While Americans contributed a record-breaking $592.5 billion to charitable causes in 2024, a notable trend reveals a decreasing number of individual donors. What was once a common practice for two-thirds of households two decades ago, now sees less than half participating. This significant change can be largely traced back to shifts in U.S. tax legislation, which have inadvertently reshaped the landscape of philanthropic contributions.
Over the years, modifications to the tax code have primarily favored substantial donations from the affluent. For instance, the Pension Protection Act of 2006 introduced specific advantages for retirees making charitable gifts from their Individual Retirement Accounts (IRAs). This was further expanded by a 2012 tax law, which enhanced deductions for high-net-worth individuals. However, the most profound alteration occurred with the 2017 Tax Cuts and Jobs Act (TCJA). By nearly doubling the standard deduction, the TCJA inadvertently removed the tax incentive for millions of middle-class families to donate, leading to a drastic reduction in charitable deductions claimed by this demographic, falling from approximately 17% to 5.5%.
This shift has resulted in what is now termed \"top-heavy philanthropy.\" Despite a rebound in overall donation amounts, these contributions increasingly originate from a smaller pool of wealthy individuals, as well as foundations and corporations. These entities now account for a larger proportion of total charitable giving. For affluent donors, philanthropy is not merely an act of generosity but also a strategic financial move, offering substantial tax benefits. For example, donating appreciated stock allows investors to bypass capital gains taxes while still claiming a deduction for the asset's fair market value. Similarly, retirees aged 70½ and older can reduce their taxable income by making qualified charitable distributions directly from their IRAs.
Susan Hirshman, director of wealth management at Schwab Wealth Advisory, emphasizes the tax advantages available to wealthy donors. She notes that gifting appreciated assets directly to charity eliminates capital gains tax liability and allows for a charitable deduction based on the fair market value. However, despite these incentives, many high-net-worth individuals still primarily donate cash or checks, potentially missing out on additional tax savings. Schwab data indicates that a significant majority (71%) of wealthy investors give in cash, with only a small fraction utilizing appreciated securities (8%) or retirement assets (11%).
The impact of these tax changes over the past two decades is evident. Following the TCJA, the average tax subsidy for charitable giving plummeted for the middle class, from 8.1% to a mere 3.3%. In stark contrast, the subsidy for the top 1% of earners remained largely stable, decreasing only slightly from 30.5% to 28.9%. This means that wealthy households largely retained their tax benefits, while everyday donors saw theirs significantly diminish. A new initiative, the One Big Beautiful Bill Act, set to begin in 2026, aims to address this by allowing all taxpayers a deduction of up to $1,000 ($2,000 for couples) for charitable donations, even for non-itemizers. This marks the first broad tax break for small donors since 2017, although its overall benefit for many households may be modest due to income limits and caps.
Analyzing the allocation of these donations reveals further interesting trends. Religious organizations continue to receive the largest share, totaling $146.5 billion in 2024, which is almost a quarter of all charitable contributions. However, their growth rate of 1.9% indicates a contraction when adjusted for inflation. In contrast, educational charities experienced a significant surge, growing by 13.2% to $88.3 billion. International affairs groups saw an even higher increase of 17.7%, and public-society benefit organizations, including community foundations and civil rights groups, grew by a robust 19.5%.
These shifts underscore the growing influence of wealthy donors in charitable giving. According to Charles Schwab, high-net-worth individuals tend to prioritize human services (31%) and religious organizations (30%), followed by local charities (27%) and health-related causes (27%). Their donation decisions are also heavily influenced by political considerations, with one-third citing the current political climate and 14% mentioning geopolitical issues as primary motivators for their giving.
In conclusion, while the overall financial contributions to philanthropy in the United States have reached unprecedented levels, there's a distinct trend of fewer households participating in charitable giving. This phenomenon is largely a consequence of tax policy adjustments, most notably the 2017 reforms, which have disproportionately impacted middle-income donors. As a result, the charitable landscape has become increasingly concentrated, with a greater reliance on the generosity of the wealthy and institutional donors, marking a departure from the more broad-based participation observed earlier in the century.