While researching my recent article “The Assault on Wealth,” I found something interesting from University of California, Berkeley economics professor Gabriel Zucman that I didn’t have room for in my 2,000 word article.
Zucman had tweeted that the 20 richest individuals in America donated 0.8 percent of their wealth in 2018. That compares to 0.33 percent of wealth for Americans who itemized. So kind of impressive on the part of the wealthy, right?
Wrong, says Zucman, because if you take away the two biggest givers, Bill Gates and Warren Buffett, the percentage falls to 0.3 percent. (Actually, it falls to 0.315 percent, but he’s rounding to one decimal place for them but not for Americans who itemize.) So that’s below the number for Americans who itemize.
There’s something to the methodology; we often throw out outliers. But typically we throw out outliers on both ends. So to be consistent, Zucman should have thrown out the 2 smallest givers. There was a tie between 3: Larry Ellison, Larry Page, and Sergey Brin. Each gave $25 million, which, as a percent of their wealth, was 0.0 percent. So to bias it in favor of Zucman’s point, let’s throw out the two of those three who had the least wealth: Page and Brin. [Ellison was only slightly wealthier, and so it really doesn’t matter which 2 we use.]
Then we get a different result. The total wealth of the 16 rich people is $780.9 billion and the total giving is $2.748 billion. That means that throwing out the outliers leads to the conclusion that they gave 0.35 percent of their wealth, which is above, not below, the percent for Americans who itemize.
So Zucman uses a statistical sleight of hand to make his point. Not good.
Moreover, there’s a huge economic problem with his data. He compares charitable giving for itemizers in 2017 with charitable giving by the wealthy in 2018. What’s wrong with that? Four words: the 2017 tax reform. One of the major reforms was to raise the standard deduction substantially, which caused many people who had been itemizers not to itemize. Many of them, I suspect, did what I did. In December 2017, knowing that the bill had become a law, I looked at every charity I typically donated to near the end of the year and roughly doubled my donation for the year so that I could get the full charitable deduction one last time. To the extent that many people did that, the 0.33 percent for us substantially overstates the “steady state” charitable giving. Which means that the wealthy’s contributions, as a percent of wealth, are substantially higher than ours.
By the way, I’m taking as given that higher donations are better. I’m not sure they are, especially for the wealthy. I’m glad that Gates is taking his wealth and helping poor people in Africa. That’s wonderful. He and his wife, Melinda, are impressive people. But am I glad that some of the others are taking wealth out of productive activities and donating it to universities that name buildings after them? I am not.
READER COMMENTS
Jeremy N
Dec 6 2019 at 4:55pm
So many problems with this. There’s also a bias in basing percentage only on “those who itemize” since those who give large amounts to charity are more likely to itemize.
David Henderson
Dec 6 2019 at 5:31pm
Good point.
Vivian Darkbloom
Dec 7 2019 at 2:45am
Who knows what Zucman did; however, would not the bias be the other way around if Zucman did not exclude wealth of non-itemizers from “total household wealth” in the equation? How would he know the household wealth of only itemizers?
Vivan Darkbloom
Dec 7 2019 at 9:40am
What Zucman *could have* done was to take the $269 billion total itemized deductions and derived an *average* per household itemizing and then divided that by *average* household wealth. This would likely have skewed the results in two ways–increasing the average charitable deduction *and* decreasing average household wealth. But, he doesn’t clearly explain what he did. He merely states the $269 billion and then reports a percentage of household wealth as if he divided by total US household wealth.
Alan Goldhammer
Dec 6 2019 at 5:59pm
It’s even worse than that. A lot of high earners are giving money to sports departments and getting naming rights to football stadiums and basketball arenas. This is not new and IIRC, UCLA got money from Edwin Pauley a lot of years ago to build their basketball arena and named it after him. Not sure that this is a productive use of money. The same could be said about these people buying professional sports teams which is even less productive!!! It’s also a waste of money as our local football team owner (Washington Redskins) owner is finding out as they no longer sell out games.
David Seltzer
Dec 9 2019 at 5:27pm
Fair point Alan. David Booth, a classmate, class of of 1972, gave the Graduate School of Business $330 million dollars for a new facility. It is now the The University of Chicago Booth School of Business educating current and future producers every year. A much better alternative than the feds getting it. After all, they produce nothing.
Brandon Berg
Dec 6 2019 at 8:52pm
The bigger problem here is that it doesn’t really make sense to compare donations to net worth. The net worth of the very wealthy is mostly tied up in productive investments. It’s not going anywhere. If Bill Gates doesn’t donate any money to charity this year, that just leaves him more money to donate in the future, whereas a middle-class person who doesn’t donate money to charity this year is more likely to spend it on personal consumption and be unable to donate it to charity in the future.
It would make more sense to look at donations to charity as a percentage of total expenditures.
If you have $100 billion dollars and donate $500 million to charity, that’s only 0.5% of your wealth. But if you spend $100 million on personal consumption that year, then your charitable donations are 83% of your total yearly expenditures.
Also, consider the case of two people who each make $100,000 per year. After twenty years, Alan, a spendthrift, has a net worth of zero, while Bob is a diligent saver with a net worth of $500,000.
Alan puts a dollar bill in the Salvation Army pot, a donation equal to an infinite percentage of his wealth. The same year, Bob donates $2,500 to charity, a mere 0.5% of his wealth. It would be silly to conclude from these facts that Alan is in any way morally superior to Bob.
[typo fixed per commenter–Econlib Ed.]
Brandon Berg
Dec 6 2019 at 8:54pm
In the last sentence of the first paragraph above, “not likely” should be “more likely.”
Vivian Darkbloom
Dec 7 2019 at 4:54am
“Moreover, there’s a huge economic problem with his data. He compares charitable giving for itemizers in 2017 with charitable giving by the wealthy in 2018. What’s wrong with that? Four words: the 2017 tax reform. One of the major reforms was to raise the standard deduction substantially, which caused many people who had been itemizers not to itemize.”
Yes. But, remember that that is not all the 2017 Tax Act did. While there was an incentive for most taxpayers (i.e., “middle class”) to accelerate charitable deductions before the Act took effect (because of the higher itemized deduction thresholds), the Act actually provided incentives for the super-rich to delay deductions. Prior the the 2017 Act, charitable deductions for cash contributions were limited to 50 percent of AGI (adjusted gross income) and the Pease limitations could effectively disallow 80 percent of deductions. The 2017 Act upped the AGI limit to 60 percent for cash contributions and eliminated the Pease limitation (different limits apply to donations to foundations, non-cash contributions, etc). The former Pease limitation and the AGI limitation were/are much more meaningful to the super-rich.
So, the overall effect of the 2017 Act on incentives is not straightforward for this comparison. The bottom line for me is that Zucman’s estimates are extremely unreliable. But, the counter-arguments here are not much better. There is simply not enough reliable data to draw conclusions as to who gives more as a percentage of wealth.
Gene
Dec 7 2019 at 4:27pm
Only somewhat off-topic: Can anyone point me to data, or at least reasonably good estimates, of the combined net worth of all the billionaires in the U.S.? Any suggestions about where I might look?
robc
Dec 9 2019 at 9:21am
Forbes?
They publish a list of billionaires with estimates net worth.
robc
Dec 9 2019 at 9:24am
Quick google, Forbes say 607 US billionaires in 2019 with $3.1T in wealth.
Jonathan
Dec 7 2019 at 6:21pm
Like many others, at the end of 2017 I donated a sum to a donor-directed charitable fund to cover my planned gifts until I turn 70-1/2 and can take advantage of “qualified charitable deductions” by giving from an IRA. The 2017 number is indeed anomalous.
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