To the Editor:
Last week, the Giving USA Foundation published “Giving USA 2021: The Annual Report on Philanthropy for the Year 2020.” Leslie Lenkowsky is right when he writes in “How Much Can We Really Learn About Philanthropy From ‘Giving USA’ and Other Data Sources” that the report is the most comprehensive analysis we have of U.S. philanthropy — and that its authors must wrangle obscure, disparate data sets to create it. But despite its complexity, we can still use it to draw important conclusions.
The year 2020 was atypical, to say the least: a year of global pandemic and economic volatility. “Giving USA” tells a sunny story of a groundswell of philanthropic support in the face of these challenges. But countering this tale are signs that real giving from ordinary Americans has actually declined — a trend we call “top-heavy philanthropy.” And more of these dollars are being diverted into intermediary organizations rather than being distributed outright to working charities.
According to “Giving USA,” the total amount given to charity in 2020 was $471.44 billion, with individual giving making up $324.10 billion of that total. This individual giving increased 2.2 percent from the previous year, or 1.0 percent when adjusted for inflation.
To judge what has really happened to individual giving, however, we must look beyond raw giving dollars. As “Giving USA” says, the most relevant metric to use is individual giving as a percentage of disposable personal income, since the extra money a person has available to spend during the year largely determines how much that person gives to charity.
Individual giving as a percentage of disposable income has been remarkably consistent; over the past 40 years; it has rarely strayed from a narrow range of 1.8 to 2.2 percent. But according to the numbers in “Giving USA,” it fell to just 1.85 percent in 2020. This is the lowest it has been in nine years; the last time it was lower was in 2011, when the charitable sector was just beginning to recover from the Great Recession of 2007-09.
In other words, in 2020, average Americans gave a smaller chunk of their disposable income to charity than since the end of the last recession.
A few tenths of a percent would seem to make a minor difference — but the dollar amount lost to charity is enormous. With disposable income in the United States currently at $17.5 trillion, each tenth of a percentage point is equal to $1.75 billion. If individuals had given in 2020 at the same rate they did last year, at 1.94 percent, charities would have received $339.22 billion — $15 billion more than they actually did.
Further distorting the picture is the largess of MacKenzie Scott. Mega-donors always have an outsized influence on individual giving; gifts of hundreds of millions skew yearly trends and are nearly impossible to predict. But Scott’s gifts in 2020 added up to an unprecedented one-year total of $5.9 billion, dwarfing all previous mega-giving to date. Without her giving, individual giving would have been just $318.20 billion — less than was given in 2019, when adjusted for inflation — and individual giving as a percentage of disposable income would have been at just 1.82 percent.
The larger context for all of this is that individual giving has been declining steadily as a proportion of total giving for decades, paralleling the decline in relative wealth of typical Americans. In 1990, individual giving accounted for 80 percent of all giving. But by 2020, according to “Giving USA,” donations from individuals had fallen to just 69 percent of all charitable revenue. When economic times are tough for ordinary Americans, they can’t afford to give as much of their spending money to charity, leaving nonprofits to look to deeper pockets to make up the difference. As a result, private foundations, corporations, and major donors are making up an increasingly large share of U.S. giving each year.
Add to this the fact that since the introduction of commercial donor-advised funds onto the scene 30 years ago, an ever-increasing amount of individual giving is not going directly to working charities but into intermediary vehicles, including private foundations and donor-advised funds. According to tax and philanthropy experts James Andreoni and Ray Madoff, 28 percent of individual giving is now being diverted into these intermediaries — up from just 5 percent 30 years ago. And this shift has resulted in an estimated shortfall of $300 billion to charities over just the past five years.
The relentless decline in real individual giving and the shift towards intermediaries are a dangerous double whammy for nonprofits, made even more alarming when MacKenzie Scott’s gifts are removed from the equation. The year 2020 began with a recession during the first months of the pandemic but ended with unprecedented growth in the stock market and in the assets of the wealthy. At this time of great need, this great wealth has not yet found its way in any commensurate proportion to charities working to serve those needs. “Giving USA”s” rosy narrative notwithstanding, this should be of concern to all of us who care about the health of our nonprofit sector.
Chuck Collins
Director
Program on Inequality and the Common Good
Institute for Policy Studies
Helen Flannery
Associate Fellow
Institute for Policy Studies
The authors work on the Charity Reform Initiative at the institute and are co-authors of “Gilded Giving 2020: How Wealth Inequality Distorts Philanthropy and Imperils Democracy.”