As income gap widens, what happens to charitable giving might surprise you
There’s a gap in who gives — and where. Some experts blame income tax changes, others blame the widening difference in income levels. But a certain type of charity may be harmed.
EDITOR’S NOTE: We grow up. We grow old. We grow stronger and wiser. And sometimes we grow weary. In certain moments we grow closer. Other times we grow apart. How we thrive or falter depends on how we grow. At its roots is the idea of an abundant life for individuals, but also for communities and nations. Today, the Deseret News presents Part Four of Growing, an ongoing series.
SALT LAKE CITY — Amid discussions of the growing wealth gap between the richest Americans and everyone else, one place that gap plays out may be surprising.
Income inequality impacts charitable giving, from who gives to where they send their money. It may even change how charities are run.
The wealthiest donors are giving more than ever, and tend to favor educational institutions, arts and cultural events. Lower- and middle-income givers make much smaller donations, but often target emergency services like food pantries and homeless shelters. The share of those who give is shrinking.
And while the boost in big-ticket giving by America’s wealthiest is welcome, experts worry that the chasm between them and everyone else may also change how nonprofit organizations operate and who makes decisions.
“Growing inequality is making many nonprofit organizations more dependent on a smaller number of larger donors, with predictable consequences for the internal political agendas, strategies and programs of those organizations,” said Michael Montgomery, an adjunct faculty member at University of Michigan-Dearborn and owner of a fundraising/nonprofit management consulting company in Huntington Woods, Michigan.
The shift in giving could move charity from being something most people participate in to some degree and feel ownership of to a type of giving that is “increasingly dominated by a small number of very wealthy individuals and foundations. This has significant implications for the practice of fundraising, the role of the independent nonprofit sector and the health of our larger democratic civil society,” according to the “Gilded Giving 2018” report by the Washington, D.C.-based Institute for Policy Studies.
The issue sparks attention across the political spectrum. The U.S. Congress Joint Economic Committee, chaired by Sen. Mike Lee, R-Utah, is pondering changing charitable deduction tax rules to bolster broader community engagement in charity. Some believe giving is down among lower-income taxpayers because the new, larger standard deduction weakens incentive to give for those who don’t have great financial resources and won’t get a charitable donation deduction.
“...Rebuilding civil society will require capitalizing on the strengths of America’s associational life to address its weaknesses. One way of doing so is to reform policy so that less of the charitable giving of Americans is subject to taxation,” the committee report said.
All income groups have made financial progress, but unevenly. Congressional Budget Office data said from 1980 to 2015, households in the top 1% saw their incomes rise 226%, compared to a 79% increase for the next 19%. The middle 60% saw their incomes grow 85%. Incomes grew 47% for the bottom 20%.
The share of households giving to charity dropped from 66% in 2000 to 55% in 2014. Most nonprofits rely upon small donations from huge numbers of average Joes, but their giving dropped nearly 30% since 2015; most gifts now come from households earning more than $200,000 — and almost a third comes from millionaires, according to the institute report.
In 2017, gifts of $300 million or more made up 1.5% of all individual gifts.
Besides giving to services, people who make less than $200,000 give more of their money to religion than do the wealthy, the report said. Those making $100,000 or less provide about half of all giving to meet basic human needs like hunger. What happens if those folks can’t or don’t give has those nonprofits worried.
The rich follow their own pattern. An analysis by the Atlantic cited by the congressional economic committee found that of the 50 biggest gifts to public charities in 2012, universities like Harvard, Columbia and Berkeley received 34. Nine of the biggest gifts went to museums and arts organizations. The rest went to “medical facilities and fashionable charities like the Central Park Conservancy.”
Smaller donations by less wealthy donors were most often directed to services for those in poverty, the committee report noted, adding those trends held true even before tax reform.
Montgomery said increased reliance on a small number of big donations may skew donor expectations: The influence they may plan on wielding is likely higher when someone provides a million dollars than when 100,000 people each provide $10. An organization’s internal politics can change. So might the board, if the group recruits for capacity to give rather than ability to represent a community or expertise in the organization’s work.
That has implications for what nonprofits do if the pattern of giving based on income and wealth continues, he said.
When the dust settles
While some see tough economic times as the driving force behind fewer donations from lower- and middle-income Americans, others blame tax reform. Per NPR’s Planet Money: “The fall in itemization contributed to a massive fall in people who claim the charitable deduction. In 2018, despite a strong economy, American households reduced their charitable giving by over $15 billion, the largest decline since the Great Recession. It seems clear the reason is the change in the tax code reduced the incentive to give for many taxpayers.”
The congressional committee report said solutions could include making the charitable tax deduction available to both those who itemize and those who take a standard deduction or replacing the deduction with a tax credit.
Eva M. Witesman, associate professor of public management in BYU’s Marriott School of Business, researches philanthropy and was formerly a fundraiser. She believes tax reform has small effects on giving that “normalize’ over time because it impacts the cost of charity, not the reasons that people give.
Whether one gives largely depends on who asks, how they ask and how easy they make it to give, she said.
Income makes a difference for those who aren’t wealthy, she added, because if they have to tighten their belts, they may donate less. Some experts even think reduced giving can be a harbinger of economic downturn.
But patterns of giving are driven by relatively new factors, too, including new tools to measure impact. Large donors want to see how their donation improves lives or accomplishes an organization’s goals. Small-gift donors also want recipients to quantify what their gift will do for those who benefit. “There’s a much higher demand for accountability,” Witesman said.
That’s not great news for nonprofits that provide emergency services, like food banks and shelters. Their purpose may be to mitigate catastrophic circumstances, not achieve long-term outcomes, though some do provide ongoing services. “For people who have hit a really difficult time, they’re trying to make sure there’s a level below which they don’t fall,” she said. “They may want to make sure that everybody’s got access to food, everybody’s got access to shelter, everybody has clothing. And then a lot of times, they will refer to places that will provide long-term services.”
Millions of Americans give to churches that also support charities. That can extend one’s humanitarian reach, but it can also sometimes reduce one’s local charitable footprint. Some give to both church and community groups; other’s don’t. Witesman said it’s not uncommon for local charities to operate in near-starvation mode, tasked with continuous fundraising to keep services flowing. If fewer give, it’s tough.
Another way a shrinking pool of donors hurts local charities is relational. Raising money is just part of a charity’s goal; they also want to build relationships that boost engagement and may even provide volunteers or cheerleaders for the group. Witesman said fewer donors making small gifts means not just less money, but less opportunity to build valuable relationships that may endure for years..
The good news is that when people hear giving is down, some step up to fill in gaps, Witesman said. Even those who don’t have a lot.
“It’s humbling to watch people who themselves are struggling reach out and give to support other people because they can. I might not think they can, but they think they can. And they give,” she said.
Witesman warned that while some consider donations to the arts a luxury good, they connect humanity. “It’s very humanizing to provide a gift that allows everybody access. You don’t have to be wealthy to enjoy those things in part because wealthier donors might be providing them to keep prices low or prevent the need for admission fees.”
Montgomery thinks one appeal of funding educational buildings and art projects is they have a known cost and a beginning and end. On the other hand, “the poor will always be with us, and on our current public policy trajectory, they are also likely to be more numerous.”