Are We Living in a Golden Age of Charitable Giving? Hardly

p hoto:  litabit/shutterstock

photo:  litabit/shutterstock

First the good news.

Charitable gifts made this week on Giving Tuesday soared to a new high, an estimated $274 million raised online in just 24 hours. That's an impressive outpouring of generosity that underscores the enduring power of small donors in an era when mega-givers tend to get most of the attention.

What's more, there's a stronger spirit of giving lately in some business sectors long seen as stingy. One striking statistic from Giving Tuesday is that the employees of JPMorgan Chase—as in, bankers—made $4.7 million in gifts on Tuesday, a 23 percent rise from last year. That's on top of the firm's impressive anti-poverty giving of recent years, which we've been reporting on.

Meanwhile, Facebook this week rolled out a new set of social good initiatives, including a $50 million fund to match donations made on the site. This is just the latest philanthropic initiative coming from the tech sector. One of the most telling of these is Pledge 1%, which has enlisted hundreds of tech startups to commit to charitable efforts. All this is a big shift from a decade or two ago, when conventional wisdom held that Silicon Valley was filled with libertarians and Ayn Rand acolytes.

More broadly, there's a growing body of research reporting that charitable giving is a strongly held norm among today's high-net-worth individuals. Nearly all of them give, according to various studies. Strikingly, just as many private foundations have been created since 2000 as were created in the previous century. And the explosion of donor-advised funds has been even more remarkable. 

Now the bad news.

Most ordinary Americans are actually giving less, these days. In many cities, critical nonprofits are struggling as donations decline. And giving by rich people, while on the rise, still amounts to a tiny fraction of wealth holdings, which have increased exponentially in recent decades. As for corporate philanthropy, it's mere crumbs compared to record profits. Oh, and tax legislation rushing through Congress promises to make all these trends worse. It will concentrate even more wealth at the top of the income ladder while further decreasing charitable giving by typical U.S. households. 

Let's take a closer look.

First, two recent studies have pointed to a fall-off in giving by ordinary Americans. Data unveiled not long ago by Indiana University’s Lilly Family School of Philanthropy on its website, Generosity for Life, shows that volunteering and charitable giving overall has fallen 11 percent since the early 2000s. Another study, released last year by the Institute for Policy Studies, found that “while itemized charitable deductions from donors making $100,000 or more increased by 40 percent, itemized charitable deductions from donors making less than $100,000 declined by 34 percent… According to one estimate, low-dollar and midrange donors to national public charities have declined by as much as 25 percent over the 10 years from 2005 to 2015. These are the people who have traditionally made up the vast majority of donor files and lists for most national nonprofits since their inception.”

There are a few possible reasons for this decline in giving. Secularization is one, but the bigger factor is probably that most U.S. households have experienced flat incomes for many years in an era of soaring inequality. Many people lost ground during the Great Recession and have not recovered. At the same time, housing and healthcare costs have soared. So it's no surprise that ordinary folks don't give as much as in the past; they can't afford to. 

It's also no surprise that recent trends in charitable giving are clobbering nonprofits in some cities. 

Los Angeles is a great example. Last year, we wrote about a new report, “The Generosity Gap: Donating Less in Post-Recession Los Angeles County,” from UCLA’s Luskin School of Public Affairs. It found that a billion dollars in annual funding for social services and the arts has vanished, and there is "evidence that historical patterns of local generosity are changing, and not for the better.” The study, for the California Community Foundation, compared tax years 2006 and 2013, using IRS returns filed by county residents. Angelenos had donated more than $7 billion in the year before the Great Recession, much of it to community-based charities and causes. Giving at that level never recovered after the financial crisis. According to the study, longer-term factors that are decreasing local giving in L.A. include declining religious affiliation and changing patterns of philanthropy, with affluent professionals more likely to send their gifts to organizations outside the city. Whatever the case, L.A.'s nonprofit sector is struggling even as new mega-givers like Steve and Connie Ballmer show up making generous grants. 

Philadelphia is another example of deep problems in the charitable sector. Earlier this year, the Philadelphia Foundation commissioned a study on how local nonprofits are doing financially in the Philadelphia area. According to the report, nonprofits in the five counties that make up Greater Philadelphia are just getting by. Around 40 percent of nonprofits there have zero or negative operating margins, and about seven percent of them are insolvent. Meanwhile, more than 20 percent of nonprofits in the region have less than a month of cash reserves on hand, which really leaves no room for emergencies or unforeseen needs. Philadelphia nonprofits, as a whole, aren’t able to take the necessary risks to be innovative and effective.

This isn’t to say that there haven’t been some generous funders and impressive grants made in the Philadelphia region. Philadelphia Area nonprofits have nearly $16 billion in revenue, and the largest gifts of the decade include the $225 million naming gift for the Raymond and Ruth Perelman School of Medicine and the $128.5 million Barbara Dodd Anderson gift to the George School.

Yet, grantmaking isn’t what it used to be in Philadelphia, as many funders here have scaled back, branched out, or refocused elsewhere. Those big gifts were made in 2011 and 2007, respectively, and did little to help low-income communities, in any case.  "The Financial Health of Philadelphia-Area Nonprofits" paints a picture of a nonprofit sector that is treading water and hoping that nothing bad happens to drive it deeper into distress. 

But it looks like something bad is about to happen: namely, a Congressional tax reform law that is expected to lead to both a decrease in charitable giving and, more significantly, cuts to state and local budgets as a result of eliminating the household deduction for state and local taxes. The report said that Philadelphia's nonprofit sector "is painfully exposed to even modest reductions in government funding. A 5 percent reduction in government funding (if evenly distributed across the sector) would result in nearly 20 percent of nonprofits that currently earn a surplus moving into deficit."

Will giving by rich people and corporations save a U.S. charitable sector facing growing struggles? Don't count on it.

If you look past the news stories about big gifts, including many reported here in IP, you find that today's far upper class parts with only a tiny fraction of its wealth. Yes, affluent Americans have been giving more. But they've also been earning more, and it's far from clear that their giving has kept up with their new wealth accumulation. The top 1 percent has assets of $30 trillion, about a third of all household wealth. But these  Americans gave away less than a half of 1 percent of their total wealth in 2016.  Meanwhile, corporations didn’t do much better. Giving USA reports that corporate giving hit $18.55 billion in 2016. But all corporate profits last year totaled around $6.6 trillion.