Minnesota is the third most charitable state in the nation, according to WalletHub’s 2017 rankings. Analysts looked at the share of the state’s residents donating time and money, and the number of Minnesota charities per capita.
Feeling good to be on top? Don’t get too smug just yet.
In another analysis of the state’s giving, the Chronicle of Philanthropy ranked Minnesota near the bottom when comparing “giving ratios” — a state’s charitable contributions as a share of its total adjusted gross income. The Chronicle ranked Minnesota 41st among states, with a giving ratio of 2.6 percent, below the national average of 3.08 percent.
So, are Minnesotans charitable or cheap when compared with the rest of the country? Perhaps a little of both.
Some local philanthropic leaders see some problems relying only on itemized tax return data, as was done by the Chronicle, a Washington, D.C.-based journal that covers the nonprofit world.
WalletHub ranked Minnesota second for the percentage of its population that volunteers and seventh for the percentage of people who donated money, using data from such sources as the U.S. Census Bureau and the National Center for Charitable Statistics.
Others say that the Chronicle’s data are evidence state lawmakers need to sweeten tax incentives to promote more giving by the wealthy.
Jake Blumberg, executive director of GiveMN and adjunct professor of fundraising at St. Thomas and Hamline universities, said tax stats don’t tell Minnesota’s whole philanthropic story. Only about one-third of Americans itemize.
“People who itemize on deductions tend to be higher net-worth individuals,” Blumberg said. “That data set is not a great measure of what Minnesota giving looks like.”
Using tax incentives
Blumberg said that federal itemized tax deductions don’t include what he calls working-class and middle-class “grass roots giving” — the holiday red kettle that gets $20, a beloved cause that gets $50, or $100 to a friend running a charity race.
“Those donations don’t make the tax deductions. That doesn’t mean the gifts are not being made,” Blumberg said.
Bob Tracy, director of public policy with the Minnesota Council on Foundations, said Minnesota doesn’t offer some of the tax incentives for wealthy givers provided by states such as Iowa and North Dakota.
“From our perspective, Minnesota’s charitable giving tax deduction is a great incentive — not every state offers this giving incentive. It works particularly well for smaller donors,” Tracy said. “But it is not a great driver for high wealth donors.
Tracy said that now is a critical time to have the conversation because Minnesota is in the midst of a significant, generational transfer of wealth — approximately $50 billion from here through 2030.
“What we hear from our members, and particularly those in greater Minnesota, is this money will leave the state in the pockets of heirs rather than being converted into permanent assets that can support growth and development of Minnesota communities,” he said.
A couple of asterisks
Jon Pratt, executive director with the Minnesota Council of Nonprofits, is not convinced the Chronicle’s bleak assessment of Minnesota giving is an accurate measure of the state’s generosity.
In more prosperous states such as Minnesota, more middle-class families itemize — lowering the average against poorer states, where a smaller number of mostly wealthy people itemize.
“I’ve questioned the Chronicle’s use of these tax statistics for years — they always make it appear that states with low state and local taxes have more generous individuals. You would expect the nonprofits in these places to have more money, but they don’t,” Pratt said. He says it is better to examine the raw numbers. Minnesotans itemized $3.4 billion in 2015, putting the state in 19th place.
Minnesota has another big asterisk, he said. It’s the only state that allows non-itemizing taxpayers to take a charitable tax deduction at the state level. Last year, 204,000 Minnesotans used the deduction in making contributions totaling $350 million — a figure not part of the Chronicle analysis.
Terri Barreiro, a University of Minnesota adjunct professor who teaches philanthropy, said the state’s giving ranking of 41st probably doesn’t tell the whole story.
She questioned whether high rates of giving to religious organizations in some states affected the list. Family foundations, donor-advised funds and community foundations also are ways Minnesotans give that don’t show up every year on individual tax forms.
“I don’t believe that Minnesota is as dire as those numbers would imply,” she said. “But we as a community should be having the conversation to explore this, whether it’s true or not.”