Scrooged: Are New Englanders as cheap as the Generosity Index makes us out to be?
By Matt Kelly
The Boston Globe
December 19, 2004
Massachusetts has a tough reputation to live down with the rest of the nation: loony-left liberals, lousy drivers, failed presidential candidates. To top it all off, everyone thinks we're cheap bastards, too.
Blame the Generosity Index. Published every November since 1997 by the Catalogue for Philanthropy, a Boston-based group that promotes charitable giving, this index ranks states by average income and then by average donations to charity; the difference between those two numbers is a state's "generosity gap." When you rank states yet again based on that gap, Massachusetts inevitably places dead last or near to it, along with most of New England.
This is not news Massachusetts likes to hear. Nevertheless, the media dutifully reports our supposedly stingy behavior every year. Conservative media take particular glee noting that wealthy, liberal states crowd the bottom of the index, while poor states rank as the most generous and uniformly vote Republican. A thought-provoking pattern, yes -- but it isn't necessarily true.
Measuring generosity is a tricky business. At its core, you're trying to measure how much a person donates to charity as a portion of what he is able to give. Academic researchers and nonprofits across the country have struggled to devise useful ways of analyzing charitable giving for years, often with conflicting results. Meanwhile, the rest of us struggle with cultural stereotypes -- do Southerners give more because their church tells them to? does Yankee frugality mean turning a cold shoulder to the needy? -- and oceans of contradictory data to figure out how generous, or cheap, we really are.
"Philanthropy has always been a hot-button topic because it deals with both wealth and need," says Paul Schervish, director of the Center on Wealth and Philanthropy at Boston College. "Who has legitimate wealth and who doesn't? Who has legitimate need and who doesn't?" And, he might have added, how much can people really afford to give away?
The Generosity Index ignores those questions. It only sifts through IRS tax data to compare states' average adjusted gross income and average itemized charitable deductions. For example, in 2002 Massachusetts had the third-highest average income ($56,764) but only the 39th-highest charitable deduction ($2,928). Subtract 39 from 3 and you get -36 as our "generosity gap," which leaves us 49th on the Generosity Index.
Mississippi taxpayers, meanwhile, rank 50th in average income (with only $33,754), and have the fifth-largest deduction for charitable giving ($4,484). Subtract 5 from 50 and you get a generosity gap of 45, the highest number in the country -- and so Mississippi is ranked as the most generous state in the nation. [The Catalogue for Philanthropy averages the income from all tax returns, but averages charitable donations only from those returns which itemize them, then extrapolates to all those that don't. Obviously, in some states this is going to result in far more sweeping generalizations than others--e.g., only 21% of Mississippi's returns itemize donations, against 31% nationally. The 15 "most generous" states (per the Index) average 23% itemized, while the 15 "least generous" average 35%. So, essentially, the fewer the people who donate enough to bother itemizing to begin with, the more generous their state appears, because their average itemized claim then gets extrapolated to that many more people.--yolland]
One flaw in studying itemized charitable deductions: An estimated 70 percent of taxpayers don't itemize, so what most of the population gives to charity is unknown. But the Generosity Index's logic is so flawed that the index is almost meaningless anyway. For example, Massachusetts could rank first both in average income and average charitable deduction with, say, $100,000 in each. But subtracting 1 from 1 leaves you a generosity gap of zero; we would still trail Mississippi, despite giving all our money away.
The Generosity Index also fails to account for differences in living costs. Some researchers suggest that higher wages in Massachusetts compared with the US average make up for the higher cost of living here. But others say cost of living is not just a question of what people "need" to spend but what they do in fact spend on various items -- a reflection of both raw economics and of culture and community values.
"If you use, say, average cost of housing in an area, rather than the cost of housing to an individual, you end up with entirely different numbers," explains BC's Schervish, who is trying to account for cost of living in a study of charitable giving he plans to release early next year.
Taking living expenses into account "certainly. . . would lead you to a different result than if you look at just income," says Patrick Rooney, an economics professor at Indiana University. "These things all matter."
Rooney, director of research at Indiana University's Center on Philanthropy, created another measure, to compare actual giving in each state to its predicted level of giving. In a paper published earlier this year he identified a flock of demographic factors that affect how much households in various states donate to charity.
For example, a higher percentage of black residents correlates with higher levels of itemized charitable deductions; a higher percentage of Catholics drags that average down. Income, median age, and percentage of people who itemize deductions all tug on that average contribution to charity, too. (State and local tax burden, the level of income inequality, percentage of Protestants, and level of population with a bachelor's degree or above, however, were found to have no effect.)
Rooney starts with the national average deduction for charity: $3,525. (His study uses average data from 1999-2001.) Then he adjusts for all those demographic criteria (for example, Massachusetts has a smaller black population than the national average, but a higher percentage of people who itemize deductions) to estimate each state's expected charitable giving, relative to that national average.
When Rooney accounts for all those factors, he produces a very different picture than the Generosity Index's persistent trend of wealthy northeastern states at the bottom and poor southern states at the top. Using the same data from 1999-2001, he pegs Massachusetts households' "estimated giving" at $3,360. Actually, our average charitable deduction during that period is $3,269 -- only three percent less than what we would be expected to give, considering our demographics.
Rank the states by that percentage, and sparsely populated Wyoming places first; residents there give 67 percent more dollars to charity than expected, albeit largely due to a few billionaires who skew the average for everyone. Massachusetts places 31st and Mississippi 39th. (Mississippians did give substantially more than Massachusetts: $4,366. But that is six percent less than they're expected to in Rooney's models.) The red state/blue state pattern vanishes as well: The top 10 states on Rooney's index split evenly along red and blue lines, as do the 10 states at the bottom.
Rooney believes the factors he has identified account for 80 percent of the variations between average income and average itemized charitable deduction from state to state. Further research into living expenses and regional variations in social values might explain the rest.
When it comes to measuring generosity, Schervish says, "You have to figure out what story you're telling. Right now with the Generosity Index, the only explanation we have is quality of soul."
To be fair, one of the first people to admit the shortcomings of the Generosity Index is the creator of the index himself: George McCully, president of the Catalog for Philanthropy. He insists he only wanted to create a tool that drew attention to patterns of charitable donations and, ideally, prodded people to give more.
McCully calls his Generosity Index "crude but telling." He's right about the crude part, although the "telling" remains to be seen. With data so slippery and definitions of "generosity" so elusive, it's hard to say how stingy, cheap, or average Massachusetts truly is.
As to our reputation for bad driving. . . well, we might be stuck with that.