Annual growth in charitable giving slows as predicted

Growth in charitable giving in the United States slowed in 2018, possibly as a result of the 2017 tax reform bill, according to an annual report that tracks American giving patterns.

Individuals, estates, foundations and corporations gave a total of nearly $428 billion in 2018, according to the latest Giving USA report, released Tuesday.

That’s up less than 1% when measured in current dollars from the updated estimate of nearly $425 billion in 2017, and it’s a decline of 1.7% when adjusted for inflation. 

In 2017, total giving exceeded $400 billion for the first time and increased by 7.1% from the prior year (4.9% when adjusted for inflation). 

It’s a less-than-anticipated negative impact than the philanthropic community braced for following the passage of the tax reform bill, which many believed would reduce the number of Americans who seek federal tax breaks by using a deduction for giving. Some estimates suggested giving would drop by anywhere from $4 billion to $20 billion.

But the number is still the smallest growth rate since 2013, when giving was flat from the prior year (a decrease of 1.5% when adjusted for inflation).

Experts from the Giving USA Foundation and the Indiana University Lilly Family School of Philanthropy, which researches and writes the annual report, say the shift in giving could be due to a mix of factors, including the stock market, changes in personal income and the tax reform legislation.

The tax reform bill, which Congress passed in December 2017, increased the standard deduction, meaning fewer individuals and couples would be likely itemize their tax returns. Only those who itemize their tax returns are eligible to claim the charitable deduction, which was added to the federal tax code in 1917 to provide an incentive for taxpayers to make donations. 

In 2016, more than 45 million households itemized deductions, but multiple studies have suggested that number dropped to a range of 16 million to 20 million in 2018, according to the Giving USA report. 

The tax law also reduced individual income tax rates, capped deductions for state and local property tax payments at $10,000, and doubled the estate-tax exemption to $22 million for couples—all factors that play into charitable giving.

“As we’ve seen in previous years, the strong economy had a positive influence on individual giving; however, these positive effects may have been tempered by policy changes and other factors to create a more mixed picture for giving in 2018,” said Una Osili, associate dean for research and international programs at the Lilly Family School of Philanthropy, in a written statement. “About half of all Americans give, and the tax policy changes may have created uncertainty for some donors, especially those who previously itemized but no longer will. We have strong historical data about the link between economic variables, the stock market and charitable giving, and we will be analyzing data for the next few years to better understand how broad giving patterns may have changed.”

The biggest areas of growth were among foundations and corporations. Giving by foundations increased 7.3% (4.7% when adjusted for inflation), contributing a total of nearly $76 billion. Corporate donations increased 5.4% (2.9% when adjusted for inflation), contributing $20 billion. 

Giving by individuals declined by 1.1% in 2018 (a decrease of 3.4% when adjusted for inflation), contributing a total of $292.1 billion. The last time individual giving decreased was in 2013.

Estate giving remained flat, contributing close to $40 billion to the total.

Organizations that benefited the most in 2018 were in international affairs and environmental and animal groups, which saw increases of 9.6% and 3.6%, respectively. 

Sectors including religion, education and public-society benefit experienced decreases in giving.

Donations made to human services, health and arts and culture groups stayed flat from 2017 to 2018.

Patrick Rooney, executive associate dean for academic programs at the Lilly Family School of Philanthropy, said the decline in giving to religious organizations could be attributed to the drop in individual giving, because most religious donations come from individuals, plus a growing percentage of Americans aren’t associated with a religious group. 

Meanwhile, the increase in giving to environmental and animal groups is an ongoing trend—that sector has seen growth for five consecutive years, reaching an all-time high in 2018 of $12.7 billion.

“The complexity of the charitable giving climate in 2018 contributed to uneven growth among different segments of the philanthropic sector,” Amir Pasic, dean of the Lilly Family School of Philanthropy, said in a written statement. “Charitable giving is multi-dimensional, however, and it is challenging to disentangle the degree to which each factor may have had an impact. With many donors experiencing new circumstances for their giving, it may be some time before the philanthropic sector can more fully understand how donor behavior changed in response to these forces and timing.”