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Open Season on Wealthy Donors: The Atlantic Swings and Misses

April 01, 2013

By Howard Husock

It’s not just the start of baseball season—it continues to be open season on America’s rich, under fire for all manner of sins, real and imagined. Yet another new attack has been mounted against America’s wealthy, this time for their alleged philanthropic stinginess. In The Atlantic, author Ken Stern, in an essay based on his new book With Charity for All: Why Charities Are Failing and a Better Way to Give, asserts that those at the top of the nation’s income pyramid both give too little to charity and give to causes that don’t help the poor. Those of modest means, he says, are more generous than the wealthy, described, charmingly, in a quotation from UC Berkeley psychological researcher who told New York Magazine that "the rich are more likely to prioritize their own self-interests above the interests of other people," leading him to conclude, with scholarly precision, that they are "more likely to exhibit characteristics that we would stereotypically associate with, say, assholes."

Such crude characterization is justified, for author Stern, by a few key statistics–which, upon closer scrutiny do not support his broad conclusion that "our charity system is . . .fundamentally regressive and works in favor of the institutions of the elite."

It’s worth looking closely at Stern’s points.

The Rich Don’t Give? Actually They Do: In The Atlantic, Stern bases his stinginess thesis on a key statistic (whose source he does not cite): that the top 20 percent contribute 1.3 percent of their income to charity, far less than the bottom 20 percent which, he says, contribute 3.2 percent. For Stern, this reflects the empathy that those of modest means have for those in conditions they are more likely to be exposed to—and from which the rich are insulated.

But focusing on the percentage of income donated ignores a crucial fact: the actual amount donated by the wealthy makes up a disproportionate share of the philanthropic total. Internal Revenue Service data indicates that just those earning more than $200,000–in the top five percent by income– donated $69 billion—or fully 33 percent of the total $206 billion in individual (non-corporate, non-foundation) charitable giving in 2010. That’s right—five percent give 33 percent. In other words, this is another version of the income tax debate, in which it’s argued that rates on the wealthy are too low—at the same time they actually pay a lion’s share of taxes.

The Very Rich Give More: It’s worth noting that those who are very rich—the top five percent earning more than $200,000—give more than the 1.3 percent figure Stern cites. IRS data from 2010 indicates that they earned a total of $2.2 trillion in reported adjusted gross income and donate that $69 billion—which means they donated 3.1 percent of their income, the same figure Stern cites for the bottom 20 percent. (It is true that those earning $50,000 and under, who earned some $514 billion, donated 4.5 percent of their income, or $23.8 billion. And the actual extent of giving by this group is likely understated since IRS data only exists on those who itemize.)

Also well worth noting is that using a percentage formula to judge generosity ignores the fact that a small increase in charitable giving for one of low income, leads to a much higher percentage of income being donated. If someone earning $30,000 increases giving from $1000 to $2000, the generosity percentage rises from 3.3 percent to 6.6 percent. If someone earning $100,000 increases giving from $2000 to $3000—by the same $1000 increment—that generosity percentage increases from only 2 percent to 3. It’s the same problem baseball players face when they try to raise their batting average at the end of the season when they’ve already had 500 at bats. It’s harder to move the needle.

The Rich Give to Their Own? Because it’s a way to Help Everyone: Stern cites, as an indictment, the fact that "of the 50 largest individual gifts to public charities in 2012, 34 went to educational institutions, the vast majority of them colleges and universities, like Harvard, Columbia, and Berkeley, that cater to the nation’s and the world’s elite." This is anti-intellectual know-nothingism. Stern seems unfamiliar with the fact that Berkeley is a public university with low tuition rates which orients its admission policy around merit, not money—and in fact, has become a key means of upward mobility for the children of California’s Asian immigrants. Harvard and Columbia are able to use their significant endowments to provide "need-blind" admission to talented applicants from modest backgrounds. As someone who once served on a Harvard admission committee (at the Kennedy School of Government), I can say with certainty that applications from those who are the first in their families to have attended college receive favorable attention—in the category of hardships overcome. Much more broadly, however, does Stern really believe that the benefits of the intellectual advances which occur at America’s major research universities are limited to the rich? If that were true, the medical breakthroughs which occurred after Stanford University and the University of California that first patented the process for using gene recombination as the basis for drug development (in 1980) would be reserved for their alumni. Instead, Americans of all income levels are benefitting from "biologic" drugs ameliorating the effects of HIV, anemia, leukemia, lymphoma, kidney disease—the list is a long one. The point here is that one does not have to give directly to United Way, the Salvation Army and Feeding America (examples Stern cites) to help those of all incomes. Moreover, it is bleak, indeed, to think that the best way to help the poor is through soup kitchens and homeless shelters. At best this can be called poverty alleviation—not reduction.

The Rich are Overconsuming? They are also Investing: Implicit in Stern’s critique about the limited generosity of the rich is the idea that what they do with the funds they do not give to charity are reserved for their own, hedonistic pleasure. In reality, it is the rich who must invest—in new and established businesses—if economic growth is to occur and unemployment (among those of all income groups) is to decline. Indeed, Federal Reserve data consistently makes clear that as private (not government)investment rises, so, too, does employment.

Stern is the latest in a line of critics—led by the political scientist Rob Reich at Stanford—to use the giving patterns of the rich as grist for calling into question the appropriateness of the charitable tax deduction. "Underlying our charity system—and our tax code—", he writes, "is the premise that individuals will make better decisions regarding social investments than will our representative government. Other developed countries have a very different arrangement, with significantly higher tax individual tax rates and stronger social safety nets, and significantly lower charitable-contribution rates."

So we know what Stern’s core agenda looks like. He seems not to have realized, however, that when the wealthy are stingy—if they are—they pay more in taxes, not less, to that representative government. He overlooks some other inconvenient facts. It is the U.S., not social democratic Europe, which boasts the world’s best universities—which have helped power the U.S. economy in the postwar era. One wonders, as well, which social programs for the poor funded by Washington Stern would cite for having successfully helped the poor. In the period since the War on Poverty and Great Society, such significant problems as the black-white educational achievement gap have persisted, seemingly immune to the cures of Head Start and federal aid for poor school districts. Limiting or targeting the charitable tax credit may somehow seem fair—but it’s not likely to help those in whose name Stern attacks the supposedly stingy rich.

Original Source: http://www.forbes.com/sites/howardhusock/2013/04/01/the-rich-dont-give-the-atlantic-swings-and-misses/

 

 
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