Giving by Small Donors is Up. But Will it Last?

Last spring, commentators wondered if the unfolding pandemic would depress small donor giving and further expand the influence and reach of billionaire philanthropists.

A year later, a report by the Fundraising Effectiveness Project (FEP) finds that small donors more than held their own across an unprecedented 2020. Contributions were up 15.3% from “general donors” giving under $250 and 8% from “mid-level donors” giving between $250–$999 over the course of a year. In fact, the 15.3% increase from general donors outpaced that of “major donors” giving $1,000 or more (10.4%). Overall giving rose by 10.6%, spurred by an increase in new and reactivated donors.

The authors noted that the surge in giving from general donors was not “the largest driver of the overall lift in total dollars donated.” Nonetheless, after dropping 1.1% from 2018 to 2019, giving from general donors shot up 15.3% the following year. That’s encouraging news.

The findings came two weeks after the Urban Institute published a report showing that the pandemic has “boosted confidence in the power of ‘everyday giving’ and checked the narrative of its decline relative to larger-scale philanthropy,” according to author Benjamin Soskis.

These developments raise two critical questions: What explains the jump in everyday giving? And is this trend sustainable?

FEP chair Jon Biedermann cited a prosaic culprit for the increase—Congress’ decision under the CARES Act to let taxpayers deduct up to $300 in charitable contributions without itemizing deductions. Soskis, meanwhile, acknowledged how the pandemic “boosted narratives about the vitality of small-scale giving.”

The long-term prognosis hinges on a similar mix of variables. The $300 deduction was extended through 2021, while previous tax changes that disincentivize everyday giving are still on the books. “My suspicion is that it wasn’t just the $300 universal deduction that boosted small-dollar donations; it was also the broader context of the pandemic and protests surrounding racial justice,” Soskis told me. “So the question of the continued strength of ‘everyday giving’ in 2021 will depend as much on that context as on tax policy.”

Mind the gap

Analysts have sounded warnings about diminished giving from everyday donors for years. In 2016, IP editor David Callahan envisioned a “hollowed out” future where small donors cede the stage to activist billionaires orchestrating shifts in social and economic policy that may not align with the interests of the larger body politic.

Last summer, the Institute for Policy Studies published its 2020 “Gilded Giving” report, which found that between 2000 and 2016, the percentage of households giving to charity dropped from 66% to 53%. “Top-heavy philanthropy—small-dollar donor declines combined with increasing numbers of ultra-wealthy mega-donors—poses growing risks to the independence of the nonprofit sector, the integrity of the tax system, and the health of our democracy,” the authors wrote.

The 2017 Tax Cuts and Jobs Act didn’t help. The law disincentivized giving among everyday donors by roughly doubling the standard deduction and eliminating some itemized deductions. (In 2018, 89% of filers took the standard deduction, according to the IRS.) At the same time, the 2017 law boosted incentives for mostly wealthy itemizers by allowing them to deduct cash donations of up to 60% of their income through 2025; after that, the maximum deduction is scheduled to drop to 50%.

Did these changes to the tax code depress charitable giving? It depends on who you ask. A 2019 study by the Nonprofit Research Collaborative found that “tax law had little impact on charitable receipts for the majority of charities.” But Giving USA’s annual report on philanthropy for 2018 found that individual giving declined 1.1%—the first decline since 2013 and a steep drop-off from the 5.7% increase in 2017. “The tax changes may be why individual giving was flat overall,” said Rick Dunham, chair of the Giving USA Foundation.

The DAF factor

It’s worth remembering that the concern here isn’t a drop in giving across the board, but whether the giving gap between everyday and affluent donors widens or shrinks.

Three research groups found the gap was growing. The FEP reported that donors who gave $1,000 or more drove the 1.6% increase in individual giving in 2018, while giving by mid-level and general donors was down by 4% or more. The Network for Good and Blackbaud’s Charitable Giving Report also reported slight increases in total individual giving while noting decreased support from smaller donors.

Another factor contributing to the growing gap between everyday and large-scale giving is the unrestrained rise of donor-advised funds (DAFs). Again, incentives are the relevant issue. Donors sock away their money in DAFs, where it can sit undisturbed for decades before reaching a charity. In exchange, donors can reduce their tax bill.

You’d be hard-pressed to design a giving vehicle more suited to high-income individuals looking to reduce their taxable income. According to the National Philanthropic Trust, the size of the average DAF account in 2016 was just south of $300,000. In 2020, the trust’s DAF report found that the figure dropped to $162,556—a decrease, to be sure, but still a far cry from the kind of account balance we’d expect from a family with 2019’s average household income of $87,864.

“Posing a challenge to established norms”

Discussing the jump in everyday giving, the FEP’s Biedermann found it “striking that on December 31, there was a 28% increase of $300 gifts, which is exactly the maximum amount a donor can take using the universal charitable deduction.” Telling, but there’s a convincing argument that small donors would have dug deep in 2020 regardless of the tax implications.

“2020 was a year in extremis,” IP’s Paul Karon wrote recently, “one in which you’d expect philanthropic individuals and organizations to step up to help more vulnerable members of their communities—as, admirably, they did.” With community foundations taking the lead at the local level and Americans providing support through unconventional channels, giving became a less abstract and plutocratic concept for many low- and middle-income individuals.

Soskis at the Urban Institute picked up on this theme. “The media focused more on smaller-scale forms of giving, especially those involving mutual aid and person-to-person cash transfers,” he wrote. “This attention signaled the strengthening of giving norms and narratives that recast dominant attitudes about how best to help those in need, emphasizing solidarity and trust in the decision making of recipients, and potentially posing a challenge to established norms encouraging giving to tax-exempt nonprofits.”

Moreover, even though fears about depressed small donor giving reached a fever pitch last spring when the markets were tanking, the S&P 500 finished the year with a gain of 16.26% and closed at a record high on December 31. More than half of U.S. households have some investment in the stock market, and growing confidence across the latter half of 2020 may also have contributed to everyday givers’ largesse.

Looking ahead

To speculate on the future of everyday giving, it’s useful to revisit the root causes behind 2020’s surge, starting with the $300 deduction. In December, Congress did extend the deduction for 2021. But the 2017 changes to standardized deductions remain in place. In fact, the standard deduction for 2021 will be higher than in 2020, providing taxpayers with less of an incentive to donate. Meanwhile, Congress has given wealthy itemizers more tax-related reasons to donate. The CARES Act allowed itemized filers to deduct cash donations up to 100% of their income in 2020; December’s COVID-19 Economic Relief Bill extended the rule for 2021, meaning someone can donate enough to “wipe out their entire tax bill,” said Cari Weston, director for tax practice and ethics at the American Institute of Certified Public Accountants, in the New York Times.

Taxpayers respond to incentives. If Congress is intentionally trying to drag philanthropy back to its pre-pandemic state, it’s hard to imagine a more effective strategy.

Then there’s the degree to which small donors respond to the pandemic and ongoing calls for racial justice over the next nine months. While it’s hard to imagine support from everyday donors will dry up, it’s also a huge ask to expect them to keep giving at a level commensurate with that in 2020.

“I think it’s very possible that, generally speaking, the trend of revitalized everyday giving will continue,” Soskis said, “but that does not necessarily mean it will do so through monetary donations to tax-exempt nonprofits. The question—which I don’t have a solid answer to—is how much of the residuum of charitable energy generated over the last tumultuous year will, in the year to come, be directed to nonprofits versus other forms of giving. Of course, a lot will also depend on the economic conditions this year and next.”

Billionaires weigh in

In February of this year, before the Urban Institute and FEP published their findings, Bill and Melinda Gates spoke about their desire to boost small donor giving through efforts like their Reimagine Charitable Giving Challenge, a contest that identifies innovative ideas to accelerate individual philanthropy.

Bill Gates said he hopes other billionaires will become interested in increasing the ranks of modest and mid-level donors. It’s a somewhat ironic aspiration given Gates and his fellow billionaires’ frustratingly lackluster pandemic-related giving.

In early March, a study by Candid and the Center and Disaster Philanthropy (CDP) found that billionaires not named McKenzie Scott and Jack Dorsey were missing in action in 2020. More recently, Nitasha Tiku and Jay Greene wrote in the Washington Post that tech titans’ pandemic-era stinginess should “shatter the myth of the benevolent billionaire.”

The Gateses have emerged relatively unscathed in the court of public opinion, given his muscular philanthropic response. The Candid/CDP study found that the Bill and Melinda Gates Foundation awarded $1.3 billion in COVID-related support in 2020, the most of any independent foundation. But this giving needs to be put in context. The $1.3 billion figure represents 1% of Bill Gates’ net worth as of mid-February. In contrast, COVID-related giving from MacKenzie Scott ($4.3 billion) and Jack Dorsey ($1 billion) constituted 7% of their respective fortunes.

This makes the FEP’s findings all the more fascinating. Not only did “general donors” step up giving over 2019, but they did so at a higher rate than “major donors.” It also suggests that if the Gateses and their billionaire peers want to boost everyday giving, they may want to consider a simple idea—lobby Congress to make the $300 deduction permanent or, better yet, double it.

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Correction: This post has been corrected to reflect that the policy allowing taxpayers to deduct up to $300 in charitable contributions without itemizing deductions has been extended through 2021. We also made two edits for clarification: replacing a household income statistic to offer a more apt comparison, and clarifying the extent to which DAF giving can reduce a donor’s tax bill.

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