Ray Madoff, a law professor and co-founder of the Boston College Forum on Philanthropy and the Public Good, recently discussed significant shifts in charitable giving in an interview with Emily Schwartz Greco, The Conversation’s U.S. philanthropy and nonprofits editor. Her insights are distilled from her forthcoming book, “The Second Estate: How the Tax Code Made an American Aristocracy.”
Evolution in Charitable Giving
Charitable contributions have held steady at approximately 2% of personal disposable income over the last five decades. However, the landscape of charitable giving has transformed significantly in terms of where the funds are directed.
Back in the early ’90s, only about 6% of all donations were funneled through intermediaries like foundations and donor-advised funds (DAFs), with the majority of funds going directly to charities such as hospitals, universities, and churches. Presently, intermediaries claim a substantial 40% of individual donations, leaving 60% for direct charitable causes.
DAFs, which resemble charitable investment accounts, have gained popularity due to their minimal regulatory requirements compared to traditional foundations. This rise in DAFs has altered the dynamics of charitable giving, as these funds are not bound by any mandatory payout rules, in contrast to foundations that must adhere to a 5% payout rule.
Tax Implications and Recent Reforms
Charitable tax benefits are disproportionately accessible, favoring wealthy Americans who can receive tax benefits worth up to 74% of their donations. Meanwhile, most Americans receive no tax advantages unless they itemize their deductions, a practice that has diminished since the 2017 tax reforms.
Upcoming changes in 2026, as part of a new tax and spending package, will introduce a deduction for non-itemizers, allowing them to deduct up to $1,000 of their taxable income for charitable contributions. While this change aims to broaden tax benefits, it may lead to public confusion regarding the cap on charitable tax benefits.
Policy Proposals for Equitable Giving
Madoff proposes two main reforms: imposing a distribution timeline for funds within private foundations and DAFs, and establishing limitations on tax benefits for the wealthiest donors. These measures are intended to ensure that charitable funds are promptly allocated to their intended causes and that tax benefits are equitably distributed.
Examining the Role of Wealthy Philanthropy
The impact of philanthropy by affluent individuals is mixed. Philanthropic efforts can sometimes lead to unintended consequences, as illustrated by Brad Pitt’s housing project in New Orleans, which faced significant issues. Additionally, wealthy donors sometimes use philanthropy to pursue personal interests or influence policies.
In contrast, MacKenzie Scott’s approach to philanthropy has been widely praised. By granting funds to existing organizations without imposing conditions, she empowers these institutions to leverage their resources effectively.
