In 1881, John D. Rockefeller gave away $61,000 of his mounting fortune to charity. Three years later, his annual contributions had just about doubled, to $119,000. On a slightly grander scale, Bill Gates has made a similar leap of philanthropic faith, but not all the recently-made-rich have joined him.
Individual annual charitable giving could triple in this country--from about $110 billion to $350 billion--without diminishing net worth, according to a report by Newtithing Group, a philanthropic research organization.
But more donations could mean fewer dollars for Uncle Sam. Because most giving is tax-deductible and much of charity comes from those in top brackets who are donating stock that has greatly grown in value, an extra $240 billion in charity might mean upward of $100 billion less in annual revenue for the $1.7 trillion federal budget. On the other hand, to the extent that philanthropies fill in gaps in the federal social safety net, giving eases government's burden.
Take, for instance, the Gates Foundation's most prominent cause, a $1 billion college scholarship program for minority students. To some observers, Gates is filling a vital role--quickly.
"This guy has come out of the box in the space of 18 months and made some big and good decisions," says H. Peter Karoff, founder and president of the Philanthropic Initiative Inc., a Boston-based organization that advises corporations and individuals on giving. "The big thing about Gates is not the dollars . . . [it] is the unbelievable speed as to his decision-making."
But not all the newly rich share this philanthropic decisiveness, despite the favorable tax consequences. That's partly due to how quickly some Americans have become wealthy, according to Karoff.
"There is a real disconnect between the amount people have and the ability to integrate it into their life," Karoff says. "It happens so fast; I've had a couple of hundred people say to me, 'I never thought I'd have that much.' "
To be sure, the numbers are increasing, even among those givers not quite in Gates's league.
Arthur C. Frantzreb has spent 50 years in fund-raising and philanthropy, meticulously collecting data on giving as part of his work. His figures, culled from several publications, show that in 1994, 528 people in this country gave grants of more than $1 million each to individual institutions; by 1998, that number had almost tripled, to nearly 1,500.
But Frantzreb believes that Newtithing's figures for potential giving are too modest.
"It's embarrassing," says Frantzreb, a McLean resident who has counseled several universities, arts councils and other nonprofit groups. "We could be doing much, much more."
Karoff tells of a conversation with a 35-year-old America Online employee who has $18 million in stock options and wants to give, yet hasn't paid off her student loans. "I think what [quick wealth] creates is a 'permission-to-give' problem--not really believing it and not being used to the numbers."
The tax consequences could motivate those anguishing about how to make their money socially useful. For the very wealthy, parts of their estates are taxed at more than 50 percent at death.
In the Gates age, whether a competitive urge and the tax rewards will spur others to give remains uncertain, although Frantzreb's experience shows that "generous endowments inspire even more generous endowments." It was, after all, another businessman-philanthropist and potential tax-saver, Ted Turner, in vowing $1 billion for the United Nations a couple of years ago, who tossed the gauntlet at Gates to be more charitable.
The Changing Outlook on Estates
While the potential for present-day giving may be undertapped, the future looks bright, according to a new study.
A report by two Boston College researchers quadruples--from $10 trillion to at least $41 trillion--long-held estimates on the amount of wealth that older Americans will leave in their estates in the next 50 years.
John J. Havens and Paul G. Schervish say that of the $41 trillion, $6 trillion would go toward charity, or about $4.5 trillion more than would be given away using the $10 trillion figure. The calculations assume a continued rate of about 15 percent of charitable donations from estates.
"If . . . wealth holders increasingly pursue and are encouraged to pursue philanthropy-oriented, tax-abatement estate planning," they say, "the proportion of the forthcoming wealth transfer going to charity is likely to burgeon beyond what we project."
The total of $41 trillion counts on a 2 percent real growth rate; a 4 percent rate would yield $136 trillion, the authors say.
Even using the conservative figures, however, the authors acknowledge that some of their assumptions "are hotly debated in economics and finance circles." Also, the way individuals parcel out their bequests could dramatically change, they say.
Kent Allen's e-mail address is firstname.lastname@example.org