• September 19, 2014

Wealthiest Donors Gave 9% of Their Income in 2007, Study Finds

Amid the debates over President Obama’s proposal to reduce tax breaks for affluent donors, a study released today shows that half of wealthy Americans say their charitable giving would be unaffected by the elimination of federal tax provisions designed, in part, to spur philanthropy.

Nearly 52 percent of wealthy donors said their giving would stay the same if they no longer received income-tax deductions for their donations, while 54 percent said a repeal of the estate tax would have no impact on their philanthropy, according to the study by Bank of America and the Center on Philanthropy at Indiana University.

That said, a significant minority (47 percent) of people in the survey reported they would give less if they could no longer take a deduction for their charitable gifts. Of those respondents, 37 percent said their contributions would “somewhat decrease,” while 10 percent predicted their gifts would “dramatically decrease.”

If the estate tax were eliminated, 10 percent said they would donate less money, while 37 percent said they would give more.

“There are so many considerations that go into not only why you give, but also how and where you give,” said Claire Costello, a Bank of America executive who works with wealthy donors. Tax incentives are “one among many.”

700 Surveyed

The study’s researchers based their findings on responses from 700 households that earned at least $200,000 annually or had liquid assets of $1-million or more.

What donors had to say about tax provisions jibed with findings from a similar 2006 survey on giving by wealthy people, also commissioned by Bank of America and conducted by researchers at Indiana University.

The latest survey took place in July and August of last year and asked people about donations they made in 2007, before the recession.

The study found that virtually all wealthy households — 98.2 percent — contribute money to charity. That compares with 70 percent of the U.S. population as a whole. In 2007, affluent donors gave an average of $80,249, roughly 9 percent of their income.

While overall giving by affluent households dropped slightly from 2005 to 2007 when adjusted for inflation — as it did for the general population — that decrease was driven solely by those in the upper echelon of wealth.

Households earning between $200,000 and $5-million gave more, on average, to nonprofit groups in 2007 than they did two years earlier, but those making at least $5-million gave less.

Because the very richest people account for such a significant portion of total giving by the wealthy, donating an average of $855,200, that meant that overall giving from affluent households in the study dropped by 9.7 percent.

Patrick Rooney, interim executive director of Indiana University’s Center on Philanthropy, suggested that the economic downturn may have hit the very wealthiest donors before other Americans.

“In 2007, the economy hadn’t collapsed the way it has now, but we were beginning to see some fraying around the edges,” he said. “That may have had a bigger impact on some of the high-net-worth households in a bigger way, and sooner, than it did on the overall economy.”

He pointed out, however, that the survey relied on data from a relatively small number of people who were worth more than $5-million, so the numbers may not be significant.

The year 2005 may also have been something of an anomaly for fund raisers, as donors responded in droves to the Asian tsunamis, Hurricane Katrina, and the Pakistan earthquake.

Arts Takes a Hit

Arts groups arguably suffered the most as the very wealthiest donors curbed their giving. Average gifts to the arts from donors in the survey dropped from $16,465 in 2005 (when adjusted for inflation) to $4,792.

Giving to the arts as a share of all high-net-worth philanthropy decreased from 13.2 percent to just 4.2 percent in that period.

Slightly more wealthy households gave to social-service groups in 2007 than two years earlier, but the size of their gifts remained small. Eighty-one percent of households donated to such charities, the most of any cause, but their average gift was only $3,578.

By contrast, educational institutions, which were the second-most-common type of organization to which wealthy households gave, received average contributions of $27,379.

Mr. Rooney said that more wealthy people may turn to support charities that serve basic needs as the economy worsens.

“If my portfolio is going down, then I probably feel like I need to be more strategic in my philanthropy,” he said. “And if my portfolio is going down, then the economy may be going down, and I may feel like I need to give more to help the needy.”

Religious Donations

Rich people gave generously to religious causes-an average of $17,044 in 2007, according to the study — but such organizations were arguably less important for the wealthy than for other Americans.

Religious institutions are the biggest focus of most Americans’ philanthropy, but they were the third-largest recipient of dollars from affluent households.

Still, the survey found that how often people attended religious services, along with how much time they spent volunteering and how involved their children were in philanthropy, were significant influences on how much money people donated.

Those who attended religious services once a week gave $111,137, on average, while those who did not attend gave $76,112.

People who did not volunteer donated $35,127, on average, while those who spent from 101 to 200 hours volunteering donated an average of $124,267.

And families whose children participated in grant-making decisions gave $243,935, on average, more than triple the amount donated by those whose children were not involved in any kind of giving.

People in the survey cited a desire to help their local communities and an obligation to support the same organizations as the main reasons they gave, findings that were consistent with the 2006 study. A desire to be recognized publicly and to advance career goals were the two least-common motivations given by those in the survey.

“The biggest motivators are things we’d categorize as altruistic, and things that are the least powerful are those that are egoistic,” said Mr. Rooney.

Forms of Giving

The study also found that affluent households are becoming more strategic about how they give and about the various vehicles they create to support nonprofit groups.

Fifty-six percent of people in the survey said they had created a will with a provision to donate money to charity, while another 37 percent said they would consider establishing such a vehicle in the next three years. Endowments, charitable-remainder trusts, and private foundations were also popular among people in the study.

Of the 29 percent of people in the survey who had a private foundation or said they would consider setting one up, 51 percent said they would do so to maximize charitable deductions and 36 percent cited a desire to avoid capital-gains taxes.

“While giving itself may not be overally impacted by tax incentives, the choice of vehicle is,” said Ms. Costello.

Among the survey’s other findings: Donors said they cared more about whether charities demonstrated sound business practices and spent an appropriate amount on administrative costs than they did other concerns.

People who made their money from a family-owned business or a start-up company tended to give far more, on average, than those who derived their money from other sources. While giving online became more common from 2005 to 2007, it did not catch on in a big way with affluent people. Sixteen percent of wealthy people gave online in 2007, a 1-percent increase over 2005. Nearly 93 percent of people in the study gave via cash and check, by far the the most common way to donate. Local charities won by far the biggest share of wealthy people’s dollars. Even among those who had a second residence, organizations in the state where people spent the most time won 62 percent of their dollars. People from the Northeast gave the most money to charities, followed by inhabitants of the Great Lakes region. Wealthy people from the Midwest donated the least. Donors with master’s and bachelor’s degrees gave the most, while those with doctorates or professional degrees or without college degrees gave the least. Wealthy people, like all Americans, volunteered less in 2007 than they did two years earlier. Seventy-percent of affluent individuals lent their time to charities, a 15-percent drop. In 2007, nearly half of rich people volunteered on nonprofit boards, the most popular form of volunteering. From 2005 to 2007, providing professional services became far less popular among donors, with just 28.4 percent of people reporting they did such volunteer work in 2007 compared with 79.4 percent in 2005. Those who provided free professional services, meanwhile, gave more to charity ($158,194) than did volunteers who performed other kinds of tasks. Wealthy donors frequently switch their support from one charity to another. In 2007, 38 percent of rich people stopped supporting one charity, while another 43 percent stopped giving to two or three groups to which they had previously donated.

The complete study, the “2008 Bank of America Study of High-Net-Worth Philanthropy,” is available on the company’s Web site.

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