This year we are introducing a new donor-education tool in our continuing discussions of charitable giving. We call it the “Opportunity Index,” and the point it makes is simple: if donors in the IRS’ top income group (over $200,000) in the higher-income states would give according to their state ranks in income for their group, as Wyoming does (i.e., 1st in both)—e.g., Nevada 2nd, New York 3rd, Massachusetts 9th, etc.—total giving nationally, and quality of life especially in those states, would increase significantly. Depending on how that is calculated, in 2005 (the latest numbers available) charitable giving would have been higher by 20% or more. Just this bit of fine-tuning would be a highly cost-beneficial improvement in the nation’s patterns and productivity of charitable giving.

This is not rocket science—it’s common sense. The highest income group, whose average income nationwide in 2005 was over $550,000, is least constrained by tax burdens and costs of living, and therefore has the greatest freedom for philanthropic investments. Moreover, they are already engaged in philanthropy—90% itemize charitable contributions, and their average Itemized Charitable Contribution (ICC) is over $21,000. So of all philanthropists, they have the greatest opportunity to give more, for everyone’s benefit.

This group of taxpayers also exerts the greatest influence in each state’s giving and income profiles. In 2005, they comprised only 2.6% of all taxpayers, but they earned 28% of all Adjusted Gross Income; they comprised 7.7% of all itemizers, but contributed 41% of all ICCs. In 2005 itemized giving constituted 90% of the Giving USA’s estimated $199 billion total personal giving, to which this top group—2.6% of taxpayers—contributed 37%.

They are not, however, giving at consistent levels, either from state to state, or from taxpayer to taxpayer in similar income levels. This is because charitable giving is conditioned more by culture than by income, and the cultures tend to be regional and religious—contiguous states tend to have similar patterns of giving in relation to income, and where there are exceptions those tend to be conditioned by religious groupings. Most members of this top income group do not know how their own giving compares with that of their peers at their income levels, within their own states, between their state and others, or nationwide. Here are the numbers for the states with high income and relatively low charitable giving:

Average income varies from $491,153 to $873,153 (a 78% difference); percentage of Itemizers from 78% to 95% (22% difference); but average ICCs vary from $12,756 to $39,893 (a 313% difference). To align their two ranks, they must increase their average ICC from only $186 up to $18,244, or by 1% to 84% more than they are currently giving.

Given these wide disparities, costs of living and tax burdens cannot account for them all (incidentally, measured per $1,000 of income, Massachusetts has one of the lowest tax burdens in the nation—47th: Boston Business Journal, Nov. 3-9, 2006, p. 8.). That the explanation is cultural means that we can significantly increase charitable giving in this country simply by changing our minds, which is a lot easier than changing our incomes or economies.

We are pleased to report that, over the past 11 years, Massachusetts has been changing its mind. In 2005, as we predicted last year (the numbers are always 18 months behind), Massachusetts set a new record high in charitable giving—$4.365 billion—10% above our previous record in 2000 ($3.965). Massachusetts charitable giving has been dramatically improving since 1997. After a period of relative stability, from 1991-96, when the IRS state summaries began, Massachusetts giving suddenly jumped upward, and doubled (up 96.5%) in only four years—the fastest rate of increase in the nation, and significantly ahead of the second-place state (Colorado, at 80.7%). This of course was the late ‘90s, but that boom economy doesn’t explain our increase—nationwide income increased 39%, and charitable giving by 62%. Massachusetts income also increased by 39%, but our charitable giving increase at 96.5% was half again as much as the national increase.

When in 2001 and 2002 the recession and 9/11 took the wind out of everyone’s sails, Massachusetts never fell back to our previous lows; in 2003 we and everyone else began to recover, and by 2004 we were back almost to our 2000 high, with total giving at $3.93 billion. Now it seems clear that our increase is not only permanent, but continuing. The only explanation for our increasing philanthropy is cultural—and that is excellent news. Congratulations, Massachusetts donors!

Now what does the Opportunity Index suggest to us? Our top income group’s average ICC in 2005 ($20,979) ranked 27th in the nation—almost right at the national average. But the average Adjusted Gross Income (AGI) that year was $586,139—9th highest nationally. The 9th highest ICC for this group that year was New York’s, and they gave $31,132—i.e. $10,153 (or 48%) higher than our actual giving that year.

Let us be very clear: we are cheering for Massachusetts giving, and especially for our increases since the early ‘90s. Here we are simply providing some numbers that help put our charitable giving in perspective with our high income, as those compare roughly with other high-income states. We already have one of the highest percentages of Itemization of Charitable Contributions—94%, tied with Rhode Island and Virginia for 6th highest in the country. We are already philanthropically generous, and we have the opportunity to do even better—so let’s not yet rest on our laurels.


Click to enlarge

(Data in Excel)