How the su­per-wealthy are shap­ing char­i­ta­ble giv­ing

Tax de­duc­tions for do­na­tions skew phi­lan­thropy away from those in need, ar­gues po­lit­i­cal sci­en­tist Rob Re­ich

The Washington Post Sunday - - OUTLOOK - Twit­ter: @ro­bre­ich

Our era of gap­ing in­equal­ity may be a foe to civic concord, but it is a friend to pri­vate phi­lan­thropy. Ev­ery pass­ing month seems to bring an an­nounce­ment about a new mega-do­na­tion — Michael Bloomberg’s $1.8 bil­lion gift to Johns Hop­kins Univer­sity be­ing just the most re­cent to make head­lines. The hoopla sur­round­ing an­nounce­ments like Bloomberg’s re­veals our fas­ci­na­tion with gifts of that scale. It also high­lights a dis­tress­ing trend in Amer­i­can phi­lan­thropy: the ris­ing dom­i­nance of the wealthy in over­all char­i­ta­ble giv­ing.

The trend to­ward “Gilded Giv­ing” is the sub­ject of a new re­port by the In­sti­tute for Pol­icy Stud­ies. It con­firms that we have shifted from broad par­tic­i­pa­tion in char­ity to an in­creas­ing de­pen­dence on the giv­ing of the wealthy.

Fif­teen years ago, house­holds earn­ing $200,000 or more were re­spon­si­ble for only 30 per­cent of all char­i­ta­ble de­duc­tions. In 2017, how­ever, they ac­counted for 52 per­cent of such de­duc­tions. Over the same pe­riod, there was mas­sive growth in the num­ber of pri­vate foun­da­tions and in­creas­ing ware­hous­ing of wealth in donor-ad­vised funds (which al­low donors to in­vest tax-ex­empt money, reap­ing im­me­di­ate tax de­duc­tions, for fu­ture dis­burse­ment to non­profit or­ga­ni­za­tions).

The pre­ferred causes of the wealthy di­verge con­sid­er­ably from those of other peo­ple. Well-off peo­ple tend to do­nate to higher ed­u­ca­tion, hos­pi­tals and cul­tural or­ga­ni­za­tions like mu­se­ums; mid­dle-class and poor peo­ple give much more heav­ily to churches and re­li­gious or­ga­ni­za­tions. Richer donors also give pro­por­tion­ately less to pro­vide for ba­sic needs, though no in­come group is es­pe­cially in­clined to­ward alms­giv­ing. Ac­cord­ing to a 2007 study by the Cen­ter on Phi­lan­thropy at In­di­ana Univer­sity, at best 22 per­cent of mil­lion­aires’ char­i­ta­ble giv­ing is di­rected to the poor, com­pared with 31 per­cent for all donors. The more that non­prof­its rely on con­tri­bu­tions from the wealthy, the more dif­fi­cult it be­comes for those that serve the poor to re­ceive sup­port.

Phil­an­thropic in­equal­ity might seem like a sim­ple byprod­uct of in­come in­equal­ity: As wealth ac­cu­mu­lates at the top of the eco­nomic pyra­mid, rich peo­ple nat­u­rally can af­ford to give more than oth­ers. But the im­bal­ance in Amer­i­can phi­lan­thropy is more than a re­flec­tion of an eco­nomic re­al­ity that fa­vors the 1 per­cent. It’s also a re­sult of plu­to­cratic bi­ases baked into the pub­lic poli­cies that struc­ture how phi­lan­thropy op­er­ates.

Con­sider the me­chan­ics of the char­i­ta­ble tax de­duc­tion, a cen­tury-old sta­ple of Amer­i­can tax law: The in­cen­tive to give rises along with the donor’s in­come and tax rate. If a tax­payer earns the me­dian in­di­vid­ual in­come of $31,000 and is taxed at a 15 per­cent mar­ginal rate, for in­stance (the 2017 fig­ure), then a $1,000 do­na­tion will ef­fec­tively cost her only $850. But some­one net­ting $300,000 an­nu­ally and pay­ing a 39 per­cent mar­ginal rate can make the same $1,000 do­na­tion — to the same char­ity, os­ten­si­bly pro­duc­ing the same so­cial ben­e­fit — at an ef­fec­tive cost of only $690.

In other words, it costs wealthy peo­ple less to par­tic­i­pate in the time-hon­ored and vir­tu­ous act of giv­ing. Why should we tar­get a giv­ing in­cen­tive at the peo­ple who need it the least? If Bloomberg’s in­come this year is large enough to al­low him to deduct the value of his $1.8 bil­lion gift, then the bil­lion­aire’s do­na­tion will be pro­por­tion­ately more sub­si­dized than that of any mid­dle-class donor to Johns Hop­kins (or any non­profit).

Worse, the tax in­cen­tive for mak­ing a char­i­ta­ble con­tri­bu­tion is avail­able only to tax­pay­ers who item­ize their de­duc­tions — peo­ple who do not take the stan­dard de­duc­tion. And the peo­ple who tend not to item­ize are the work­ing class and the salar­ied mid­dle class. This group was al­ready large: Last year, roughly 70 per­cent of Amer­i­cans took the stan­dard de­duc­tion. But now that the 2017 Trump tax bill has taken ef­fect, fully 90 per­cent will fall into that cat­e­gory, ac­cord­ing to the Tax Pol­icy Cen­ter. For them, a $1,000 do­na­tion will cost . . . $1,000. (The change is the re­sult of the in­crease of the stan­dard de­duc­tion and the cap on state and lo­cal tax de­duc­tions.)

One way to blunt the bias in fa­vor of giv­ing by the wealthy would be to do away with the char­i­ta­ble tax de­duc­tion al­to­gether. It could be re­placed with a capped tax credit, avail­able to item­iz­ers and non-item­iz­ers alike. For in­stance, all cit­i­zens might re­ceive a tax credit of 25 per­cent of their do­na­tion, with the to­tal an­nual credit capped at $2,000. This would elim­i­nate the up­side-down in­cen­tive struc­ture of the de­duc­tion yet pre­serve the lib­erty of ev­ery­one to con­tinue mak­ing do­na­tions af­ter the cap is reached.

More am­bi­tiously, the gov­ern­ment could stim­u­late greater phil­an­thropic giv­ing by of­fer­ing tax­pay­ers an ad­di­tional credit (say, $1,000), to do­nate to non­prof­its of their choice af­ter they con­trib­ute a cer­tain pro­por­tion of their in­come to char­ity in a given year (per­haps 2 per­cent). Bill Gates wouldn’t care much about an ad­di­tional $1,000, but it could mean a lot to other cit­i­zens. Call it a civil-so­ci­ety build­ing grant that would bol­ster the ethos of giv­ing na­tion­ally. And it would be a spe­cial en­cour­age­ment to the mid­dle class, whose rates of giv­ing as a per­cent­age of in­come are lower than among the wealthy, whose rates of giv­ing are in turn lower than those of the poor. (You read that right: Stud­ies show that as a per­cent­age of in­come, the poor are more gen­er­ous than the wealthy, with the mid­dle class the stingi­est.)

Alexis de Toc­queville cel­e­brated the dis­tinc­tive Amer­i­can ten­dency for all peo­ple to par­tic­i­pate in civil so­ci­ety. Ef­forts like Giv­ing Tues­day are in keep­ing with the that spirit of en­gage­ment. A record $380 mil­lion was do­nated this past Tues­day, with the av­er­age do­na­tion at roughly $100. But be­hav­ior on Giv­ing Tues­day is not typ­i­cal of trends in char­i­ta­ble do­na­tions. Rich peo­ple will al­ways have more money to give away, but our pub­lic poli­cies should not am­plify their al­ready pow­er­ful phil­an­thropic voices. Rob Re­ich is a pro­fes­sor of po­lit­i­cal sci­ence at Stan­ford Univer­sity and the au­thor of “Just Giv­ing: Why Phi­lan­thropy is Fail­ing Democ­racy and How it Can Do Bet­ter.”

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