Friends,

I want to start today with a warning about “charitable giving” and end with a primer on wealth inequality. The two are closely related, as I’ll explain.

We are on the cusp of the biggest surge of “charitable giving” in history. Beware.

Many people think of charitable giving as inherently good because they associate charities with organizations that help the poor and giving with generosity. But those assumptions are wrong.

In practice, the “giving” is often a large tax loophole that lets the super-rich dramatically cut their tax bills while quietly funding their own priorities.

And “charities” under the tax code include elite universities, expensive opera houses, cultural institutions frequented mostly by the richest Americans, and nonprofit think tanks devoted to right-wing causes.

The issue is that every dollar of “charitable giving” means substantially fewer dollars paid in taxes, because donors deduct those contributions from taxable income. The loophole is especially large and lucrative for the super-rich.

According to the Institute for Policy Studies, as much as 74 cents of every dollar donated to charity would otherwise have been paid in taxes. In 2022 alone, charitable giving resulted in $73 billion in lost tax revenue.

Taxes fund public goods such as public education, scientific research, roads and bridges, nutrition and healthcare for lower-income Americans, and clean water and clean air.

But the charitable tax deduction used by the super-rich helps finance things they want, such as Ivy League universities and cultural institutions. That means much of charitable giving ends up directing more money to organizations that serve the rich or do their bidding, and less to the things everyone needs.

Behind the appearance of generosity is a deeply anti-democratic tax loophole that allows the super-wealthy to substitute their priorities for what would otherwise be public priorities.

That matters now because the coming surge in charitable giving is being driven by the AI boom and what could become some of the largest IPOs in history. As companies in that sector move from private valuations to public markets, the wealth created for founders, early employees, and major shareholders can also create large tax bills.

Thousands of people holding shares in Anthropic, OpenAI, SpaceX, and other AI-related companies have seen, or soon will see, the value of those shares soar. That creates enormous capital gains.

Those gains can also produce large tax bills. If someone sells $10 million worth of stock, the tax bill could easily exceed $3.5 million.

Unless that bill is reduced through charitable giving.

That is why charitable giving is expected to surge. Some estimates place the total at more than $100 billion a year.

Consider Anthropic. The company is expected to pursue a large IPO as soon as this fall, and its seven founders have each pledged to give away 80 percent of their wealth, which is estimated at about $90 billion. Anthropic also has a philanthropic matching program that would add another $60 billion in funds earmarked for giving. Nan Ransohoff, who heads public goods at payment processor Stripe, estimates these efforts could generate between $37 billion and $100 billion a year for charities.

Add in the newly wealthy created by SpaceX, whose IPO has spawned an estimated 4,400 millionaires and some 400 employees now worth more than $100 million, as well as OpenAI’s IPO, which is likely to create many more millionaires and multimillionaires, and the amounts involved become enormous — along with the incentives for making tax-deductible charitable contributions.

To be clear, I consider the nonprofit sector enormously important. The concern is not with nonprofit activity itself, but with allowing moneyed interests to set the nation’s priorities. Their massive political donations already give them extraordinary power.

One reform would be to limit the definition of charities — meaning the contributions that qualify for tax deductions — to places and institutions that actually serve the poor.

Another would be to reduce the tax deduction for charitable contributions and increase the capital gains tax rate on very high incomes. At the very least, the capital gains rate should be raised to match the tax rate on ordinary income.

And we should eliminate the “stepped-up-basis-at-death” tax rule, which now allows families to avoid capital gains taxes by passing appreciated assets to heirs. For example, someone who received OpenAI stock for almost nothing could see its value explode, give away enough of it to charity to live comfortably without paying capital gains taxes, and then leave the remaining shares to children. When the children sell those shares at their value at the time of death — perhaps hundreds of millions of dollars — they can still pay zero capital gains tax.

These three reforms are, or should be, no-brainers. There is no economic or political justification for allowing the super-rich, including the new AI wealthy, to receive giant tax breaks for financing the things they prioritize.

Granted, reforms like these do not stand a chance under Trump or his allies in Congress. And, sad to say, too many Democrats are also dependent on campaign donations from moneyed interests. But these reforms are high on my list of what needs to be done.

Robert Reich is an emeritus professor of public policy at Berkeley and former secretary of labor. His writings can be found at . His new memoir, Coming Up Short, can be found wherever you buy books. You can also support local bookstores nationally by ordering the book at bookshop.org