A Deduction’s Just the Beginning

We need every dollar donated to produce at least a dollar’s worth of value for society.

Note: We’re getting close to the release of Philanthropy Revolution, and these next few weeks before launch are busier than ever. Our recent guest column by Evan Schlessinger was so well received by my readers that I thought I’d start doing more of them, so this time I invited my friend and colleague Emily Kane Miller to write one. Emily was my “partner in crime” in the creation of the Greater Los Angeles Hospital Registry back in April, and the Registry has been providing equitable access to PPE for LA County hospitals since then. You can learn more about Emily at the end of today’s column.  Enjoy!

At the end of last year, I made a list of articles I wanted to write in 2020. I slated April for a piece about how we could push charitable contributions to be more valuable to society. 

Enter COVID-19 and tax season in July. While the pandemic pushed back my timeline, it also pushed to the foreground the importance of the premise of the piece. Every dollar donated must produce at least a dollar’s worth of value for society, and it is donors’ responsibility – particularly those making large donations – to make this happen. 

Over a century ago, federal regulation created charitable deductions for individuals, and in 1935 the benefit extended to corporations. The justification for the policy centers around the social good created by the grantees -- nonprofits, which these donations support, play important and unique societal roles.  However, the determination for the benefit preempts this purpose, with the donor receiving the value of the charitable deduction as soon as a contribution is made and likely before society benefits. 

In 2019 alone, American individuals, foundations and corporations donated $449.64 billion. Said another way, the United States’ line item for charitable deductions is roughly the size of Norway’s GDP (the 17th largest in the world).

From a governmental perspective, the success of the charitable purpose and the related value created is never measured or even followed. While the IRS is responsible for regulating the recipient nonprofits and ensuring they are in good standing, there is no governmental entity charged with measuring whether a gift achieved its intended outcome or a nonprofit is meeting the aspiration of its mission.

Let me be clear. By and large, nonprofits serve a critical role, are led and staffed by excellent professionals and provide significant benefit for communities. That notwithstanding, this is a colossal subsidy to be allocating with such minuscule accountability.

Even in the best of circumstances, this model is fraught, and today we are far from the best of circumstances.

COVID-19 is rocking our society. Unemployment is up. Hunger and food insecurity is on the rise. Entire educational systems must pivot to distance learning, often at great expense. A recent study from The Center for Effective Philanthropy found that the pandemic is having a negative financial impact on the vast majority of nonprofits surveyed. While funding has decreased, most nonprofits report an increased demand for programs and services, an impact even more pronounced among direct service organizations. 

Naturally, with this the urgency has come a call for increased generosity. Leading foundations in the United States, including the Ford Foundation, have issued over $1 billion in debt to increase their annual payouts to grantees and called on others to do the same. American donors have committed over $6 billion to respond to the COVID-19 crisis – accounting for over half of the world’s COVID-19 related donations – funding hospitals, PPE procurement, vaccine research, and families in need of assistance. Of this, 65% has come from corporate donations. 

In the same moment, support for racial justice work has also skyrocketed. All told, organizations addressing racial equity saw over $232 million in donations in a month, almost as much as they receive in a typical year.

The need has never been greater, and while many funders are stepping up like never before – something more radical is required: We don’t just need “more” – we need “more” + “better”. 

While I’d love to think a regulatory solution could build in real accountability, we all know that is unlikely, slow and a political nightmare.

It’s also not necessary.  

The better, more viable solution? Donors, particularly those making substantial contributions, must care about the impact of their giving. 

Being in a position to make a major charitable contribution is a tremendous privilege. When high level donors take the opportunity to do so, it must be with the intention that the work they are funding matters and is creating value for society.  In 2019, over $300 billion, or 69% of total giving, came from individual donors and $21 billion came from corporations.  Unfortunately, donor conscientiousness is not guaranteed. Studies show that 78% of wealthy donors do not monitor or evaluate the impact of their charitable giving, and we know that many corporate giving models similarly lack critical follow up mechanisms.  

We must do better. 

High level donors – whether corporations, foundations or individuals – must see themselves as a partner in excellence. A few easy places to start: Craft clear, mutually agreed upon deliverables. Stay closely connected with grantees. Share best practices and successes to help set the bar. If an effort is not working, partner with the nonprofit team to help the project get back on track. Our world is broken. We made a social contract that every American would underwrite these gifts because they matter. It’s time for every donor to work hard to make this so.  

COVID-19 has cracked us open – hopefully it can expose our hearts in the process.

Emily Kane Miller is the Founder + CEO of Ethos Giving, a philanthropic services firm. She also serves as a Scholar in Residence at The Brittingham Social Enterprise Lab at the USC Marshall School of Business.

Can't get enough? Follow me on TwitterFacebookLinkedIn, and Pinterest. And please feel free to share.

- Lisa