By Robert F. Sharpe, Jr.
As we look ahead to 2015, the U.S. economy is well into its recovery from the Great Recession that began in late 2007. From this relatively stable footing, we may now reflect on the recession’s impact on philanthropy and gain helpful insight into the nature of charitable giving and its resilience in times of economic challenge.
Last June, Giving USA estimated that in nominal amounts charitable giving in 2013 had exceeded the previous high reached in 2007, both in total amount given ($335.17 billion) and in gifts from living individuals ($240.6 billion).
While Giving USA figures are estimates based on a number of factors, IRS reports on itemized gifts draw on actual gift activity as reported by taxpayers and so may provide a more in-depth perspective on individual giving trends. According to IRS data, roughly 30 percent of taxpayers itemize their charitable gifts. These itemized amounts account for some 80 percent of overall individual giving and may be the best barometer to measure such gifts.
IRS reports on itemized deductions are especially helpful when examining trends in giving by higher-income taxpayers. While many may assume that gifts from less affluent taxpayers would be most affected by a downturn in economic activity, IRS data reveals a very different picture. According to the IRS, individuals who itemize their gifts reduced their giving overall by 18 percent during the worst of the Great Recession, the period between 2007 and 2009 (see Chart 1).
By contrast, taxpayers with incomes of less than $500,000 reduced their giving by only 5 percent in the same period. Their giving had fully recovered by 2012, the most recent year for which IRS data is available (see Chart 2).
The “bottom” was at the “top.”
In what may come as a surprise, the vast majority of the drop in giving during the recession can be traced to donors with incomes over $500,000. This group, which accounts for much of the major gift activity in the U.S., reduced its itemized gifts by some 44 percent between 2007 and 2009 (see Chart 3).
The decline in giving by high-income donors accounted for some 80 percent of the drop in giving during the worst of the recession. By 2012, however, their giving had increased by 87 percent from the low point reached in 2009. Such recoveries clearly indicate that we are now emerging from what may well have been a “major gift recession.”
What was behind the decline?
Other IRS data shows that the drop in giving from the wealthy can be traced in large part to investment market fluctuations during the recession. Itemized cash gifts, which are not closely tied to the health of the stock market, dropped just 10 percent during the worst of the recession (see Chart 4).
On the other hand, noncash gifts, including securities gifts, fell by 46 percent and had yet to regain 2007 levels by 2012, the year for which the most recent data is available (see Chart 5).
Given the additional increases in investment values since 2012, individual giving may now have fully recovered to, or exceeded, 2007 levels, led by gifts of appreciated assets from those with incomes over $500,000.
Based on this information, it appears that those responsible for fund development efforts should be more cognizant than ever of the potential impact of gifts from higher-income donors. Additionally, fundraisers need to be conversant in the full “anatomy of a gift.” Not only are the “who” and “why” important, but the “what”, “when” and “how” of charitable gifts may hold the key to obtaining larger gifts in 2015 and beyond.
Fundraisers who work with wealthier individuals as they consider the size and structure of their charitable gifts must be aware of the various tax incentives for noncash gifts. They should also be knowledgeable about the best ways to encourage such gifts and be prepared to work with donors and their advisors to facilitate these vitally important philanthropic commitments.
Those interested in learning more about their donors may wish to inquire about Sharpe’s data enhancement services, which offer a cost-effective way to determine which of your donors fall within the highest income and asset ranges. For more information, contact Sharpe at firstname.lastname@example.org or 901.680.5300.