Tuesday, October 09, 2012

Cut My Taxes and I Will Give More to Charity: Do You Buy It?

An argument for lowering taxes for the wealthy is that they will give more to charities if their taxes were lowered. Is the argument supported with data? Over the past five decades, taxes for the wealthiest 15% of Americans has declined decade after decade. If the arguement about charitable giving is correct, philanthropic giving by the wealthiest of Americans as portion of their annual income would be at its highest point since World War II.

In 1990 Terry Odendahl published Charity Begins at Home. In his book he summarized several studies over the prior decades as well as his own that demonstrated that philoanthropic giving by multimillionaires had not increased when their taxes decreased. Further, he noted that moderate and low-income families give a significantly greater percentage of their income to charities than do the wealthier fifteen percent of Americans. Since, study after study continues to affirm Odendahl's claims. Each year The Chronicle of Philanthropy reports families of modest means continue to be more philanthropic both with their time and money. As a percentage of their income, families of modest means continue to give at a much higher rate than the wealthiest of their neighbors.

If the argument was correct we would evidence an increase in giving by the wealthy each decade since the 1970s as in each decade the taxes paid by the wealthiest has declined each decade. While taxes have decreased, charitable giving by the wealthy as a percentage of their income has not increased. Rather, philanthropic giving has remained flat to having a slight decrease.

Impression and reality are sometimes different, as it is in this arena. Clearly it’s the occasional large gifts that receive headline attention. The occassional $100,000 or $250,000 gift to an organization that catches public attention, not the plethora of $50, $100, $500 and the $1,000 dollar gifts given repeatedly over the year to various local, regional and national charities by families of modest means.

Odendahl also noted the wealthiest also tend to support different charities. He noted the wealthiest tend support strongly organizations that they themselves use, such as the opera, performing arts groups, elite universities, cultural groups and leading medical facilities. Gifts when given to poverty organizations are a fraction of what they give to organizations they and their families frequently utilize. Studies since uphold the same trends continue.

Arguing lower taxes need to be based upon other grounds. Suggesting lower taxes will boast charitable giving is fallacy.