Can a Surge in Giving Be Bad News?

Since the presidential election in the United States, there have been regular stories about leaps in giving to organizations committed to opposing the Trump agenda. Planned Parenthood, for example, has reported receiving “an unprecedented outpouring of support.” The Sierra Club and Council on American-Islamic Relations have recorded surges in giving. Ditto nonprofit news organizations, including ProPublica and KQED. And just a few weeks ago, the ACLU announced that even after seeing a huge increase in giving at the end of 2016, it still raised more during the weekend the Trump Administration’s Muslim ban was announced than in all of 2016.

Clearly, for these organizations and the causes they support, this is good news. But this flood of giving should also be a cause for concern for other nonprofits. That’s because there is very little reason to believe that this giving represents a net addition to the total amount that will be given this year in the United States. The United States is one of the most generous countries in the world. However, historically, there has also been a very clear limit to that generosity: two percent of national income.

This is a largely unrecognized iron law of charitable giving in the United States. If you know gross national income, you can reliably and accurately estimate total annual giving using the two percent rule. Going back to 2003 annual giving in the United States has varied between 2.1 and 2.2 percent of national income (my calculations). And when economists at the Minneapolis Federal Reserve looked at the period from 1968 to 2002, they found only one year that departed from this trend—and that was because the Tax Reform Act of 1986 incited many wealthy individuals to establish foundations to take advantage of a loophole before it closed.

It’s possible, as some have claimed, that the surge in giving really is a sign of something changing in Americans’ willingness to give (at least among Americans who support a progressive agenda). But it’s worth noting that the “two percent rule” is stronger than political affiliation. And keep in mind a few events that did not change what Americans were willing to give in total: the Haiti earthquake, Hurricane Katrina, the Indian Ocean tsunami, and 9/11. As any good fundraiser will tell you, there is a huge gap between intentions and actions.

The good news is that continued economic growth, falling unemployment, rising home prices and the bull market means that the entire national income “pie” may be bigger this year. Of course, if the Trump Administration launches a trade war and the economy sours...

The massive growth in funds flowing to donor advised funds (DAFs) is also cause to worry. Last year, the National Philanthropic Trust reported that for the sixth year in a row, donations to and assets held in DAFs had risen substantially. There is a distinct possibility that DAF funders—encouraged by asset managers who profit from the money that stays in DAFs, and don’t when funds flow out—may take a “wait and see” attitude this year. That scenario is at least as plausible as a mass change of heart that dramatically increases the volume of funds flowing out of DAFs.

The bottom line is that to believe this won’t be a difficult year for fundraising for most nonprofits, you have to believe that at least one, and possibly several, unlikely or unprecedented things will happen. You have to believe that Americans will break a nearly 50-year giving pattern—or that the longest continuous period of growth in employment in the United States continues and accelerates under President Trump. And you probably have to believe that the Trump Administration won’t continue to take actions that: a) direct more giving to headline-grabbing issues like defending the Constitution (which is hugely, vitally important!), and/or b) cut even more of thecountry’s social safety net, increasing the burden shouldered by social service nonprofits and drawing donations to meet people’s most basic needs.

There is one other possibility, admittedly remote, that could make a big difference. Foundations could respond to the failure to break the glass ceiling in the Oval Office by breaking one that seems almost as impermeable: the de facto 5 percent ceiling on annual giving. I’ve heard several foundation leaders wonder aloud what it would take for Congressional Republicans to stand up to Trump. I hope that foundation leaders and boards are asking themselves this question as well: If what is happening right now is not enough reason to break the five percent ceiling and unleash a massive effort to protect the safety, dignity, civil rights, and basic human protections in our society, what would it take?

Read more stories by Timothy Ogden.