Most charity pundits, mainstream media, and press serving the nonprofit sector got it wrong. Sadly, none of them is admitting their mistake, and many are continuing to advance a false narrative. However, I always told you the truth, and I’ll continue to do so.
I’ve often encouraged you not to overuse statistics in your appeals. But, we can all certainly benefit from reading lots of illuminating statistics.
In 2017 and 2018, most pundits and the media were convinced that the Tax Cut and Jobs Act would result in up to a $21 billion decrease in philanthropic giving. In January 2018, I joined a tiny group of professionals who predicted the decrease in giving would be far less than that and giving might actually increase. This was not a guess on our part, but a well-educated expectation based on research, experience, and observation.
Now, with the release of Giving USA 2019, we know who was correct.
Overall, philanthropic giving in constant dollars INCREASED by $2.97 billion (0.7 percent) between 2017 and 2018, and now stands at $427.71 billion, the highest level of all time. Relative to Gross Domestic Product, giving remained at 2.1 percent, which is greater than the 40-year average of 2.0 percent.
Despite the generally good news, the philanthropy scene is not entirely positive. When adjusting for inflation, giving in 2018 did decline by 1.7 percent, though that was much less than the doom and gloom estimates. Furthermore, giving by individuals as a share of overall philanthropy accounted for 68 percent; this is the first time since at least 1954 that it has fallen below 70 percent. In 2018, individual giving fell by 1.1 percent in constant dollars.
While the new tax code likely had an effect on charitable giving, we need to be careful not to overstate its impact. A number of factors have influenced giving:
New Tax Code. All or part of the decline in individual giving in 2018 could be due to donors taking action in advance of the tax law change. We saw this in 1986 when there was a spike in charitable giving in advance of the Reagan tax cuts in 1987.
In 2017, many donors likely front-loaded their philanthropic giving since they would no longer be able to deduct gifts beginning in 2018. In addition, many donors chose to bundle their philanthropy by contributing to Donor-Advised Funds at record levels in 2017. Together, these two factors might explain the 1.1 percent decrease in individual giving in 2018 compared to a 5.7 percent increase in 2017. If not for the new tax rules going into effect in 2018, some of those 2017 donations might have been made in 2018 instead.
The tax code might also affect giving in other ways that we just don’t see clearly at this point. Just as we had to wait until 1988 to see giving normalize following the Reagan tax cuts, we may need to wait another year or two to understand the full effect of the current tax code.
Decline in the Number of Donors. Since 2001, the percentage of US households contributing to charity has fallen steadily from a high of 67.63 percent to 55.51 percent in 2014, according to data from the Indiana University Lilly Family School of Philanthropy’s Philanthropy Panel Study. In other words, the new tax code is not responsible for a sudden decline in the number of donors. This trend has been going on for years.
In the past, larger-donor giving made up for the decline in giving by more modest donors; last year, this didn’t quite happen. This can be an especially challenging problem for smaller charities that have less contact with wealthy donors and prospects than bigger, name-brand institutions do.
Decline in Religious Affiliation. There is a strong correlation between religious affiliation and philanthropy. Not only do religious affiliated people give more to religious institutions, they are also more likely to give to non-religious nonprofits. The Giving USA Special Report on Giving to Religion finds 62 percent of religious households give to charity of any kind, compared with 46 percent of households with no religious affiliation. Unfortunately, religious affiliation has been on a steady decline for years. This year, just half of Americans say they belong to a church, synagogue, or mosque while that number was 70 percent in 1999, according to a report from Gallup.
Rising Popularity of Socialism. In 2019, 43 percent of Americans say socialism is a “good thing” compared to just 25 percent in 1942, according to a Gallup report. This is an important trend that affects philanthropy. The more people believe that it is government’s responsibility to address more issues, the less likely the public is to initiate and support private efforts to address societal needs. That’s the thesis behind Dr. Marvin Olasky’s book The Tragedy of American Compassion, which looks at volunteerism and philanthropy throughout American history.
Declining Trust in the Nonprofit Sector. Of those surveyed, 32 percent in 2017 said they have less trust in charities than they did five years earlier, according to a report by Give.org. Only 10 percent had more trust. In my article, “Doing Well by Doing Right,” I wrote, “A study conducted by researchers at the Henley Management College in the United Kingdom found that ‘there would appear to be a relationship between trust and a propensity to donate’ (Sargeant and Lee, 2002)…. Furthermore, ‘there is some indication here that a relationship does exist between trust and amount donated, comparatively little increases in the former having a marked impact on the latter’ (Sargeant and Lee, 2002). So, trust impacts both propensity for giving and the amount given.”
Consumerism. Retail sales in 2018 grew at an estimated rate of 4.6 percent, according to the National Retail Federation. So, why did charitable giving by individuals drop? Clearly, it’s not because people don’t have the money to give. They do. They’re just choosing to buy consumer goods at Amazon or goodies at Starbucks among other purchases elsewhere.
People have choices about where they can spend their money. They’re choosing increasingly not to spend it on charitable giving. You have something to do with that. Greg Warner, CEO and Founder of MarketSmart, has written Fundraising Climate Change and What You Can Do About It. The free e-report examines the current fundraising environment and offers suggestions for how your nonprofit organization can get a larger share of consumer spending.
Here’s the bottom line truth: Charitable giving in constant dollars increased between 2017 and 2018 to the highest level in history, adjusted for inflation it reached the second highest level. Despite this enormous accomplishment, the nonprofit sector must overcome serious challenges if we want to continue to grow American philanthropy.
While the tax code might be one factor affecting giving, other dynamics are definitely playing a significant role. While many pundits and media outlets will negatively hype the new edition of Giving USA and focus on the tax code, I’ll continue to provide you the full story.
In the climax to the 1992 Oscar-nominated film A Few Good Men, Jack Nicholson’s character seethes, “You can’t handle the truth!” Well, I think you can. If I’m correct, I encourage you to subscribe to my free blog so you’ll get updates of new posts and a free e-book from philanthropy researcher Russell James, JD, PhD, CFP®. I promise you I’ll continue to write the truth and give you helpful insights so you can increase your organization’s fundraising results.
Now, it’s your turn. Have you seen any interesting trends among your donors?
[Note: Giving USA 2019: The Annual Report on Philanthropy for the Year 2018, a publication of Giving USA Foundation, 2019, researched and written by the Indiana University Lilly Family School of Philanthropy is available online at https://givingusa.org.]
That’s what Michael Rosen says… What do you say?
Update (July 31, 2019): Today, The Giving Institute released minor revisions to Giving USA 2019. Giving by Individuals was confirmed at $292.09 billion, accounting for 1.9 percent of disposable personal income. Overall giving was $427.71 billion, accounting for 2.1 percent of GDP. The Giving Institute is making free updates available for people who downloaded the original report and materials.
Michael Rosen Says... 