Another effect of rising income inequality: charitable giving has changed

What does increasing income inequality mean for higher education?

I’ve been investigating this for several years, addressing different implications.  Today I’d like to touch on another aspect, that of charitable donations.  Many American educational institutions benefit from philanthropy, from universities to museums and libraries.  A growing number of academics and creators have turned to crowdfunding to support projects.

That is starting to change.  According to a new report (pdf),  charitable giving is mutating as income inequality soars.  Put simply, the richer give more than they did just a decade ago, while the middle and lower classes contribute less.  If this data is accurate, educational institutions will have to change how they seek support, spending more resources on a shrinking group of the rich, and allocating less to the rest of society.

Several things are happening to make this occur.  For starters, as the 1% and the wealthiest subsets of that group earn more, they give more:

From 2003 to 2013, itemized  charitable contributions from people making $500,000 or more—roughly the top one 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.

Overall, giving has been growing, which is good news:

the total amount given to charity in 2015 was an estimated $373.25 billion, which was 4.0 percent inflation-adjusted growth from 2014 and 10.1 percent inflation-adjusted growth from 2013.

Meanwhile, those in the 90-99% have given less.  “[C]haritable giving from donors at lower and middle income levels has declined precipitously”:

Over the past decade, charitable giving deductions from lower income donors have  declined significantly, at close to the same rate that contributions from higher income donors have increased. From 2003 to 2013, 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.

At the same time, the number of median-amount donors has shrunk – this, despite the American population growing, and the total amount of wealth expanding.  “[The Target Analytics]  index’s donors declined a median 25.1 percent over the most  recent ten years from 2005 to 2015, an effective decline of 2.8 percent annually.”

Why does this matter for educational institutions?

As the report’s authors note, “If these trends continue, we will witness the rise of ‘top-heavy’ philanthropy dominated by  a small number of very wealthy donors.”  Practically speaking, universities, libraries, museums, and other cultural institutions will reduce their efforts on reaching out to the middle and working classes, focusing instead on the wealthy. It also means greater competition for a smaller group of donors, which doesn’t bode well for inter-institutional collaboration.

This points towards a return of the patronage model, as I wrote a few days ago.

We could also see increased giving power lead to greater influence over institutional programming.  As the report puts it, “[t]he increasing power of a small number of donors also increases the potential for mission distortion.”  I would expect charitable giving to become both more influential in the educational world, and also more politicized.

The report also argues that this macroeconomic trend will increase the number and scope of larger foundations at the expense of smaller ones.  This has a direct impact on educational institutions, as “[l]arge foundations are more likely than small foundations to give to specific purposes than  for general operating support”.  In short, that means aligning an institution’s programming priorities even more closely to the direction of funders.

Collins et al sum up the educational impacts:

what will the consequences be if we are drifting toward a 98/2 rule, where 98 percent of an organization’s revenue comes from only two percent of its donors? And what  if the giving priorities of that two percent are different from the interests of the other 98 percent—or the mission of the organization itself? Would this create potential vulnerability  and volatility? What implications would this have for nonprofits—and for society at large?

Beyond education, “Gilded Giving” points to yet another issue.  The wealthy already benefit from charitable giving through tax breaks.  We should therefore expect more of this, including more “tax avoidance philanthropy, the warehousing of  wealth in the face of urgent needs, self-dealing philanthropy, and the increasing use  of philanthropy as an extension of power and privilege protection.”

Ultimately, this expression of escalating inequality could use philanthropy to become self-reinforcing, as “[f]oundations in affluent public school districts  allow parents to make tax deductible contributions to support their children’s  schools, compounding inequalities between school districts.”  We saw ample evidence of this in our book club reading of Robert Putnam’s Our Kids.

Readers know I often speak of oligarchy, and this report concurs without using that word:

 Charities are already struggling to fill gaps left by cuts in government services and to  address such dauntingly large social concerns as poverty, inequality, injustice, and  environmental destruction—so more revenue will naturally be welcomed.

But if we do not demand more transparency, accountability, and public-interest action from  donors, the philanthropic sector will become even more of an extension of the influence,  power, and privilege of the few.

What is to be done?

The report’s conclusion includes practical recommendations for institutions, which you should read, along with less practical ideas for national policy.  But beyond this, I return to my deadly question: is education making inequality grow or are we mitigating it?  Have we made peace with the new gilded age’s structure and implications and our role in making it work, or are we opposing it?

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