The Wealthy Give Less Back to Society. Let Us Count the Ways.
Which demographic group responded to the financial crisis by giving less money to charity? Pick one:
A) the poorest Americans – those without college educations and only minimum-wage jobs
B) The middle class, who bore the brunt of the foreclosure crisis and whose job losses drove the unemployment rate above 10%
C) The wealthiest citizens – the 1%
You guessed it.
It was the rich. Americans making more than $100,000 a year cut the percentage of their income they gave to philanthropy by 3.3% between 2006 and 2012.
Those who earned less in salary actually gave more to the poor. In fact, according to a recent study by the Chronicle of Philanthropy, based on IRS data, those earning $25,000 or less donated an average of 16.6% of their adjusted gross income. By comparison, high-earning citizens gave only 4.6% of their incomes.
The higher you go in income, the lower the percentage of your salary that you gave to charity. So if someone earned between $50,000 to $75,000, their giving only rose to a trickle of 5.7%.
This difference should reignite a debate about income inequality in the United States – a wealth gap that the Great Recession only managed to deepen, according to Federal Reserve data.
The haves and the have-nots are drifting further and further apart, to the point that even ratings agency Standard & Poor’s is warning that this gap is putting a dent in the country’s long-term economic growth prospects, as a less-educated workforce becomes less able to compete in a global marketplace.
Two arguments keep persisting to explain or excuse the wealth gap. One is that the country’s wealthiest citizens are “job creators”. The other is that they give more to philanthropy.
These arguments are collapsing fast.
The job creators excuse has been hotly debated and at least partly debunked over the last few years.
Rich people certainly can create companies that offer great products and services, critics of the “wealthy folks create jobs” school of thought argue. But they still need consumers to step up and buy the products, and they need the right kind of environment in which to flourish. Rich people only create jobs when their customers can afford to buy. And if the rich are succeeding at job creation, it’s not visible in the nation’s payrolls: there’s still an unemployment crisis because many companies are not hiring despite years of record profits.
Now, the Chronicle of Philanthropy data is chipping away at the second pillar supporting income inequality: the great charity giveaway coming from the rich.
It’s true that, in dollar terms, the richest Americans actually gave more in 2012 than they had given in 2006, says Stacy Palmer, the Chronicle’s editor: $77.5bn, up by $4.6bn, adjusted for inflation.
It’s just that, relative to the increase in their wealth over that period of time, their giving actually declined.
“Donors don’t think about giving as a percentage of their income any more, unless they are part of a church and see it as tithing,” Palmer says.
Significantly, that decline took place during a period in which non-profit organizations saw their needs go up.
“They asked more people to help meet the greater demand for their services in those difficult years of the recession, but found it harder to persuade people,” says Palmer. “The more affluent tended to be less responsive. It seems to be related to empathy; the more affluent seem to be insulated from the challenges that working-class Americans confronted.”
Intriguingly, Palmer says that she sees surprisingly little overlap between the Forbes 400 list of the richest Americans, and the Chronicle of Philanthropy’s own list of the 50 most generous philanthropists (due for release later this month).
“A lot of the most generous donors never show up on the Forbes list,” Palmer says.
On the other hand, non-profit organizations note that the most generous donors – those less wealthy individuals who can least afford to squeeze out the extra dollars – tend to be the most empathetic. All too easily, they can see themselves in the place of the people their dollars are helping today.
Brian Wodar, national director of non-profit advisory services for Bernstein Global Wealth Management, notes that it might not just be empathy that’s at work here, however.
“It’s easier for less wealthy folks to make charitable gifts – they can simply text a $10 gift to the American Red Cross and it shows up on their phone bill,” he points out. To give away a significant percentage of your wealth when the sums are in the tens or hundreds of thousands of dollars – or in the millions – requires a lot more planning and organization.
That may not explain why the rate of giving by the wealthiest Americans dipped when it was most needed, but something else might: taxes.
The study period – from 2006 to 2012 – captures the period from the height of the pre-crisis economic expansion to its nadir. The stock market’s dive between 2007 and 2009 created big financial losses for the rich. They could apply their losses to cut their tax bills – which meant they didn’t need the extra benefit of charity-related deductions.
“I think that the much, much higher tax bills that most people confronted in 2013 will push these folks back into philanthropic giving,” he suggests.
Still, for wealthy Americans, philanthropy is choice, not duty. They choose whether to give, where to give and how much. A philanthropist deciding to lavishly endow a new university building (that will then carry his name in perpetuity) might view that as a form of giving back to the community. The community – beyond the academic institution itself – might view the gift in a different light. Without funds to subsidize after-school programs or college scholarships that might enable their own children to attend that college, the gift isn’t helping to address income inequality.
It isn’t just the super-wealthy who, in spite of the generous and well-publicized giving by the likes of Bill Gates and Warren Buffett, could be doing more.
Palmer points out that the merely moderately wealthy – those with a net worth of only about $500,000 to a few million or so – are among those who, anecdotally, are the least generous of all relative to their assets. (Data from studies by Bank of America and others tend to support that conclusion.)
“If a lot of them did only a little bit more; if they increased their share only slightly; if they could discover that empathy – wow, a lot more could be done for a lot more people,” Palmer says, almost wistfully.