The 2% Solution

Posted by Laura Otten, Ph.D., Director on April 22nd, 2016 in Thoughts & Commentary

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Year after year, charitable giving makes up only 2% of America’s GDP.  I don’t care what the actual number of dollars is because it still always amount to the same small percentage.

I was intrigued when I caught a headline suggesting there were three ways to increase this 2%.  Sadly, though the author of the article says these three things could move the needle on the GDP, they certainly didn’t move me: legacy giving (the new term for planned giving), donor advised funds and gifts-in-kind. Not how I would envision increasing nonprofits’ share of the GDP.

I want that needle to move because more individuals are giving cash now, to help nonprofits be viable now and sustainable into the future. I don’t want that increase to reflect money given now to be used at some unspecified time in the future. And I want that needle to stay at the new, higher number—not ebb and flow as legacy gifts get realized and donor advised funds get distributed in trickles. And gifts in kind is a false way to inflate nonprofits’ share of the GDP as they have specific and limited use to nonprofits and frequently don’t address their current and pressing needs.

I want the increased percentage of the GDP to be real and steady, just as the 2% has been. Today, I read that the hourly value of a volunteer’s time increased by $1 from 2013 to 2015 to $23.56/hour, for an approximate total of $188 billion, assuming rates of volunteerism in 2015 were the same as 2014. But they were not, as volunteerism continues to decrease in this country.

According to the most recent data from the Bureau of Labor Statistics and the Corporation for National and Community Service, volunteerism rates in 2015 were at a 10-year low, steadily dropping from 26.8% in 2006 to 24.9%, suggesting that approximately one out of every four adult Americans volunteered at some point in 2015.  But even at these declining rates, if we start adding this to the calculation of the nonprofit sector’s share of the GDP, we will surpass the 2% mark. This would once again, paint a falsely inflated picture of charitable dollars.

So the question remains whether there are tactics that really can move the GDP’s needle in favor of nonprofits. If we look at the distribution of average household giving by household income, we see a pretty classic U-shaped curve, indicating that those at the poorest and wealthiest ends give the greater percentages of their income to charities, while those in the middle give the least.

Those with household incomes under $100,000 give anywhere from 4% (those with household incomes between $45,000-$50,000) to 3.0% (household incomes of $75,000-$100,000. We don’t see the 4% mark met and surpassed until we get to household incomes of $10 million or more, which give an average of 5.9% of their income to charity. But it remains that those with the least to give, those with nontaxable returns, give the most: 6.5%. So, perhaps one strategy for moving the GDP needle is to get those with more money to be as philanthropic in their thinking as those who have the least.

In 2015, the US GDP grew by 2.4%, an acceptable rate of growth, so I’m told. At the end of the last quarter of 2015, where the GDP only grew by 1.4%, the GDP was 18.164 trillion dollars. Even a .1% increase in the nonprofit sector’s share of that figure amounts to almost another $200 million. Think of what could be done with that.

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.