In Uncertain Times Trends In Income, Assets, & Charitable Giving
Copyright©, December, 2003 NewTithing Group
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NewTithing Group is a 501(c)(3) non-profit organization and private operating foundation founded by money manager and philanthropist Claude Rosenberg to expand upon the financial research of his 1994 book, “Wealthy and Wise: How You and America Can Get The Most Out of Your Giving" (Little, Brown). Since 1998, the Group has educated the public and their advisors to make comfortably affordable charitable donations through sound budgeting. The Group's educational resources include PrudentPal® Charitable Giving Planner, an on-line budgeting tool available and Proprietary IRS-Based Research on wealth and affordable donations, updated annually.
Founder & Chairman Before founding NewTithing Group, which he currently chairs, Claude Rosenberg was Founder and Chairman of RCM Capital Management (now Dresdner RCM Global Investors). He received the Arbuckle Award for Management Excellence from The Stanford Graduate School of Business and the Forrestal Leadership Award from the Association for Investment Management and Research (AIMR) for developing standardized guidelines for money manager performance. Mr. Rosenberg has authored five books on finance, including Wealthy and Wise: How You and America Can Get The Most Out of Your Giving. He has received numerous philanthropic honors, including the Outstanding Philanthropist Award from the National Society of Fundraising Executives, Golden Gate Chapter, and United Way’s Tocqueville Award. He has served on several non-profit boards, and was Founding Chair of Philanthropic Research Incorporated, developers of Guidestar.
| Preface | 3 |
| Summary: 2003 Additional Giving Capacity Estimated at $107 Billion | 4 |
| A Small Group That Could Make A Huge Difference | 4 |
| Tripling Donations By High End Is Comfortably Affordable | 4 |
| What Donors Could Take Fuller Advantage of Tax Breaks | 4 |
| Wealth & Giving Capacity of Top Four AGI Groups, 1997-2003 (graphs) | 5 |
| The Peak Year of Wealth And Giving Capacity, 2000 | 6 |
| Four Consecutive Years of Rising Aggregate Wealth 1997-2000 | 7-13 |
| Donating Appreciated Assets -- What Groups Paid $2.7 Billion In Avoidable Capital Gains Taxes |
14 |
| The Basis of NewTithing Group’s Affordable Donations Estimates: (Appendix I – Introduction to “Tax- Leveraged Giving”) |
15-17 |
| Comments From NTG Founder Claude Rosenberg (Appendix II – How Wealthy Americans Can Come to The Nation’s Rescue) |
18-19 |
| Vital Statistics: Wealth and Giving of U.S. Tax Filers, 1997-2003 (Appendix III – Data and Findings for Each AGI Group) |
20-27 |
NewTithing Group assumes that although admirable, the ancient custom of “tithing” determines individual giving levels based mainly on income, with little or no consideration for investment assets. The basis of the Group’s research, “Newtithing,” is a comprehensive budgeting approach that factors not only income and investment assets into giving decisions, but also the annual fluctuation of those assets, as well as anticipated expenditures, and tax savings from charitable gifts. Since it is designed to preserve a donor’s lifestyle, newtithing does not include as “investment assets” the value of donors’ personal homes and possessions. To follow is a definition of newtithing as a dictionary might describe it:
| new-tithe n., v., new-tith-ing -n., 1. making the maximum comfortably affordable donations to charity based on annual surplus income, the tax consequences of charitable gifts, and the market value, after debt, of investment assets (excluding personal homes and possessions). |
For the past six years, NewTithing Group has used tax and financial data to analyze the wealth and annual affordable donations of U.S. income tax filers. Instead of analyzing the giving capacity of filers within a single year, the Group’s 2003 report is more far-reaching because it addresses long-term trends in the seven-year period from 1997 through 2003. For each major tax payer category, the report utilizes IRS data on individual interest income, salary, capital gains, and charitable contributions. At this writing, the latest available IRS data covered tax-year 2000. Projections on the numbers of tax filers and their salaries for tax years 2001 through 2003 were provided by the Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute.
To approximate affordable donations for each tax year, NewTithing Group estimates the value of investment assets owned by average filers in each major adjusted gross income group. This capitalization method was pioneered by NewTithing Group’s chairman and founder, Claude Rosenberg, in his 1994 book, “Wealthy and Wise: How You and America Can Get The Most Out of Your Giving.” NewTithing Group arrives at these estimates by correlating IRS income data in each asset category with the year’s market performance.
For example, for tax-year 2000, the average filer in the $1 Million or More adjusted gross income bracket declared (common stock) dividend income of $130,000. Based on the Russell 3000 stock index, a broad proxy of U.S. stocks, average dividends in year-2000 yielded stock investors 1.07%. To estimate the year-2000 value of the stock portfolios of such tax filers, NewTithing Group asked, “What stock principal value is equivalent to dividends paying $130,000 at a 1.07% yield?” In other words, $130,000 was divided by 1.07%. In this way, NewTithing Group estimated that by the end of tax-year 2000, the average filer in the $1 Million or More AGI group held stocks worth $12 million. This method was repeated to determine asset values based on reported income on bonds, investment real estate, etc.
Data on donations in cash and assets, as well as data on net capital gains were based on the IRS Statistics of Income Bulletin’s latest available data (tax-year 2000).
The Groups affordable giving assumptions (Appendix I) provide a benchmark to help filers of different wealth levels determine how much they might comfortably afford to give to charity today. More customized giving scenarios can be explored through NewTithing Groups PrudentPalCharitable Giving Planner/
Aggregate Wealth of Top AGI Groups Rose Over 7-Year Period Despite Market Turbulence
While the capacity to give more has dropped since the dot.com bust, comfortably affordable giving in 2003 could still raise individual donations by an additional $107 billion. This increase could be fueled by a rise in wealth that has occurred over a seven-year period despite a three-year stock market sell off 2. From the start of 1997 to the start of 2003, the number of filers earning adjusted gross income of $100,000 or more rose an estimated 73%, to 12.4 million filers. Aggregate wealth for these filers rose nearly 50%, to an estimated $12 trillion 3. Assets rose even more by the end of 2003. Such growth over an eight-year occurred on top of the previous six years of bull market gains, which had already boosted wealth since 1991.
Further NewTithing Group Findings:
Half of all additional giving in 2003 could come from the nation’s top 190,000 U.S
income tax filers, earning adjusted gross income (AGI) of $1 million or more, who
represent less than one fifth of one percent of all individual U.S. income tax filers.
If average tax filers with AGI of $1 million or more tripled their charitable giving to
$529,000 in 2003, they would still end the year with an average of $16.4 million 4 in
investment assets not counting the value of their personal homes and possessions.
Tax filers earning adjusted gross income of $100,000 or more paid a total of $2.7
billion in avoidable capital gains taxes in 2000 because they did not take full advantage of the
tax benefits of donating appreciated assets. For example, by donating appreciated assets
instead of cash, filers in the $1 million or more AGI group could have saved an average
of nearly $3,000. In aggregate, these affluent filers could have thus saved over half a
billion dollars in taxes if they had donated their cash donations in appreciated assets.
1 Total individual giving in 2002 was estimated by Giving USA at $184 billion. See pg. 27 for complete affordable giving table.
2 The Russell 3000, a broad proxy of U.S. stocks, declined -7.46% in 2000, -11.46% in 2001, and -21.54% in 2002.
3 NewTithing Group’s findings for tax-years 1997-2000 are based on IRS data and stock market returns of the Russell 3000 index, a broad proxy of U.S. stocks. Since at the time of this research, IRS figures were not yet available for later years, NewTithing Group developed preliminary affordable giving estimates for tax-years 2001-2003. These estimates also accounted for stock market returns based on the Russell 3000 index. However, estimates for the average salary and for the number of filers in each AGI group were based on data from the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution. Estimates of average donations for each AGI group were based on the 1999 and 2000 IRS Statistics of Income Bulletins.
4 Start-of-year 2003 investment assets for average filers with AGI of $1 million or more is estimated at $14.9 million. End-of-year 2003 investment assets (after accounting for projected living expenses, market returns, and affordable donations) is estimated at $16.4 million.
TOP FOUR AGI GROUPS COULD STILL COMFORTABLY AFFORD TO GIVE MORE IN 2003
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From 1997 to 2003... from 7.2 million to 12.4 million. |
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From 1997 to 2003... rose 44%, to $12 trillion. |
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From 1997 to 2003... over the seven-year period to $84 billion, total affordable giving rose 36%, to $227 billion. (for more info. see: Appendix |
The Top Four AGI Groups
From 1997 to 2000, the number of filers with high average assets rose substantially despite the broad stock market decline that began that final year. This rise in filers boosted aggregate wealth. Filers in the top four AGI groups could have thus donated over four times what they actually gave that year without impacting their living standards. This would have represented an additional $327 billion in charitable donations in 2000 6.
How Wealth Rose Through The 2000 Down Market:
or more in AGI persisted even through year-end 2000, when the stock market
registered its first an annual decline in nearly a decade, signaling the onset of the
dot.com bust 7. From tax-year ’97 through tax-year 2000, the number of filers
earning adjusted gross incomes of $100,000 or more rose 51% to 10.9 million
filers.
aggregate assets of filers earning AGI of $100,000 or more grew 88%, from $8.4
trillion to $15.8 trillion. Although average wealth may have declined by the end of
the year, the rising number of these filers indicates rising aggregate wealth.
environment appears to corroborate a recent survey by the Federal Reserve, which
concluded that from 1998 through 2001, the net worth of affluent households rose
substantially 8.
5 The latest available IRS data on tax filers in each major income group is for tax-year 2000.
6 Due to stock market declines in 2001 and 2002, NewTithing Group estimates that by 2003, additional affordable donations had fallen by roughly two thirds, to $107 billion.
7 For year-2000, the total return of the Russell 3000, a broad index of U.S. stocks, was down –7.46%.
8 The Federal Reserve Survey found a significant increase in net worth for households in the top 10% of total cash income from 1998 through 2001.
The aggregate assets of filers in the top four tax payer categories, earning $100,000 or more in AGI increased in each tax-year from 1997 through 2000. This increase in aggregate wealth means that as a group, such filers could have comfortably 9 afforded to donate far more to charity in each of these years than they actually did.
- In 1997, filers in the top four tax payer categories owned aggregate investment assets 10
of $8.4 trillion. NewTithing Group estimates that they could have comfortably donated
a total of $168 billion to charity, over three times what they actually 11 donated as a
whole that year.
- In 1998, such filers owned aggregate investment assets of $9.7 trillion in assets, up 16%
from the previous year. NewTithing Group estimates that they could have comfortably
donated a total of $197 billion to charity. This would represent over three times what
they actually donated as a whole that year.
- In 1999, such filers owned aggregate investment assets of $11.5 trillion, up 18% from
the previous year. NewTithing Group estimates that they could have comfortably
donated a total of $237 billion to charity. This would represent over three times what
they actually donated as a whole that year.
- In 2000, even though the stock market declined, the assets of such filers continued to rise,
up 37% from the previous year, bringing their aggregate asset ownership to $15.8
trillion. NewTithing Group estimates that these filers could have comfortably donated
a total of $414 billion to charity that year (an additional $327 billion). This would
represent over four and a half times what they actually donated as a whole that year.
9 See Appendix I for NewTithing Group’s assumptions of comfortably affordable giving.
10 To protect the donors, “Investment Assets” are defined as assets such as stocks, bonds, and investment real estate, but do not count personal homes and possessions.
11 Actual giving by individuals is based on the respective IRS data from the Statistics of Income Bulletins for years 1997-2000. The SOI Bulletin includes only itemized charitable contributions (the figure does not include non-itemized charitable contributions).
Based on the Latest Available IRS Data: 1997-2000
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From 1997 to 2000... from 7.2 million to 10.9 million. |
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From 1997 to 2000... 88%, to $15.8 trillion. |
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From 1997 to 2000... 69%, to $86 billion, estimated affordable giving rose 147%, to $414 billion. (for more info. see: Appendix III) |
Based on the Latest Available IRS Data: 1997-2000
Analysis of Each Top AGI Group
- For the IRS income category of filers earning adjusted gross income of “$1 million or more,”
the number of tax filers from 1997 to 2000 rose 66%. This even includes a 16.85% annual
increase in the number of these filers from year-end 1999 to year-end 2000, a down market
year. Over the four-year period, average investment assets grew 32.2% to $20.1 million
per filer.
- For the IRS income category of filers earning adjusted gross income of “$500,000 under $1
million,” the number of filers during the period rose 51%. This includes an annual increase
of 13.75% in the number of these filers from year-end 1999 to year-end 2000. Over the four-
year period, average investment assets grew 30.33% to $4.9 million per filer.
- For the IRS income category of filers earning adjusted gross income of “$200,000 under
$500,000,” the number of filers rose 52%. This includes an annual increase of 13.81% in
the number of these filers from year-end 1999 to year-end 2000. Over the four-year period,
average investment assets grew 20.79% to $1.97 million per filer.
- For the IRS income category of filers earning adjusted gross income of “$100,000 under
$200,000,” the number of filers rose 50%. This includes an annual increase of 13.78% in
the number of these filers from year-end 1999 to year-end 2000. Over the four-year period,
average investment assets grew 9.39% to $593,000 per filer.
Based on the Latest Available IRS Data: 1997-2000
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From 1997 to 2000... 240,000. |
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From 1997 to 2000... more than doubled tp $4.8 trillion. |
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From 1997 to 2000... 98%, to $38 billion, affordable giving rose to 223%, $253 billion. (for more info. see: Appendix III) |
Based on the Latest Available IRS Data: 1997-2000
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From 1997 to 2000... 51%, to 396,000. |
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From 1997 to 2000... assets rose 97%, to $1.92 trillion. |
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From 1997 to 2000... 43%, to $7 billion, affordable giving rose 97%, to $34 billion. (for more info. see: Appendix III) |
Based on the Latest Available IRS Data: 1997-2000
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From 1997 to 2000... 52%, to 2.1 million. |
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From 1997 to 2000... assets rose 84%, to $4.2 trillion. |
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From 1997 to 2000... 51%, to $16 billion, affordable giving rose 84%, to $73 billion. (for more info. see: Appendix III) |
Based on the Latest Available IRS Data: 1997-2000
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From 1997 to 2000... 50%, to 8.1 million. |
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From 1997 to 2000... assets rose 64%, to $5 trillion. |
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From 1997 to 2000... 54%, to $26 billion, affordable giving rose 64%, to $54 billion. (for more info. see: Appendix III) |
What Groups Paid $2.7 Billion in Avoidable Capital Gains Taxes
U.S. tax filers may donate appreciated assets to charity without paying tax on capital gains. Thus, subject to certain limitations, filers in the top income tax brackets are better off donating appreciated assets held more than a year to charity instead of: selling appreciated assets, paying for a long-term taxable gain, and then also donating cash to charity. Yet while all individual filers in 2000 donated a combined $47 billion in assets to charity, they also donated $98 billion in cash.
Consequently, in 2000 (the latest year for which data is available), tax filers with AGI of $100,000 or more paid an avoidable $2.7 billion in capital gains taxes because they did not take full advantage of the tax benefits of charitable contributions 12. Namely, average donors in the top four AGI groups sold appreciated assets for taxable gains while also donating cash to charity 13. If instead…
$52,000 with donations in long-term appreciated assets, the group would have avoided a combined
$693.5 million in tax on capital gains, or an average of $2,893 per filer.
of $11,000 with donations in long-term appreciated assets, they could have avoided a combined
$254.9 million in taxes, or an average of $644.
donations of $6,000 with donations in long-term appreciated assets, they would have avoided a combined
$659.7 million in taxes, or an average of $309.
donations of $3,000 with donations in long-term appreciated assets, they would have avoided a combined
$1.14 billion 14 in taxes, or an average of $141.
Why Some Cash Gifts Were Logical
Even the Top-400 tax filers may have made some donations of under $1,000 each. Such relatively
small amounts may not have justified the cost or time involved in donating appreciated assets.
However, a more tax advantageous option would have been to utilize a donor-advised fund at a
community foundation or financial institution by donating long term appreciated assets to the
fund, thus avoiding capital gains tax before making smaller donations out of the fund. A
similar tax benefit could have been achieved (though with different deduction limitations) by
donating long-term appreciated assets to a private foundation.
12 NewTithing Group’s Assumptions: A. No more than one third of the total gains reported by average filers in yr-2000 to the IRS were long-term gains. B. If the donations made in cash were instead made in appreciated assets: 20% of the appreciated assets would be treated as long-term gains. The remaining 80% would be treated as the cost basis of the appreciated assets. C. For most appreciated assets, the maximum federal capital gains tax rate in 2000 was 20% (in 2003 it was 15%). D. The maximum state capital gains rate in 2000 was 8%. E. The higher potential savings for filers affected by the Alternative Minimum Tax (generally 28%) was not counted, which makes the estimate conservative: Those filers could have avoided even more taxes if they had donated appreciated assets to charity instead of cash. These estimates account for the tax deduction limit on contributions to public charities.
13 Data on donations in cash and assets, as well as data on net capital gains were based on the IRS Statistics of Income Bulletin’s latest available data (tax-year 2000).
14 The amount of aggregate tax savings at this AGI level was higher than at other levels because the number of filers in this group was higher than the other top groups.
The following suggested donation scenarios illustrate NewTithing Group’s affordable giving estimates. These examples correspond to the "Tax-Leveraged Giving" strategy option found in the “advanced” option of NewTithing Group’s web-based educational tool, “PrudentPal® Charitable Giving Planner.” 15 As a whole, the examples conservatively assume a sliding scale of donation levels based on start-of-year asset size. This scale was developed using general assumptions for essential financial factors such as living expenses, investment returns, and salary. The specific "anticipated tax benefits" cited below were estimated by PrudentPal® based on assumptions for: A. Investment returns; B. Tax deductions from charitable contributions; C. The cost basis of appreciated assets; D. Salary and/or non-investment income; E. The intent to avoid tax on capital gains by donating appreciated assets; and F. The decision to treat avoidance of tax on capital gains as a "positive cash savings." Due to these assumptions, please note:
The following scenarios are only general rule-of-thumb guidelines. More customized giving scenarios can be explored through NewTithing Group’s web-based tool, “PrudentPal® Charitable Giving Planner,” at www.newtithing.org
If you own:
your assets this year towards annual donations, and then adding anticipated tax benefits to your gift.
Tax benefits are achieved from charitable contributions and from donating appreciated assets to avoid a
tax on capital gains.
Example: You have assets of $500,000 and salary and non-investment income of $90,000: NewTithing
Group's Giving Benchmark suggests you allocate 0.6% of your $500,000 in assets ($3,000) towards
annual donations. Based on your total income, and assuming your intent to avoid tax on capital gains by
donating appreciated assets, benchmark anticipated income tax benefits are estimated at $1,784. These
anticipated benefits are added to the $3,000 gift. This allows you to make a total donation of $4,784,
while reducing your assets by no more than your original allocation, $3,000.
If you own:
allocating 0.7% of your assets this year towards annual donations, and then adding anticipated tax
benefits to your gift. Tax benefits are achieved from charitable contributions and from donating
appreciated assets to avoid a tax on capital gains.
Example: You have start-of-year assets of $1 million, and salary and non-investment income of
$160,000: NewTithing Group's Giving Benchmark suggests you allocate 0.7% of your $1,000,000 in
assets ($7,000) towards annual donations. Based on your total income, and assuming your intent to
avoid tax on capital gains by donating appreciated assets, benchmark income tax benefits are anticipated
to be $5,067. You then add this sum to your $7,000 gift. This allows you to make a total donation of
$12,067, while reducing your assets by no more than your original allocation, $7,000.
If you own:
allocating 1% of your assets this year towards annual donations, and then adding anticipated tax
benefits to your gift. Tax benefits are achieved from charitable contributions and from donating
appreciated assets to avoid a tax on capital gains.
Example: You have start-of-year assets of $5 million, and salary and non-investment income of
$300,000: NewTithing Group's Giving Benchmark suggests you allocate 1% of your $5 million in assets
($50,000) towards annual donations. Based on your total income, and assuming your intent to avoid tax
on capital gains by donating appreciated assets, benchmark income tax benefits are anticipated to be
$38,987. You then add this sum to your $50,000 gift. This allows you to make a total donation of
$88,987, while reducing your assets by no more than your original allocation, $50,000.
If you own:
allocating 2% of your assets this year towards annual donations, and then adding anticipated tax
benefits to your gift. Tax benefits are achieved from charitable contributions and from donating
appreciated assets to avoid a tax on capital gains.
Example: You have start-of-year assets of $15 million and salary and non-investment income of
$800,000: NewTithing Group's Giving Benchmark suggests you allocate 2% of your $15 million in
assets ($300,000) towards annual donations. Based on your total income, and assuming your intent to
avoid tax on capital gains by donating appreciated assets, benchmark income tax benefits are anticipated
to be $233,926. You then add this sum to your $300,000 gift. This allows you to make a total donation
of $533,926, while reducing your assets by no more than your original allocation, $300,000.
If you own:
assets this year towards donations, and then adding anticipated tax benefits to your gift. Tax benefits
are achieved from charitable contributions and from donating appreciated assets to avoid a tax on capital
gains.
Example: You have start-of-year assets of $25 million and salary and non-investment income of $2
million: NewTithing Group's Giving Benchmark suggests you allocate 3% of your $25 million in assets
($750,000) towards annual donations. Based on your total income, and assuming your intent to avoid tax
on capital gains by donating appreciated assets, benchmark income tax benefits are estimated to be
$573,995. You then add this sum to your $750,000 gift. This allows you to make a total donation of
$1,323,995, while reducing you assets by no more than your original allocation, $750,000.
If you own:
assets this year towards donations, and then adding anticipated tax benefits to your gift. Tax benefits
are achieved from charitable contributions and from donating appreciated assets to avoid a tax on capital
gains.
Example: You have start-of-year assets of $50 million and salary and non-investment income of $4
million: NewTithing Group's Giving Benchmark suggests you allocate 3% of your $50 million in assets
($1,500,000) towards annual donations. Based on your total income, and assuming your intent to avoid
tax on capital gains by donating appreciated assets, benchmark income tax benefits are estimated to be
$1,146,216. You then add this sum to your $1,500,000 gift. This allows you to make a total donation
of $2,647,990, while reducing your assets by no more than your original allocation, $1,500,000.
If you own:
assets this year towards donations, and then adding anticipated tax benefits to your gift. Tax benefits
are achieved from charitable contributions and from donating appreciated assets to avoid a tax on capital
gains.
Example: You have start-of-year assets of $100 million and salary and non-investment income of $8
million: NewTithing Group's Giving Benchmark suggests you allocate 3% of your $100 million in
assets ($3,000,000) towards annual donations. Based on your total income, and assuming your intent to
avoid tax on capital gains by donating appreciated assets, benchmark income tax benefits are anticipated
to be $2,295,980. You then add this sum to your $3,000,000 gift. This allows you to make a total
donation of $5,295,980, while reducing your assets by no more than your original allocation,
$3,000,000.
If you own:
assets this year towards donations, and then adding anticipated tax benefits to your gift. Tax benefits
are achieved from charitable contributions and from donating appreciated assets to avoid a tax on capital
gains.
Example: You have start-of-year assets of $500 million and salary and non-investment income of $25
million: NewTithing Group's Giving Benchmark suggests you allocate 3% of your $500 million in
assets ($15,000,000) towards annual donations. Based on your total income, and assuming your intent to
avoid tax on capital gains by donating appreciated assets, benchmark income tax benefits are anticipated
to be $11,220,883. You then add this sum to your $15,000,000 gift. This allows you to make a total
donation of $26,220,883, while reducing your assets by no more than your original allocation,
$15,000,000.
* Note on NewTithing Group's Affordable Giving Assumptions:
Before making their own charitable decisions, individuals are encouraged to account not
only for their own assets and income, but also for their living expenses, investment
returns, debt, reserves, and other financial factors. Resources for determining comfortably
affordable gifts are available.
15 Due to rounding in these examples, results will differ slightly from using the “Tax Leveraged Giving Strategy” in the “advanced” section of PrudentPal® Charitable Giving Planner.
A leading advocate for prudent and effective philanthropy, NewTithing Group’s founder, Claude Rosenberg, summarizes the significance of the Group’s findings:
The Need: “Charities and social services face severe long-term funding cuts in one of the worst fiscal crises for states in fifty years. According to an Aspen Institute study cited in The Chronicle of Philanthropy, 40 states in fiscal-year 2003 had a cumulative $34.6 billion shortfall in their general funds, the portion of their funds from which most allocations to non-profits come. But wealthy Americans can come to the nation’s rescue – by donating the maximum they can comfortably afford to those charities that can provide a solid social return on investment. Think of what an additional $107 billion donated to worthy charities could do across America: Reopen fifty homeless shelters that have been closed in fifteen midwestern states in the last year alone; help schools and the underprivileged in California, which is struggling to decide what services to cut, including in higher education; improve the quality of life in Massachusetts, where social services could decline after another round of budget cuts. In fact, higher charitable donations could help residents and improve the quality of life in every state.
The Urgency: “There is no time like the present, because a donation now can have greater impact than that same donation later. Societal ills generally increase at an exponentially greater rate than does return on capital. Further, if you are thinking of making a once-in-a lifetime ‘stretch’ gift, do it now: For if allowed to deteriorate further, dysfunction ends up cascading through communities and generations, as more and more disadvantaged people enter the social mix. Even grandiose plans for future gifts, while well intentioned, have less long-term impact on empty tummies and uneducated minds than far less money invested this year in charity.”
The Capacity For Giving: “Despite all the stock market fluctuations, in the seven-year period from tax-year 1997 right through this year, the number of filers in the top four tax payer groups rose an estimated 73%. Combined investment assets for these filers, with adjusted gross incomes of $100,000 or more, grew to $12.07 trillion. This rise in wealth was especially pronounced for filers with adjusted gross incomes of $200,000 to $500,000. So the potential for increased giving really adds up.”
A New Comfortable Giving Strategy: “When your assets fall, the question should be, ‘How much -- or how much less – can I comfortably afford to donate?’ Because ‘Tax-Leveraged Giving’ (Appendix I) allocates a percentage of donors’ assets towards donations, it protects assets when they fall and increases giving capacity when assets rise. If donors also add their anticipated tax savings to their total donations, they could give more than what they originally intended without paying more out-of-pocket to do so.”
“Let’s say that this year a couple decided they could comfortably afford to make donations that cost them 2% of their $15 million in investment assets excluding the value of their homes. In other words, they were willing to be out-of-pocket $300,000 from making charitable donations. Let’s also assume they also were willing to add to their donation their anticipated tax benefits – both from the charitable deduction and from avoidance of capital gains tax achieved by donating appreciated assets. If so, they might be able donate about $540,000 without being out-of-pocket more than their $300,000 ‘spending’ limit.
“If the following year, their assets declined to around $14 million, allocating the same 2% of assets would protect them -- by reducing their total donation, maybe to $530,000 if they gifted their anticipated tax savings. If the year after, this couple’s assets rose to $17 million, allocating that same 2% might then mean they could comfortably donate around $616,000.” (see Appendix I of affordable donations for a wider range of wealth levels)
“Naturally, these are only general guidelines for illustrative purposes. We encourage people to account for a variety of financial factors before making charitable decisions, which is why we’ve also developed a web-based tool, PrudentPal® Charitable Giving Planner. Finally, we urge donors to evaluate the performance of non-profit organizations, and have released a list of questions that they can ask non-profit development officers.” (both ‘PrudentPal® Charitable Giving Planner and ‘How to Assess Non-Profit Accountability’ are availabl.
