[Note: A version of this post appeared in Philanthropy Daily on February 8, 2018.]
The rich have always played a leading role in charitable giving. Now their role is getting larger. In fact, soon the middle class may not even have a speaking part.
The growing domination by the very wealthy in philanthropy is the central topic of the new report “Gilded Giving” from the Institute for Policy Studies. Authors Chuck Collins, Helen Flannery, and Josh Hoxie write how over the last decade a growing percentage of charitable giving in the United States has come from the highest earners. Over that period itemized charitable contributions by the top one percent have increased by 57 percent; itemized contributions from people making $10 million or more – essentially, the top tenth of the top one percent – are up 104 percent.
And what of the middle class, defined for the purposes of the study as families earning less than $100,000? The statistics are less definitive, because a significantly smaller percentage of middle- and lower-income taxpayers itemize their deductions. But for those who do, charitable donations have declined by 34 percent. The report also suggests that over the same period the number of low- and mid-range donations to national charities has declined by 25 percent.
So if we are to believe this report – and I tend to do so – fewer people of modest and average means are giving to charity at all, while those who are still contributing are giving less.
This makes sense to me: it’s what I’ve seen over the years. When I started in nonprofit development three decades ago, we learned about “the 80/20 rule,” whereby 80 percent of charitable gifts come from 20 percent of the donors. That formula now seems like a quaint artifact of a simpler time. About eight or ten years ago, the fundraising gurus began referring, instead, to the 90/10 rule. My own experience tells me that the more accurate measure is 95/5, and the authors of “Gilded Giving” predict that we’re heading toward a ratio of 98/2.
What’s causing this? Well, of course, the growing wealth inequality. The very rich are getting ever richer, while the merely middle class are feeling strapped. Even people with good professional incomes are worried about the rising expense of college education. They have concerns about healthcare costs. And they fret about their retirement. I’m a Baby Boomer, and I know the feeling. Unlike our parents’ generation, very few of us upon retirement will receive fixed benefit pensions. Consequently, many of us – even those who have been able to save a fair amount – are concerned that the retirement nest eggs we are building up will prove inadequate. (The dark twist on the retirees’ dilemma: the healthier you are, the more likely you are to outlive your assets. I consider that the ultimate example of “good news, bad news.” Just ask me, when I’m 98, if I still think that’s funny.)
The very wealthy, meanwhile, receive a significantly greater financial benefit from charitable giving than middle-class donors. As I discussed in my post, ” ‘It’s Their Money.’ Well, Sort Of,” the average wage-earner receives no tax incentive for giving to charity. That’s because they’re among the 70 percent of Americans who do not itemize their deductions. But for the very wealthy, charitable giving is deeply subsidized. If you are in the top tax bracket – currently a 39.6% rate – when you donate a dollar it essentially only costs you 60 cents. And if you make your donation with highly appreciated stock, you save even more by avoiding capital gains taxes. So on one hand the wealthiest people in America have grown ever richer relative to the rest of us, which gives them the resources to contribute to charity. But on top of that, they get a huge tax incentive that most of the country lacks.
It’s likely that this trend will now grow even more exaggerated in the next four years. Republican leaders in Congress and early Cabinet appointees are floating plans for privatizing Medicare and Social Security. They are also pledging to repeal Obamacare. None of those actions is likely to reassure middle-class families concerned about their retirement plans or the ability of family members to get affordable health insurance. I would imagine that during the Trump years charitable donations from middle-class donors will continue to drop – perhaps even to plunge.
And the very wealthy? Well, more than ever, a few will be contributing a lot. As the authors of the “Gilded Giving” report point out, one troubling aspect of the great dependence on a few donors is that nonprofits may drift from their core mission in order to meet and keep the interest of particular contributors. And a practical problem for nonprofits, they note, may be uneven year-to-year contribution totals. That is, receiving a great many small- and medium-sized donations is a reliable source of income from one year to the next. But if you rely on only a few large donors – well, one or two could drift away, and then you’re in trouble.
But the problem goes deeper than that. As the study’s authors note, Alexis de Tocqueville, in his classic 1835 study, Democracy in America, wrote with a certain sense of wonder that Americans form associations for “the smallest undertakings.” Tocqueville saw this as a unique expression of the democratic spirit. That’s the source of our vibrant charitable and volunteer sector. That spirit – in our politics and in our philanthropy – has taken an enormous hit recently. I would like to be optimistic that these trends will begin to shift for the better, but I can’t see what might turn things around in the next few years. So instead, I suggest that if you are a nonprofit leader you should do what you have to do: go where the money is. Try not to sell your souls to your top donors, and do your best to maintain a broad constituency of supporters. But if the number and size of donations from regular folks fade, it’s probably not your fault. It’s a national problem that, if left unchecked, will fundamentally change the nature of America.
Copyright Alan Cantor 2016. All rights reserved.