One way in which utilitarians can make a big difference is to make a lot of money that they can donate. There's a good argument to be had over whether utilitarians should donate or invest under various circumstances: If you know what types of projects are most cost-effective, then donating now captures social returns on investment due to snowballing of the changes you bring about. On the other hand, if you're gathering lots of new information that drastically changes your assessments of the relative cost-effectiveness of various projects, it's probably better to hang on to the money for a few years.
One argument in favor of donating now is that it allows you to take advantage of tax deductions. Since there's a limit on the tax deductibility of donations to private foundations of 30% of AGI and to public charities of 50% of AGI, it may not be the best idea to hoard up one's wealth for many years and donate it all at once -- there's a tax benefit to donating smaller chunks over time. That said, charitable carryover deductions mean that if you donate more than the limit in one year, you can carry over the excess for up to 5 subsequent years. In addition, you might overcome the difficulty of not knowing right now which causes are most cost-effective by donating not to a particular charity but to a donor-advised fund or private foundation, which will allow you to choose the recipient later on. [Edit on 24 June 2012: I now have a donor-advised fund of my own. Feel free to contact me if you'd like help figuring out the details. Mine was surprisingly easy to set up.]
In the remainder of this post, I raise some points to consider when deciding whether to donate to such a vehicle for the tax benefit or whether to hold onto one's wealth privately. I'm curious to hear any information or suggestions others might have.
Reasons to favor donating to a fund:
- The tax benefit is the main one. If your marginal income-tax rate is, say, 25%, then avoiding taxes on your donation multiplies the amount of donation you can eventually make by 4/3 (since you can donate 100% instead of 75% of income that you don't need for living expenses). If your marginal tax rate is 33%, it multiplies the amount of your donation by 3/2.
- There's a small chance that you'll become more selfish with age and decide not to donate the income after all. You might also tend to spend slightly more than necessary on personal purchases if you have lots of money sitting around in your private possession. I personally don't give a whole lot of weight to these factors, because I can't imagine myself caring less about helping to prevent suffering. But people sometimes do strange things, and dispositions do change over time, so I would probably be overconfident to neglect this entirely.
- Having money ready to be donated might buy you more influence when approaching charities and encouraging them to favor more cost-effective projects, because they know you're serious about eventually giving away large amounts (possibly to them).
Reasons favoring owning the wealth privately:
- You may legitimately come across uses for the money that are better than donating to a charity. For instance, you might decide to found a startup with a good shot at high returns, and you want to use your own private wealth to get it off the ground without depending as much on VCs. Or you might decide that your time is better spent doing research or activism on utilitarian issues than making money to pay others, in which case your wealth would be best spent paying for your living expenses while you do those other projects. (In effect, you would in that case be donating to a charity whose purpose was to have you do your important work, only without the bureaucracy of 501c3 status.)
- Along similar lines, there might be small, informal projects that would be cost-effective to fund. For instance, you might want to pay a researcher a few thousand dollars to look into a question on your behalf. Or you might want to fund some off-the-wall project for which no public charity exists.
- Foundation donations can't go toward political lobbying, so if you ultimately decided that such an approach was most-cost effective, you'd be out of luck unless you could find a way around it (e.g., finding someone to make those donations for you, in return for your donating to that person's choice charity).
- Foundations are required to disburse at least 5% of their value per year, so the problem of donating to suboptimal causes due to poor information isn't completely avoided.
A big question with the arguments against is, To what extent can the causes that you would want to fund with small private donations be done through a public charity? If you want to donate to cause X, would it be possible to, if necessary, start your own charity do cause X and then have your fund / foundation donate to that charity? (Are there legal restrictions against funding "your own" charity?) Would the bureaucracy required in setting up such an arrangement outweigh the tax-saving benefits?
Update from 20 Feb 2013:
I called Fidelity Charitable, my donor-advised fund, to ask whether it's allowed to donate to your own charity. Here "your own" could mean (a) one that you founded, (b) one for which you sit on the Board of Directors, or (c) one from which you receive a salary. I was told donating to your own charity is in fact allowed as long as (1) it's a 501(c)(3) charity that passes the public-support test, and (2) you don't receive a personal benefit from the donation. (2) requires that the donation doesn't go toward your salary. Therefore, it seems you can't just donate to yourself to pay your own cost of living while working at your charity.