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The wealthy give differently than the bottom 99 percent.

Wealthy donors give more of their tax-deductible donations through intermediaries such as private foundations and donor-advised funds (DAFs). Instead of money going directly to active charities on the ground, it makes a pit stop in these donor-controlled vehicles. That layover could be brief—or it could be a detour into perpetuity.

The slowing of charitable gifts—or outright warehousing of funds—is a growing problem as more of the giving pie comes from wealthy donors. As our IPS Charity Reform research has shown, charitable giving has become more “top-heavy,” with declines in small donors and the rise of mega-donors.

The percentage of donations that flow directly to recipient groups has slowed. Let’s call it the “Fidelity effect,” a trend that in part can be explained by the rise of popular donor-advised funds (DAFs) that are now the single biggest recipients of charitable donations. Fidelity Investments established Fidelity Charitable in 1991 as the first commercial donor-advised fund sponsor, and it has become the largest recipient of charitable funds over the last five years.

DAFs have no mandated payout requirement, a design flaw that should be addressed as part of a more comprehensive charity reform program.

Thanks to a new analysis from our colleagues Ray Madoff and Jim Andreoni at the Boston College Forum on Philanthropy and the Public Good (with data analysis and charts by IPS’s Helen Flannery), we now have an estimate of just how much the flow has slowed. Examining trends since 1990, key findings include:

  • Giving to charity has remained a fairly constant 2% of disposable income.
  • While that percentage is constant, the destination of funds has shifted over the last 30 years. In 1991, 5% of individual giving went to private foundations. By 2019, over 15% of individual donations went to private foundations and 13% went to donor-advised funds.
  • In other words, the amount of funds going to intermediaries, rather than directly to charity recipient groups, went from 5% (only to foundations at that point) to 28% in 2019, an increase of 460% from the 1991 figure. In terms of actual funds, private foundation assets have increased over 500% during these 30 years, from $165 billion in 1991 to $996 billion in 2019. DAF assets grew from $32 billion in 2007 to $142 billion in 2019, a gain of over 300%.

How much money would have gone to charities if fewer funds were parked in intermediaries?

The Forum on Philanthropy and the Public Good commissioned an analysis of contribution trends, making a distinction between donations to charity recipient groups and donations to intermediaries where “donors retain advisory privileges.” It estimated that charities would have received $300 billion in additional donations over five years, funds that instead went to intermediaries.

According to the Forum analysis, “if charities had received donations at the rate of 94.1 percent of individual giving (the average rate that they received in the five-year period before commercial donor advised funds), they would have received an additional $300 billion over those five years.”

Private foundations are mandated to pay out a minimum 5% of their assets annually to recipient charities. But many treat this minimum as a maximum, so that foundation endowments continue to grow—especially in years like 2020 when financial returns range from 15 to 20%. And foundations are allowed to count overhead and donations to donor-advised funds toward this 5% mandated payout, potentially further diminishing the flow of funds to recipient charities.

As mentioned above, donor-advised funds have no payout mandate, nor is there transparency to monitor the activity of individual accounts.

The original 1969 tax law that created the framework for modern foundations and philanthropy states that donors may receive a tax deduction when they surrender “dominion” and “control” over their funds. But with private foundations and donor-advised funds, donors retain substantial control over their funds long after taking the full tax deduction. And the wealthier the donor, the larger the tax break. A billionaire giving to charity may receive up to 74 cents in tax reductions for every dollar donated to a charity or their personal giving intermediary.

This picture of warehoused charitable funds is one of the reasons that lawmakers should revisit the rules governing charitable giving. In the immediate term, they should pass an “emergency charity stimulus” to boost both foundation and DAF payouts for three years during the pandemic and its aftermath. This would unleash an additional $200 billion over three years in funds for nonprofit organizations. And it would generate an estimated $8.7 billion in revenue, making it a “pay for” in a congressional budget reconciliation process.

Lawmakers and philanthropy leaders should also consider reforms to permanently increase the flow of charitable giving and discourage warehousing in intermediaries. These reforms could exclude overhead from payout mandates, permanently raise payout levels and reform DAFs to mandate a payout and increase transparency.

Taxpayers should not subsidize wealthy individuals for using these special pit stops and layovers that slow the movement of funds to active charities. Those tax subsidies should be for direct donations to charities, not for personal, private detours of the well-to-do.

Chuck Collins is the director of Charity Reform Initiative at the Institute for Policy Studies where he coedits He is the author of the new book “The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions.”