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Profit takers

Money | When economic growth picked up, reaching 4.2 percent in 2004, fundraising followed suit

Issue: "Stand in the gap," Nov. 5, 2005

A growing economy isn't just good for bankers and factory workers. It keeps artists from starving, too.

That's the conclusion from an Oct. 24 report in the Chronicle of Philanthropy. Each year the Chronicle calculates how much money the nation's 400 largest charities raise, and the news had not been very good lately.

For two straight years, fundraising totals fell for the 400 largest charities-which include the nation's leading museums, universities, and poverty fighters like the Salvation Army. They were down 3.7 percent in 2002 and 1.4 percent in 2003, when the 400 charities raised $48.6 billion.

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Last year those numbers finally turned positive, reports the Chronicle, with the largest charities raising $50.6 billion.

It was a heartening turnaround for those in philanthropic circles, but it could have been easily predicted. The reason: Fundraising numbers over the last several years have closely followed the nation's economic growth numbers, and last year growth picked up.

When the economy was growing at over 4 percent per year in the late 1990s, fundraising grew at double-digit rates. When economic growth started to slow, so did fundraising totals, growing only 6.9 percent in the recession year of 2001 and turning negative in 2002 and 2003, when economic growth remained sluggish.

But when economic growth picked up, reaching 4.2 percent in 2004, fundraising followed suit. "We seem to be back where we were in the 1990s," Peter Hansen, director of external affairs at Kansas City's Nelson-Atkins Museum of Art, told the Chronicle. "This is the decade of bricks and mortar and growing endowment. It's so much better than four years ago."

What's ironic is how much education and the arts profit from industries that many educators and artists love to hate. Among the largest of last year's donations:

  • Oil heiress Caroline Weiss Law gave $450 million to the Museum of Fine Arts in Houston.
  • The family of Wal-Mart founder Sam Walton gave $300 million to the University of Arkansas at Fayetteville.
  • Joan B. Kroc, widow of McDonald's founder Ray A. Kroc, gave $229 million to National Public Radio.

These gifts probably won't change many attitudes in the nation's salons and faculty lounges, but everyone else who cares about the arts, education, and poverty-fighting would do well to care also about corporate profits and the GDP.

The KETRA effect

The Katrina Emergency Tax Relief Act (KETRA), which President Bush signed into law last month, may help make 2005 an even better year than 2004 for charitable giving.

Under KETRA, taxpayers may deduct cash donations of up to 100 percent of their adjusted gross incomes for gifts given to qualified charities between Aug. 28 and Dec. 31, 2005. (Normally, taxpayers may only deduct donations of up to 50 percent of their AGIs.)

This means that someone over 59 1/2 could withdraw money from an IRA, donate it to charity, and face no income tax on the withdrawal.

The benefit is for gifts to all charities, not just those involved with hurricane relief. "Our goal is to encourage charitable giving outside of Katrina relief, to prevent the rest of the nation's charities from seeing a downturn in giving as they did after Sept. 11," said Senate KETRA sponsor Charles Grassley (R-Iowa).

The only catches: Analysts say wealthier donors (those with an AGI over $145,950) may face a small income tax penalty for IRA withdrawals, and donors in states that base their income tax on gross income instead of taxable income may have to pay state taxes on their IRA withdrawals.

Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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