Taxpayers Giving More to Charity


The following article is provided courtesy of CCH, Inc.


Year-end is a popular time for charitable giving, and the amounts that people give continue to rise. A new Council of Economic Advisers (CEA) report on philanthropy states that charitable giving in the US reached a record high of over $190 billion in 1999.

Charitable gifts, as a percentage of the gross domestic product (GDP), increased from 1.7% in 1995 to 2.1% in 1999, the highest level in three decades, according to the CEA report. The study also found that those in the middle 20% of income distribution donated nearly twice as large a fraction of their net worth as the wealthiest 20%, although the top fifth of the income distribution contributed two-thirds of all charitable donations.

Senior citizens are the most generous age group. After accounting for differences in financial resources, older Americans (age 65 and above) are approximately 25% more likely to make a charitable contribution than those near middle-age and to give substantially more - approximately $500 to $600 more on average per year.

The CEA study is a follow-up to the 1999 White House Conference on Philanthropy. In addition to discussing trends in giving in the US, the report also discusses possible future directions for philanthropy and possible ways to encourage greater giving.

Future of Philanthropy

The aging of baby boomers and the high levels of accumulated wealth among this group may yield a "substantial windfall for philanthropic organizations" in the future, according to the CEA document. Between 1999 and 2020 the fraction of the US population ages 65 and over is expected to increase from 12.6% to 16.5%. Median household net worth for those ages 61 and over was $48,738 in 1962, $95,458 in 1984, and $111,385 in 1994 (adjusted for inflation in 1999 dollars).

The amount of both inter vivos giving and charitable bequests is expected to grow dramatically, with each expected to increase by several hundred percent over a 20-year period. A new group of venture philanthropists who apply their business skills to their own charitable giving have begun establishing new instruments known as social venture funds. These funds apply for-profit techniques to the nonprofit realm in an effort to maximize investor value and impact, noted the CEA report. While there are relatively few social venture funds to date, they are laying the groundwork for future innovative efforts, according to the CEA study.

Tax Incentives

In 1999 over 32 million taxpayers itemized deductions for the purpose of charitable giving, which resulted in the federal government diverting $26.5 billion to its participation in charitable giving, according to estimates by the US Joint Committee on Taxation. The CEA report notes that, while individuals appear to give more because of the deduction, there is substantial disagreement about the magnitude of the response. While tax incentives appear to encourage charitable donations, the long-term effects are smaller than the short term. Studies suggest that changes in tax law may affect the timing of giving but are unlikely to have a large effect on lifetime contributions.

This does not mean that the charitable deduction should be eliminated, the CEA study asserted. "Research does indicate that it is efficient for some forms of charitable giving - such as giving to social welfare organizations - and for giving by higher income individuals. Furthermore, the charitable deduction often benefits causes such as religious organizations, which cannot obtain government funding," according to the CEA.

The tax code also encourages charitable bequests. Noting that such bequests are deducted from the value of an estate before calculating the estate tax owed, the CEA report concluded that charitable bequests would "fall substantially" if Congress succeeded in eliminating the estate tax.

The CEA study also summarized the Clinton administration proposals contained in the president's fiscal year 2000 budget request. Clinton's proposals, which Congress has thus far failed to enact this year, would allow nonitemizers to claim a 50% deduction for charitable contributions above $500 a year and simplify the current two-tier excise tax on the investment income of foundations. The president's budget also proposed to make it easier for individuals to donate appreciated assets like stock, art and real estate by easing current caps on yearly deductions for donations of appreciated assets and appreciated property to private foundations. "These new tax proposals would provide a straightforward mechanism for promoting greater participation in charitable activities," the CEA report stated.

The CEA report is available online at http://www.whitehouse.gov/WH/EOP/CEA/html/whitepapers.html.

Information in this story provided by Paula Cruickshank, CCH News Staff

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