Charity of Americans Is Unique--Also Deductible

Walter Annenberg’s $500-million gift to education, announced a week before Christmas, reflects a generous spirit but also a most useful principle of the U.S. economy: Charitable giving is encouraged by tax deductions.

The deductibility of contributions to schools or churches, the Red Cross or the Sierra Club, is a unique characteristic of U.S. society. No other country allows so many deductions for so many causes.

But then, no other country has so many contributors.

Some 30 million taxpayers gave $60.6 billion to charity in 1991, the latest year for which the Internal Revenue Service has complete records. That only counts the 30% of taxpayers who file itemized returns. And the figure is undoubtedly higher now, because contributions rise about $3 billion a year in good times and bad, the IRS reports.

They may go up even more now because of Annenberg’s example.

The 85-year-old billionaire, whose Annenberg Foundation has given almost $1 billion to educational causes in 1993, is urging other foundations, corporations and wealthy individuals to step up their contributions.

And they probably will. Following a tradition that predates even the income tax, money earned in brawling industry has gone to finance loftier pursuits. Andrew Carnegie built the steel industry--and then built public libraries all over the United States and his native Scotland.

John D. Rockefeller gave little in his lifetime, but the Rockefeller Foundation has used his oil fortune to support--among many other endeavors--agricultural research that reversed age-old patterns of famine in Asia.

Examples abound in medicine. The millions made in building General Motors also built the Sloan-Kettering cancer center in New York. Money earned building homes and offices in Los Angeles also built the Norris Cancer Center at USC. Houston oil wildcatters built the Texas Medical Center’s many hospitals.

“The tradition of philanthropy and its encouragement by tax laws is a most admirable aspect of American society,” the British historian J. H. Plumb said years ago.

Other countries do not have philanthropy on America’s grand scale, Plumb explained. They do have inheritance taxes, similar to U.S. estate taxes, that are designed to prevent the concentration of wealth over generations. Thus titled families in Britain had to sell their stately homes; the government has the upkeep of France’s fine chateaus.

The thinking in most countries is that the government will do good works. Wealthy individuals are not allowed to set up foundations and have a say over how their money is spent--although Germany and Japan have begun to copy the American model.

“Our open-ended, broad treatment of charitable contributions and the ease with which people can set up a foundation and claim a charitable exemption is unique in the world,” said Lawrence Stone of the Los Angeles law firm Irell & Manella, a tax expert who drew up foundation law while at the U.S. Treasury in the 1960s. “It’s a great thing, on the whole.”

Is it? The question is: Would channeling charity through government be more democratic, and does the American system merely exalt rich people and allow them self-glorification?

The answer is no. Government might be more bureaucratic than democratic. And remember, the vast bulk of the $60 billion that Americans contribute to charity every year comes in small checks from ordinary people giving where and to whom they choose. It’s a system suited to a diverse society.

Corporations give only a fraction of what individuals contribute--less than $5 billion a year, says the IRS. And foundations have been subject to periodic reforms to prevent their use of tax-exempt funds for political purposes or to shelter profit-making businesses.

As for the wealthy, there’s often as much gratitude as self-glorification in their charitable giving. Tough entrepreneurs have a way of getting dewy-eyed later in life about the American Dream.

Walter Annenberg’s father came as a child from a village in eastern Poland, grew up tough in 1890s Chicago and built a business empire in news and information (the Racing Form and the Philadelphia Inquirer were principal properties). Nobody celebrated the family’s journalism, but Walter Annenberg multiplied the family fortune, by founding Seventeen magazine in the 1940s and TV Guide in the ‘50s--both sold to Rupert Murdoch five years ago, along with the Racing Form, for $3 billion.

Annenberg is busy these days giving away money--Forbes gives his personal fortune as $2.1 billion and the wealth of his foundation at $1.5 billion--because he is grateful.

“I’ll tell you very frankly, I have been very favorably blessed economically,” he said the other week on NBC, after the news of his $500-million contribution, which is to be matched by others to support efforts to curb violence in the nation’s elementary schools. “I have a great obligation to my country.”

It’s likely that others will be giving more also, says tax lawyer Stone. Regulations now allow taxpayers to deduct the appreciated value of stock contributions, which have been driven up by the bull market. And with increased federal as well as state and local taxes, more individuals will find themselves paying a 50% tax rate on part of their income.

“That makes the deduction for charitable contributions more economically attractive,” Stone explained.

And more rewarding in ways beyond money, for individuals and for the country.