Three wishes

The U.S. charitable giving sector is currently transitioning from broad-based support across a wide range of donors to top-heavy philanthropy increasingly dominated by a small number of very wealthy individuals and foundations, the Institute for Policy Studies, a progressive think tank, reported Monday.

This trend, the report said, has significant implications for the practice of fundraising, the role of the independent nonprofit sector and the health of the country’s larger democratic civil society.

“Over the last three decades, private wealth in the U.S. has become concentrated in fewer and fewer hands,” Chuck Collins, director of IPS’ program on inequality and co-editor of Inequality.org, said in a statement. “We’re now seeing this same trend in the charitable sector as a growing amount of philanthropic power is being held in fewer hands.”

According to the report, the share of contributions from wealthy donors has increased significantly over the past decade, rising from 30% of all charitable deductions coming from households earning $200,000 or more in the early 2000s to 52% by 2017.

The percentage of charitable deductions from households making over $1 million — not adjusted for inflation — grew from 12% in 1995 to 30% in 2015.

Mega-gifting has surged. According to the research, the threshold for mega-gifts in 2012 was $50 million or more, with gifts of that size amounting to $1.2 billion and accounting for just 0.5% of all individual giving in the U.S. that year.

By 2017, the threshold for mega-gifts had jumped to $300 million or more, and gifts of that size totaled $4.1 billion and accounted for about 1.5% of all individual giving that year.

Former New York Mayor Michael Bloomberg announced Monday that he is donating $1.8 billion to Johns Hopkins University, his alma mater, to help low- and moderate-income students attend the school without worrying about cost.

In 2010, Bill and Melinda Gates started and signed the Giving Pledge, in which the ultra-wealthy promise to donate more than half their wealth to philanthropy and charitable causes. Since then, 186 individuals and couples have signed, including 144 in the Americas.

The IPS reported that from 2000 to 2014, the proportion of households giving to charity dropped from 66% to 55%.

Traditionally, low-dollar and midlevel donors made up the vast majority of donor files and solicitation lists for most national charities. However, the new report finds that the number of donors who give at typical donation level has been falling for more than 15 years, declining by about 2% a year.

The number and size of private grant-making foundations and donor-advised funds have grown dramatically. Assets held in private foundations increased by 62% between 2005 and 2015, while the number of private foundations chartered in the U.S. grew by 21% over that period, IPS reported.

For their part, DAFs are currently the largest and fastest-growing recipients of charitable giving in the U.S. Donations to DAFs increased from just under $14 billion in 2012 to $23 billion in 2016, growth of 66% over five years.

National Philanthropic Trust recently reported that DAFs set records in 2017.

The report saw risks to independent sector charities, including increased volatility and unpredictability in funding, making it more difficult to budget and forecast income into the future; an increased need to shift toward major donor cultivation; and an increased bias toward funding heavily major-donor-directed boutique organizations and projects.

The increasing power of a small number of donors also greatly increases the potential for mission distortion, it said.

It also saw risks to the public: an increasingly unaccountable and undemocratic philanthropic sector; the rise of tax-avoidance philanthropy; the warehousing of wealth in the face of urgent needs; self-dealing philanthropy; and increased use of philanthropy as an extension of power and privilege protection.

“There’s nothing wrong with wealthy people giving bigger gifts to charitable causes that can improve society,” Josh Hoxie, director of IPS’ project on opportunity and taxation, said in the statement.

“The problem is the rules regulating our charitable sector have become skewed toward prioritizing tax write-offs for the ultra-wealthy and not toward solving social problems.”

In its report, the IPS calls for philanthropic sector reform to encourage broader giving, protect the health of the independent sector, discourage the warehousing of wealth in private foundations and DAFs and increased accountability to protect the public interest and the integrity of our tax system.

It says the rules governing philanthropy should include these changes:

  • Increasing the minimum annual distribution payout for foundations
  • Excluding foundation overhead from the payout percentage
  • Linking the excise tax on foundations to payout distribution amounts
  • Reforming the rules governing DAFs to require distribution of DAF donations with three years
  • Banning gifts from private foundations to DAFs and vice versa
  • Setting a lifetime cap on tax-deductible charitable giving
  • Establishing a universal charitable deduction to encourage giving by low- and middle-income donors.