Does Philanthropy Reduce Inequality?
. . . or more to the point, is it an answer to the real needs of the poor?
You may have heard of the “Giving Pledge” inspired about twelve years ago by Bill Gates, Warren Buffett and a few other ultra-wealthy individuals (now joined by over 600 others), in which billionaire signatories have joined in a pledged to donate more than 50% of their fortunes to charity. You may not have heard that ten years later, as of the year 2020,
“Of the 62 people who signed the Giving Pledge that were billionaires in 2010, their combined wealth has almost doubled — from $376 billion in 2010 to $734 billion as of July 18, 2020, in 2020 dollars.
Nine of those 62 billionaires have seen their wealth increase over 200 percent over the decade. These include Mark Zuckerberg (1,783 percent), John Doerr (416 percent), Marc Benioff (400 percent), Ken Langone (288 percent), and Stephen Schwarzman (245 percent), among others.
Over the four worst months of the COVID-19 pandemic, the 100 living Pledgers who were billionaires in March 2020 saw their combined wealth increase by $213.6 billion — or 28 percent — from $758.3 billion on March 18 to $971.9 billion on July 17, 2020.” [data, courtesy of Inequality.org’s “REPORT: Gilded Giving 2020: How Wealth Inequality Distorts Philanthropy and Imperils Democracy.”] *See note below.
In his recent essay, “Inequality is Bad for the Economy” my colleague, Rob Waring, writing for this newsletter, laid out in convincing fashion the evidence that wealth, when allowed to accumulate excessively among the super wealthy as a result of favorable tax treatment, deprives the public treasury of an immense amount of revenue that otherwise could have been made available for crucial needs of society—from medical care for the poor, to unemployment insurance for the jobless, to infrastructure demands such as roads and bridges, to disaster relief, to the demands of climate change. The list is endless. Yet, as the above statistics suggest, the Giving Pledge has not begun to slow the growth of inequality.
But let’s focus, for a moment, just on the needs of the poor. Assuming that Mr. Waring is correct and that wealth inequality is bad for the economy, the question remains whether it is also bad for the poor? Or, the reverse: is it fair to say that inequality that benefits the ultra-wealthy helps the poor because so much of that wealth is given back to society though charitable donations, if not through our system of taxation.
There are of course legion examples of major philanthropic contributions to society. To name just a very few of the more well-known, there are Andrew Carnegie’s libraries; those enormous, well-publicized gifts to university endowments that make possible reduced or free tuition for the worthy poor; the support of the Bill and Melinda Gates Foundation for medical research into vaccines and worldwide eradication of malaria. And just this past year, there are the billions that were given to a variety of worthy causes by Jeff Bezos’ former wife, McKenzie Scott.
All well and good, but do these gifts alleviate the consequences of poverty? Is private charity by the wealthy a viable alternative to government spending?
You may think, as I initially did, that the answer should be obvious—private charity can never hope to replace the scope and reliability of government programs; the question is little more than a straw-man, easily brushed aside. But given the past few years of tea party and right wing politics, including the controversial book by Marvin Olasky, “The Tragedy of American Compassion,” it appears that many conservative thinkers still argue that private charity should replace government spending. Their position still reflects Ronald Reagan’s famous pronouncement, “the government is not the solution to the problem, it is the problem.”
The approach of the influential CATO institute is an example of this conservative thinking. The institute, through Michael Tanner, one of its senior fellows, argues that private philanthropy is more efficient and with less waste and bureaucracy than would be the case of government spending: “Private charitable efforts, on the other hand, can address the real underlying problems that leave people in poverty. They are able to demand accountability and responsibility. They provide “a hand up, not a hand out.” And, . . . they are able to stress the primacy of work as a route out of poverty.”
Yet, this focus on “work” instead of what the CATO institute pejoratively refers to as a government “handout,” is disingenuous and creates a false dichotomy! No one disagrees about the importance of work. However the question is not work vs “handouts,” but rather, what should happen when work is not possible? Work is not possible when the person in poverty is hit by one of four main disasters: Accident; Illness; Old-age; and Job Loss.
It is absurd to argue that wealthy philanthropists, let alone community groups, churches and private charity, can meet the needs of the country’s poor when faced with such calamities.
Writer, Mike Konczal, of the Roosevelt Institute calls the argument a “voluntarism fantasy.” In the words of the Los Angeles Times, “To suggest that such organizations can effectively supplant government social programs is worse than a mere fantasy—it’s a cynical and dangerous fantasy that serves only as a talking point to cut those programs.” As these articles make clear, no matter how wealthy the donor nor how well-intentioned the giving, traditional sources of charity cannot even come close to equaling the government-wide response to such needs. Medicare, Medicaid, Social Security, Old-Age and Disability Benefits and Unemployment insurance are all system-wide responses that simply cannot be met, and have never been met, by individual charitable initiatives.
A final note. It should come as no surprise that philanthropy by the wealthy is frequently manipulated for tax purposes. It is done so in a way that actually increases wealth inequality. This is most evident from the explosive growth of charitable donations to vehicles known as “tax advantaged private foundations” and “donor advised funds.” Both of these tax avoidance devices are like sink holes—receiving tax deductible charitable donations that are allowed to accumulate tax free, sometimes for years, all the while under the control of the donor or the donor’s family. Under current tax law, only a small percentage of these growing assets must be spent annually for charitable purposes. The donors remain free to choose if and when and where to spend the funds’ assets.
Returning to the findings of the Report on Gilded Giving referenced above, it is evident that these funds have grown significantly over the past few years. For example, from 2005 to 2019, assets in tax-advantaged private foundations grew from 551 billion to $1.2 trillion! The growth of assets in Donor Advised Funds, which are not required to regularly spend down any assets, has been even greater. Again, this growth in wealth remains largely in the control of the donor and, because of the deductibility of donations, the loss of tax revenue to the government is enormous.
So what is the answer? Bill Gates and Warren Buffet are smart men. Conceding that neither has an inside track to a solution of the wealth inequality crisis, it is nevertheless worth noting that both have publicly conceded that they should simply pay more taxes! Paying more taxes is indeed a sentiment expressed by numerous wealthy co-signers of an open letter to the 2020 political candidates which stated that it was their “patriotic duty” as well as a “moral, ethical and economic responsibility” to submit to a wealth tax.
*Note. If you have difficulty wrapping your head around a billion dollars, it may help to realize that although a million seconds is equivalent to 12 days, a billion seconds is equivalent to 31 years!
This work is licensed under CC BY-SA 4.0
Interesting. I'm convinced philanthropy is no substitute for government programs. What do you propose? Is the billionaires' pledge a good thing? Jim R.
Bravo David. Well said. I suggested on Facebook that Bezos and Zuckerberg could gain some favor by saving some rainforest. My daughter answered saying they should pay taxes to save the forests.