fedgazette

Charitable giving rates follow the economy and personal income

Rob Grunewald - Regional Economic Analyst

Published November 1, 2003  |  November 2003 issue

Nonprofit organizations depend upon donations to fund their efforts. When economic conditions change, so does charitable giving. Historically, the rate of charitable giving declines during economic downturns and periods of slow personal income growth.

Charitable giving rates fell during the past six recessions in the United States. Rates dropped below zero during four of the recessions and fell almost 1 percent in 2002, following the recession in 2001. The large swing in giving during 1986-1987 mainly reflects changes in the Tax Reform Act of 1986. Donations increased in 1986 in anticipation of reduced marginal tax rates and fewer taxpayers qualified to make deductions.

Chart: Total Charitable Giving
Sources: American Association of Fundraising Council,
National Bureau of Economic Research

More than three-quarters of charitable giving came from individuals from 1962 to 2002. Therefore it's not surprising that charitable giving rates followed movement in personal income during this time. From 1962 to 2002, charitable giving and personal income both grew at an annual rate of about 3 percent.

However, slight differences are noted decade by decade. Giving rates remained somewhat below personal income growth during the 1960s, 1970s and 1980s but then jumped almost twice as high as personal income growth during the 1990s. From 2000 to 2002, giving rates (two-year average of 0.5 percent increase) dropped slightly below personal income growth rates (two-year average of 0.8 percent increase).

Aside from individual contributions, which comprised 76 percent of the $241 billion given in 2002, foundations (11 percent of total in 2002), bequests (8 percent) and corporations (5 percent) made up the rest. Religious organizations (35 percent of total) and educational institutions (13 percent) were the largest recipients of philanthropy in 2002.

District charitable giving slowed during recession

Individuals living in district states increased their giving to charities during the second half of the 1990s during a period of robust economic growth in the nation and the district. However, once the national economy retreated into a recession, charitable giving slowed.

Chart: Average Amount Donated to Charity per Federal Income Tax Return
Source: National Center for Charitable Statistics

Among district states charitable giving followed the national trend. Donations per federal tax filing increased among all district states from 1996 to 2000, ranging from a 6.6 percent average annual increase in North Dakota to a 14.9 percent annual increase in South Dakota.

An eight-month recession hit the national economy during 2001, which softened gains in personal income. As expected, charitable giving slowed significantly. Among district states, South Dakota and Wisconsin decreased 78 percent and 16 percent respectively, while growth in the remaining district states stagnated from their late 1990s levels.

Substantial giving to charities following the events of Sept. 11 may have mitigated against a deeper slowing in contribution rates nationally in 2001. For example, charitable giving in the state of New York increased 10.6 percent from 2000 to 2001, despite a slight drop in the average income reported on tax filings.

Minnesota leads district in percent of income donated to charities

Among district states, Minnesota had the highest percent of reported income donated to charities in 2001 at 2.3 percent, while South Dakota had the smallest at 0.4 percent. Just one year earlier South Dakota posted 1.8 percent of income earmarked for charities.

Chart: Percent of Reported Income on Federal Tax Filings Donated to Charity and State Rank, 2001
Source: National Center for Charitable Statistics

Nationally, Utah had the highest percent of income donated to charities at 5 percent. Georgia, Alabama, Wyoming and Maryland rounded out the top five states in charitable giving as a percent of income. All of these states had diverse levels of average income per tax filing, ranging from $38,090 in Alabama to $53,780 in Maryland.

At the bottom end, South Dakota recorded easily the lowest level of charitable giving as a percent of income. The lowest five states also included Vermont, North Dakota, New Hampshire and West Virginia.

Average income per tax filing is not necessarily consistent with the percent of income given to charities, but it does correlate with the total amount given. Among the five states with the highest percent of income given to charities, one common characteristic is a relatively high rate of membership in a religious organization.

Benjamin Knelman and Smith Wilkinson, Public Affairs interns, contributed to this article.

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