A new Chronicle of Philanthropy report says that America is “breaking the charity habit.” The share of American households donating to nonprofits has declined from about 30 percent in the years 2000 to 2006 to just 24 percent in 2015. These numbers are taken from IRS data and include only those filers who itemized their charitable deductions, but Chronicle editors suggest that a worrying trend has emerged: less philanthropic spending among Americans.
And that makes President Trump’s tax proposals even more concerning, they say. The president’s plan would “roughly double the standard deduction, meaning millions fewer taxpayers would itemize their tax returns . . . [which] could reduce charitable giving by $13 billion,” according to an analysis by the Independent Sector, a trade association for charitable foundations and their supporters. “The standard deduction increase will be a disguised assault on charitable giving in the name of tax simplification,” Tim Delaney, CEO of the National Council of Nonprofits, told CNBC.
Yet while liberals tend to believe that changes to the tax code determine how generous Americans are, the crucial factor is disposable income. After all, charitable contributions have held steady at about 2 percent of GDP for at least four decades, regardless of whether the top tax rate was 70 percent or 28 percent. When the rate was higher, the value of the charitable deduction would have been higher, but that didn’t seem to influence overall giving. Giving USA data show that in 2014 and 2015, these contributions amounted to 2.1 percent of GDP—just above the 40-year average of 1.9 percent.
The total sums given to charity depend far more on the level of economic growth—that is, the size of GDP—which is why overall giving has continued to increase, even as its percentage of GDP remained the same. According to Giving USA, Americans donated $390 billion to charity in 2016, up 3 percent from the year before. Giving from individuals alone amounted to $282 billion.
It’s true that a higher percentage of charitable giving is coming from high net-worth individuals, the result of a still-booming stock market, as well as a number of mega-gifts from Silicon Valley entrepreneurs. Some argue that the rich, by giving such large gifts, are exerting too much control over civil society—whether it’s the Koch brothers’ lavishing money on universities or the Gates Foundation’s providing financial support for promoters of the Common Core in public schools. If the superrich give away too little, it seems, they’re called greedy; if they’re generous, they’re launching a new “Gilded age” or a “plutocracy.”
A key reason that the wealthy are making a larger percentage of donations is that the middle class is having more trouble affording them. From stagnant wages to the rising costs of health care and housing, ordinary Americans are finding discretionary income harder to come by. But these aren’t problems that tax loopholes for charities will fix; they need to be solved by increasing growth and reducing health-care costs. Cuts in tax rates for the middle class might help, but reductions in the corporate tax rate, like the one that the president has proposed, will bring capital back to the U.S. and free up money for investment in businesses, higher wages for workers—and more money for philanthropy.
Philanthropic leaders have long argued that increasing tax rates on the biggest earners will not only bring in more revenues—helping the less well-off through government support of nonprofits—but will also give the wealthy more of an incentive to give. Their charitable donation will take more off the bottom line of their tax bill, in other words, than, say, buying a new yacht. Yet most people don’t seem to think about their disposable income in this way.
Indeed, for years, the charitable sector has been making a similar argument about the estate tax: we need a high tax rate to induce wealthy people to leave estates to charity or to form foundations. But the reduction in the estate tax to an effective rate of zero in 2010 showed almost no effect on giving or the formation of foundations.
Giving to charity is a habit. It’s no surprise that Utah, populated by so many Mormons—who are required to tithe weekly—is the most generous state in the nation. And nonprofit leaders are right to worry that the American middle class might be less likely to give nowadays. “While the effects of the recession have eased, memories of its trauma linger,” the Chronicle editors write. “Americans—particularly those with limited discretionary income—may be rethinking their budgets and spending habits.” But if we want to ensure that a broader swath of Americans can donate to churches, schools, and charities in their communities, they need to have the income necessary to do so.
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