Tilting Upward: Skewed Giving Trends and Inequality in the Nonprofit Sector

Rising inequality in America over the past four decades has undermined living standards and social mobility, dampened economic growth, and corrupted U.S. politics.

But what about the effects of inequality on civil society and the nonprofit sector? That question has gotten much less attention. Yet there are growing signs that the vast chasm between the super-wealthy and everyone else is also having negative effects in these realms, too.

The problem, in a nutshell, is that the rich have become an ever-more dominant force in philanthropic giving, and as a result, increasingly shape the priorities of civil society. While many Americans still take great pride in U.S.’s remarkably diverse nonprofit sector—seeing it as the realm of the everyman, as Tocqueville famously said—this view is dated and romanticized in key respects. Many of the most influential nonprofits today depend not on the membership dues or small donations that once powered leading civil society groups in earlier eras, but on the largesse of wealthy donors and private foundations. With that largesse comes clout.

If that storyline sounds vaguely familiar, it’s because we’ve already seen a version of this movie in electoral politics. Over the past half-century, mass-based political parties have receded as intermediaries between voters and government. Wealthy donors have replaced national and local party leaders as the top power brokers in politics. The results of this shift include less responsive government, growing polarization, and rising alienation and anger among ordinary Americans.

A somewhat similar trend is underway in civil society. It’s at an earlier stage and less well understood. But it’s real and troubling.

At the core of this story is a growing divergence in charitable giving along class lines. In the past decade or so, as incomes have risen for the top 1 percent, the wealthy have stepped up their philanthropy. Meanwhile, as incomes have stagnated for most households, mass charitable giving has declined. Securalization is another major factor behind falling giving, since religiosity by ordinary people correlates with generosity.

More Giving at the Top

Let’s look more closely at giving along the class spectrum, starting at the top.

Nearly every day brings new evidence of a philanthropic surge at the pinnacle of the income ladder. The latest eye-popping statistic is that the Fidelity Charitable, the nation’s largest manager of donor-advised funders, pulled in nearly $7 billion in contributions in the fiscal year that ended in June—a 68 percent increase over the previous year. Schwab Charitable also saw big gains, and as we’ve reported, the Silicon Valley Community Foundation has been growing by leaps and bounds in recent years. Grants in 2016 totaled $1.3 billion—more than double the amount of 2014.

As I described in a past article, “The Millionaire Philanthropist Next Door,” the explosion of DAFs reflects the enormous assets in the hands of the far-upper class—and I’m not just talking about America’s 569 billionaires. Some 75,000 U.S. households had investable assets of $30 million or more in 2015. A million households have liquid assets of $5 million or more. These figures are surely higher now, given stock market gains—gains which leaders at Fidelity say largely account for the recent spike in contributions to its DAFs. A bull market has also driven the combined assets of the Forbes 400 to this year's record high of $2.7 trillion, up from $1.37 trillion in 2010. The years since the Great Recession and a strong bull market have been extraordinarily good for America’s wealthy—and top DAF providers. Meanwhile, over half of U.S. households have no money in the stock market at all, or much in the way of savings.

Rising giving to DAFs is just one sign of stepped-up giving by hyper-affluent households. A study published last year, “Gilded Giving: Top-Heavy Philanthropy in an Age of Extreme Inequality,” by Chuck Collins, Helen Flannery and Josh Hoxie, found that 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 contributions from people making $10 million or more increased by almost double that rate—104 percent—over the same period.”

Chasing Wealthy Donors

Those are striking statistics, and among the places where this giving spike is playing out is higher education. A study earlier this year by Marts & Lundy, a fundraising consulting firm, found that "mega-gifts"—those exceeding $10 million—topped $6 billion in total for the first time in 2016, rising 11 percent higher in 2015. Donors made 194 mega-gifts in 2016, also a new high. A result of this trend is that university fundraisers are focusing ever more attention on chasing wealthy donors and less on rank-and-file alumni.

Giving trends in other parts of the nonprofit sector are harder to ascertain, but anecdotal evidence reported almost daily in IP suggests a similar story: a marked increase in large gifts by living donors going to organizations working in such areas as the environment, poverty, arts and culture, and social rights. Maybe the most dramatic example is K-12 education, where an entire new infrastructure of charter schools and reform organizations has emerged in the past 15 years, almost entirely bankrolled by major donors writing large checks.

Even as they have sought to transform public education, groups like Teach for America and KIPP don't appear to have built up large bases of small donors. They are fueled by the 1 percent—or, more accurately, the 0.01 percent. Some prominent ed reform groups, such as Parent Revolution or the Black Alliance for Educational Options, seem to be mainly sustained by the foundations of just several billionaire donors—even though their names might suggest they speak for large membership bases. Who do such nonprofits really represent as they push for changes to policies that affect the lives of millions of school kids?

I don't mean to pick on the ed reform world for its skewed funding. In fact, there are myriad examples of influential nonprofits that would go out of business tomorrow if just a handful of their funders withdrew support. It’s impossible to measure how this state of dependency translates into influence for donors—that would be a great subject for new research—but you can use common sense on this one. Money talks. And as legions of wealthy donors pile into civil society, it’s talking louder than ever in a sector that de Tocqueville probably wouldn’t even recognize today.

Less Giving in the Middle

Moving down the income ladder, we find a very different story: Americans of more modest means are giving less and peeling away from civil society. “Gilded Giving,” the report cited earlier, found that “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… 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. These are the people who have traditionally made up the vast majority of donor files and lists for most national nonprofits since their inception.”

Newly published research by Indiana University’s Lilly Family School of Philanthropy shows similar trends. Data presented on its website, Generosity for Life, finds that volunteering and charitable giving overall has fallen 11 percent since the early 2000s. While secularization is an important factor in this trend, and especially in certain cities like Los Angeles, as we’ve reported, economics has likely played a far bigger role. Many Americans were clobbered by the Great Recession and median household wealth has yet to recover from that downturn. Earnings have also been largely flat. Meanwhile, housing and healthcare costs have soared. No wonder most people don’t feel they can afford to give as much as in the past.

Will Crowdfuding Save Us?

Can the recent rise of crowdfunding help reverse the decline in small donor gifts? It’s a hopeful thought, and we’ve reported closely at IP on developments in this area—such as the Ice Bucket Challenge and the remarkably successful crowdfunding campaign that J.J. Watts launched in the wake of Hurricane Harvey. Of course, a handful of nonprofits like the ACLU and Planned Parenthood have scored vast windfalls from small donors since the 2016 election.

The rise of crowdfunding in politics also offers encouragement. That trend started in 2004 with Howard Dean’s presidential campaign and reached a new peak with Bernie Sanders’ insurgent White House run.

Can something similar happen in civil society? It’s hard to know. What we can say is that it hasn’t happened yet, even though crowdfunding technology has been in use for years, now. As we’ve explained in the past, only a select set of events or causes seem to trigger large waves of small donations.

Just as the crowdfunding success of star politician like Obama and Sanders has done little to diminish the overall influence of money in U.S. elections and the legislative process, there is no reason to think (yet) that one-offs like the Ice Bucket Challenge signal a larger reversal in top-down civil society funding trends. Proposals to tweak tax laws to incentivize more giving by small donors would be a step in the right direction but not a game changer by any means.

So how might we address skewed giving and the distortion of civil society? There are no easy answers here, since economic inequality is the underlying driver of this problem. And unfortunately, the political leaders now running Washington and a majority of states are making policy choices that are likely to increase inequality in coming years. They’re also making choices that will diminish government’s ability to solve big problems, creating a vacuum that philanthropy and civil society will do its best to fill.

The bottom line: A nonprofit sector increasingly dominated by upper-class donors is set to play an ever-larger role in American life.

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