A recent report, , looks at how things have changed in charitable giving and philanthropy in the US. Mega-donors have become much more mega for example. Diversity, inclusion, equity and justice became prominent concerns. Reinventing government made it an even larger source of nonprofit revenues. Measuring outcomes became the norm, and evaluation became a widespread practice of a new and more strategic philanthropy. More degrees and academic centers were created as the research field of philanthropy matured.

The report, by Dr. Michael Moody (Frey Foundation Chair for Family Philanthropy at the , at Grand Valley State University, Michigan), can serve as a great discussion piece for Canadian philanthropy.

But how closely does Canada really mirror the US?

Because so much of the research about philanthropy is US based, we tend to assume that Canada follows similar patterns. But does it? In what ways is Canadian philanthropy and the charitable sector distinctive from the US (or Europe or elsewhere)? We don’t know exactly, because we aren’t conducting enough research to fully understand Canadian philanthropy and the challenges it faces, but based on the limited analysis available for Canada, there are some similar trends to those identified in the report – and some stark differences.

Some commonalities between Canadian and US philanthropy

Five similarities are apparent:

• the number of charities has increased (by 151% in the US since 1995 and 25% in Canada since 2000);
• donor advised funds (DAFs) have grown dramatically;
• the percentage of giving to religion has dropped;
• the role of community foundations has shifted from being ‘philanthropic banks’ serving donors to being community leaders and voices, although many Canadian community foundations have long been community leaders, not just facilitators for donors; and
• while this seems less significant or less reported in Canada, the sector still struggles to address inclusion, equity and justice (with Moody noting there is some backlash to ‘woke philanthropy’ in the US).

There are also at least four important differences between us

All four demonstrate the danger of using US data to guide our understanding of Canadian philanthropy.

1. Individual giving trends differ in Canada and the US

In the US, the mix of giving has shifted from individuals to foundations. Individuals are still the largest source of charitable giving, but their share of total giving has dropped to about two thirds. This relative decline is not due to less giving by individuals, as this has continued to grow. Rather, foundation giving has risen significantly, increasing its share of an expanded philanthropic pie (total giving increased almost four-fold in the past 30 years).

In Canada, the role of foundations has also expanded, to approximately 11,000, an increase of 44%. Also, their assets increased by 33% from 2000 to 2021 (from $93 billion to $123 billion). In contrast to the US, individual giving has declined in Canada, and it was already behind the US. As a percentage of GDP, Canadians give less than half as much as Americans ( compared to 2% of GDP).

Also, whereas 25% of taxfilers in Canada claimed charitable donation credits in 2006, only 18.4% did so in 2020. As noted in the , the decline in giving is across the board, except, surprisingly, for those earning less than $20,000 per year. The decrease in the amount donated is steepest among families with incomes of $150,000 or more. High Net Worth households (those with more than $1 million in wealth, excluding real estate and businesses) still account for a substantial amount of total donations, as they make relatively larger gifts, but this group isn’t giving in accord with their capacity to do so.

Why is Canada seemingly going in a different direction than the US in individual giving and what can we do about it?  We don’t know because we don’t have the research capacity to fully analyze it.

2. Canada has few mega donors or flashy philanthropists getting media attention

While Canadians made multi-million-dollar gifts in recent years, primarily to health care, these tend to be smaller than in the US, and there isn’t (perhaps thankfully) the domestic equivalent of a Jeff Bezos giving to support her charitable work. While we might forgo the flash, the seeming lack of interest by Canadian media in reporting on the generosity of home-grown donors and on philanthropy more generally contributes to its lack of visibility and understanding of its impact.

3. Infrastructure and philanthropy-serving organizations have a greater presence in the US than in Canada

The report notes that the US now has “dozens and dozens of regional associations of grantmakers, national affinity groups, capacity building organizations, and other support organizations and membership associations — even associations of those associations.” In Canada, national associations supporting philanthropy, notably , , , and , have strengthened over the past decade.

In contrast, infrastructure organizations serving charities and nonprofits have a much tougher time attracting sustainable funding and their weaker organizational strength hinders capacity building across the sector. If Canada’s philanthropic and nonprofit sector is to have a more effective policy voice and create greater public awareness, it needs to grow its own infrastructure. (Ideas on how to do so and to create stronger cross-sector leadership are invited here, in a initiative in Canada.)

4. Research and education for the sector is vastly under-developed in Canada

While the report laments that several of the early, large academic research centres have closed, there are still 274 universities with graduate degrees and 50 research centres in the philanthropy/nonprofit field in the US, many of them funded by foundations or individual donors. Indeed, Moody has a named professorship in a named research centre on philanthropy. By contrast, there is only one graduate program in this field in Canada – the Master of Philanthropy and Nonprofit Leadership (MPNL), at ĐÓ°ÉÔ­´´ University – and there’s no significant philanthropic funding for a research centre or school of philanthropy that could help the sector to address the major changes that lie ahead and that could help to develop the skilled, diverse leadership that the sector needs.

“The practice of philanthropy will continue to throw out new twists and challenges for the study of philanthropy. We will continue to need well-trained and credentialed professionals to work in this ever-more-complicated field.” –“Philanthropy 1992–2022: What difference can 30 years make?” by Dr. Michael Moody

A new vision

We need to better understand what is distinctive about Canada versus the US in trends in giving and in the sector, and to use this knowledge for a more impactful philanthropy and stronger charitable sector. This is behind ĐÓ°ÉÔ­´´ University’s MPNL vision for a major research and training hub, working in collaboration with and for the sector. We hope that audacious philanthropists who share this vision will join us in exploring the possibilities.

Find out more with an email to me (susan.phillips@carleton.ca).

Susan D. Phillips is Professor and Graduate Supervisor of the Philanthropy and Nonprofit Leadership program at ĐÓ°ÉÔ­´´ University.

Transparency is important in politics: voters need to know who’s paying for the policy agenda-setting, the TV and radio ads, and so on. The ever-growing concentration of wealth in the hands of a few creates a self-reinforcing cycle of political power that tips decision-making away from the democratic influence of the broader public.

In the US, the donor-anonymity structures for social-welfare organizations (or “501c4 organizations,” as they’re known) mean that the American nonprofit sector enables high-net-worth donors, whether individual or corporate, to fund political activity anonymously.

I see this as an ethical concern for the sector. We shouldn’t be agnostic toward its helping wealthy donors sidestep democratic processes.

To address this, the identities of large donors to 501c4s (say, for annual gifts over $10,000) need to be made public at the time of donation, regardless of the donation’s intermediate funding source (such as a Donor Advised Fund). Many 501c4s are advocacy organizations and thus organized for the purpose of influencing policy. But at present only the Internal Revenue Service has regulatory authority over them. That authority should at least be shared with the Federal Elections Commission.

and an Associate Professor and the Associate School Head at the School of Planning, Public Policy & Management, at the University of Oregon. Irvin is on . Photo of Portland, Oregon, is courtesy of Meggyn Pomerleau and Unsplash.

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A controversial issue in the US is . In light of the inter-related crises that the nation is facing – public health, economic equity, and racial justice – many advocates are calling on foundations and those who hold donor advised funds (DAFs) to accelerate and expand their grantmaking. While many, if not most, donors have voluntarily increased their grantmaking, some advocates are looking for a regulatory intervention so that this “parked wealth” reaches communities in need.

At present, most foundations are required to distribute an amount equal to 5% of their investment assets annually in grants and for other charitable purposes, and the holders of DAFs face no such requirement. One proposal calls upon Congress to impose a 10% pay-out requirement over the next three years.

Read related story: The Dorothy A. Johnson Center for Philanthropy, in the U.S., published “11 Trends in Philanthropy for 2021,” which includes the trend of increased attention to where money flows (and where it doesn’t).

In this debate, it’s important to clarify the likely consequences of any regulatory changes. The Council of Michigan Foundations commissioned a report from the Johnson Center and Plante Moran Financial Advisors (PMFA) to examine this issue. Using a comprehensive database of foundation tax returns, incorporating actual payout rates, and taking into account investment returns, the authors examined how changes to the payout rate may affect future foundation assets. The research showed that foundations generally treat the five percent pay-out rate as a floor, not a ceiling. In fact, “Nearly a quarter of foundations across the nation paid out 15% or more of their corpus in each of the study years 2013-2018.”

In terms of investments, earnings have generally fallen below a 5% annual return. Given that interest rates are unlikely to increase for the foreseeable future, a 10% payout rate would diminish the lifespan of foundations significantly. So, the issue boils down to the question: Does the urgency and uniqueness of the current crises warrant a mandate that might deplete the endowments of most foundations?

is the W. K. Kellogg Community Philanthropy Chair at the Dorothy A. Johnson Center for Philanthropy, Grand Valley State University, Michigan. He’s on Photo from Detroit, Michigan, is courtesy of Arthur Palac and Pixabay.

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Charitable giving by households in the US has effectively flat-lined at about 2% of personal disposable income. COVID-19 aside, real incomes and wealth have grown for decades, and, while the equity issues are real and continue to multiply, one might have expected philanthropic giving to have grown faster in an era in which many people “outsource” cooking, cleaning, childcare, yard care and dog walking. Our research shows that most households are sensitive to the after-tax price of giving and that introducing a Universal Charitable Deduction (UCD) or a Universal Charitable Tax Credit (UCTC) of 25% or more would increase both the number of donors and the total amounts donated by US households.

Modify Rules for Foundations

Should the payout rate for foundations be raised from the current 5%? I’d say no. But three other changes would improve things.

1. The 2% excise tax on net investment income needs to disappear. It supposedly captures the “drop” in the federal government’s revenues, yet it poses high administrative costs to ensure compliance. Plus, as the excise tax is calculated, foundations that pay out more than the minimum 5% rate in any given year are punished in future years.
2. Exclude operating costs from being included within the 5% payout. This would encourage foundations to be more efficient and get more dollars into the hands of charities and their beneficiaries. Most foundations spend 0.5% to 1.0% on their operating costs. Our research suggests that excluding such costs would not result in foundations closing.
3. Payments by a foundation to a donor advised fund (DAF) shouldn’t be counted as part of the 5% payout. One can imagine an endless “loop” in which a foundation makes grants to a DAF, then that DAF makes grants to the foundation: that’s a lot of churning but no butter. Foundations currently have lots of flexibility. Nothing prevents them from making a grant to address issues at hand, instead of punting the issue and the funding further down the road with a gift to a DAF.

holds the Glenn Family Chair in Philanthropy and is a Professor of Economics and Philanthropic Studies and the Executive Dean for Academic Programs at the Lilly Family School of Philanthropy, University of Indiana. Photo of Indianapolis, Indiana, courtesy of Josh Hild and Unsplash.

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The US tax code gives individuals a choice between either itemizing their outlays – including charitable donations – that can be deducted from their taxable income, or taking a flat “standard deduction,” which reduces the paperwork. In 2018, changes in the tax code doubled the standard deduction, cutting the financial incentive for all but the wealthiest Americans to make charitable donations. Giving declined. This affects the bottom line of the nonprofit organizations that rely on donations.

The Biden Administration should revisit this dimension of tax law and restore the incentive for more Americans to itemize deductions, including contributions made to nonprofits.

is an Associate Professor and current Director of Graduate Studies in Nonprofit Leadership and Management at the School of Community Resources and Development at Arizona State University. Hager is on and . Photo of Phoenix, Arizona, is courtesy of James Day and Unsplash.

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