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Why Philanthropy is a Bigger Deal Than you Think


Giving USA released its top-level numbers for 2022 last week, and the overall discourse around them has been justifiably downbeat. After inflation, charitable giving in the U.S. declined by 10.5% last year, prompting the Chronicle of Philanthropy to call out 2022 as “one of the worst years in philanthropy history.” 

Grisly though the fall-off may be, the reasons for it are no great mystery. After a bumper stock market in 2021 and lots of cause to give with COVID still ravaging the globe, 2022 saw the pandemic recede even as the stock market lost its mojo and inflation reached troubling highs. It’s no wonder donors across the board pulled back.

While the 2022 drop-off is certainly worth worrying about, especially for organizations reliant on a lot of smaller, individual giving, there’s also a risk of overstating its significance. Over the long term, philanthropic power and prominence are still on the upswing in the United States, and much of what we saw in 2022 actually confirms that.

The thing is, doom-and-gloom narratives that inevitably pop up after any fall-off in giving understandably tend to reflect the perspectives of starved nonprofits that rely on steady giving for their survival. Giving numbers are seen as a barometer for American altruism, and as with the stock market, increases are celebrated while declines are lamented. Did the gods smile upon us with this year’s harvest, or should we tighten our belts until next year?

But there are other important ways we can gauge the state of American philanthropy as we scan these big-picture numbers — say, by comparing them to public sector spending, the primary source of funds for social goods and services. Such a comparison can speak volumes about how our society pays for such goods and how we set our collective priorities.

So with that in mind, what happens when we actually consider philanthropy and government side by side, with an eye toward their relative size and influence? 

The typical narrative here — often invoked by grantmakers themselves — emphasizes just how puny philanthropic capital is next to public spending: a minnow next to government’s whale. With exceptions from more conservative voices in the sector, the typical message is that private wealth will never supplant public spending, nor should it. We’re small, funders assure us, but we’re here to help. Here at IP, we’ve often touched on that theme to stress the importance of advocacy funding as a way for individual grantmakers with relatively modest pocketbooks to influence hulking public budgets. And more broadly, the media and the public still tend to view philanthropy as a niche, a curiosity, next to the behemoths of public and private-sector capital.

But what if I were to tell you that despite the recent dip in giving, philanthropy and government funding are actually comparable, even on par? Of course, that’s nowhere near true where overall totals are concerned — government spending as a whole does dwarf what philanthropy can bring to bear. But when we drill down into what government can freely allocate and what it actually spends on the issue areas philanthropy prioritizes, the picture begins to change. 

Giving USA’s recent numbers had Americans giving just a tad under $500 billion to charity in 2022. While that might represent a drop from 2021, it’s still a monumental figure.

Consider what $500 billion looks like next to federal spending. In fiscal year 2022, the U.S. government’s total outlays stood at $6.3 trillion — granted, that’s over an order of magnitude higher. But the majority of that consists of mandatory spending (referred to also by the somewhat unfortunate name of entitlement spending) on things like Social Security, Medicare, Medicaid and a range of other purposes, at levels set by federal law.

When that’s subtracted from the total, we’re left with federal discretionary spending, which the government can play around with, as it did during the recent debt ceiling drama. Federal discretionary spending totaled $1.7 trillion in 2022. But again, nearly half of that, $751 billion, went to the military. The remainder, $910 billion, is much more in line with the sorts of causes philanthropy backs — using the Congressional Budget Office’s categories, that includes things like public health, education and job training, community development, income security, international affairs, environment, and science funding. 

In fact, the categories I just named only accounted for about $564 billion in federal outlays in 2022. The rest of the non-defense discretionary budget mostly went to categories less mappable to philanthropic funding, like transportation and the administration of justice. And even within that $564 billion, much of it is politically “spoken for” (seeing as federal discretionary spending is allocated via annual congressional appropriation) and thus can be considered less flexible than philanthropic grantmaking even if it’s not mandatory. 

So as it turns out, Americans’ total philanthropic contributions are actually well within the ballpark of federal discretionary allocations for the same range of causes. Philanthropy’s numbers are admittedly somewhat lower when we consider what’s actually going out the door — we get about $471 billion if we subtract what went to foundations from Giving USA’s 2022 spending totals. The other big caveat here is that public spending also includes the budgets of states and local entities like municipalities and school districts, which together account for several trillion dollars per year. But again, mandatory spending in categories like health and education accounts for a substantial portion of that, and state budgets also include “pass-through” funding handed down from the federal level. 

I’m playing with the numbers here; there are other ways one might slice and dice these spending figures in comparison to private giving. But the point is that philanthropy plays a hugely significant role next to the government in the areas it funds, not only in terms of a subjective judgement of its influence, but in terms of hard numbers. If your conception of private donors’ role in public provision is that they only fill in gaps at the far margins, well, that’s not quite the case.

In some areas, philanthropy looms particularly large next to government. Take science funding, which, on the public side, is largely the purview of federal allocations, with very little coming from the states. In 2022, the CBO reports that $37 billion in non-defense discretionary outlays went to “general science, space and technology.” Compare that to philanthropic funding for science, which may well add up to around $30 billion a year. We’re not just talking “risk capital” here, we’re talking about nearly half of all the capital.

Major long-term trends promise to tilt the scale even further in philanthropy’s favor. On the government side, mandatory spending by both the federal government and the states has risen over the decades, taking up more and more budgetary space. State budgets in particular have found themselves pinched, while cuts to federal discretionary spending always end up on the table whenever it comes time to hash out a budget deal. Meanwhile, the resources philanthropy has on hand have never been larger.

They’ve also never been more concentrated in the hands of so few people. As Giving USA’s numbers make plain, the long-term trend toward top-heaviness in this sector is only accelerating. Small donors continue to pull back while foundations and big individual donors grow their chunk of the pie and monopolize fundraiser attention. The result is that when we talk about the influence of philanthropy next to government, what we’re increasingly talking about is the influence of a small cadre of elite decision-makers, be they foundation execs or major donors.

With all that in mind (and without even getting into, say, the explosive growth of donor-advised funds in recent years), any suggestion that philanthropic giving is somehow fragile, or losing momentum, or in need of more robust protection, is pretty absurd. To be fair, small-donor giving is dropping off, and that’s worrying to those on the ground who are so dependent on it, but that trend well predates 2022 and has little to do with high-powered giving at the top.

Measured even against government, philanthropy’s size and sway are nothing to be trifled with. And to quote the anime meme, this isn’t even philanthropy’s final form. The super-rich still have vast troves to give, and despite making up only a small fraction of what they could give, their largesse is changing the face of the field and the distribution of public goods in unprecedented ways.

So while we should sympathize with nonprofits whose fundraising may be impacted amid fluctuations in overall giving, attempts to portray philanthropy as puny or fragile — perhaps to stave off scrutiny of the sector — just don’t jibe with the facts. When giving jumps back up again, which it will, I hope we see more attempts to interrogate philanthropy’s power alongside the usual paeans to American generosity.

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