« Private foundations have very few legal restrictions. They are required to donate at least 5 percent of their assets every year to public charities—referred to as “nonprofit” organizations. In exchange, the donors are granted deductions, enabling them to reduce their income taxes dramatically. This arrangement enables the wealthy to simultaneously receive generous tax subsidies and use their foundations to impact society as they please. In addition, the process often confers an aura of generosity and public-spiritedness on the donors, acting as a salve against class resentment.
Because of all these advantages, private philanthropic foundations proliferated among the ultra-wealthy during the last century. Today, they are commonplace, and rarely controversial, but Americans across the political spectrum once regarded the whole idea of private foundations with enormous suspicion. These aggregations of private wealth, intruding into the public arena, were seen as a form of unelected and unaccountable plutocratic power.
The practice began in the Gilded Age [when] John D. Rockefeller, sought legal permission from Congress to obtain a federal charter to set up a general-purpose private foundation whose broad mission was to prevent and relieve suffering and promote knowledge and progress. Critics, including the former president Theodore Roosevelt, assailed the idea, declaring, “No amount of charity in spending such fortunes can compensate in any way for the misconduct in acquiring them.” At the time, a parade of notable Americans testified in Congress against the creation of private foundations, including the Reverend John Haynes Holmes, who denounced them as “repugnant to the whole idea of a democratic society.”
. . . Rob Reich, a professor of political science at Stanford University and co-director of the Stanford Center for Philanthropy and Civil Society, explains that private foundations, which “represent virtually by definition plutocratic voices,” were “troubling because they were considered deeply and fundamentally anti-democratic…an entity that would undermine political equality, affect public policies, and could exist in perpetuity.”
Unable to gain congressional approval, Rockefeller got the New York state legislature to approve his plan. Legally, however, the Rockefeller Foundation, the granddaddy of all private foundations, was at first limited to promoting only education, science, and religion. Over time, however, the number of private foundations grew along with the kaleidoscope of issues into which they delved. By 1930, there were approximately two hundred private foundations, according to Reich. By 1950, the number had grown to two thousand, and by 1985 there were thirty thousand. In 2013, there were over a hundred thousand private foundations in the United States with assets of over $800 billion.
These peculiarly American organizations, run with little transparency or accountability to either voters or consumers yet publicly subsidized by tax breaks, have grown into 800-billion-pound Goliaths in the public policy realm. Richard Posner, the iconoclastic libertarian legal scholar, has called perpetual charitable foundations a “completely irresponsible institution, answerable to nobody,” and suggested that “the puzzle in economics is why these foundations are not total scandals.” »
— Jane Mayer, Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right
