Half of Affluent Americans Say Tax Policy Doesn’t Affect Their Giving

A majority of wealthy donors say changes in federal tax laws wouldn’t cause them to give any more or less than they do now,

says a new report.

If the estate tax were repealed, 56 percent of donors said, their giving would stay the same. Nearly 52 percent of respondents said they would give the same amount if no tax benefits at all were available for charitable gifts; only 7 percent said their giving would “dramatically decrease” if that were the case.

In the report, commissioned by Bank of America to determine how wealthy Americans view philanthropy, researchers from the Center on Philanthropy at Indiana University surveyed 945 households in neighborhoods across the country where the average household had income of at least $200,000 or liquid assets of at least $1-million.

Nearly all affluent households donated money to charity last year, compared with 67 percent of all U.S. households, the study found. Most often, wealthy donors gave to education or religious groups, or to add to a foundation’s assets. The median annual charitable contribution was $15,500, meaning that half gave more and half gave less. That compared with a median donation of $700 for all households, excluding gifts for disaster relief.

Households with incomes of more than $200,000 or assets in excess of $1-million account for 3 percent of all U.S. households but nearly $126-billion in gifts in 2005, according to the Center on Philanthropy. Total giving in the United States was $260-billion last year.

Wealthy donors say they are willing to give more than they do. Nearly 75 percent of the donors said charities that spend less on administrative costs could reap additional contributions. And 58 percent said donations could also increase if charities showed donors the results of their gifts.

Some institutions already make a deliberate effort to show donors how cost-conscious they are.

At Youngstown State University, in Ohio, fund raisers recently visited a donor who gave $250,000 to the university’s nursing programs. Paul J. McFadden, the university’s chief development officer, said he knew the donor “would not have been impressed” with a gift of a small “trinket” from the university, such as a lapel pin. “He would have said, ‘Why did you blow that money on me? I want you to give that to the kids,’” says Mr. McFadden.

Donor Education

In addition, the survey found that 21 percent of prospective donors would probably increase the amount they give to charity if they received more information on ways to donate, and 35 percent said they would donate more if they had more access to research about nonprofit groups.

Many charities are trying to provide more information, especially now that a new law was passed in August that gives people over age 70 the opportunity to channel money to charity tax-free through their individual retirement accounts (The Chronicle, September 14).

The American Red Cross, for instance, plans to mail donors brochures about the new incentive early next year, and the charity’s fund raisers around the country can retrieve marketing materials about the law on the group’s internal Web site, says Gloria Kaplan, the Red Cross’s gift planning officer for southeast Florida.

“All charities out there are definitely very aware that they must educate their donors,” says Ms. Kaplan. “We are being very proactive about it.”

Bequests present another avenue for fund-raising growth among wealthy donors: Only 41 percent of survey respondents had arranged for a charitable gift in their will. Patrick M. Rooney, director of research at Indiana’s Center on Philanthropy, was surprised at the low number.

“You would think that a majority of these households, or even a super-majority, would have charitable bequests in their wills,” he says. “One, they have got the capacity, and two, they already have a propensity to give.”

The survey also found that almost 20 percent of donors had established a foundation, and nearly 16 percent had set up a donor-advised fund, which allows people to donate assets to special accounts, claim a tax deduction, and then recommend which charities receive the money in the account.

What Drives Giving

When asked what motivates them to give, wealthy people said they hoped to meet critical needs, give back to society, and help those who are less fortunate. In addition, nearly two-thirds of respondents named “being asked” as a reason to give and about a quarter said they made donations to leave a legacy.

Advisers to the wealthy and some fund raisers said they were not surprised that tax consequences did not make a big difference in giving patterns.

“People are going to use some of the tax advantages in giving but they are not necessarily using the taxes as the prime driver of why they give,” says Cary Grace, who helps Bank of America’s clients manage their philanthropy.

Bob Sweeney, senior vice president for development and public affairs at the University of Virginia, in Charlottesville, says, “In every situation I have encountered, it’s always cheaper to pay the tax and keep the money. There is no scenario in which you can give the money away and make more money by giving it away. There has to be philanthropic intent for it to work.”

However, some charity officials voiced skepticism about whether people would really act the way they said they would. “Self-reporting is always an issue when it’s a hypothetical,” says Ani Hurwitz, director of communications at the New York Community Trust, in New York. “I’m not sure anyone expects the estate tax to go away.”

Among the other highlights of the study:

• Nearly 90 percent of wealthy people said they were satisfied with how their donations were used.

• Entrepreneurs, followed by families who inherited their wealth, were among the most generous, the study found, compared with people who earned their wealth through investments or in other ways. In a household in which money from entrepreneurship counted for at least half the net worth, total giving on average was $232,206. By contrast, in households in which appreciated real estate counted for at least half the net worth, contributions on average totaled $11,015.

• Donors 61 to 70 years old were the most generous, with average annual gifts of $155,066, followed by donors who were 71 to 80 years old. Donors younger than 50 gave the lowest average gift, of $42,387.

• City dwellers gave greater amounts to charity than residents of rural or suburban areas, a pattern of giving that mirrored the rest of U.S. households, the survey found.

• A high education level is not a predictor of more-generous gifts among the wealthy, the survey found. Donors who did not attend college gave the most to charity, an average of $233,642 a year, followed by those with a college degree, who gave an average of $146,783.

• Households with four children gave on average the highest dollar amount to charity, $163,093, followed by households with three children and households with no children. Nearly three-fourths of respondents discuss philanthropy with their children, about a third allow them to participate in decisions about gifts, and nearly one-fifth give their children money to donate themselves.

• When seeking charitable gift advice, the largest proportion of wealthy donors consulted nonprofit officials (41 percent), followed by peers (36 percent) and accountants (27 percent).

• Wealthy households give time as well as money. Nearly 80 percent of respondents reported doing volunteer work and 61 percent said they had served on a charity’s board of directors. Donors who volunteered more than 200 hours annually gave the highest average amount, $132,086.

The report, “Bank of America Study of High-Net Worth Philanthropy,” is available free on the bank’s Web site.

CAUSES SUPPORTED BY THE WEALTHY: HOW THEIR GIVING DIFFERS FROM OTHER AMERICANS’ Households with incomes of $200,000 or more or at least $1-million in assets All U.S. households Arts 10.8% 2.0% Basic needs 5.2% 11.0% United Ways, private foundations, and other similar organizations 23.1% 10.0% Disaster* 4.3% Education 21.6% 5.0% Health 6.7% 5.0% Religion 22.0% 60.0% Other 6.3% 7.0% * No national comparison for disaster giving available. SOURCE: Bank of America and Center on Philanthropy at Indiana University