Here at the Philanthropy Roundtable, we have been vocal and public opponents of a bill in Congress that would restrain charitable giving and hurt our communities in need: S. 1981, sponsored by Sens. Angus King (I-Maine) and Charles Grassley (R-Iowa). Unfortunately, data presented by the proponents of this bill has been accepted as fact, despite significant problems with how these data have been calculated.
In an effort to ensure lawmakers have the best, most accurate information at hand, the Roundtable has published a policy brief that outlines in detail the flaws with claims that popular charitable giving vehicles, donor-advised funds (DAFs), are actually causing a shortfall in funding for charities. The authors, noted DAF critics Ray Madoff and James Andreoni, hypothesize that due to the rising popularity of donor-advised funds, charities received a whopping $300 billion less in donations than they would have otherwise. They measure this by looking at charitable giving before the rise in DAFs and making unfounded assumptions about what giving would look like today if DAFs did not exist.
What’s Wrong with Madoff-Andreoni Report?
There are significant methodological errors in the May 2021 report “Impact of the Rise of Commercial Donor-Advised Funds on the Charitable Landscape.”
First, the authors used pre-DAF giving data that includes religious institutions and smaller nonprofits, but their post-DAF data excludes religious institutions. So while they are looking at how much charities receive in two time periods, there are far more charities in one time period than the other. This is not an insignificant oversight. Religious institutions are among the leading recipients of charitable gifts. The failure to include them, as well as smaller nonprofits, in the second dataset is misleading and leaves a major gap in the giving data. The authors then assert that DAFs are the reason for the hypothesized discrepancy in total giving.
The authors engage in this exercise, ignoring the fact that even adjusted for inflation, charitable giving is up since 1991, in both dollar terms and as a share of the economy. Americans’ generosity is strong. Why base a report on the assumption that there has been a hypothetical shortfall in giving?
There Is No Evidence to Support Attacks on DAFs
We certainly agree the data show giving to DAFs has increased significantly since 1991. Where the report falls short is in its claim that this growing popularity has essentially cannibalized overall giving to charitable organizations. There is no evidence for this assumption.
In fact, the opposite may be assumed. DAFs offer donors simple, flexible and broadly accessible tools to give to charity over time in strategic ways that meet the giving goals of the individual. The popularity of DAFs may be fueling charitable giving that would otherwise not take place.
Regardless, it is important to remember that every dollar a donor puts into a DAF is irrevocably committed to charitable giving. The funds may never be used for anything besides a gift to an eligible 501(c)(3) organization. It is up to the donor to determine when that distribution is made, within the account policies of the sponsoring organizations.
The presence of assets within DAFs is what some call an “American endowment” and the impact of these accounts is magnified since they allow for assets to appreciate over time. According to a report by scholar Howard Husock for the Philanthropy Roundtable and the American Enterprise Institute, from 2015-2019, this appreciation created roughly $5 billion additional in DAF assets—all dedicated to charitable giving.
What Do Lawmakers Need to Know?
The Madoff-Andreoni report is circulating on the Hill without the necessary analysis to support their hypothetical “shortfall” in charitable giving. Critics of DAFs are presenting this misleading research as cause for new restrictions and payout requirements for DAFs, such as we see in S. 1981.
As lawmakers consider such counterproductive policy changes, it is important to take a critical look at the research supporting these proposals and the flaws with the underlying arguments and methodology.
DAFs have grown as popular charitable giving vehicles because they are easy to set up and offer donors a flexible approach to giving, with low overhead costs. Whether housed within “working charities” like community foundations or through national sponsors, DAFs facilitate the charitable giving that benefits all Americans and should be cheered, not restrained.
Read Philanthropy Roundtable’s December 2021 policy brief “Flawed Study Makes Erroneous Claims About DAFs” here.