Report: Growing Wealth Gap Poses Threat to Nonprofit Sector
Gilded Giving

August 1, 2020 — The growing wealth gap in the United States, abetted by a tax code that effectively cedes public decisions about social investments to the whims of individual philanthropists, is imperiling the nonprofit sector, as well as other institutions, a newly published report warns.

In addition, two concurrent crises—the COVID-19 pandemic and the unfolding economic disaster—are exacerbating philanthropic inequity as the proportion of U.S. households that give to charity continues to decline, notes Gilded Giving 2020: How Wealth Inequality Distorts Philanthropy and Imperils Democracy, developed by the Institute for Policy Studies.

"Increasing inequality in giving poses significant implications for the practice of fundraising, the role of the independent nonprofit sector, and the health of our larger democratic civil society," according to the report.

Specifically, the report identifies key risks to the public, as well as to charitable sector organizations, as follows.

Risks to the public include:

  • The warehousing of wealth in the face of urgent needs
  • An increasingly unaccountable and undemocratic philanthropic sector
  • The rise of tax avoidance philanthropy
  • Self-dealing philanthropy
  • The increasing use of philanthropy as an extension of power and privilege

Risks to charitable independent sector organizations include:

  • 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
  • An increased bias toward funding boutique organizations and projects heavily directed by major donors, which also greatly increases the potential for mission distortion

According to Gilded Giving 2020:

The proportion of U.S. households that give to charity has declined significantly.

From 2000 to 2016, the most recent data now available, the proportion of households giving to charity dropped from 66% to 53%. As our report shows, this tracks indicators of economic insecurity such as employment, wages, and home ownership rates.

The proportion of charitable contributions coming from donors at the top of the income and wealth ladder has increased significantly.

In the early 2000s, households earning $200,000 or more made up only 30% of all charitable deductions. By 2017, the most recent year available, this group accounted for 52%. And the share of total charitable deductions claimed by households making over one million dollars grew from 12 3% in 1995 to 33% in 2017. Between 1995 and 2015, top 1% of income-earners went from claiming one eighth to a third of all charitable deductions.

There has been a marked increase in mega-gifting.

Giving USA defines a megagift as one that accounts for at least one-tenth of one percentage point of all giving nationwide. In 2012, the threshold for mega-gifts was $50 million or more; gifts of that size amounted to $1.2 billion and accounted for 0.5% of all individual giving in the U.S. that year. By 2019, just seven years later, the threshold for mega-gifts had jumped to $300 million; gifts of that size totaled $3.2 billion and accounted for about 1% of all individual giving that year.

Private foundations and donor-advised funds have both seen dramatic growth in recent years.

Both of these giving intermediaries are favored by wealthy donors because of the significant tax advantages they offer. The assets of private foundations grew 118% over the fifteen years between 2005 and 2019, from $551 billion to $1.2 trillion. Over the same period, the number of private foundations increased by 68%, from 71,097 to 119,791. Donations to donor-advised funds (DAFs) have increased even more rapidly, from $20 billion in 2014 to more than $37 billion in 2018 – 86% growth over just five years.

The proportion of all charitable dollars going into foundations has tripled over the past 30 years.

In 1989, just 4% of all charitable donations in the United States were given to foundations, rather than into direct working charities. By 2019, foundations were receiving 12% of all donations.

Donor-advised funds are receiving an increasingly larger share of giving.

In 2010, 4.4% of all individual giving went to DAFs, rather than to working charities. By 2018, that proportion had nearly tripled to 12.7%. The largest DAF sponsor in the country, the Fidelity Charitable Gift Fund, has been the largest single recipient of charitable giving in the United States for the past four years. And, for the past three years, six of the top 10 charities have been DAF sponsors.