The Dark Underbelly of Corporate Philanthropy

By Katya Pollock (PO’21)

At the World Economic Forum held in Davos, Switzerland this January, Dutch historian Rutger Bregman shocked fellow panelists and audience members with his harsh criticism of philanthropic efforts to address inequality. Berman lambasted the global corporate elite for initiating “stupid philanthropy schemes” which, he argues, serve only to distract from the rich’s own culpability in perpetuating global inequality through tax evasion.

Bregman’s comments, although perhaps overly reductionist, echo those of a small but growing group of researchers sounding the alarm over corporate philanthropy. Aside from often failing to effectively address target issues, corporate philanthropy offers private firms a tax-exempt channel to gain political influence. Some scholars have proposed that greater transparency in corporate giving—perhaps in the form of publicly available records like those required of lobbyists and political action committees—would better hold corporations and politicians accountable to their stated motivations for giving.

Since 1935, corporations in the United States have had the right to deduct their charitable contributions to 501(c)(3) organizations from income that would otherwise be taxed. Deductions can account for a maximum of 10% of a corporation’s pre-tax income and excess donations can be carried forward for up to five years.  Although we may think of tax-deductible corporate giving as a relatively palatable policy, Congress was initially highly divided on the issue: the corporate charitable contribution deduction was debated and rejected by Congress in 1919, 1928, and 1934. The bill ultimately passed in 1935 allowing deductions up to 5% of a corporation’s pre-tax income, after significant lobbying efforts by business leaders and fundraisers.

At the time, President Roosevelt expressed his opposition to the deduction in a White House press conference, warning: “There are two reasons why corporations, as a whole, ought not to give to charity: the first is that in a great many cases their gifts to charity are given, frankly, in order to obtain public good will […] Then there is another good reason [..] people who get their living from investments ought to have the right to choose the charities to which they will give, rather than let the officers of the company give for them”. These concerns and others have been amplified in the current debate over a lack of oversight in corporate philanthropy.

A recently published paper in the National Bureau of Economic Research, “Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence”, examines corporations’ charitable giving as a means of buying political good will. The paper shows that patterns of corporate giving to charitable organizations closely follow those of more overt forms of political lobbying—like Political Action Committee (PAC) spending—and that the dollar amount of money flowing through corporate giving is many times larger than that which runs through PACs.

The paper’s analysis shows that corporate giving is influenced by politics through at least three mechanisms. First, corporate giving to charitable organizations is strongly linked to their district representative’s political influence: a firm’s giving to a charitable organization increases when their district representative earns a seat on a committee of policy relevance to the firm. Second, a member of Congress’ participation on the board of a charitable organization increases the likelihood of the organization receiving corporate donations by 46% and increases the dollar amount of corporate donations received by nearly 600%. Third, when a member of Congress leaves office, there is a short-term decrease in corporate giving to the district as an experienced and influential legislator is replaced by a newcomer. The paper’s analysis implies that 7.1% of total U.S. corporate charitable giving—roughly $1.3 billion in 2014—was motivated by firms attempting to gain political influence. The amount of money flowing through corporate giving to political causes is equal to 280% of Political Action Committee (PAC) spending and 40% of total federal lobbying spending.

There are questions, too, about whether corporate giving aligns with the spirit of philanthropy at all. As President Roosevelt pointed out in 1935, corporate giving concentrates giving power in the hands of firm directors, rather than enabling individuals to make their own giving choices by disbursing the same profits as dividends. In his book, Just Giving: Why Philanthropy is Failing Democracy and How it Can Do Better, Stanford professor of political science Rob Reich suggests that philanthropy can act as a support to democracy, but only when it advances a pluralist society. Some argue, like Roosevelt did over eighty years ago, that the corporate tax deduction stifles philanthropic pluralism by collecting funds otherwise disbursed to the varied interests of the public, and instead allocating them  according to a singular corporate directive.

Corporate giving still accounts for only a small share of total philanthropic donations in the United States: donations from private companies made up only 5% of total money donated in the U.S. in 2017, even after an 8% increase from 2016. And of course, not all corporate donations are aiming for political favor. Good corporate responsibility can benefit companies—through increased consumer and employee satisfaction—without threatening democracy. The high rate at which corporate giving has been shown to follow political indicators, however, suggests that more needs to be done to safeguard this privilege from abuse. At the very least, corporate giving should be subject to the same disclosure requirements of lobbying and PAC spending, so that our tax system doesn’t continue to subsidize corporate influence on public policy.

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