Foundations, Estates Expected To Fuel Rise In Philanthropy
January 23, 2019 Mark Hrywna
Charitable giving should grow during the next two years, powered by giving from foundations and estates, according to a new study.
Total giving is expected to grow by 3.4 percent and 4.1 percent, respectively, for 2019 and 2020, according to The Philanthropy Outlook 2019 & 2020. The report, released today, is researched and written by the Indiana University Lilly Family School of Philanthropy at IUPUI and presented by Marts & Lundy, a Lyndhurst, N.J.-based consulting firm.
“As long as the economy remains strong, Americans should expect to see overall growth in charitable giving in the next two years, driven in part by steady economic growth, particularly growth in personal income,” said Una Osili, Ph.D., an economist who is associate dean for research and international programs at the Lilly Family School of Philanthropy. “Many other economic indicators that affect giving, including employment and Gross Domestic Product (GDP), are positive as well,” she said in a news release announcing the projections.
Overall giving should eclipse historical 10-year (1.1 percent), 25-year (3 percent), and 40-year (2.7 percent) annualized average rates of growth. Giving by foundations will lead the way, with increases predicted at 7 percent and 6.1 percent for 2019 and 2020, respectively, and giving by estates, 5.4 percent and 5.6 percent, according to projections in the report.
Two areas are expected to lag overall giving: Giving by individuals, 2.1 percent and 3.4 percent, and giving by corporations, 3.2 percent and 2.6 percent.
On the receiving end, two areas that typically get high-net worth gifts expect to see higher than average growth: giving to education, 3.5 percent and 5.7 percent, and giving to health, 5.2 percent and 4.4 percent. Giving to public-society benefit nonprofits is not expected to keep up, at 1.3 percent and 4.0 percent.
“The biggest factor now is a lot of the uncertainty that’s driving giving,” Osili said, including the partial federal government shutdown, now the longest on record. The impact of tax reform and the government shutdown are difficult to account for in models.
Giving by high-net-worth (HNW) individuals is expected to continue to buoy donations in spite of concerns about a drop-off in charitable giving due to the Tax Cuts and Jobs Act (TCJA), passed in late 2017.
The report cites several studies — by the Tax Policy Center, American Enterprise Institute and University of Pennsylvania Wharton School of Business — that estimated charitable giving could decline anywhere from $5 billion to $22 billion as a result of the TCJA, which went into effect in 2018. The tax reform package increased the standard deduction from $12,000 to $24,000 for couples, which likely will lead to fewer people itemizing their tax returns. and thus, not taking the charitable deduction. A recent study found that 59 percent of HNW individuals planned to itemize in 2018, down from 72 percent in 2017, the study noted.
“High-net-worth individuals will likely to continue to become more prominent in the next two years, especially as mid-level donors navigate the way TCJA may impact their filing status,” according to The Philanthropy Outlook. “High-net-worth giving is expected to continue to be an important part of charitable giving in the next few years in the wake of the TCJA,” the study noted.
While it’s encouraging to see that total giving projected to grow in the wake of recent changes from the TCJA, Philippe G. Hills, President and CEO of Marts & Lundy, said it’s still too soon to determine exactly how the recent tax changes might impact future donor decisions. “Nonprofits need to be mindful of its potential impact, as well as the impact of other economic and policy factors put forth in The Philanthropy Outlook,” he said.
The study draws on recent economic forecasts and analyses of the law’s anticipated effects to present projected growth and three potential scenarios that provide context for the baseline projections outlined in the report.
The report also poses three potential economic growth scenarios: uneven, flat and downturn. Estimates for total giving in an uneven scenario would make much of the regressive effect of the 2017 tax reform law less apparent, according to the study. Foundation giving would be strong due to the performance of the markets and economy but strong economic growth may not do enough to offset the decrease in tax incentives for corporate giving — especially if overall consumer sentiment is weak.
Total giving could stagnate or possibly decline in a flat growth scenario as individuals and households could put off contributions until they are more certain.
Economic expansion is expected to continue into 2019 but some forecasters expect positive effects of the 2017 tax cuts to decline rapidly after the first two years, leading to “recessionary conditions by the end of 2020.” That could result in reductions in giving across the board.