The American economy’s current turbulence—8% inflation, supply chain disruptions, high gas prices—is unnerving the nonprofit industry. Looking at the past, however, can hopefully quell some fears.
Today's financial crisis is hardly the first the nation has faced. In the aftermath of the Great Recession, the United States ranked as the most generous country from 2009 to 2018. According to the World Giving Index, “72% reported helping a stranger, 61% reported donating to a charity, and 42% reported having volunteered their time to an organization.”
American charitable giving persists through sluggish or recessive economies and surpasses preceding levels when the economy recovers.
The Debut of Charitable Tax Deduction
From Benjamin Franklin's lending library in Philadelphia to Emma Smith's founding of the Relief Society in 1842, public philanthropy is a time-honored practice in the United States.
Yet, it was only in 1917 that the federal government incentivized philanthropy by introducing the charitable tax deduction. At the start of World War I, Congress raised income taxes to unprecedentedly high levels to help fund the war. Supports of the deduction argued that making donations tax-deductible was essential to protecting charities at a time of economic strain. A 1917 Washington Post article advocated for the new legislation, arguing that taxing charitable donations “would be a penalty upon generosity and an inducement for the retention by individuals of all moneys which they formerly contributed to charitable, scientific and educational institutions.”
The tax code cannot create a culture of giving, but they can protect it.
The Great Depression and Its Aftermath
Eleven years after the end of WWI, Americans faced another crisis when a stock market crash led to a 10-year economic depression. The Giving USA Foundation analyzed IRS reports and found that between 1928 and 1934—the depths of the Great Depression—giving fell by more than 35%. In his 1950 book titled Philanthropic Giving, author F. Emerson Andrews gives examples of what the steep decline looked like in specific communities. Between 1928 and 1932, giving to charities on the New York Times’ “Hundred Neediest” list dropped from $338,111 to $265,400. Separately, a study of 15 Protestant congregations showed that between 1924 and 1934, average annual contributions per member went from $23 to less than $12. Donations did not recover from pre-Depression levels until World War II began.
Source: Source: Sharpe Group, “Where Do We Go From Here?”, November 1, 2008, https://sharpenet.com/give-take/go/?highlight=great%20depression
As individual giving declined, large philanthropic foundations like Rockefeller, Carnegie, and Russell Sage tried to fill the void. In Region Focus, journalist Betty Joyce Nash reported that “Carnegie provid[ed] an additional $2 million in social welfare relief in the early 1930s.” Foundation output was essential to helping charitable levels recover.
The Great Recession
The Great Recession of 2008–2009 was the sharpest economic downturn in recent memory, precipitating a 4% decrease in giving between 2008 and 2009. However, Americans still managed to donate more than $300 billion in aid. In 2010, then chair of the Giving USA Foundation, Edith H. Falk, said, “while overall giving declined, many donors—including individuals and foundations—made special efforts in 2009 to respond to greater humanitarian needs.” Corporate giving increased, the World Giving Index still ranked the U.S. as the most generous country in the world, and giving as a percentage of GDP remained higher than during the 1990s.
Source: Giving USA, “2021 Annual Report,” https://store.givingusa.org/products/2021-annual-report?variant=39329211613263
The COVID-19 Pandemic
Market forces are not always the catalyst to economic hardship. In 2020, unemployment rates skyrocketed as countries implemented nationwide lockdowns in response to the COVID-19 pandemic. Experts issued early warnings of stalled economic growth. Despite some retractive growth, the stock market continued to fare well, making it possible for individuals and foundations to help others who were in greater positions of need.
Over the course of 2020, Americans gave a total of $471 billion in aid. Religious institutions remained the top recipient of funds, but the Giving USA Foundation reported that giving to “human services” and “public-society benefit” organizations increased by 10% and 16%, respectively. This likely reflects increased attention on social justice groups and societal welfare charities.
2022 and Beyond
We are not beyond challenging times. Recent levels of inflation, the highest since 1981, are causing nationwide concern. On May 13, the Chronicle of Philanthropy reported that “food banks across America” are struggling and rising food and fuel prices are “intensifying demand for [food banks] at a time when their labor and distribution costs are climbing and donations are slowing.” With good reason, many nonprofits wonder if they can sustain revenue through further economic stagnation after a financially (and emotionally) taxing two years.
Americans are a generous people, even when tempered by financial hardship. Will they continue to give under future economic strain? Based on their history, the answer is yes. Come what may, Americans can be proud of—and grateful for—their charitable grit.
This article was originally published by the Fund for Academic Renewal and is re-published with permission. You can read the original here.