In the past few weeks, we’ve seen the nation’s richest institution of higher education, Harvard University, and the nation’s wealthiest philanthropy, the Gates Foundation, have their status as tax-exempt organizations questioned. President Donald Trump threatened to remove Harvard’s IRS exemption over a larger struggle with the university, while a conservative group, the American Alliance for Equal Rights, led by Edward Blum, filed a complaint with the IRS against the Gates Foundation for a minority-focused scholarship program.
A casual observer might see these disputes as part of a larger pattern of unwarranted right-wing political attacks on the nonprofit sector. But the two cases are, in fact, worlds apart.
Trump’s threats aimed at Harvard’s exempt status are part of a bigger war on universities in which the administration has bypassed due process rules and sought to micromanage private colleges. For example, in its letter, the administration called on Harvard to create a “critical mass” of conservatives on campus. Harvard, though flawed in many ways, refused, and it has been widely lauded for standing up to a bully. Even the Wall Street Journal editorial page, which has been appropriately critical of the university’s lax attitude toward antisemitism, defended Harvard’s academic freedom.
By contrast, the Gates Foundation found itself on much weaker legal ground. For decades, it had been running a race-based scholarship program that excluded all poor white candidates. Continuing the program after the U.S. Supreme Court struck down affirmative action in 2023 was almost surely a violation of the court’s interpretation of the Civil Rights Act. The IRS complaint was filed by a private party through proper channels. Gates wisely chose in April not to fight and instead to open the scholarship up to needy students of all races.
The Gates Foundation’s race-based scholarship program is emblematic of a larger problem in American liberal philanthropy. While race and class both matter when it comes to opportunity in America, social science consistently finds that in contemporary America, class matters more. Despite that, progressive foundations often insist on a primarily racial framing of inequality. Moving forward, if more foundations adopt an economic frame, they will be better in step with the latest social science, public opinion and the law.
***
In the late 1990s, the Gates Foundation created the Gates Millennium Scholars program, which provided $1.6 billion in scholarships to low-income Black, Hispanic, Native American and Asian students. In 2017, Gates created a successor program, the Gates Scholarship, to provide more than $400 million in grants to students from the same racial categories.
Excluding low-income white students from billions of dollars in scholarships is very probably a violation of current law. In the Supreme Court’s Students for Fair Admissions v. Harvard decision, the court struck down the use of racial preferences in admissions at Harvard and the University of North Carolina in part because seats at those institutions are a finite resource. “College admissions are zero-sum. A benefit provided to some applicants but not to others necessarily advantages the former group at the expense of the latter,” the majority wrote. The same logic applies to race-exclusive scholarships. Maintaining them, says attorney Arthur Coleman, who served in the Clinton administration Education Department’s Office for Civil Rights, is a “very risky strategy.”
(Disclosure: I testified as an expert witness for Students for Fair Admissions that racial diversity is desirable but that preferences for economically disadvantaged students of all races at Harvard and the University of North Carolina could achieve that goal. I have also received funding from the Gates Foundation for research to combat economic and racial segregation in housing and schooling.)
The Students for Fair Admissions decision, which came down in June 2023, included no phase-in period. Universities began implementing it immediately, but for some unknown reason, Gates says it did not begin contemplating a change in its race-exclusive scholarship program until 15 months later, in September 2024. The pondering lasted another six months until Blum’s complaint with the IRS appeared to have triggered the decision to end the race-exclusive element of the scholarship.
Philanthropies that pursue race-exclusive grantmaking outside of education also have reason to be concerned. In 2023, the American Alliance for Equal Rights sued the Fearless Fund, which ran a grants program limited to Black-women-owned businesses, for violating the Civil Rights Act of 1866. In 2024, Blum’s organization prevailed in the 11th Circuit Court of Appeals, and rather than appealing to the Supreme Court, the Fearless Fund agreed to terminate the program. More recently, Blum’s organization filed a complaint with the IRS against Creative Capital for providing grants to artists of color but excluding artists who are white.
Given many funders’ choices to heavily center race over the past several years, the legal implications for liberal philanthropy are staggering. Particularly after the horrific murder of George Floyd in May 2020, as the Center for Effective Philanthropy wrote, “Most foundation leaders said they are reckoning with racism and paying greater attention to racial equity in their work.” The Geraldine Dodge Foundation, for example, outlined a plan to devote “a majority of our funding” to issues of racial equity in 2024.
Of course, there is nothing wrong with – and much to applaud in – philanthropy’s efforts to address very real issues of racial injustice that continue to plague the United States. But beyond the legal risks, sometimes those efforts promote counterproductive race essentialism, which suggests, to take one example, that emphasis on the written word and objectivity are “white supremacist” values. Moreover, there is only so much money to go around, and with so much focus on identity, issues of economic inequality often receive short shrift, even as their importance to everyday Americans has increased. For David Callahan’s March 2025 article on liberal philanthropy’s failures in the run-up to Trump’s second term, one foundation CEO said, “Class has been put to the margins of a lot of progressive discourse and philanthropy.” The CEO observed, “There’s been a disappearing of that reality from elites on the left.”
The ripple effect in the larger progressive discourse has been highly predictable. When foundations prioritize race over class inequality, the writer Matthew Yglesias notes, they “create financial incentives for everyone to frame their race-neutral policy ideas as racial justice initiatives.” As a result, for example, you have Berkeley professors saying the reason to increase the minimum wage isn’t that all economically struggling Americans deserve a better deal, but because it will “reduce racial inequality.”
***
A greater emphasis on class would have several benefits.
To begin with, while racial preference programs are vulnerable to legal attack, especially after Students for Fair Admissions, economic programs that provide favorable consideration to low-income and working-class people are perfectly legal. Look at it this way: A tax system that provided different marginal rates for different racial groups would surely be struck down as unconstitutional, but a progressive system that taxes rich individuals at a higher marginal rate than low-income families faces no similar difficulties. That’s why Gates is able to maintain its focus on students eligible for Pell Grants, even as its racial exclusion had to end.
Moreover, the social science research suggests that while race still matters, economic disadvantage matters much more. Since the advent of the civil rights era, white Americans have reported large reductions in racist attitudes. Intermarriage rates have increased dramatically. Meanwhile, economic inequality, as measured by the Gini coefficient, has spiked.
America has become, in the words of Matthew Desmond, “one of the most unequal societies in the history of the world.” Our concentrations of wealth and poverty are unrivaled among the 38 most-developed countries. Only 36% of Americans still believe the American Dream is possible.
Several decades ago, the average gap in standardized test scores between Black and white students was about twice as large as the gap between rich and poor students. Now the reverse is true. In recent years, the test score disparity by income has been about twice as large as the white and Black test score gap. Racial residential segregation has declined by 30% since passage of the 1968 Fair Housing Act, while residential class segregation has doubled. A 2024 study by Raj Chetty found that in recent years, the economic mobility gap by race has been closing while the class gap has increased. As Robert Putnam put it: “The power of race, class, and gender to shape life chances in America has been substantially reconfigured.”
Everyday Americans understand these shifts, which is why polling consistently finds that putting a racial framing on issues makes the policy less attractive to voters, not more. In 2022, for example, Pew found that 74% of Americans opposed using race as a factor in college admissions. Democrats assumed an emphasis on identity would attract Black, Hispanic and Asian voters. But since 2012, an era in which identity politics have intensified, the Democratic advantage among nonwhite working-class voters has declined sharply by 37 points. A 2024 poll of Black Americans found that 50% cited cost of living/inflation as their top concern compared with 13% who cited racial discrimination/racial justice.
At the same time, a focus on economic equity and class-related programs does not ignore America’s history of discrimination and ongoing struggles with race. It is in large measure precisely because of that history that Black and Hispanic Americans today, on average, have lower incomes, lower levels of wealth, and live in higher-poverty neighborhoods. They will therefore disproportionately benefit from class-based programs.
In sum, an economic approach can narrow racial gaps in a manner far more politically appealing and unifying than race-specific policies. As the great civil rights leader Bayard Rustin argued: “Any preferential approach postulated along racial, ethnic, religious or sexual lines will only disrupt a multicultural society and lead to a backlash. However, special treatment can be provided to those who have been exploited or denied opportunities if solutions are predicated along class lines, precisely because all religious, ethnic and racial groups have a depressed class who would benefit.”
***
Will foundations shift toward a class-centered approach? It will not be easy. Many leaders in philanthropy constitute what economist Thomas Piketty has called “the Brahmin Left.” Polls have found wealthy white liberals, who are well represented in the ranks of liberal philanthropy, are to the left of people of color on issues of race.
While some are startled by this finding, there is a strong element of self-interest for college-educated white liberals in defining issues of inequality in racial rather than in economic terms.
On the issue of housing, for example, if discrimination is thought of in racial terms, many upper-middle-class white liberals are let off the hook when they think about exclusionary zoning in their neighborhoods. They can correctly claim that they wouldn’t dream of excluding a Black lawyer or doctor from living in their neighborhood. Indeed, they would celebrate that dimension of diversity. A class framing of exclusionary zoning laws, on the other hand, which recognizes the ways in which those policies harm working people of all races, is more challenging to affluent white liberals. As political scientist Omar Wasow noted, “There are people in the town of Princeton who will have a Black Lives Matter sign on their front lawn and a sign saying ‘We Love Our Muslim neighbors,’ but oppose changing zoning policies that say you have to have an acre and a half per home.” He continued: “That means, ‘We love our Muslim neighbors, as long as they’re millionaires.”
What lies ahead? The chaotic, deeply damaging and divisive first 100 days of the Trump administration could yield one of two options.
The easy and familiar path would be for liberal philanthropy to react to Trump’s actions, many of which are racially insensitive or worse, by doubling down on earlier race-based approaches. When Trump tries to eliminate diversity, equity and inclusion (DEI) initiatives, liberal foundations could pour more resources into DEI trainings. That would no doubt feel virtuous and cathartic.
The harder but better path would be for leaders in liberal philanthropy to look inward. Trump is deeply disliked by many Americans but nevertheless prevailed in 2024. Did foundations inadvertently hasten Trump’s remarkable rise from the ashes because many working-class voters found the identitarian left that foundations supported even more unlikable? Given research finding that “threat to one’s group activates one’s group identity,” does race-based grantmaking inadvertently increase the appeal of demagogues who traffic in a noxious form of white identity politics? More broadly, did the focus on identity over economics, fueled by philanthropic dollars, make working-class people, white and nonwhite alike, wonder if Democrats fully understood their challenges?
Liberal philanthropy still has a chance to adjust, to prioritize the economic challenges that low-income and working-class people of all races face. Nothing would do more to take the wind out of the sails of Trump’s would-be successors than focusing relentlessly on restoring the American Dream for working Americans.
Richard D. Kahlenberg is Director of the American Identity Project at the Progressive Policy Institute and author of Class Matters: The Fight to Get Beyond Race Preferences, Reduce Inequality, and Build Real Diversity at America’s Colleges (Public Affairs, 2025).
