With less charitable giving flowing directly to charities, a tax policy scholar suggests some policy fixes
- Charitable giving in the US has remained stable as a percentage of personal disposable income (around 2%) over the past 50 years, but the distribution of donations has shifted significantly.
- The majority of charitable giving now goes through intermediaries such as foundations and donor-advised funds, rather than directly to charities. This shift is largely due to the rise of donor-advised funds, which have no payout rules and allow wealthy individuals to give to charities without having to distribute their funds immediately.
- A new tax deduction for non-itemizers will be introduced in 2026, allowing them to deduct up to $1,000 of their taxable income if they give at least that amount to charity. However, the impact of this change is uncertain and may lead to confusion among taxpayers.
- Ray Madoff, a tax policy scholar, suggests that private foundations and donor-advised funds should have to distribute their funds within a certain time period, and that wealthy individuals should be subject to limitations on their tax benefits to ensure fairness in charitable giving.
Law professor Ray Madoff is the co-founder and director of the Boston College Forum on Philanthropy and the Public Good. In an interview with Emily Schwartz Greco, The Conversation U.S. philanthropy and nonprofits editor, Madoff sums up some of the main points about charitable giving she makes in her 2025 book, “The Second Estate: How the Tax Code Made an American Aristocracy.” This interview has been edited for length and clarity.
How has charitable giving changed over the past 50 years?
Giving has pretty much remained flat as a percentage of personal disposable income. It’s been stable by that measure at about 2%. What’s changed is where that charitable giving is going.
In the early 1990s, about 6% of all giving was going to intermediaries, like foundations and donor-advised funds, and 94% was going directly to charities: hospitals, universities, churches, organizations curing diseases, all sorts of things.
Donor-advised funds, or DAFs, are charitable investment accounts that can serve many of the functions of a foundation – but with fewer rules and regulations.
Fast-forward to today, and there’s been a huge transformation with dramatic growth in giving to intermediaries. Today, around 40% of U.S. giving from individual donors goes instead to charitable intermediaries, and 60% of those donations go straight to charities.
University of Chicago Press
When money donated to charity through intermediaries primarily went to foundations, those assets were subject to a 5% payout rule. It was imperfect, but still, at least 5% of those funds, for the most part, had to go to charity.
Now, due to the rise of donor-advised funds, none of this money going to intermediaries is subject to payout rules.
That’s because there are no payout rules that apply to donor-advised funds, and foundations can meet their payout minimum by giving to a donor-advised fund.
Charitable giving, in other words, used to be more connected to what I’d call “charitable getting.” Now, the money is often landing in what’s essentially a halfway house, with no obligation to get out.
What is the current state of play with respect to the tax rules governing charitable giving?
There’s a tale of two systems for charitable giving.
Most Americans have no ability to get any tax benefits for their charitable giving, while the wealthiest Americans can get benefits that are worth up to 74% of the value of their donations.
The reason most Americans get no tax benefits is that they can only offset their income tax if they itemize their tax returns, instead of taking the standard deduction.
Prior to the tax reform package that President Donald Trump signed into law in 2017, about 70% took the standard deduction and 30% didn’t. Once those reforms took effect, the share of taxpayers who were itemizing fell below 10%.
The more than 90% of taxpayers who claimed the standard deduction in 2022, for example, couldn’t get any tax breaks tied to their charitable giving.
What do you expect to see change due to provisions in the big tax and spending package that Trump signed into law on July 4, 2025?
The government is adding a new deduction for non-itemizers. Starting in 2026, they will be able to deduct up to US$1,000 of their taxable income when they file their taxes, if they give at least that amount to charity. That means some charitable tax benefits will be available for people who take the standard deduction.
It’s very hard to tell what kind of impact that is going to have.
If charities publicize this, it might encourage some people to give who might not otherwise give to donate. But it could also cause a lot of confusion and make other people think that there is a $1,000 cap on tax benefits for all charitable donations. I think it’s going to be a difficult messaging problem.
As a matter of policy, I also think it’s not very well drafted. I do think we should be giving charitable tax benefits to non-itemizers, but a better format would be to give everybody a tax credit so they have the same dollar-for-dollar benefit, regardless of their income bracket.
And rather than imposing a ceiling, we should impose a floor, as a certain amount of giving is going to happen even with no incentives.
It’s going to be interesting to see what happens.
Are there other policy changes that you support?
I have two proposals.
First, I believe that private foundations and donor-advised funds should have to distribute their funds that are reserved for charity within some set time period.
Second, I think that just as other Americans are subject to limitations on their tax benefits, the wealthiest should be subject to limitations on their tax benefits too.
If it’s important for you and me to help pay down the national debt, then why isn’t it important for Warren Buffett to do so?
Is there a risk that giving might decline due to these changes?
If they had to spend it quickly, maybe there would be less money set aside in these charitable intermediaries.
But if someone has no intention to disburse those funds, then I think it wouldn’t matter that their money is no longer getting halfway to actually being received by charities.
Do you believe that the philanthropy of rich people is helpful?
Philanthropy is often used as shorthand for something that is great for society.
But philanthropy includes a lot of not-great things.
Sometimes people make mistakes. Just because someone is good at making money, it doesn’t mean they’re good at solving other people’s problems.
For example, actor Brad Pitt, maybe with good intentions, decided he was going to fix housing problems after Hurricane Katrina in New Orleans’ 9th Ward. He got architects to build houses that are now falling apart. It’s a massive problem.
Sometimes their gifts aren’t so well-intentioned.
Rich philanthropists may donate to groups calling for lower taxes. Or they try to curry favor with the White house by helping pay for the construction of Trump’s new ballroom, which is going to be built with charitable money.
Charity expert Bill Schambra has brought to light what he calls “philanthropy’s original sin: Early U.S. foundations supported eugenics – the pseudoscience movement that sought to encourage “fit” people to have kids and to stop people deemed “unfit” from doing so, sometimes through forced sterilization.
Today, there’s another common problem: the philanthropy of whimsy.
One example is what happened with the nonprofit pre-K-8 school for low-income children in East Palo Alto, California, that Facebook co-founder Mark Zuckerberg and his wife, Priscilla Chan, funded. He was saying “Oh hey, I think I’m going to solve the problems of poverty in East Palo Alto.” And then, “Oops, I changed my mind.”
The school is slated to close at the end of the 2025-2026 year.
That’s why, generally speaking, I don’t think we should assume that what’s done with philanthropy is better than what’s done with tax dollars.
What about MacKenzie Scott, Jeff Bezos’ ex-wife? She’s given about $26 billion to charity since 2019.
I am a big supporter of how MacKenzie Scott does her philanthropic giving. She seems to be trying to do the right thing. She’s trying to build civil society, which I think is good. She’s giving to existing organizations, with no strings attached.
A lot of it is about power. If you give money to institutions, as Scott is doing, then the institutions have power. If you keep the money yourself, and you drip it out, then you have power.
Ray Madoff was an adviser to and supporter of the Initiative to Accelerate Charitable Giving, a coalition of philanthropists, foundations and academics.