Saturday, March 23, 2013

The truly rich give more as a portion of income

Breaking radio silence to report that I think that this Ken Stern column in the Atlantic that has been making the rounds on Twitter and Facebook is wrong.*

He makes a few arguments, but the headline and tagline sum it up pretty well: "Why the Rich Don't Give to Charity: The wealthiest Americans donate 1.3 percent of their income; the poorest, 3.2 percent. What's up with that?"

A few things I find really problematic about this:
  • He goes on to say, not that the "wealthiest Americans" donate 1.3 percent of their income, but that "those with earnings in the top 20 percent" do so, while it's the bottom quintile of income, not "the poorest" donating 3.2 percent. Given that the piece opens with a bunch of stories about giant gifts by billionaires, you'd think the article was actually about philanthropy by the super wealthy; it is not.
  • He never actually cites his source for this claim, and I spent more than an hour looking and couldn't find any evidence for it. His book (fn 13, pg 236) points to this McClatchy article making a similar argument for giving in 2007, based on data from the BLS Consumer Expenditure Survey, but I couldn't find data from them for charitable contributions in 2011, which is when Stern says his numbers come from. I think there's a decent chance that he's not adjusting for the fact that the poor may give proportionally larger gifts at lower rates (leading to lower overall average contributions; see pages 10-12 of pdf here).
  • Income in general might not be the right way to think about charitable giving; it might make a lot more sense to talk in terms of wealth. Elderly people with low incomes might be giving large amounts out of their wealth, juking the stats. (That said, if we did use wealth as the denominator, a lot of poor people would be giving undefined portions of their wealth, so it's complicated.)
I complained about this and Rob Reich pointed out that Stern is right that the super rich aren't necessarily as generous they could or should be, and that much of the philanthropy they conduct is likely spent on frivolous projects. I don't object to that, and I agree with this Tom Paulson post about the Giving Pledge:
The Giving Pledge initiative was launched two years ago by Bill Gates and Warren Buffett to urge the wealthy of the world to give (or, well, actually just ‘pledge’ to give) at least half their wealth away. Today, 11 more of the super-rich have made the promise. So that means the number of the world’s super-wealthy who have agreed to sign on to this (unenforceable) pledge to give just half of their wealth to a good cause when they die has now reached, after two years, a grand total of 92. There’s something like 1,000 billionaires and tens of thousands (or more) multi-millionaires out there.
The Giving Pledge seems like a great initiative, but it's not all that onerous in its terms, and it's kind of crazy how (s)low take-up has been.

So I think that this is true and totally fair, but it definitely doesn't show that "the rich are less generous than the poor."

In fact, when we look at results that include the truly rich, it's clear that they do give more (source PDF):
That chart doesn't show it as much (and the authors argue that it doesn't exist), but people often talk about a U-shape distribution of giving, with both the poor and the rich giving more as a portion of their income. John List does a nice job summarizing what might be going on (PDF here):
Intriguingly, giving as a percentage of household income is U-shaped. Households with incomes between $20,000 and 40,000 give 5 percent of their income to charity. As incomes grow to about $75,000, gifts fall to 2 percent of income, but then rise slightly to 3 percent. Though I have limited data on the donations of the wealthiest members of the population, the Center on Philanthropy (2007b) has reported that among those with net worth between $1 million to $5 million, the average donation to charity in 2005 was more than 5 percent of average income.
What might be causing this U-pattern of giving? The usual explanation is that poor households tend to give to religious causes. This is indeed part of the story: as shown by the data in Table 2, religious giving represents a substantial fraction of giving for low-income households but a lesser fraction for wealthy households. Another proposed explanation in the literature is that younger people with low current incomes expect their wages to rise in the future, which makes the current charitable gifts more affordable. But this does not seem to be the case if one considers the data on age of giver in the middle panel of Table 2.
Another explanation for a U-shape in charitable giving is that a large fraction of the high-percentage donors reporting low incomes are wealthy. When one looks more closely at giving by donors in the bottom income class, it is largely driven by the 5 percent of households that contribute one-tenth or more of their after-tax income. Many of these high-commitment households are high-asset, retired members of the population who are in effect making their contributions out of accumulated wealth rather than out of current income (James and Sharpe, 2007). Taken together, these data patterns suggest that although fewer poor households give money to charity compared to other income classes, the ones that do contribute give much more as a percentage of income than any other income class.
Table 2 also reveals that even though high-income givers are giving less of their household income, the total amount is substantial: households with incomes heir household income, the total amount is substantial: households with incomes exceeding $130,000 give more than $4,500 annually to charity. This begs the question: how much do the mega-wealthy give? Havens and Schervish (1999) show that households in the top 4 percent of the income distribution provided over 40 percent of the total charitable contributions in 1995. Furthermore, they report that the households in the highest 1 percent of the income distribution (annual income above $250,000 in 1994) provided 33 percent of the total charitable dollars in 1995. Auten, Clotfelter, and Schmalbeck (2000) note that the wealthiest 1.4 percent of decedents are responsible for 86 percent of charitable giving from bequests. A more recent figure comes from a Bank of America “High Net Worth Philanthropy” study of giving conducted by the Center for Philanthropy at Indiana University in 2005, which found that the wealthiest 2.3 percent of givers gave 56.5 percent of total donations
Sounds right to me. Whether the distribution is U-shaped or just upward sloping, I just don't see the case for saying the rich give less as a portion of income.

One final note: regardless of what the true relationship between income and charitable contributions is, the thing that always surprises me about these stats is how low they are in an absolute sense. The majority of Americans are in the top 10% of income globally--we're all rich--so it's a little crazy that we're complaining about the differences between 1.5% and 3% of private spending going to charity. It's not crazy and something's better than nothing, but I feel like the right response to these numbers is to say "we should all be giving more" rather than "the rich aren't giving enough."

*He's in public a lot right now plugging his new book, With Charity for All, which discusses GiveWell (where I work) in a pretty positive light. I like the book, I just found this column frustrating.

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