THE GENEROSITY INDEX - 2005

The Generosity Index >

The story on charitable giving nationwide in 2003 (the latest IRS numbers) is good news; income rose by 2.6%, while charitable giving rose by much more — 7.2%, the highest rate of increase since 1998-99. It is possible that donors wanted to compensate for reduced giving in the previous two years, caused by Sept. 11 and the recession.

In Massachusetts, where those disruptions hit especially hard, income rose by slightly more — 2.8% — while giving rose by slightly less — 6.2%. We are pleased to report that the unprecedented gains in Massachusetts’ charitable giving from 1997-2000 — when in only four years we doubled our annual giving from $2 billion to $4 billion, the fastest-growing rate in the nation — were not erased in the downturn. In 2003 we were not back up to the 2000 level, but headed in that direction and possibly reaching it in 2004 or 2005.

How the Generosity Index works

The 2005 Generosity Index (GI), using 2003 IRS data, is located here at our website:
www.catalogueforphilanthropy.org/cfp/db/generosity.php?year=2005. The word “Index” means “indication,” in accordance with its Latin root; the GI does not measure or compare philanthropic generosity as such, much less moral character of states or their populations. It merely reports IRS numbers, from annual summaries of personal income tax returns — Average Adjusted Gross Income (AAGI in MA: $58,408 in 2003) and Average Itemized Charitable Deductions (AICD in MA: $3,122). We use the IRS numbers not because they are ideal for the purpose, but because they are the only data frequently and freely available that include both income and charitable giving (ICDs capture about 80% of all personal giving). We invoke both giving and income because philanthropic generosity is not how much one gives, but how much one gives in relation to how much one has.

We then rank the two for each state (in 2003, MA was 3rd in AAGI, 39th in AICD), compare the ranks (MA: minus 36), and rank those differences (MA: 49th). We do this to illuminate a fact: that nationwide, giving is not consistently related to income; rather, giving is shaped more by cultures, which tend to be regional, and by religion (not politics). If all Americans were equally "generous" (in relating giving to income), those differences in rank would be zero — all states would be giving at the same rank as their income. But the Bible Belt and Utah are, with generally low incomes, giving so much (as tithing evangelical Protestants), that in effect they set a high example, which suggests that the wealthiest taxpayers in the wealthy states can afford to give significantly more.

This explains why in 2003 the top income group in Wyoming, which ranked 1st in both income and giving, ranked 26th on the GI for the zero disparity between those ranks; South Carolina’s top income group ranked first on the GI because from their low income — 44th — they gave enough to rank 27th in giving—the largest positive disparity (+17) in the nation. The GI is thus, because it ranks disparity, a system which gravitates toward the middle, not the top; if wealthier states’ giving increases toward their rank in income, poorer states’ giving ranks will necessarily approach their low income ranks; disparities between them will shrink toward zero — and the nation’s total charitable giving will increase substantially.

A Few Facts About the Index

The Generosity Index, though imperfect because data is imperfect and we only report data, is stronger than some people are suggesting. A few facts to season the discussion:

1) Itemized Charitable Deductions are thought by independent research to capture about 80% of all charitable giving dollars (not volunteering, not large numbers of small gifts).
2) Income tax returns capture a much larger percent of personal income.
3) Most charitable giving is done by affluent taxpayers; itemization is heaviest among that group, with penalties for perjury if they exaggerate, and loss of tax deductions if they under-report.
4) Cost of living and tax burdens kick-in as inhibitors of charitable giving only below the top income levels.
5) Independent corroboration of the Generosity Index is that states' rankings generally follow what is known about religious giving patterns: 7 of the bottom 8 states are Catholic, while 11 of the top 22 states are Southern Baptist (the number would be higher if the category were broadened to include all Evangelical Protestants, such as Mormons. We would expect religious cultures to influence giving significantly, because religious giving accounts for over one-third (35.5% in 2004) of all charitable giving, the largest single field of interest to donors (Education: 13.6%, Health 8.8%).

The Catalogue Welcomes New Study

Incidentally, the Catalogue welcomes the news that the Center on Wealth and Philanthropy at Boston College will conduct, with Boston Foundation funding, a thorough scientific study of charitable giving in relation to wealth in Greater Boston, Massachusetts, and New England, all in comparison with other regions of the country. Since 1997 when we first introduced the Generosity Index as, in our words, “crude but telling,” not as science but only as information for public-awareness purposes, a summary of the best available data on giving in relation to income, we have repeatedly called upon the academic community to provide better numbers — the rigorous data and analysis philanthropy needs. We therefore await the results of the BC study with great interest and grateful enthusiasm.

Questions? For further information about the Generosity Index, please contact its creator, George McCully at gmccully@cfp-ma.org.