Moving Giving off the Dime

Can White House increase share of U.S. income that goes to charity?

The Central Union Mission here opened its doors to the homeless and hungry in 1884, and over the years the charity has weathered the contrary ways of American donors.

During the Great Depression, giving to Central Union rose. “People had more sense

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Giving by Americans, 1968-1998

of urgency about helping other people,” says David Treadwell, the charity’s executive director. But today, as America rides the crest of a prosperity wave, Central Union must struggle to persuade small, one-time donors to become major, committed ones. “People read about how great the stock market is doing and they’re afraid to miss out,” Mr. Treadwell says.

He has put his finger on one of the troublesome aspects of private giving in America. Despite a record peacetime economic expansion, charitable giving in some ways remains stuck in neutral.

While the total dollar amount of giving has been increasing, for three decades Americans have never given more than 2.1 per cent of their annual pre-tax income to charity. Not only that, but giving by individuals has not exceeded 1.6 per cent of gross domestic product, which measures the nation’s output of goods and services.

Against this backdrop, the Clinton Administration this week plans to hold a high-profile White House Conference on Philanthropy, a one-day event that is aimed at elevating the issue of private giving and volunteering to one of national importance. Experts in the non-profit world generally laud the effort, but they say Washington must do far more than mount a bully pulpit in an effort to persuade Americans to be more charitable. Policy makers, they say, must treat philanthropy with the same degree of importance that they assign to the federal budget, the stock market, and other measures of national vitality and economic health.

Specifically, charity advocates want the government to refine the federal tax code in ways that encourage more giving, especially among middle- and lower-income donors; to devote more resources to collecting reliable data on why, how, and how much people give; and to learn more about the uses — and misuses — of philanthropy in social policy.

If the White House simply says, “Let’s just have more giving,” that is not quite enough, says Charles T. Clotfelter, director of the Center for the Study of Philanthropy and Voluntarism at Duke University. “The questions are, do we have the right amount of giving, is it directed in the correct way, are we providing the right incentives for people to give, and do people have enough information to make choices?”

The White House has some good news to build on, of course. Total contributions from individuals grew from $71.3-billion in 1975 to $134.8-billion in 1998, after adjusting for inflation, according to the latest estimates from Giving USA, a statistical almanac published by the American Association of Fund-Raising Counsel. What’s more, giving by the most affluent Americans is on the rise. In 1996, people with incomes of $1-million or more reported giving an average of $137,000 to charity, up from about $113,000 in 1995.

Yet, when measured against the yardstick of personal and national prosperity, American generosity has hardly budged for decades.

In 1968, amid a potent upturn in inflation, a rise in taxes to pay for the Vietnam War, and a personal-savings rate of nearly 8 per cent of take-home pay, Americans gave 2.1 per cent of their pre-tax income to charity. In 1998, with inflation and unemployment low, household income high, and a savings rate of only 0.5 per cent, Americans gave even less of their treasure to charity than in 1968: only 1.9 per cent of pre-tax income.

New data from Independent Sector, a Washington advocacy group of charities and foundations, affirm the trend. A study of giving and volunteering to be released this week shows that average household contributions dropped slightly from 1995 to 1998, to 2.1 per cent of household income.

“With wealth going up, when we already consume a good deal, and when our economy is good enough that savings seem less important, one would expect that more of that surplus would go to charity,” says Julian Wolpert, a Princeton University professor who studies patterns of charitable giving.

Even gifts from the super-rich — $16-billion this year alone from Microsoft founder Bill Gates and his wife, Melinda, for example — have not assuaged the concern about the level of giving in America.

“We do see some increase in giving among the wealthy,” says Virginia A. Hodgkinson, a Georgetown University philanthropy scholar and a former vice-president of Independent Sector, “but nothing in comparison to their growth in wealth.”

Why personal generosity remains flat is cause for spirited debate. But with little reliable data on giving habits, the deliberations are far from conclusive.

Some observers, such as Susan Saxon-Harrold, vice-president for research at Independent Sector, say that the average charitable gift per household remains low because more people of modest means are joining the ranks of donors. Still other observers cite an erosion of spiritual and moral values for the stagnation in generosity.

“The moral training of our nation has been on the downhill,” says Mr. Treadwell, of Central Union Mission. “You hear about a Bill Gates giving $16-billion, but other people are unwilling to sacrifice $16 because they’re wrapped up in selfishness.”

Notwithstanding the theories, many charity advocates believe that Americans, on average, have more room to be generous.

Claude Rosenberg, a former investment manager who founded an organization called Newtithing Group, in San Francisco, to encourage greater philanthropy, has reviewed Internal Revenue Service figures to determine that Americans could donate another $242-billion this year “without it creating any sacrifices for anybody.” More than three-fourths of that giving, he says, could come from the richest 3 per cent of Americans who file tax returns.

Many wealthy people “are really not sure how much they should give or even where to put” their charitable dollars, Mr. Rosenberg says. “In fact, many of the people are so overwhelmed with solicitations already that they almost throw up their hands and say, ‘I don’t know what I’m going to do.’ So they just procrastinate.”

As Mr. Rosenberg suggests, wealthy people hold special potential for charities. But relying on the rich to shore up the nation’s record of generosity has its limits.

For one thing, says Mr. Clotfelter of Duke University, while the number of affluent people in America is growing, “the wealthy are not numerous, so they can’t really contribute that much” to raising the national average on giving as a percentage of personal income. In 1996, the number of people with adjusted gross incomes of $1-million or more grew 28 per cent from the year before, to 111,000, showing that the ranks of the wealthy are on the rise. But those wealthy filers still represented only about 1 in 800 U.S. taxpayers.

Moreover, many observers say that cuts in the top income-tax rate over the decades have diminished an important incentive for people — especially rich ones — to give: the opportunity to keep their money out of the government’s hands.

When the top tax rate was above 90 per cent in the 1940s, 1950s, and 1960s, a wealthy donor wound up spending less than 10 cents to give a dollar to charity; hanging on to the dollar meant losing 90 cents of it to the Internal Revenue Service.

But in recent years Congress has slashed the top tax rate — to 50 per cent in 1983 and then to 28 per cent in 1986, before raising it again in the 1990s to the current 40 per cent. Today, it costs a donor in the top tax bracket as much as 60 cents to give a dollar to charity.

“On one side, there is more wealth,” Mr. Clotfelter concludes, “but on the other side, the wealthy don’t have as much tax-related incentive to give.”

Of course, not everyone agrees that taxes — or the possibility of escaping them — are the way to promote giving. “I don’t think being heavily taxed makes people feel very charitable,” says Alan Reynolds, director of economic research at the conservative Hudson Institute. “It makes them feel ripped off.”

Mr. Reynolds’s comment points up the starkly drawn battle line over taxes and philanthropy. Those lines are no more clear than in the debate over whether to eliminate the so-called death tax on the estates of the wealthy.

Conservatives have long said that estate taxes lead to the demise of family businesses, raise interest rates, and bring in little net revenue to government. Supporters contend that the taxes spur philanthropy and discourage dynastic concentrations of family wealth.

Eliminating the estate tax “won’t automatically increase or decrease giving,” says Paul G. Schervish, director of the Social Welfare Research Institute at Boston College. But, he says, it would “provide a better terrain for increased charitable giving because it will enable people to have more of their income and wealth to dispose of.”

Still, David Joulfaian, an analyst in the U.S. Treasury Department’s Office of Tax Analysis, suggests in a recent paper that eliminating the estate tax could cost charities between $1-billion and $1.5-billion a year. Eugene C. Steuerle, a senior fellow at the Urban Institute, a Washington think tank, also concludes that the estate tax creates an important incentive for wealthy people to give to charity. People with a net worth of $10-million or more at death bequeath about a third of their estates to charity, with the estate tax playing a significant role in many of those decisions, he says.

Whatever the course of national tax policy, many analysts are sanguine about the future of giving. Some cite the growth of the Internet as a fund-raising tool, saying it will lead many Americans to give for the first time or to give more than they have in the past. Others expect a spate of bequests when today’s Silicon Valley millionaires reach old age.

But the biggest reason for the optimism can be summed up in one word: demographics. In coming decades, the World War II generation is expected to transfer trillions of dollars in wealth to heirs, to charity, and to government in the form of estate taxes. Charity could reap a significant harvest from that transfer.In a new study, Mr. Schervish forecasts that the total wealth transfer will be “many times greater” than current estimates of about $13-trillion, and he foresees the awakening of “a sleeping giant of charitable giving” as a result.

But many analysts are adopting a wait-and-see posture on wealth-transfer projections, saying the reality will depend on what happens in the stock market. A run-up in stock prices could propel the value of the transfer to $30-trillion or more. A Wall Street meltdown, on the other hand, would mean all bets were off.

What’s more, even if tens of trillions of dollars indeed do change hands in the next half century, charities aren’t insured a resulting bonanza.

“There’s hope, but no assumption” of that, says Sylvia Ronsvalle, executive vice-president of Empty Tomb, a religious, research, and social-services organization in Illinois. Among religious fund raisers, she says, the prevailing view is that without better education on philanthropy, billions of dollars could pass to heirs or be paid out in estate taxes with nary a thought about charity.

“Unless some education takes place in the near future,” Ms. Ronsvalle says, “people will die without wills — or by default that money will go to families because it won’t occur to people to give to charities.”

With so many unsettled questions about giving in America, the non-profit world is looking for leadership from policy makers in Washington. Their hope: that the White House Conference on Philanthropy will spur Washington to take the subject of charity more seriously.

The greatest need, many observers say, is for better basic data on philanthropy. Says Mr. Wolpert of Princeton: “The private sector relies a lot on all kinds of data that is paid for lavishly by government. We need to know a lot more about the non-profit sector and about philanthropy.”

Besides improving government’s commitment to data collection, charity advocates say, the White House needs to play a stronger leadership role in amending the tax system to encourage philanthropy.

One way might be to allow donors to take a double deduction for gifts to charities that certify they will use the contributions exclusively to help the poor.

While some non-profit groups, such as Harvard University, have amassed record endowments, many soup kitchens and shelters are struggling to stay open, notes Curt Weeden, president of Corporate Contributions Management Academy, a Palm Coast, Fla., organization that trains business executives on philanthropy. “Our prosperity often masks some of the problems we have,” he says. “Folks living at or below the poverty line are still in very significant need of support.”

Other tax ideas also need a serious look from the White House and Congress, charity advocates say. They point to two provisions that died last summer in the bitter fight over taxes. One would allow older people to shift assets from individual retirement accounts to charity without incurring income taxes; the other would allow people who don’t itemize on their federal income-tax returns to take a charitable deduction for gifts up to $100 per family.

Even more fundamental than tax changes, charity advocates say, is a need for Presidential leadership in examining the proper role of philanthropy in American society — particularly in an era when both major political parties favor shifting the administration of more and more social-welfare programs from government to non-profit groups.

The way to help philanthropy more dramatically than through a one-day White House conference, Mr. Wolpert says, “is to show some strong advocacy for the people who would benefit either from philanthropy or from government programs.” The White House, he says, should “dramatize the problem of poor children in this country, with a clear message that both charity and government have important roles but that the charitable role is only a tiny proportion of what needs to be done. The major responsibility remains with government.”

If participants at the White House conference want a reminder of the role that charity plays in caring for the poor, they need only look out the window of 1600 Pennsylvania Avenue. Across from the executive mansion is Lafayette Park, where the down and out of the nation’s capital often gather in twos and threes. Among them are clients of the Central Union Mission.

“The guys who spend the night with me,” says Mr. Treadwell, reflecting on this week’s philanthropy conference, “go to Lafayette Park and watch the White House during the day.”