Billionaire philanthropy is a scam [SCRIPT]

Introduction

Have you ever wondered what happens when a billionaire donates to their own foundation? Like what happens to all that money? A billion is a lot. It is all encouraged with generous tax exemptions. And I've always asked myself - why not donate to a charity doing the work on the ground directly? There is definitely no shortage of them. There are even well established programs by the United Nations that millions rely on. So why is there more foundations now than ever before?

Well, if you've believed that billionaire philanthropy is the most redeeming quality of the ultrawealthy, I am about to ruin your entire childhood. As I've found in my investigation and you too will see in this video, billionaire philanthropy is very far from the rosy picture portrayed in the feel-good stories by the media.

Philanthropy is actually the best way how you can hoard your wealth indefinitely, pay no taxes and get praised for it by everyone.

The scam

Tax avoidance

I wanna destroy this notion that billionaires give out their wealth and expect nothing in return. The super rich are known for being extremely efficient at avoiding as much taxes as humanly possible. And philanthropy is actually one of the most effective ways of hoarding wealth while reducing your tax burden to 1 to 2 percent.

Much of it happens through a powerful institution known as foundation.

Private foundation is an institution with a very special status. They are tax exempt private organizations yet they are still allowed to invest into for profit companies. Foundations can hold corporate stocks and bonds and generate revenue this way. There is only one major condition they have to fulfill to keep their tax exempt status - and that is to donate 5% of foundation's total assets on annual basis.

So when you hear a billionaire donating their wealth to charity and it's going through a foundation, up to 95% of it can do nothing charitable at all. In 2021, Americans donated almost half a trillion dollars into charities. Two-thirds of this came from individuals. Only 18% came from foundations. But if all foundations' assets went to charity, they would have to donate all of the $1 trillion some 100,000 foundations hold in the United States. Instead, they donated only $90.88 billion in 2021.

Billionaire philanthropy doesn't come for free. It comes with the benefit of legally dodging taxes by stockpiling their wealth in a tax exempt institution. And it's the one thing billionaires consistently receive endless praise and gratitude for.

For-profit investments

I don't think many people realize that it is completely legal for foundations to generate revenue from for-profit investments. It's even uglier than it sounds if you zoom in on this scheme up-close.

You often see headlines about the enormous generosity of the Gates Foundation. But most of these articles won't mention that the Gates Foundation is actually two entities - the Foundation Trust, and the actual charity. It is the Trust that holds most of the assets and then contributes to the charity arm on annual basis.

The Foundation has something called the Strategic Investment Fund, which is doing just that. Its investment portfolio includes global conglomerates such as Coca Cola, Walmart, Berkshire Hathaway, UPS or big pharma companies. Most of these investments have been criticized for conflicting with the foundation's charitable goals. But we'll get to that later.

So next time you hear about a billionaire foundation, think of the up to 95% of assets they hold in profitable ventures.

Yet even the 5% donation requirement is pretty sketchy. You'd think that's where the rules would be strict - only allowing donations to non-profit organizations. But you'd be wrong.

In 2012, The Ford Foundation awarded a $1 million grant to the Los Angeles Times, a private for-profit media company. The donation outraged critics that complained charities shouldn't give to for-profit organizations. But it fell flat because foundations have been doing this routinely and no one cares.

In 2020, an excellent investigative report by The Nation found at least $250 million that was donated by the Gates Foundation went to companies where the foundation holds corporate stocks and bonds. A big portion of the Foundation assets come from Warren Buffet. Buffet's hedge fund, Berkshire Hathaway, has multi-billion-dollar investments in the same companies the Gates Foundation propped up with its charitable donations.

But isn't it illegal to make donations to a private entity you stand to make profit from? Well, only if you are too obvious about it.

Pearson Charitable Foundation once had to pay a $7.7 million settlement for using its funds to generate revenue for Pearson Inc., the publishing corporation. The ruling said the law prohibits charities from benefiting their parent for-profit companies.

But introduce a layer of separation by having your foundation donate to the same companies you hold corporate stocks and bonds in and suddenly all is fine.

The purpose of donating to for-profits is usually obfuscated with the "sharing common goals" excuse. But peel back the layer of bullshit and you'll see more clearly.

When you break down these donations and investments individually, they seem minuscule compared to the revenue size of their companies. But the donations aren't meant to stack up their treasure chest with cash. They are meant to elevate the risk of corporations trying to expand into new markets. When a project fails, the company takes no liability. But if it succeeds, it reaps all the benefits of extra revenue generated from a market expansion.

One such example is when the Gates Foundation donated $11 million to Mastercard to cement presence in Kenya. This act of philanthropy was accused of helping a big corporation assume a dominant position in a risky market. And it is really hard to read into it anything other than propping market expansion of a multinational.

Tax subsidies

I want to flip the narrative on its head for a bit. When billionaires reduce their taxes by funneling their wealth into a foundation, let's call it out for what it is. A government subsidy. Tax exemption is a forgone revenue that could have been used to better fund public programs. Instead, the uncollected taxes go to support whatever ventures billionaires decide on a whim. This completes the circle of perverse incentives.

In my previous video on Bill Gates influence on US education policy, I showcased how billionaire philanthropy heavily subsidized and pushed through flawed educational standards into US public schools.

Throughout his efforts, Gates was donating millions into various software and publishing companies to ease their entrance into the market for new educational materials. The companies went on to book billions in revenue and substantial boosts to their profits. All of that off the backs of the American taxpayer, who had to subsidize public schools purchasing the trademarked and copyrighted materials sold by these companies.

The Gateses refuse to admit they have an outsize influence on public spending. Let me break this down to you, Bill. Federal state budgets were following your advocacy. Not vice versa. Your rounding-error billions of dollars, influence how trillions of tax payers money have been spent.

Accountability

Foundations are extremely powerful institutions. Not just due to their wealth and assets. It is also thanks to the lax transparency rules and zero accountability.

It is very difficult to find real tangible information about foundation finances and inner workings. 90% of foundations don't have a website and many of those that do function just as front page promotional materials. The worst example I've found is the Musk Foundation website, whose text you could fit inside a tweet.

Due to these lax and vague rules, foundations enjoy a position of tremendous privilege. Unlike any other private or public institution, foundations are beholden to nobody. They are undemocratic because there is no electorate to hold them accountable to. They don't answer to market mechanisms because they have no bottom line, no shareholders, no competitors, no customers, and they are not required to submit quarterly or annual reports. And by default, billionaire foundations are perpetual - locking up their wealth behind the 5% rule indefinitely.

Charity sucks

By now, I have dunked on charitable giving so much that it feels like beating a dead horse at this point. But I am still seeing some twitching so let's double tap just to be sure.

It is very easy to be impressed with all the billions that get poured into charities. But how much of that money actually reaches those most in need is a question of a long-standing debate. Even so, looking at the statics paints a pretty pessimistic picture.

According to Giving USA, up to 45% of all charitable donations go towards religion and arts. Giving to health programs and overseas is tiny by comparison. So helping the global poor is a really minor concern to the world's richest.

Now subtract from those raw numbers all the administrative costs and the obscene salaries paid to senior management and even less is left for those in most dire need.

So if we leave it to the rich to decide where to help, 95% of their philanthropy is going to be just a perpetual investment trust, and half of the remaining 5% is gonna do fuck'ol.

We could have been taxing them like the rest of the population and fund programs based on need rather than whims and passions of individuals.

Responsibility for problems

Charity is a group of the ultrawealthy "searching for answers with their right hand to problems that others in the room have created with their left." This isn't a quote from Slavoj Zizek. It's from Peter Buffet, the son of Warren Buffet, saying the quiet part out loud - billionaires are responsible for the problems they promise to solve with philanthropy.

This is a notion that no big philanthropist will admit to. But what does the reality say?

In 2007, the LA Times published a series of investigations exposing controversial investments of the Gates Foundation, that conflicted with its charitable causes. It revealed investments of $423 million in big oil companies operating in Africa. Not a big deal until you get to the part where these companies have been responsible for pollution around their operation in African regions, causing significant spikes in cancer and respiratory diseases. That's almost twice as much as the Foundation donated to polio and measles immunization and research worldwide.

That's not an outlier. That's part of 41% of the Foundation's total assets that have been invested in companies that counter its charitable goals. It includes investments in companies using child labor, and big pharma pricing their medicine beyond the reach of patients in need.

This controversial investment strategy continues to this day either through the Strategic Investment Fund or Berkshire Hathaway holdings.

Whether its hedge funds, venture capitalist firms or foundations, billionaires are building up their wealth in investments in multinational corporations exploiting workers and resources from developing countries. They don't invest into worker co-ops, or unionization advocacy groups, or farmers' communes. It's big oil, big pharma, big agro, big tech. Billionaires are talking big on climate change and the environment yet they are polluting a million times more than an average person in the bottom 90%. And majority of that pollution is coming from their investments. Billionaires are talking big on poverty and inequality. All of the world billionaires, some 2,000 people, have more wealth than the bottom 4.6 billion people. The top 1% have double the wealth of the bottom 6.9 billion people. The more this wealth gap between the ultrarich and everyone else widens, the more blame they carry on their shoulders for the misery caused by the system that allows for this.

Conclusion

If philanthropy is truly about helping others, why do we allow billionaires to hoard their wealth indefinitely in perpetual foundations that wouldn't dissolve even after their founders' deaths? Why is up to 95% of their wealth allowed to be reinvested in for-profit ventures? Why are donations allowed to go to for-profit companies?

Philanthropy is not about solving problems so that people don't live in misery. It's an investment strategy with long-term ROI expectations.