A new report predicts that total charitable giving will increase by 3.4% in 2019 and by 4.1% in 2020, rising above the historical 10-, 25- and 40-year annualized average rates of growth.
Marts & Lundy, a strategic management consulting firm, presented the report, which was researched and written by the Indiana University Lilly Family School of Philanthropy.
“A multitude of factors are influencing the prospects for charitable giving in 2019 and 2020, including the macroeconomic climate, the potential for the current government shutdown to affect the economy, stock market volatility and donors’ responses to the 2017 tax policy changes,” Una Osili, associate dean for research and international programs at the school, said in a statement released Friday.
“Although no one can know exactly how the interaction of these factors will impact giving in the next two years, The Philanthropy Outlook includes measures to account for their potential effects.”
Philippe Hills, president and CEO of Marts & Lundy, noted that giving over the next two years was predicted to grow even in the wake of changes to the tax code.
“However, it is still too soon to determine exactly how the recent tax changes may impact future donor decisions, and nonprofits need to be mindful of its potential impact, as well as the impact of other economic and policy factors put forth in The Philanthropy Outlook,” Hills said.
The report predicted that giving by individuals would grow by 2.1% and 3.4% in 2019 and 2020, slower than the rate of growth for total giving. Corporations, too, will lag total giving, growing by 3.2% and 2.6% over the next two years.
In contrast, giving by foundations and estates will experience strong growth: 7% and 5.4% in 2019, and 6.1% and 5.6% in 2020.
Researchers looked at three recipient subsectors. They predicted that giving to education and to health — the types of nonprofits that have traditionally been associated with high-net-worth donations — would grow in 2019 and 2020: education by 3.5% and 5.7%, and health by 5.2% and 4.4%.
Giving to public-society benefit charities will experience slower growth: 1.3% this year and 4% next year.
Researchers drew on recent economic forecasts and analyses of the new tax law’s anticipated effects to present projected growth and three potential scenarios that provide context for their baseline projections outlined in the report.
Uneven growth. This scenario estimates that total charitable giving would make less apparent much of the regressive effect of the 2017 tax law. Since high-net-worth individuals/households are already responsible for a large portion of giving by this donor segment, enough economic growth — even if mostly concentrated among the wealthy — would result in growth in individual/household giving. Foundation giving would be strong because of GDP growth and the performance of the Standard & Poor’s 500 index.
The outlook for corporate philanthropy in this scenario is less clear. Strong economic growth may not do enough to offset the decrease in tax incentives for corporate giving, particularly if overall consumer sentiment is weak.
Flat growth. If this scenario should occur, total giving could stagnate or even decline because growth in the market and the economy would flatten by 2020. Individuals/households, which are still unclear about how to maximize the benefits of giving under the 2017 tax law, may put off making charitable contributions until they are more certain, dampening growth by this donor segment.
Thanks to S&P 500 and GDP growth in previous years, foundation giving would not immediately decline. Corporate giving may increase slightly, although this would largely depend on companies’ reactions to the new corporate tax rates.
Economic downturn. Current economic expansion is expected to continue into 2019, but some forecasters expect the positive effects of the 2017 individual and corporate tax cuts to ebb rapidly after the first two years, leading to recessionary conditions by the end of 2020. This scenario would result in reductions in charitable giving by all donor segments.
— Check out Schwab Charitable Sets Another Grant Record in 2018 on ThinkAdvisor.