When the Rich Get Richer, Charities Benefit

By LESLIE LENKOWSKY

One of the fundamental goals of much of the philanthropic world is to narrow the gap between rich and poor. But judging from a new report issued by the White House, doing so might have the ironic effect of curtailing the growth of charitable donations.

The report, by President Clinton’s Council of Economic Advisers, documents the truly remarkable surge in giving that has occurred since the mid-1990’s. An underlying theme of the report, however, is that donations surged in the 1990’s not because of anything in particular that charities did to help the needy, and not because of anything government did to encourage giving, but because the economy put so much wealth into the hands of people who in turn shared their good fortune with charity.

Indeed, the council’s overall message is that foundations and other nonprofit groups would do best to put their energy into promoting the creation of greater wealth and more jobs, even if the short-term cost is greater inequality.

The council’s report, “Philanthropy in the American Economy,” shows that, after adjusting for inflation, total giving rose more than 40 percent since 1995, outpacing the growth rate of the economy as a whole. Gifts by foundations increased even more rapidly, advancing 73 percent since 1995.

Not even the Reagan years, when philanthropy began to climb again after a decade of stagnation, had as good a record. Last year, in fact, Americans gave to charity 2.1 percent of “gross domestic product.” Not since 1969 have they donated such a big share of the nation’s wealth.

The council’s explanation for the leap in giving focuses chiefly on the growth of income and wealth that has accompanied the prosperity of the 1990’s. Using data from the Survey of Consumer Finances, a national assessment conducted every three years by the Federal Reserve Board, it found that “a small number of Americans are responsible for much of the giving.”

In particular, the council says, the wealthiest 20 percent of families made two-thirds of all contributions during the 1990’s. By contrast, the poorest 20 percent made just a little over 3 percent of donations — even though they gave a larger share of their income and wealth to charity.

The council concludes that both the likelihood and the amount of giving were affected by the rise in wealth and income.

In addition, the council notes, the aging of the nation’s population in the 1990’s fostered more donations and greater bequests, partly because older people are wealthier than younger ones. Likewise, people with more education gave more generously, perhaps because they had a greater feeling of economic security. And as women prospered in business, they also became more active in philanthropy, the council says.

The council’s central thesis — that higher incomes and greater wealth lead to more giving — is evident in its discussion of philanthropy among black Americans, too.

Among those of similar affluence, blacks were more likely than whites to contribute to charity in the 1990’s, and they gave slightly larger amounts, though the differences were not always statistically significant.

What’s more, blacks donated to religious and human-service organizations, including United Ways, more frequently than did whites.

But contributions to those charities grew more slowly than did gifts to other causes in the 1990’s — partly because blacks as a group had less income and wealth than whites.

In analyzing the nation’s philanthropic terrain, the council suggests that issues such as tax policy and government spending patterns are far less signficant predictors of charitable giving than is overall economic vitality of the nation.

While it argues that the estate tax and its deduction for charitable bequests have been significant motivators for giving, for example, the council contends that other deductions for charitable giving played a relatively small role in the past decade’s surge in philanthropy. That was the case, it says, even though rising incomes pushed more people into higher tax brackets.

Nor did changes in government spending on issues of interest to the nonprofit world make much difference, the council says. While public expenditures went up in such areas as education, social services, and the environment and down in areas such as the arts and humanities, donors sometimes responded with more money and sometimes with less.

The council says that, in the future, several emerging trends are likely to promote giving and volunteering, especially among young people. One is online giving and “e-philanthropy.” Another is AmeriCorps, the White House’s “domestic Peace Corps” program that seeks to engage young people in volunteer work in inner-city schools and other venues.

In a radio address that accompanied the release of the council’s report, President Clinton announced a privately financed, $2-million “Youth Giving Initiative,” modeled on efforts in Michigan and elsewhere to engage teenagers in raising and granting money for projects in their cities and neighborhoods.

Yet, as admirable as AmeriCorps and similar programs are, the evidence of their lasting impact on giving and volunteering is fragmentary and anecdotal. And the more important contribution of the Internet to philanthropy may lie less in making giving easier than in making the economy more productive and profitable.

Over all, the message of the council’s report is that the kinds of public-policy measures that have most concerned philanthropic groups in recent years are only weakly related to increased philanthropy. What matters most to the growth of philanthropy is making the economy more productive and profitable.

That is not a new idea. Henry Ford II said as much in his 1976 letter of resignation from the Ford Foundation board, when he suggested that the organization ought to give more consideration to acting “most wisely to strengthen and improve” the economic system from which it arose.

Just what that might entail — and how to ensure that “have nots” really benefit from the giving of the “haves” — are questions that the philanthropic world could and should debate. But the lesson of the 1990’s is that it is likely to be easier to do so in an economy in which more people are becoming rich than one in which income and wealth are not growing.

Leslie Lenkowsky is professor of philanthropic studies and public policy at the Center on Philanthropy at Indiana University and a regular contributor to these pages. His e-mail address is llenkows@iupui.edu.