Nonprofits increasingly relying on wealthy donors

• Published date: 01 January 2017
• Date: 01 January 2017
• DOI: http://doi.org/10.1002/nba.30269

6

JANUARY 2017NONPROFIT BUSINESS ADVISOR

© 2017 Wiley Periodicals, Inc., A Wiley Company • All rights reserved

DOI: 10.1002/nba

Nonprot Research

Nonprots increasingly relying on wealthy donors

Charitable donations may have rebounded from

the depths of the recession and are at or near his-

torical highs, but that doesn’t mean all is well in the

nonprot sector. Instead, according to researchers

at the Institute for Policy Studies, more and more of

that giving is coming from fewer and fewer sources—

wealthy mega-donors and their foundations, and

donor-advised funds—leading to a troubling “top-

heavy” donor base.

In Gilded Giving: Top-Heavy Philanthropy in an

Age of Extreme Inequality, the IPS nds that non-

prots have come to rely on ever larger donations

from a relatively small number of high-income,

high-wealth donors, while donations from low- and

middle-income donors are shrinking. Key ndings

from the report include:

• Charitable contributions from donors at the top

of the income and wealth ladder have increased signi-

cantly over the past decade. According to the report,

from 2003 to 2013, itemized charitable contributions

from people making $500,000 or more—roughly

the top 1 percent of income earners in the United

States—increased by 57 percent. And itemized con-

tributions from people making $10 million or more

increased by almost double that rate—104 percent—

over the same period.

• The number of private grantmaking foundations

has shown similar dramatic growth. Per the report,

the number of grantmaking foundations in the

United States has doubled since 1993, from 43,956

to 67,736 in 2004, and to 86,726 in 2014. Between

2004 and 2014, the number of foundations increased

28 percent, and the amount of assets held in those

foundations increased 35 percent.

• Over the past 10 years, charitable giving deduc-

tions from lower-income donors have declined signi-

cantly, at almost the same rate that contributions from

higher-income donors have increased. While itemized

charitable deductions from donors making $100,000

or more increased by 40 percent, itemized charitable

deductions from donors making less than $100,000

declined by 34 percent, the report said.

• The number of donors giving at typical dona-

tion levels has been steadily declining. According to

one estimate, low-dollar and midrange donors to

national public charities have declined by as much

as 25 percent over the 10 years from 2005 to 2015,

the IPS said.

• The rate of decline in small-dollar donors cor-

relates strongly with indicators of overall economic

security in the United States, such as wages, employ-

ment and homeownership rates. This correlation

indicates that donor declines are likely due, in large

part, to changing economic conditions, the group

said.

Tying this all together, the report pointed out sev-

eral signicant implications for the nonprot sector,

such as:

• Increased volatility and unpredictability in fund-

ing, making it more difcult to budget and forecast

income into the future.

• An increased need to shift toward major donor

cultivation.

• An increased bias toward funding larger or heav-

ily major-donor-directed boutique organizations and

projects.

• An increased risk of mission distortion due to

the increasing power of a small number of donors.

The report offers several recommendations for ad-

dressing these challenges, most notably by changing

the rules governing philanthropy. For example, the

IPS suggests:

• Increasing the minimum annual distribution

payout for foundations.

• Excluding foundation overhead from the re-

quired payout percentage.

• Linking the excise tax on foundations to payout

distribution amounts.

• Establishing a two-tier tax benet structure for

charitable gifts, with incentives that encourage direct

donations to public charities focused on urgent social

and community needs.

• Exploring a lifetime cap on tax-deductible

charitable giving to ensure that extremely wealthy

individuals and families can’t use such deductions to

entirely circumvent tax obligations.

To read the report in full, visit http://www.ips-dc

.org/report-gilded-giving. ■