Want Somebody to Blame for Low Charitable Giving? Start With Liberals and Move on to Reagan

Another Giving Tuesday is upon us, which offers yet another occasion for collective handwringing over the stagnant levels of charitable giving in the United States, measured as a percentage of GDP.

While some have suggested we live in a “golden age” of philanthropy, that’s only true insofar as lots of interesting new donors have arrived on the scene with big money and big ideas. To date, though, this influx has done little to increase the overall flow of charitable giving as a share of national wealth. Last year, charitable donations climbed to a new high of $358 billion, but even that impressive figure barely added up to more than 2 percent of GDP, which has pretty much been the ceiling on charitable giving over recent decades.

So who’s to blame for this stagnant level of giving?

Well, the most obvious answer is that we all are—especially those Americans who don’t actually give much to charity even as they bemoan living in a penurious nation. Secular liberals in particular do a lousy job of writing checks to charity, according to research by Arthur Brooks. They believe government should deal with society’s problems and provide public goods—and the fact that government persistently falls short in those tasks doesn’t much sway their giving behavior.  

Another culprit might be corporations, which used to give a much larger share of their pretax profits to charity than they do now. In 1986, corporations gave 2.1 percent of such profits to charity. In 2012, that figure was just 0.8 percent. Chalk up one more casualty of corporate America’s obsessive focus in recent decades on increasing shareholder value over all other priorities.

A third possible villain in this story is Ronald Reagan, whose presidency ushered in an era of low tax rates for affluent Americans—dealing a major blow to the value of the charitable tax deduction for such households.

In a 2013 report published by the Manhattan Institute, Howard Husock explained the linkage here:

 

Historically, changes in the code that raise or lower the effective value of the charitable deduction have significantly affected the level of giving. For instance, donations from the nation’s wealthiest households , the source of a disproportionate amount of the approximately $217 billion in total gifts to nonprofit organizations by individual households in 2012, have fallen significantly as a percentage of disposable income since the 1970s—from 8.2 percent to 5.1 percent—as tax rates have dropped, in turn lowering the value of the charitable deduction. Put another way, because the “price” of charitable giving goes up when the value of the deduction goes down, the percentage of income devoted to charity tends to fall. This has been shown to be true at the state level as well, where the value of the deduction also varies, depending on the existence or level of state income tax or on individual state incentives for charitable giving.

That story sounds pretty compelling, except that even if tax rates affect giving by the wealthy, it’s not clear how much they affect giving by Americans overall—since most givers don’t itemize their taxes and make use of the charitable tax deduction. And as it turns out, the percentage of national wealth going to charity was under 2 percent in the late 1970s, before Reagan’s tax cuts took effect. (I can’t find data for the 1950s and 1960s, so I don’t know what share of GDP went to charity during that era of high taxes.)

However, if it is true that conservative tax policies have depressed charitable giving, there’s an obvious, distasteful irony in that. After all, the same people who brought us historic tax cuts in the past four decades argued that downsizing government was OK because civil society would do more to provide social services and public goods.

Things haven’t turned out that way, have they? Charitable giving has remained flat even as federal and state programs have faced major cuts.

Any number of efforts have been made in recent years to bolster charitable giving, with little success. Interestingly, while the charitable tax deduction gets much play in discussions over giving trends, there is far less talk about the larger relationship between tax policy and charitable giving. Maybe it’s time to pull the lens back more and have that conversation.

Meanwhile, it’s worth remembering that taxes have recently been increased on the wealthy. If such hikes really do affect the philanthropic behavior of the wealthy, we can look forward to more giving by those who take advantage of the charitable tax deduction. Alas, as I said, such donors remain a very small portion of givers overall.

Let's hope those crowdfunding apps can save us in the end!