Charities Seek Strategy as Contributions Decline

The rich are giving less to charity.

In 1962, Americans with annual incomes of $1 million or more gave away nearly $1 of every $5 they earned. But 20 years later million-dollar-plus earners gave away only about $1 in $15.

Of course, a million dollars isn’t what it used to be, either. And just as inflation has ravaged the dollar since 1962, so have the tax laws diminished incentives for the rich to give.

The merely affluent are giving less, too, the latest research shows. Those with incomes of between $50,000 and $500,000 annually gave a smaller share of their income to charity in 1983 than they did in 1977.

And a study for the Rockefeller Brothers Fund suggests that those model ‘80s people--the young, upwardly mobile urban professionals, or yuppies--are among the least generous of all Americans with many giving not one penny to charity.

Meanwhile, the poor and the middle class give more and more, IRS data show.

These and other trends about stinginess and generosity in America were explored the other day at a national charity conference held in the shadow of Wall Street.

Independent Sector, an organization of 300 major charities and 300 foundations and corporations, and the United Way Institute co-sponsored the third annual Spring Research Forum. This year’s theme was “Giving and Volunteering: New Frontiers of Knowledge,” but the 200 conferees focused on cutbacks in alms giving by those most able to give.

“The reduction in giving by the very well-to-do in our society is a matter of deep concern,” observed Brian O’Connell, president of Independent Sector.

Rich Americans are the major source of donations to many private colleges, universities, museums and cultural organizations.

O’Connell and others say rich and affluent Americans are giving less for a variety of reasons, including less involvement in religious activities, where giving habits are instilled at an early age.

But researchers at the conference said the principal reason the rich are giving less is that the federal government has, in effect, been raising the cost of giving to charity by reducing tax rates, thus making charity less advantageous as a tax deduction.

“People respond to the tax price of giving, much as they do to the price of fruit,” said Charles T. Clotfelter, a Duke University economist who has been studying the likely impact of tax simplification proposals on charitable giving. His studies show that lowering taxes will mean less giving, especially by those in the higher tax brackets.

No one at the conference spoke against the notion of lowering tax rates, but many advocates of nonprofits say that additional cuts in tax benefits for charitable giving will deal a serious blow to charities.

The full Treasury Department plan, with all its nuances, would result in about a 20% drop in charitable giving, half of that attributable to the lowering of tax rates, Clotfelter said.

Clotfelter said his econometric model, predicted giving by those making $100,000 or more per year would drop 15%, after adjusting for inflation, between 1980 and 1983 because of tax law changes. He said the actual decline was 14% and this suggests his model is reliable.

Who Will Suffer

He said museums, private colleges and other organizations that depend on gifts of appreciated property for as much as half of their donations will suffer most if the Treasury Department plan to reduce the value of such gifts for tax purposes is adopted. Clotfelter said if Congress limits deductions on appreciated property to the purchase price plus inflation, instead of the full value, such gifts will decline 30%.

O’Connell, the Independent Sector president, said he is “absolutely certain that Clotfelter and the other economists who have studied the appreciated property issue have grossly underestimated the effect” of reducing tax benefits for appreciated property.

In 1979, IRS data show, million-dollar-plus earners gave an average of $150,000 worth of appreciated property to charity. This dropped to about $123,000 in 1980 and 1981 and then plummeted to $74,000 in 1982, the first year of the Reagan tax cuts.

Causes supported by small donations, including churches, will suffer less under the tax simplification plans, the researchers say.

Some Increased Giving

“The portion of total giving for the lower and middle classes is increasing,” said Virginia Hodgkinson, Independent Sector vice president and head of the National Center for Charitable Statistics. “Even though the percentage of Americans earning less than $50,000 declined slightly--from 87% in 1982 to 86% in 1983--their share of all giving is going up.”

She said Americans earning under $50,000 gave 11% more in 1983 than the year before while those earning above that amount gave 6.7% more.

The poor and middle class give to causes they know or those that appeal to their emotions, David N. Richardson of Yankelovich, Skelly and White Inc., the opinion survey firm, told one conference workshop. Richardson said that how much most people give is a function of religious involvement, habit and such circumstances as marital and parental status.

But the rich give differently.

“With respect to charitable gifts, high income people tend to be particularly sensitive to marginal tax rates,” said Gabriel Rudney, senior research associate at Yale University’s Program on Nonprofit Organizations.

A Long Trend

The trend away from generosity among the rich has been traced to at least 1963, the year President John F. Kennedy persuaded Congress to cut federal income taxes.

In 1962, the highest marginal tax rate was 91%, meaning that of each dollar earned above a certain level by the highest income Americans the government took 91 cents as income taxes. For such individuals a charitable gift of $1 cost just nine cents out of pocket; the other 91 cents would have gone to Uncle Sam anyway.

In 1963, Kennedy got the top rate cut to 70%. President Reagan continued the trend to lower tax rates in 1981 when he got Congress to lower the top rate to 50%.

Now it costs the richest Americans 50 cents out of their pockets to donate $1, up 67% from the 30 cents it cost in 1981.

And the cost of giving may go up again soon.

If Congress adopts the Treasury Department tax plan, which would establish a maximum tax rate of 35%, the richest Americans will be paying 65 cents for each dollar they donate, more than double the cost in 1981.

All of the tax simplification plans being discussed in Washington propose lowering federal tax rates.

Yale’s Rudney and Gerald Auten, an economics professor at Bowling Green State University in Kentucky, have been examining the impact of federal income tax policy on giving by people with high incomes.

They analyzed IRS data showing that among all Americans with adjusted gross incomes of $50,000 or more the percentage of income given away as charitable donations declined at least 40% between 1962 and 1982.

IRS data they collected show that in 1962 those who made $1 million or more gave 18.8% of their income to charity. But in 1982 this had dropped to 6.5% of income.

Rudney said 11,460 individuals with million-dollar-plus incomes filed itemized tax returns in 1983 and that all but 239 reported making charitable gifts. These gifts totaled $1.44 billion, he said. (All individuals gave $53.9 billion that year, according to the American Assn. of Fund Raising Counsel.)

Altered Perceptions

Richardson said one reason the affluent and rich give less is that inflation has altered perceptions about income and wealth. “People who make a million dollars today don’t perceive their income in the same way someone did who made a million dollars 20 years ago,” he said.

Richardson told one workshop that his research for the Rockefeller Brothers Fund indicates that yuppies are not generous givers and that many yuppies do not give at all.

“Altruism is an acquired taste,” suggested Robert O’Connor, director of marketing research for United Way of America. Giving patterns mirror voting patterns, O’Connor said. Single people and childless couples, those who rent and those in their 20s give less and vote less than parents, homeowners and those in their 30s and older. O’Connor said as yuppies age they will give more.

But Richardson said he is pessimistic about how many yuppie nongivers will adopt charitable habits.

“Generally our society is becoming more competitive and this competitiveness tends to make people withdraw more into themselves . . .,” Richardson said, adding that Americans “are becoming more strategic about their lives, focusing inward in their decisions.”

One of the basic means by which charities develop givers is getting individuals involved as volunteers. Richardson suggested that the values of the “baby boomers” who came of age in the ‘60s questioning the relevance of institutions and in the ‘70s during the “me decade” are different than those of earlier generations and will make it difficult for charities to get them to give generously.

However, Richardson suggested that charities may be able to turn baby boomers, the oldest of whom are now beginning to gray, into generous givers by appealing to the forces that shape their lives and psyches. “Persuade them that it is in their own interest to give,” Richardson said, and the donations may flow.