Monday, November 21, 2005

Generosity in America

Dr. Samwick at Voxbaby draws our attention to the Catalogue for Philanthropy, which has released its annual Generosity Index...

You can view their list here, or you can have it in Excel format here.

Mississippi is #1 in their measure of generosity, followed by Arkansas, South Dakota, and various other relatively poorer states. The least generous state is New Hampshire, with other relatively richer states clustered at the bottom of the list.

The implication that is playing out in the media is clear, that poor people give more of their income then rich people.

New Englanders remain among the most tightfisted in the country when it comes to charitable giving while Bible Belt residents are among the most generous, according to an annual index.

This makes a certain amount of sense from a cultural point of view - poor people empathize with other poor people more and tend to be more religious, so it would make sense that they would be more charitable.

The problem is that, like most statistical indexes, this one is a misleading artifice, a total crock.

The Index is created from IRS data, by listing Average Adjusted Gross Income in one column, Average Itemized Charitable Deductions in a second column, creating a rank order for each, and then subtracting the rank order of the Income column from the rank order in the Charitable Deductions column. (It doesn't make sense to me either, and that's my point. Stay with me here).

It doesn't measure absolute charitable donations. Nor does it measure Income divided by Charitable Deductions. It measures the disparity between two rank orders, and then ranks that disparity, as this chart makes clear.

The problem with relative measures in general, and with relative measures based on rank order in particular, is that they skew the results. Even if New Hampshire were to increase its absolute charitable giving by 50%, it'd still end up in the middle of the rankings because of its proportional wealth and proportional giving compared to other states. Other problems, courtesy of the Boston Foundation (which is pissed that Massachusetts is ranked #49):

  • Average adjusted gross income is calculated for one group of people (all who filed income tax forms), while the average charitable deduction is calculated for a separate group —those who itemize their returns. Because the two groups are not the same, no meaningful ratio of generosity can be calculated using this data.

  • The use of itemized returns adds doubt to any conclusions because while only 20 percent of residents in some states itemize their returns, the proportion in other states rises as high as 40 percent. In specific, 21 percent of residents of Mississippi filed itemized returns while 37 percent of Massachusetts residents did the same. This reflects a much higher cost of living in Massachusetts. In particular, the cost of housing in the Bay State is significantly higher than in Mississippi which would encourage more residents to itemize their returns. This underscores important differences in standards of living that have an influence on giving.

  • Also, tax returns do not capture the total income of all the residents of a state, and itemized tax returns do not capture the total charitable contribution they make. Those who are not required to file an income tax return, for example, are lost to the calculation of the Index.

The moral of this story is, don't believe any number you ever read unless you understand how it is tabulated.

Now why would they do this, when even a cursory examination of their methods show how shoddy their reasoning is? They do this because it is an easy way to create the product that they want (a fifty state listing) that generates publicity and spurs the wealthiest potential givers to give more. As an additional insult, they don't even include the District of Columbia and its 550,000 tax paying, charitably giving citizens. Screw you, Catalogue for Philanthropy!

Incidentally, Dr. Samwick was briefly the Chief Economist for the Bush administration. While I usually disagree with his opinions, he's a very honest and intellectually thorough conservative, and Voxbaby is a weekly part of my blogging.

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