In the late 2010s, Scott Ellis was running MasteryTrack, an education nonprofit he founded in 2015. He’d previously run an internal analytical consulting group at Hewlett Packard, and now, like countless other Silicon Valley professionals, he and his wife, who had a career of her own, embarked on a journey into what he called “small-p” philanthropy by opening a donor-advised fund.
It was an eye-opening experience. Ellis realized he could take an immediate tax deduction by placing money into a DAF, but the DAF would never have to put the money into the hands of working nonprofits — ever. Meanwhile, his extensive experience in the nonprofit education world taught him that viable organizations were perpetually rattling the cup in the valley, one of the wealthiest regions in the world.
“Before the pandemic, there was a significant downward blip in the markets, and I was at a board meeting,” Ellis told me in an early October call. “There were some big funders there, and one of them said, ‘We’ve got to protect our returns, so we’ll cut back on all donations,’ and I remember thinking, ‘Wait a minute, philanthropy should step in when others aren’t willing to. But rather than help your organizations, you’re going to hoard it.’”
Ellis dug deeper into how to rein in the distortive impacts of excessive wealth. These efforts brought him into the orbits of Chuck Collins, who directs the Program on Inequality and the Common Good at the Institute for Policy Studies, and Alan Davis, who founded the Crisis Charitable Commitment and the Excessive Wealth Disorder Institute, where Ellis became a founding board member.
This year, Ellis founded the $30 Million Success Project, which seeks to transform how society thinks about excessive wealth and advocates for an annual 50% tax on all household wealth over $30 million. He’s also a member of Patriotic Millionaires, a group of high-net-worth Americans concerned about destabilizing levels of inequality in America.
I caught up with Ellis in early October to discuss why affluent individuals don’t engage in meaningful philanthropy, the drawbacks of perpetuity and more. Here are some excerpts from the conversation, which have been edited for length and clarity.
You mentioned that funders dialed back support during the downturn. Was that the “a-ha” moment that crystallized the issue of excessive wealth for you?
Starting around 2010, I started thinking and writing about Democracy 2.0, Capitalism 2.0 and focusing on things like implementing higher marginal income tax rates. But I think it was the pandemic that really amplified the issue.
There were some wealthy individuals who could have paid for vaccines for the world, and instead, they chose to send themselves to space. So there wasn’t really one “a-ha” moment as much as it being a trajectory showing the contrast of how the very wealthy chose not to help when we needed it.
You’ve been immersed in this world for over two decades. It’s a predictable question, but: Why don’t the mega-rich give more?
First, we need to remember how the world works. People don’t get rich by giving their money away. I’m not talking about whether you can make a couple million dollars. I’m talking about hundreds of millions, thousands of millions of dollars. They either inherited it or extracted it effectively, but they didn’t get there by giving it away, and so to assume they will give it away is naive, unfortunately.
The second thing is they just don’t think about it. It’s not about them being bad people. It’s just that, for whatever reason, it’s not on their radar. They’re busy living their lives like the rest of us. I have wealthy friends who have children who are struggling and when I try to talk to them about increasing their philanthropy, they’ve got other things on their mind.
The third reason — and I hear this quite a bit — is that they say, “Well, I don’t know what to do.” I struggle with that because I think, “Well, you’ve shown yourself to be a very intelligent person, so you could solve this problem if you wanted to by learning about it.” But a lot of times, that just doesn’t happen.
I also think that one of the impacts of excessive wealth is that it leads to a reduction in empathy. I don’t think people get meaner as much as our lives become so different that we can’t relate anymore. Or they lean into stories they’ve been told, like people make bad choices so it’s their fault, or it’s the government’s fault, or these problems can’t be solved.
We’ve also seen research showing that the richer someone gets, the more they’re held back by a “scarcity mindset.” If they give away too much, they’ll be less comfortable about their financial position.
I have a colleague who once said, “The amount you want is however much you have plus 40%,” so I think there’s a lot of truth to that. It’s about keeping up with the Joneses. There’s always somebody richer, and it’s always a great source of dissatisfaction if you think that way.
I can’t help but think about “Succession.” The show does a great job of making extreme wealth look unenviable.
That’s why we talk about excessive wealth disorder. We say, “What is the disorder and who has it?” And of course, people think it’s the rich people, because no matter how much wealth you have, you always want more.
But there’s another part of it, which is how regular people are fine letting this continue. In some ways, it’s partly because our brains are not wired to understand these magnitudes of wealth. We’ll say we’re very worried about the gender or racial wage gap, and rightfully so, but when someone has 100,000 times more wealth than someone else, we say, “Oh, that’s fine.” I think that’s also part of excessive wealth disorder.
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By asking funders to give more during the pandemic, many people, including those of us at IP, tried to appeal to their better angels. The results were mixed. Is the only sure-fire way to unlock more funding to use the congressionally-mandated “stick” and ditch the “carrot?”
I’m not sure if I would frame it as “carrot and stick.” The way I describe it is that we as a society should decide what rules we want to live by. This is something we do every day. I drive on the right-hand side and the reason is we’ve agreed that is so we don’t run into each other.
This is not about penalizing people. It’s about setting up a system that achieves the goals we’ve agreed on. And I think the goal for philanthropy should be to encourage wealthy people to use their wealth in a way that doesn’t undermine society, and to manage the massive accumulation of wealth because that undermines capitalism and democracy.
To your point, we tend to forget that the “philanthropy lobby” includes the investment firms managing DAF assets. A mandatory payout rule would be bad for business.
People who have DAFs often say, “We’re doing the philanthropic part,” but I think, “Well, sort of. What we are really doing is making lots of fees for dollars under management, rather than helping to drive people to get their funds donated.”
Of course, I’m very grateful to our donor-advised fund because it’s a vehicle for regular people who don’t have enough wealth to set up a foundation. The challenge for me is how much of this is about large banks versus making the money available to nonprofits. I think it’s being abused right now by the very wealthy so they can get the tax break and then not give away the money. That’s problematic and we can do better.
So if we can drill down to specifics, what are your thoughts on the numbers in terms of foundation payout ratios and DAF timelines?
I fully support the call to action for philanthropic reform laid out by Donor Revolt, which says we should increase the minimum payout from 5% to 7% for private foundations, and increase it to 10% for private foundations with assets over $50 million.
You’ve got to cap the management expenses that can be counted toward the percentage. Family member compensation and grants to DAFs should be excluded from the payout calculations. And we need to require a payout for DAFs within five years.
Foundations say that increasing the payout ratio to 7% would threaten their perpetuity. How would you respond?
For those who advocate for perpetuity, I would say it’s based on assumptions that I find problematic. The first is that the foundation is better than anyone else in the present or the future at figuring out how to allocate capital in the philanthropic space.
The second is assuming that there will be no or fewer philanthropists in the future, and so we can’t use the money we have today to fix the problem for today.
The last piece is, there are so many problems, especially in things like education and climate, where, if you choose not to spend the money to fix a small problem today, in the future, you may have a larger endowment, but the problems will be bigger because you didn’t fix them when you could have.
I think it would be fantastic for a foundation to be perpetual as long as someone keeps donating money to it. But if it’s about having the largest endowment, and from a financial company’s perspective, accumulating the most assets under management to maximize profitability, well, then let’s at least be honest about what we’re doing.
Your analysis speaks to the idea that for many trustees, a foundation’s endowment is more of a symbol of prestige.
That’s the issue. What is this work all about? I think the strategic frame for foundations is wrong. The most important question for a foundation to ask should be, “How large do they want our endowment to be in 20 years?”
If you say, “I want my endowment to be as large as possible,” you’ll give away as little as you can and you’ll invest in things that undermine your own mission and other nonprofits’ missions.
You could say, “I want my endowment to be the same size as today, but adjusted for inflation in real terms.” If so, you probably still need to be giving away as little as you can and maybe your investment strategy can be a little less aggressive.
You could say, “We’ve got a $2 billion foundation and we want to be $2 billion in 20 years.” That’s going to be less in real terms, but then you can give away more and constrain your investments so as to not undermine your mission. Or, of course, you can spend down in 20 years and use your grantmaking to achieve your mission.
My personal belief is that so much of it is really about ego and prestige, and that’s not what we should be solving for here. But if it’s about changing the world by giving money to organizations, then let’s get to work.
