation Culture. Grantmakers for Effective Organizations, 2015. 

7.  The term “nonprofit industrial complex” was popularized by the book, The Revolution Will Not Be Funded: Beyond the Non-Profit Industrial Complex (2007) which examines the challenges of social justice movements operating within the constraints of the 501(c)3 model. A summary of the book can be found here: 


9. Restorative Economics centers on healing and restoration of vulnerable communities who have been marginalized and oppressed by a polluting and extractive economy by investing in strategies that create shared prosperity and self determination for a just transition to the next economy. 

Next Section: Stifled Generosity