DAFs: A Generosity Vehicle Even in Challenging Times

Despite a tumultuous economic landscape in 2022, a recently released report showed generous Americans increased giving through donor-advised funds (DAFs) last year, demonstrating their unwavering commitment to uplifting communities. 

As the stock market grappled with its worst performance since 2008, total charitable assets in DAFs experienced a slight decline from 2021. However, this did not deter DAF donors, who increased their grantmaking by an impressive 9%, again proving their dedication to supporting nonprofit organizations operating in challenging environments. 

The National Philanthropic Trust’s (NPT) annual DAF report underscores this resilience, highlighting that “When total charitable giving in the U.S. declined in 2022 and returned to pre-pandemic levels, DAF donors actually accelerated their DAF giving. They recommended more grant dollars than their previous ‘high-water mark’ in 2021.” 

This trend of generosity extends beyond last year, with charitable grants made by DAFs more than doubling over the past five years. This remarkable growth translates to a compound annual growth rate for grantmaking between 2018 and 2022 of almost 22%. With over $52 billion in grants distributed, the DAF payout rate remains comfortably above 20% (22.5%). 

A Misguided Attack on Philanthropy 

The NPT report’s data-driven insights stand in stark contrast to another recent report from the progressive Institute for Policy Studies (IPS), which prioritizes ideology over evidence in its criticism of DAFs. The IPS report erroneously labels DAFs as “wealth warehouses” and perpetuates the misconception that philanthropy is heavily subsidized. 

These claims conveniently ignore the abundance of evidence, like the NPT report, that demonstrates the tremendous good done by philanthropy, fueled by both large and small donations. To say donors warehouse their wealth is a gross misrepresentation of a complex system where charitable giving significantly benefits society. Instead of focusing on hypothetical negatives, let’s celebrate the real-world impact of donors – from funding life-saving medical research to empowering communities in need. Every dollar donated, regardless of the source, supports charitable efforts and benefits communities that depend on that support.  

Further, the IPS data is misleading at best. Let’s start with the unsubstantiated claim that wealthy donors forgo $111 billion in taxes every year through their charitable giving. Only about $73 billion of that $111 billion is accounted for, while the rest, as the authors themselves admit, is “less comprehensively estimated.” In other words, a dubious guess. 

Moreover, the $73 billion that is accounted for represents the total amount of forgone taxes for all filers, not just billionaires or the ultra-wealthy. IRS statistics of income data reveal that, of the total amount of dollars itemized, only 30% is from those with over $10 million in income on their tax returns. This suggests that even the $73 billion figure is massively overstated, as it likely counts millions of middle-income earners who itemize. 

More importantly, the discussion of charitable giving as a tax avoidance method misses the point. The tax-exempt status of the nonprofit sector is not a backdoor subsidy for wealthy donors. In fact, it predates the federal tax code itself, and reflects the long-standing recognition that charitable organizations provide essential services that supplement, rather than replace, the role of government.  

The IPS report’s misguided attack on philanthropy also fails to recognize the crucial role the nonprofit sector plays in the economy. Nonprofit organizations contribute almost $1.5 trillion in gross economic value added and provide almost 13 million jobs to hard-working Americans. 

IPS Proposals Would Stifle Generosity 

The IPS report’s sadly misguided proposals include a $500 million lifetime cap on charitable deductions, a 10% payout requirement for foundations, additional payout rules for DAFs and a 2% wealth tax on foundations and DAFs. This would not only stifle the generosity of donors but also diminish charitable funds that are an essential lifeline to communities in need. 

Generous Americans use private foundations and DAFs because they offer valuable long-term funding for charities, allowing them to plan strategically and pursue innovative projects. The badly thought through IPS policy proposals would eliminate this reliable long-term funding that so many depend on. As our recently released study reveals: “Such proposals are more likely to reduce charitable giving in the long run, to the detriment of charities and the most vulnerable in our society.” 

We already know that wealthier Americans give generously. One study found most Americans give about 1.5% of their income, while those taking home between $5 million and $10 million donate 4.3% of their income, on average. Those making at least $10 million a year give away 8.6%. 

Last year, 25 billionaires collectively gave away $27 billion to charity. Warren Buffet has given almost $52 billion over his lifetime, while the Gates Foundation has given away over $38 billion.  

If the authors of the IPS report are so concerned with the concentration of wealth, then why do they criticize those who choose to give away billions of dollars to charitable causes? Whether a billionaire gives through a private foundation or a DAF, that money is no longer theirs and, once given, is pre-committed to charitable causes.  

The flawed assumptions and guess work of the IPS report overlook the significant contributions of the nonprofit sector to the economy and society. These recommendations would stifle the generosity of donors and diminish charitable funds. These policies also would eliminate the reliable long-term funding so many depend on, harming charities and the most vulnerable in society.  

In contrast, the NPT report provides hard data and an unbiased overview of how donors use DAFs to give back, highlighting the resilience of DAFs in the face of market volatility and their continued growth in supporting nonprofits. With growing grantmaking and average payout rates consistently exceeding 20%, DAFs continue to be a versatile tool for compassionate donors to support diverse causes and respond adeptly to changing societal needs.  

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