Just three months into 2020, we were faced with a spreading virus causing worldwide economic pullbacks and shutdowns. Most U.S. states issued stay-at-home orders. At the end of March, 42 states and even more cities and counties were under stay-at-home orders — a total of 308 million people, or 94% of the U.S. population. Many of the long-term impacts that the COVID-19 pandemic will leave on the world are yet to be determined and may never be measurable.
With all this economic uncertainty and market volatility, what will happen to charitable giving in 2020? When evaluating COVID-19’s impact on charitable donations, we need to consider several issues, including the unemployment rate and GDP and the impact of the CARES Act.
Unemployment Rate and GDP
The unemployment rate and GDP are two quantifiable statistics, although the latter is lagging. In May 2019, the unemployment rate was 3.6%; by the end of May 2020, the rate ballooned to 13.3%. For context, the highest rate we have seen in the last 20 years was in October 2010 when it reached 10%.
What are the implications of this staggering increase in the unemployment rate on charitable giving? Oftentimes, there is a high correlation between charitable giving in America and the GDP. Since the mid-1900s, charitable giving hovered around 2% of the annual GDP. That 2% even held true following the 2008 financial crisis when it only decreased to 1.9% from 2009 through 2011. According to Fannie Mae, the growth forecast for 2020 is -5.4%. If we look at the numbers, the 2019 GDP was $21.44 trillion and therefore charitable giving at 2% was approximately $450 billion.
If the GDP declines by 5.4% and giving declines to 1.9%, that would be a decrease in charitable giving of $43 billion or roughly 10%. This would cause an undue hardship on nonprofit organizations and, in turn, on their beneficiaries.
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed by President Trump on March 27, 2020. In addition to all the other benefits for Americans, including stimulus checks, small business loans and the pause of Required Minimum Distributions from IRA accounts, the CARES Act has a section that encourages charitable giving to nonprofits. It includes some revisions to the Internal Revenue Code intended to encourage charitable giving, particularly of cash donations and food.
The Act recognizes the need for charities to receive donations during the pandemic. This is often accomplished by giving additional tax benefits to tax payers who support charities. Some benefits for charitable donors in the CARES Act include:
- New Deduction: For taxpayers who take the standard deduction, up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions are permitted. This must be given directly to a charity. Donations to donor advised funds (DAF) will not qualify for this deduction.
- New Charitable Deduction Limits: For taxpayers who itemize their tax return, they can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). Corporations may deduct up to 25% of taxable income (up from 10% previously). These donations, like the ones for taxpayers claiming standard deductions, must be given to a public charity and not a DAF.
- Food Inventory Deduction: In addition to cash donations, the CARES Act incentivizes food donations by increasing the deduction from 15% to 25%.
2020 To Date
So how have charitable donations been affected to date in 2020? According to the Fidelity Charitable Communities in Crisis report released late June 2020, in the first four months of 2020, donors nationwide recommended 544,000 grants totaling $2.4 billion, which is an increase of 16% from the same time period in 2019.
A separate study by the Community Foundation Public Awareness Initiative tracked grants at 32 community foundations from March to May 2020 and found an increase in grants of 80% from the same time period in 2019.
We cannot exactly know the specific reasons for each donor’s increase, but a combination of the CARES Act incentives and the heightened willingness to help those in need motivated by the pandemic are sure to be a few of the major reasons for such generosity. Thus far in 2020, the most popular charitable sector in the U.S. was human services, whereas religion was the most popular sector in 2019.
Grants to foodbanks and other food assistance programs were up 667% nationally. These statistics in gifting trends of 2020 fall in line with other times of crisis when we find that people look to their churches, food pantries and other charitable organizations for help.
Given the unemployment rates and subsequent food insecurity our country is seeing, the surge in charitable gifting is definitely a step in the right direction of providing solutions to the problems arising from the events of 2020.