Economic Outlook - November 2007

Raising taxes has a sobering effect

Philip J. Cook, professor of public policy and economics at Duke University, argues that higher alcohol excise taxes are effective and underused tools that can cut abuse while permitting moderate alcohol consumption. His new book, Paying the Tab: The Costs and Benefits of Alcohol Control, was published in August.

Make alcohol more expensive. You must be popular with the student body.

Well, I am impressed by how much damage gets done through drinking, both underage and above-age, but I also try to be realistic.

What are the costs of cheap alcohol?

Some people drink more than they would otherwise, and they are more likely to get drunk. And with that comes increased propensity to drive recklessly or to get into fights or to engage in unprotected sex. Chronic heavy drinking does substantial organ damage and, of course, can lead to addiction. It also raises our auto-insurance and health-insurance rates. Even if most people are drinking safely or not drinking at all, which is true, everyone stands to benefit from reduced alcohol abuse.

What about Bank of America?

They wouldn’t give me an answer to that. Lots of ambiguous PR language.

What if a bank buys a business without a clear geographic footprint?

As the retail bank operations become less and less of the overall structure, the question remains: What’s that going to do to giving patterns? At most banks we studied, giving lines up with where their branches are, and yet, if you look at Bank of America, it bought MBNA and has a large credit-card business. How much of that profit will it give away?

Giving rose in the South, yet fell in some other regions.

The South benefited from all seven banks, which is surprising because even West Coast banks such as Washington Mutual and Wells Fargo gave in the South. We weren’t able to delve into why.

But the big contributor here is BofA.

Yes. And on the dollar level overall, Bank of America looks exceedingly generous. But when you look at how that relates to profits, some might say it’s stingy — less than 1%.

Its profits have been rising quickly. Do banks sometimes wait to see if gains are sustainable before they increase giving?

It may be that they’re not sure if they have the internal infrastructure. And that’s a very legitimate issue. It’s probably more that than a fear that next year might not be as profitable.

Philanthropy often is negotiated during mergers, as when what’s now Wachovia bought Core States in Philadelphia.

Yes. If Core States’ CEO wasn’t making it a priority and the community hadn’t been there as very strong advocates, the merger probably wouldn’t have resulted in a regional foundation. That foundation maintains a specific level of giving in that region. It can’t be shifted somewhere else, because the foundation is a separate legal entity. Even if Wachovia were to leave the region, the foundation has to stay there. It’s a very unusual setup.

Did you see post-merger dips in giving?

Nonprofits in the Northeast feel like they’ve gotten short shrift from Bank of America after the Fleet merger. But that happened in 2004, and not all of the 2005 numbers are in. It will be interesting to see if the Northeast did lose.

BofA giving has leveled off since 2000.

Maybe they’re saving their pennies for an acquisition, or it may be that they’ve made recent acquisitions that are not in retail banking, such as MBNA, so they haven’t had to show the same increase in philanthropy.

Wachovia giving dipped just before 2000.

Some of the data was missing. That’s a limitation of the research. There probably is more giving than what is documented here. What we wanted to look at were the trends.

In general, you documented less giving than the banks tout.

Corporations give money outside of their foundations, and they don’t have to report it.

What about BofA and Wachovia?

The difference wasn’t as big for them. Bank of America does 95% of its giving through foundations. Wachovia does about 98%.

Will giving here drop if a bank outside the South buys BofA or Wachovia?

There would likely be a flattening or a decrease in giving in the South because a new headquarters will have a different focus.

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