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Every so often, I see a newspaper article which states that the wealthiest people in my country make less substantial contributions to philanthropy (relative to their wealth) than do their American counterparts. Invariably, our higher taxes are cited as a reason why this is so, supposedly leading some to form the opinion that they are already giving their fair share to the less fortunate. If this is a significant consideration, it would be reasonable to also expect a change in the rate of philanthropic contributions when a country alters the amount of tax it collects from its wealthy.

I'm interested in whether this is so in the US, given that it's long had a culture of philanthropy by the wealthy. Has such a relationship with taxes been observed there?

I have no particular definition of "wealthy" in mind and am open to any that allows for comparison of data from different periods.

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I don't recall any studies (skeptics.SE may have some), but a somewhat tangential study that is interesting revealed that "right wing" populations (independently of income level) gives more to philantropic causes than "left wing". –  DVK Sep 2 '12 at 16:58
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@DVK I read those same studies and some posited that if you remove religious contributions from the mix then the "left wing" is actually ahead. –  MichaelF Sep 4 '12 at 11:08
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@MichaelF - Well yeah, if you remove most of one group's charitable giving, they will indeed look worse. –  T.E.D. Sep 4 '12 at 13:54
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@DVK From what I read the majority of the giving on the "right wing" was to religious organizations, the concept was to see what non-religious donations were like. You could also look at it as if you only take religious contributions then the "right wing" is way ahead. –  MichaelF Sep 4 '12 at 16:08
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@MichaelF - My question is, what is so special about religious donations that they need to be treated differently? It definitely isn't the ultimate use of the money, as I noted in the above comment. Without the answer to this question, merely excluding religious donations "because they are religious" seems like simply trying to find SOME statistics that would show left wing in more positive light as opposed to legitimate research. –  DVK Sep 4 '12 at 16:29

2 Answers 2

up vote 5 down vote accepted

The question moves from two observations— that among industrialized nations, the United States spending on philanthropy is the highest (1.67%) and that its taxes on high-income individuals are among the lowest— to a speculation about the thought process of donors. Hmm, well.

There have been a number of studies on the effects of income tax rate changes on charitable giving. According to a 2008 paper by National Bureau of Economic Research researchers entitled How Does Charitable Giving Respond to Incentives and Income? Dynamic Panel Estimates Accounting for Predictable Changes in Taxation, charitable donations among the wealthy are relatively inelastic. Tax rate changes are seen as short-term fluctuations, whereas the level of philanthropic giving is governed by long-term considerations, and so the result is in line with Milton Friedman's Permanent Income Hypothesis.

For very wealthy individuals, tax benefits are not in and of themselves a reason to start or to increase giving. Even though the U.S. has strong tax incentives for charitable contributions, federal income taxes started falling 1981 and are now among the lowest in the industrialized world. Donations have thus become more "expensive," yet against predictions, giving has actually increased. As The Economist notes, "Surveys suggest that tax rules affect the size and timing of gifts, but not the initial decision to give."

I must include some comments on some other possible misapprehensions. First, a feature of American philanthropy is that it is considered a civic duty of all classes, not just the wealthy, as attested to by de Tocqueville (and by universities' aggressive solicitation of donations from their deeply indebted recent graduates). Second, it is arguable that philanthropy affects the tax code as much as the tax code affects philanthropy. There is broad popular support for the role of non-profit organizations in American society and genuine concern when their funding is imperiled. Indeed, the tax deduction for charitable donations was actually introduced during World War I out of concern that high taxes would make Americans less generous to their churches and hospitals. Third, philanthropy is tied up with social and religious sentiments which can trump purely economic considerations. The Economist article linked earlier notes that France has much stronger incentives for giving than Germany, yet Germans give substantially more as a percentage of GDP than the French.

There are whole think tanks that study the role of philanthropy in American society who can probably provide a more authoritative answer. Some recent histories on this topic include Charity, Philanthropy, and Civility in American History by Lawrence J. Friedman and Mark D. McGarvie (2002, University of Cambridge) and Philanthropy in America: A History by Olivier Zunz (2011, Princeton University). The seminal work was American Philanthropy by Robert H. Bremner (1960, rev. 1988, University of Chicago).

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That paper certainly couldn't answer the question any more directly. +1 –  T.E.D. Sep 4 '12 at 13:55
    
...also, I love me some Tocqueville, but that was two centuries ago. He probably isn't the most authoritative reference available for modern American culture. –  T.E.D. Sep 4 '12 at 13:57
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@T.E.D. - culture, not necessarily. Human nature - didn't really evolve much :) –  DVK Sep 4 '12 at 14:16

An alternative explanation could be that wealthy people (in general) are just more stingy and less altruistic.

Freakonomics releates the story of a Bagel vendor whose business involved leaving bagels and a cash box open at various businesses, and who kept meticulous notes on the amount of theft each business dealt him. One thing he found was that larger companies stole more. He happened to have one company split on three floors, where he had bagels set out on each floor. He found that his rate of theft was much higher on the executive floor than on the lower two floors.

Paul Piff at Berkely got interested in this subject, and performed 7 psychology tests, which pretty much confirmed this.

The “upper class,” as defined by the study, were more likely to break the law while driving, take candy from children, lie in negotiation, cheat to raise their odds of winning a prize and endorse unethical behavior at work, the research found.

Given all that, would it really suprise you that this same group of people doesn't voluntarily give away money as much?

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