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Giving USA released its annual report on the state of charitable giving in late June, and its findings, while a welcome improvement over last year’s topline that 2022 giving declined by 10.5% after inflation, are still somewhat mixed.
Support from individuals, bequests, foundations and corporations increased 1.9% to $557.16 billion in 2023. However, when adjusted for inflation, real giving declined 2.1% year over year. On the bright side, giving remained above pre-pandemic levels, even when adjusted for inflation. In an email to IP, Sam Caplan, VP of social impact at Submittable, a social impact program management platform, called this trend “a strong signal that giving remains healthy in spite of the high inflation rate.”
The numbers in the Giving USA reports differ each year, but the big trends and underlying subplots mostly remain the same. Individual giving continues to falter while foundation support increases. A subset of donors are pouring money into donor-advised funds. And fundraisers hope that positive economic trends hold and incentivize funders to eclipse the previous year’s haul. “There are signals that inflation is easing,” Caplan said, “and with wages increasing, we’re hopeful that charities realize a net increase in operating cash in 2024.”
There’s a tendency to take these trajectories for granted since they’ve become so deeply embedded into the larger narrative where markets go up or down, donors give accordingly, and fundraisers try to squeeze as much funding as they can from the margins. But these trends aren’t static, and research like Giving USA’s informative study gives us the opportunity to revisit them with a healthy dose of scrutiny.
“Nonprofits are taking the brunt of inflation”
For instance, the $557.16 billion figure includes donations to donor-advised funds (DAFs), which remain a wildly popular charitable vehicle among individuals and some foundations. However, unlike foundations, which must earmark 5% of noncharitable-use assets toward qualified distributions like grants, DAF account holders do not have to give money to working nonprofits at any time, even though they can take an immediate tax write-off.
According to the National Philanthropic Trust, the average percentage of funds in a DAF that flowed to a charity in 2022 was 22.5% percent — significantly higher than the 5% that foundations must pay out annually. That said, if the DAF holders in Giving USA’s data set had a similar payout rate, roughly 77% of the funding in those DAFs didn’t flow to nonprofits in 2023. And NPT’s 22.5% figure can certainly be called into question.
Giving USA found that inflation-adjusted giving from individuals dropped by 2.4% in 2023. “While wages outpaced inflation for much of 2023, there’s still an inflation hangover that may be causing some hesitation among individual donors,” Caplan said. “On top of that, individuals may simply be taking a break from their surge in giving during the COVID years.”
I’d also add that changes to U.S. tax law have disincentivized less-affluent Americans from donating. The 87% of taxpayers who take the standard deduction can no longer claim up to $600 in cash donations without having to itemize, and studies consistently show that high-income taxpayers are more likely to opt for the latter option.
Meanwhile, at $103.53 billion, giving from foundations was up 1.7% over the previous year, although the figure represents a 2.3% decline when adjusted for inflation.
“I was surprised that giving by foundations didn’t keep pace with the rate of the S&P market return (19% giving vs. 24% return on investment),” Caplan said. “That said, many foundations are not equipped to significantly increase their annual giving when their investments outperform expectations.”
Caplan’s point corroborates findings from an analysis conducted by FoundationMark’s John Seitz. After crunching Form 990 data from the 40 largest U.S. foundations by total assets, Seitz determined that 17 of the 36 for which information was available for the last five years failed to hit an average 5% payout during that time frame.
To Caplan’s point, Seitz attributed this underperformance to foundation program officers’ inability to effectively move a disproportionately large amount of money out the door. “It sounds like a very high-class problem,” Seitz said in an email, “but the budgeting and vetting process of distributing that sum of money shouldn’t be underestimated.”
I suspect this is cold comfort to potential recipients of those foundations’ largesse. “Nonprofits are taking the brunt of inflation, erasing the gains they might have enjoyed as total giving dollars increased,” Caplan said. “This is alarming because nonprofits are reliant on donations, grants and government funding, and struggle to operate without them.”
It takes two to tango
Giving USA suggests that with inflation expected to recede, nonprofits and fundraisers may be sleeping a bit easier than they were this time last year. Or maybe not. Either way, the tenor of the report is the same as it was last year and those before it — can overworked fundraisers knock loose additional support from donors?
That’s a critical question, but it puts the onus on fundraisers to move mountains without asking if entities on the supply side of the equation are holding up their end of the bargain. Yes, it’s important that fundraisers reverse the drop in individual giving, but we should also wonder why donors are taking an immediate tax break and only disbursing roughly 23% of DAF assets annually, or why foundations can’t move larger amounts of money out the door when their balance sheets are flush.
Neither action requires a change in tax law, just a shift in thinking among a subset of funders. This penchant for keeping billions of dollars out of reach reinforces a scarcity mindset that tells nonprofits they should be thankful for what they get because there isn’t enough money to go around without jeopardizing support for future grantees. Meanwhile, a reasonable person looks at the numbers — $1.5 trillion in total foundation assets, $229 billion in DAFs as of 2022, new millionaires and billionaires coming online all the time — and comes to a starkly different conclusion.
Don’t just take my word for it. A 2022 Ipsos poll commissioned by the Institute for Policy Studies’ Charity Reform Initiative found that nearly 70% of American adults surveyed back a higher foundation payout mandate and a payout mandate for donor-advised funds, proving that despite deep political polarization, the body politic can still unite in disapproval of foundations and donors shunting billions of dollars into DAFs and endowments, and only disbursing 23% of DAF dollars annually or failing to hit the 5% payout rate.
Bottom line? We should use the publication of Giving USA’s insightful and expansive study to appreciate the astonishing breadth of American philanthropy, celebrate the fact that giving is above pre-pandemic levels and question whether fundraisers can reverse ominous trends like the decline in individual giving.
But it takes two to tango. Giving USA’s report is a reminder that during a time of unprecedented need and with hundreds of billions of dollars uselessly warehoused, it’s incumbent on donors and trustees to view themselves as more than passive bystanders dutifully responding to market gyrations. Fundraisers are a resourceful bunch, but they can only do so much.
From Inside Philanthropy