Paying Taxes Is One of the Best Ways for the Wealthy to Be Philanthropic

In face of the deafening media silence this week in response to Warren Buffett's criticism (on Monday) of the Republican plan to repeal the estate tax (I didn't hear about this critique until some fellow bloggers informed me of it today on DailyKos), I’m glad to hear that someone like Mark Kramer is pointing out the limitations of even a large private philanthropic donation like Buffett’s $31 billion to the Gates Foundation. [See here for Kramer's recent Opinion piece in the Chronicle of Philanthropy (excerpted below).]

Ever since I heard about the announcement of Buffett's donation at the beginning of this week, and watched the media blitz, and listened to the interview of Buffett and Gates on the Charlie Rose show (none of which mentioned Buffett's statements in support of the estate tax), the old question I've long had about philanthropy was bugging me: If wealthy philanthropists like Gates and Buffett truly desire to do the most good for the poor of the world, why do they not use the power (of their great status, wealth, and public voice) to focus public criticism on the tax-cutting policies that are reducing this country to ruin?--policies that, in their combined impact, will probably do much more harm than can ever be repaired by many Buffett-size philanthropic gifts?

Wouldn't the greatest philanthropy of wealthy people be for them first and primarily to insist on, and speak out about, the importance of paying taxes--instead of allowing the Bush administration and the Republican Congress to give the wealthy ever greater tax breaks?!!

Here is a brief excerpt from Mark Kramer's piece:

Don't Confuse Generosity With Impact on Society

With the stroke of a pen, Warren Buffett has committed more money to charity in a single transaction than anyone in history.

In current dollars, his $31-billion gift is double the total lifetime philanthropic contributions of Andrew Carnegie and John D. Rockefeller combined. Yet this noble gift also casts light on one of the most central dilemmas of philanthropy — the inadvertent sleight of hand that confuses the generosity of the gift with the impact on society. . . . All the attention to the gift has focused on the magnitude of the pledge and the character of the donor — so much so that the much tougher challenge of turning money into a solution for social problems gets overlooked.

The pen stroke that committed these funds to charity does not itself improve anyone's lot... No medical research has yet been financed, no social services subsidized, no schools improved. The money has entered a twilight zone from which social impact will, at best, slowly emerge over many decades.... More and more money is donated to charity every year, yet America's schools continue to fail, poverty continues to rise, and our environment seems ever more precarious. We would like to think that our contributions make a difference — and large contributions make a large difference — but there is surprisingly little evidence that this is so.

The publicity that attends gifts such as this deludes us into thinking that if only more people were more generous, the world's problems would be solved. But the $1.5-billion that Mr. Buffett will contribute each year over the coming decades is only a small addition to the total contributions from the rest of us. In fact, it is just about one-half of 1 percent of the $260-billion that Americans gave to charity last year. The knowledge of how to use charitable dollars effectively turns out to be a much rarer commodity than the dollars themselves.

Mark Kramer is a co-founder and managing director of FSG Social Impact Advisors, a nonprofit consulting firm, a senior fellow at Harvard's John F. Kennedy School of Government, and a co-founder of the Center for Effective Philanthropy. He can be reached at Mark.Kramer@FSG-impact.org

To read more, click here.

What I did not learn from any of the media coverage I heard or saw this week, including the hour-long interview with Charlie Rose on Monday night, was that after signing his large check to the Gates foundation on Monday, according to Reuters, Buffett called for Congress to retain the estate tax:

"I would hate to see the estate tax gutted," Buffett said.... "It's a very equitable tax"... It's in keeping with the idea of equality of opportunity in this country, not giving incredible head starts to certain people who were very selective about the womb from which they emerged."

So, for the record, I want to cite some of the few additional media sources that have documented the opinions of Buffett and Gates, Sr., in support of the estate tax, and in criticism of the tax-cutting policies currently being pursued by Congress. (Perhaps if enough bloggers mention these details, the dominant media will eventually be forced to give them more attention.)

One of the few sources that cited Buffett's critique of tax-cutting policies in some detail this week was a CNN Money interview posted last Sunday. In this interview, Buffett explains how both he and his wife Susie

agreed with Andrew Carnegie, who said that huge fortunes that flow in large part from society should in large part be returned to society. In my case, the ability to allocate capital would have had little utility unless I lived in a rich, populous country in which enormous quantities of marketable securities were traded and were sometimes ridiculously mispriced. And fortunately for me, that describes the U.S. in the second half of the last century.

Certainly neither Susie nor I ever thought we should pass huge amounts of money along to our children. Our kids are great. But I would argue that when your kids have all the advantages anyway, in terms of how they grow up and the opportunities they have for education, including what they learn at home - I would say it's neither right nor rational to be flooding them with money.

In effect, they've had a gigantic headstart in a society that aspires to be a meritocracy. Dynastic mega-wealth would further tilt the playing field that we ought to be trying instead to level.

Indeed, Buffett and William Gates, Sr., have been working together with some other wealthy Americans to oppose cuts in the estate tax ever since 2001. As a February 2001 New York Times article detailed, in 2001 some 120 wealthy Americans including Buffett, Gates, Sr., and George Soros joined together to urge Congress not to repeal taxes on estates and gifts. Gates Sr. even organized a petition drive, arguing that "repealing the estate tax would enrich the heirs of America's millionaires and billionaires while hurting families who struggle to make ends meet." Gates worked together with United for a Fair Economy, a nonpartisan, nonprofit organization in Boston that wants to narrow the gap between rich and poor.

The elder Mr. Gates said the money that Mr. Bush wanted to devote to repeal of the estate and gift taxes could be put to better use "to reduce other taxes, which affect the other end of the economic spectrum."

"Ever since I heard that somebody was trying to repeal the estate tax, I have been angry," Mr. Gates said, adding that if it were not for his full-time job, he would organize a group called Millionaires for the Estate Tax.

This New York Times article also quotes Buffett as saying:

"Without the estate tax, you in effect will have an aristocracy of wealth, which means you pass down the ability to command the resources of the nation based on heredity rather than merit."

Another article at Bloomberg.com has noted that

The elder Gates said the estate tax is fair because more than half the assets the wealthy pass on to their heirs has never been taxed. In addition, he said, revenue from other taxes probably helped create the economic conditions and innovation that allowed the richest to build their fortunes.

As USA Today noted in early 2003, Gates, Sr. understands that the wealth achieved by rich Americans would not have been possible without the benefits provided by American society and government: "Most of the things that have generated the enormous advances in our economy are things that started on some campus or in some laboratory," and these things were possible because the government helped to finance them.

Meanwhile, even as some enlightened souls like Buffett and William Gates, Sr., the father of Bill Gates, support the estate tax, many wealthy families (such as the Walton, Mars, and Nordstrom families) are behind the Congressional drive to eliminate it, as this article and the work of Public Citizen suggests. And it is perhaps these efforts, combined with the silence of the majority of wealthy families--in the face of tax policies that will allow wealth to become even more concentrated among the few, while the many get poorer--that explains why the dominant media, which is now owned by increasingly concentrated and wealthy ownership, largely smothered Buffett's brief critique of the estate tax earlier this week.

You can read more of what Gates, Sr., has to say on these issues in his book, Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes.

And you can find more details on Warren Buffett's views on tax policy here.