Scenario Analysis

To understand the full scope of the dynamic giving environment in 2019 and 2020, the macro-economic climate, as well as ongoing behavioral responses to the Tax Cuts and Jobs Act (TCJA), must be taken into account. While no one can know exactly how the confluence of these factors will play out for American philanthropy in the coming years, we draw on recent economic forecasts and analyses of the law’s anticipated effects to present three potential scenarios. These scenarios provide helpful context for the baseline projections outlined in this report.

The scenarios assume that the change in giving by individuals directly due to the TCJA is negative. While individuals/households will have a greater amount of after-tax income, the decrease in tax incentives for giving that virtually all individuals/households will see under the law will likely have a larger effect on giving than the effect of individuals/households having greater income. The 2017 Indiana University Lilly Family School of Philanthropy and Independent Sector Tax Policy and Charitable Giving Results report, which found that individuals/households are responsive to changes in their tax price of giving, supports this assumption.5

Giving by estates is not mentioned in the following scenarios because bequest giving is slower to respond to policy changes, and the timing of bequests can be difficult to predict from year to year. In general, strong market performance typically leads to higher bequest giving, which can be applied to all scenarios. Following descriptions of the three scenarios, this section of The Philanthropy Outlook also contains figures with the giving projections, as well as upper and lower bounds based on 10th and 90th percentile estimates for GDP.iii

The Uneven Growth Scenario

In June 2018, the Federal Reserve upgraded its economic outlook from earlier in the year, predicting 2.4% GDP growth in 2019 and 2% GDP growth in 2020.6 The Fed also projected that the core personal consumption expenditures index (a measure of inflation) would hit 2.1% in 2019 and 2020.

Additionally, the central bank expected the unemployment rate to drop to 3.5% in 2019 and 2020. In September 2018, the Fed raised its expectations slightly, forecasting 2.5% GDP growth for 2019, but leaving its 2020 GDP growth estimate, as well as most of the other projections, unchanged.7

Many studies predict the TCJA will stimulate the economy in the short-term, with GDP growth estimates ranging from an average of 0.3% to 0.9% over the first three years.8 However, the Tax Policy Center (TPC) writes that the direct effects of the TCJA are regressive. While they benefit every income group overall, they provide the largest tax cuts to the highest income groups. Furthermore, when the notion that the cuts must be paid for is taken into account, the majority of low- and middle-income households would be worse off than if the TCJA had not passed.

Under this scenario, tax cuts to corporations and wealthy business owners would boost the economy, leading to additional jobs and higher wages. Although corporate tax cuts may ultimately increase wages, average Americans will have yet to see the benefits of the TCJA in 2019 and 2020. This trickle-down effect may not occur for several more years.

Estimates for total charitable giving would make many of the regressive effects of the tax law less apparent. Since high-net-worth individuals/households are already responsible for a large portion of individual/household giving, enough economic growth—even if concentrated almost entirely among the wealthy—would result in growth in individual/household giving. Meanwhile, the picture for corporate philanthropy is less clear: strong economic growth may not do enough to offset the decrease in tax incentives for giving, particularly if overall consumer sentiment is weak. However, foundation giving would be very strong due to S&P 500 and GDP performance.

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The Flat Growth Scenario

In June 2018, the Federal Reserve upgraded its economic outlook from earlier in the year, predicting 2.4% GDP growth in 2019 and 2% GDP growth in 2020.9 The Fed also projected that the core personal consumption expenditures index (a measure of inflation) would hit 2.1% in 2019 and 2020.

The IMF expected that GDP growth would reach 2.7% in 2019, but slow by 2020, possibly even being weaker than it would have been had the TCJA not been enacted. The IMF also expressed growing concern about rising wages and inflation, which could create issues for the economy if the Fed responds with higher interest rates in the coming years.

In October 2018, the IMF reduced its forecast for global economic growth amid U.S. trade tensions with China and other countries that have impacted worldwide economic activity.10 The IMF also lowered its projection for U.S. GDP growth to 2.5% in 2019. As a result of these developments, as well as possible delayed behavioral responses to the TCJA as individuals/households and corporations learn about its specific provisions, the full economic benefits of the legislation may not yet be realized in 2019 and 2020.

Under this scenario, total giving could stagnate or possibly decline because growth in the market and the economy would flatten by 2020. Individuals/households—still unclear about how to maximize the benefits of giving under the TCJA—may put off charitable contributions until they are more certain, dampening growth in individual/household philanthropy.

Due to S&P 500 and GDP growth realized in previous years, foundation giving would not immediately decline. Corporate giving may increase slightly, although this would largely depend on companies’ reactions to the new corporate tax rates under the TCJA. Simultaneously, the law’s distributional effects may accelerate long-run trends of divergent growth rates in giving to different nonprofit subsectors. For example, growth in giving to education, a popular recipient of high-net-worth philanthropy, may accelerate in relation to human services, which tends to attract more middle-income donors.

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The Economic Downturn Scenario

In June 2018, a panel of National Association for Business Economics (NABE) experts predicted the TCJA would boost economic growth in 2019, but feared the U.S. could enter a new recessioniv by 2020.11 The panel projected GDP would rise by 2.7% in 2019, with individual and corporate tax cuts increasing growth by 0.3%.

While current economic expansion is expected to continue into 2019, some forecasters expect the positive effects of the individual and corporate tax cuts to rapidly decline after the first two years, leading to recessionary conditions by the end of 2020.

In a poll conducted by NABE in August and September of 2018, two-thirds of U.S. economists predicted that a recession would begin before the close of 2020, with 10% expecting the downturn to start in 2019.12 The surveyed economists cited trade policy as the main risk, with stock market volatility and higher interest rates also serving as contributing factors. Indeed, the stock market declined significantly in December 2018, with the Dow Jones Industrial Average experiencing its worst week since the height of the financial crisis in October 2008.13

Although reduced unemployment and increased wages are usually positive, they will eventually force corporations to raise prices, leading the Fed to increase interest rates more quickly.14 Simultaneously, tax cuts and government spending will expand the federal deficit, also driving up interest rates and making borrowing more expensive for consumers and companies. Additionally, high asset prices and a sharp market decline will reduce wealth, further lowering household and business confidence and spending. This scenario would result in reductions in charitable giving across the board in 2019 and 2020.

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Figure 1

Projected Growth in Giving for 2019

Figure 2

Projected Growth in Giving for 2020

  • iii The 10th and 90th percentile GDP estimates used for these bounds were provided by the University of Pennsylvania Wharton School of Business and are presented in Tables 1 and 2 of the Guide to the Philanthropy Outlook Model.
  • iv The National Bureau of Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.” This definition can be found at