A Publication of WTVP

Economics of philanthropy can be viewed from two perspectives: charities and donors. There’s no doubt donors are feeling the pinch of the market’s effect on their personal net worth. At the same time, charities in all forms are experiencing higher demand for the services they provide.

Charities—from those who fulfill social service needs to hospitals—are seeing an increasing demand from those in need of housing, food, and health care. The social safety net is being found with holes large enough for people and families to fall through. The amount of free care and bad debt increased at all six OSF hospital facilities 18 percent from 2001 to 2002, to a total of $65 million. Area hospitals, as well as those throughout Illinois and the country, are experiencing similar increases.

Coupled with rising demands on the resources of various charities are the budget woes of various government entities, which causes further cuts in programs that serve those in need. We’ve seen state cuts in funding many areas of need, which result in cutting programs. There’s no question the needs of the community are rising, and government help in meeting these needs is shrinking.

Philanthropy from the donor’s view is also changing. Individuals perceive they have less money than in the past. Although stock market levels have fallen significantly in the past year, and more steeply since the end of June, the Dow and other indexes are at levels matching 1997 and 1998. In fact, in 1992, the Dow was at about 3,000. In general, donors’ net worth has doubled over the past decade. The main problem is illustrated by viewing charts of the index from the 1990s to the 2000s. The 1990s show a fairly stable chart with few significant blips. On the other hand, the chart of the 2000s looks like a seismic graph during an earthquake.

Donors today are still motivated by the impact their gift will have to meet the needs of the people charities support. That said, in the philanthropic economy of the fall of 2002, we see an increased scrutiny of various tax advantages to giving. Many donors are giving from their income, usually in the form of cash or checks. These help many charities directly. Larger gifts are usually made from assets. Many of these assets are still at values above what they were when acquired. These appreciated assets given directly to charities avoid the capital gain tax that would be due if sold. In addition, they generate a substantial tax deduction, thereby decreasing federal and state income taxes.

For the long-term, individuals should consider the use of charitable life income plans. These plans provide income to the donor or loved one while making a gift to support the charity’s purpose. Many of these plans can increase income while reducing taxation. These can be accomplished now, saving on current income taxes as well as reducing the estate tax liability at death. IBI