Wealth and philanthropic power is concentrating in fewer hands, posing an immense risk to the autonomy of the nonprofit sector — not to mention our democracy.
As we wrote in our 2024 Gilded Giving report, American charities are experiencing a transition from broad-based support across a wide range of donors to an increasing reliance on a small number of very wealthy individuals, a trend we call “top-heavy philanthropy.” Donors are diverting greater proportions of charitable dollars into wealth-warehousing vehicles such as private foundations and donor-advised funds instead of giving directly to working charities that serve immediate needs.
Charitable giving is meant to benefit the common good, which is why taxpayers subsidize philanthropy. For every $1 dollar a billionaire donates to charity, taxpayers chip in up to 74 cents in lost tax revenue. Yet our current system lets our wealthiest opt out of paying taxes under the guise of charity while still preserving and controlling their wealth, which isn’t very generous at all.
As Inequality Rises, Everyday Americans Are Giving Less to Charity
America’s Richest Are Gaining Increased Influence Over Charities
Wealth-Warehousing Vehicles Are Popular With Wealthy Givers and Tax Avoiders
As Inequality Rises, Everyday Americans Are Giving Less to Charity
The latest research from the Lilly School of Philanthropy’s Philanthropy Panel Study, or PPS, revealed that the percent of U.S. households giving to charity dropped nearly 15 percentage points over the past ten years, slipping below fifty percent since the study began twenty years ago. The PPS, which is a part of the Panel Study of Income Dynamics at the University of Michigan, surveys the same set of more than 9,000 households every two years to learn about their giving behavior. In 2010, 61.5 percent of the households surveyed had given to charity. In 2020, just ten years later, that had dropped to 46.9 percent. These declines in giving showed up consistently when controlling for all social and demographic characteristics.
America’s Richest Are Gaining Increased Influence Over Charities
As charities face a loss of broad-based support, they become increasingly reliant on smaller numbers of major donors to stay afloat. These major donors thus gain increasing influence over charities’ activities and even their core missions. And this endangers not only the charities themselves, but also those who depend on their work.
According to IRS data, households earning $200,000 or more accounted for just 30 percent of itemized contributions in 2002. That share had grown to 79 percent by 2021, the most recent year available, accelerated by changes in the 2018 Tax Cuts and Jobs Act. This growth means, as the Chronicle of Philanthropy wrote, that “nonprofit groups have become more dependent on the wealthy generally.”
Households at the very top of the income scale have been stepping up their use of the charitable deduction at an even faster rate than those of merely moderate wealth. The share of itemized contributions claimed by households with incomes over one million dollars increased from just 15 percent in 2002 to 57 percent in 2021.
In other words, the top 1 percent of U.S. households have rocketed from about one-sixth to more than half of all charitable deductions in just 20 years — allowing them to disproportionately reduce their tax burdens while giving them an outsized voice in what happens to charities
Mega-donations create a big splash when they are bestowed on one or another lucky nonprofit. And mega-sized gifts to charity from some of the wealthiest among us have become more frequent in recent years. According to data from the Chronicle of Philanthropy, gifts from individuals of $1 million or more rose from $2.4 billion in 2009 to more than $7 billion by 2023.
Ultra-enormous mega-gifts — gifts that Giving USA defines as those large enough to require an adjustment to their econometric estimates — are growing as well. In 2009, the threshold for mega-donations was $30 million, and mega-donors gave a total of $4 billion. By 2023, the mega-gift threshold had jumped to $550 million, and mega-donors gave a total of $8 billion.
Because mega-giving is extremely volatile, this growth doesn’t even reflect a set of record-smashing gifts that have come in just the past few years. Michael Bloomberg has given gifts of more than a billion dollars every year since 2019, either to Johns Hopkins University or to his own private foundation. Bill Gates gave more than $5 billion to his foundation in 2022. And Elon Musk gave a record-smashing $5.74 billion to his private foundation in 2021, followed by another foundation gift of $2 billion the following year.
DAFs have seen such phenomenal growth that some DAF sponsors are now among the largest single charitable recipients in the country. A commercial DAF sponsor, the Fidelity Charitable Gift Fund, became the top recipient of giving for the first time in 2016, edging the United Way out of the top spot. By the following year, six commercial DAF sponsors had broken into the top 10 and have never looked back.
As of 2022, according to our own analysis, six of the top ten and ten of the top twenty charities in the U.S. were donor-advised funds.
Wealth-Warehousing Vehicles Are Popular With Wealthy Givers and Tax Avoiders
Private foundations are charitable giving vehicles that are generally available only to the affluent, since establishing and maintaining one usually requires a significant financial investment.
Over the past three decades, wealthy philanthropists have been directing more and more of their charitable giving into foundations, endowing them with increasingly large donations. According to the U.S. Census and Candid, the number of foundations in the United States grew from 32,401 in 1990 to 127,595 in 2020 — the most recent data available — nearly tripling over thirty years. The amount of assets held in those private foundations increased more than twice as fast, growing a whopping 693 percent from $145 billion to $1.2 trillion over the same period.
As quickly as the wealthy have adopted private foundations, their embrace of donor-advised funds, or DAFs, has been even quicker. DAFs have been the fastest-growing charitable sector in the U.S. in recent decades. According to the National Philanthropic Trust, donations to DAFs increased from $10 billion in 2007 to almost $86 billion in 2022 — 750 percent growth over just fifteen years. In contrast, according to Giving USA, overall giving by individual donors grew by just 12 percent over the same time period.
DAF assets have been building up almost as fast as contributions have been rolling in. DAFs held just under $32 billion in assets in 2007, and that had grown to nearly $229 billion in 2022 — 616 percent growth over fifteen years.
DAFs offer wealthy donors a convenient way to offload appreciated assets without incurring capital gains taxes and, at the same time, to get a tax deduction for their donation. But there is no legal requirement for DAFs to pay out their funds to working charities — ever — so the civic benefit from these publicly-subsidized gifts can be delayed indefinitely. And since DAFs have lax reporting requirements, it is nearly impossible to determine how quickly individual DAF accounts are paying out, or whether their grants are going to qualified charities at all.
DAFs have seen such phenomenal growth that some DAF sponsors are now among the largest single charitable recipients in the country. A commercial DAF sponsor, the Fidelity Charitable Gift Fund, became the top recipient of giving for the first time in 2016, edging the United Way out of the top spot. By the following year, six commercial DAF sponsors had broken into the top 10 and have never looked back.
As of 2022, according to our own analysis, six of the top ten and ten of the top twenty charities in the U.S. were donor-advised funds.
Charitable giving in the U.S. has remained remarkably constant at 2 percent of personal disposable income — the income that is left over for people to spend once taxes are taken out — for more than forty years. But, over that same time, donations to private foundations and DAFs have grown many times faster than donations to working charities.
Foundations and DAFs have not only grown in sheer volume, but they have also grown significantly in the share of charitable dollars they receive from America’s donors each year.
Data from Giving USA shows that giving to private foundations has increased from 15 percent to 19 percent of individual charitable giving since 2009. And data from the National Philanthropic Trust shows that giving to DAFs has increased from 3 percent to 16 percent of individual charitable giving over the same time period. Combined, these two intermediaries now soak up 35 percent of all U.S. individual donations — almost double what they took in ten years earlier.
This means, of course, that working charities receive less. Charities are looking to major giving to compensate for declining broad-based donor support. But that major giving disproportionately lifts up less-than-charitable intermediaries — not to mention the wealthy donors themselves.
If giving to these two charitable intermediaries continues to grow the way it has over the past five years, they’ll be taking in half of all individual giving by 2028. With each passing year, an additional 2 cents of each dollar donated by individuals is funneled into intermediaries, and away from working charities.
All of this rapid growth means that the assets held in DAFs and foundations will soon eclipse $2 trillion. Assuming that their assets will grow at the same rate they have over the past five years, they’ll reach this milestone in just two years, by 2026.