Should America be Taxing Philanthropy?

Taxing philanthropy is a counterintuitive idea whose time has come. To explain, wealthy individuals and foundations can avoid taxation while exercising vast amounts of influence over politics, culture, and science.

Many observers are deploring the effects of big charity and big philanthropy on our society. Journalist Anand Giridharadas wrote an entire book devoted to Big Money’s ugly effects on public policy and contemporary thought.

Giridharadas’ thesis is that the wealthy are using their money to determine what ideas get discussed. In particular, Giridharadas fears that intellectuals have abandoned their independence by selling out. For a full description of these arguments see Winners Take All: The Elite Charade of Changing the World.

Is Philanthropy Bad for our Minds?

Giridharadas’s main worry is that only market-based and private solutions to public problems are being advanced. He fears intellectuals are only promoting market solutions because that is what the rich pay for.

Giridharadas documents how big philanthropy squeezes out ideas wealthy donors find unsettling. Moreover, he notes philanthropists often ignore thinkers who advance positions critical of the market and business.

Giridharadas is not alone. Conservative F. H. Buckley devotes a whole chapter of his book The Republican Workers Party: How the Trump Victory Drove Everyone Crazy, and Why It Was Just What We Needed to the same proposition.

Buckley goes even farther and demands the government break up large foundations; and endowments for universities like Harvard. Markedly, Buckley’s concern is the same as Giridharadas; that philanthropy gives a tiny and wealthy elite dominance over the marketplace of ideas.

Why Intellectuals are turning on Big Philanthropy

Interestingly, Buckley compares the foundations to the monasteries that dominated the cultural and economic life of Medieval England.

Buckley notes that King Henry VIII ended the monasteries’ power by breaking them up. Not surprisingly, Buckley wants Congress to follow Henry’s lead.

Giridharadas refuses to go as far but he shares Buckley’s sentiments. What is most bothersome is that both Buckley and Giridharadas have firsthand experience with Big Philanthropy.

Buckley is a law professor; while Giridharadas is a former McKinsey analyst and TED talker, who worked with several philanthropies including the Aspen Institute. Both men believe Big Philanthropy is a threat to the freedom of ideas even though they come from opposite ends of the political spectrum.

Big Philanthropy is getting Bigger than ever

In spite of these arguments Big Philanthropy is getting Bigger than ever. For instance, the Bill and Melinda Gates Foundation reportedly has an endowment of $42.3 billion.

Notably, libertarian extremist; and liberal bogeyman, Charles Koch has donated more than $1 billion to “civic and philanthropic groups.” Koch is the world’s seventh richest man with a personal fortune of $53.5 billion, Time reports. In addition, Koch’s brother David also has $53.5 billion.

Koch’s philanthropy is troubling because of his family’s blatant ideological agenda. Notably, the Koch brothers fund Americans for Prosperity which promotes libertarianism and small government ideas.

In particular, Charles Koch is financing nearly 1,000 scholars at over 300 universities and colleges Time claims. Koch’s political beliefs obviously shape that “research.”

Koch’s use of philanthropy to promote his ideas lends credence to Buckley and Giridharadas’ argument. Moreover, it brings the whole practice of making philanthropy tax-free into question.

Why we should Tax Big Philanthropy

Obviously, Charles Koch is free to use his money to promote the ideas he believes in. However, I think Koch, Gates, George Soros, and others should pay taxes on their charitable contributions.

I would not prevent billionaires from giving their money away; but I would make them pay taxes on most of what they give. We should tax the philanthropy of the rich for four reasons:

  1. Taxes exist to finance necessary government services and functions. In a civilized society the common good must take precedence over the whims of the elite.

Moreover, the present system allows the wealthy to use a charity to escape paying for government functions they disagree with. For instance, a rich pacifist can use donations to escape paying for the common defense.

  1. Not all philanthropy is beneficial or useful.

Much of today’s philanthropy is of the ego boosting or reputation protecting variety; for instance, all the billionaires who donate expensive buildings to public institutions. The idea is to preserve their names or rebuild reputations rather than help anybody.

 

  1. Philanthropists rarely donate more than a tiny portion of their wealth.

 

For example, Amazon CEO donated $2 billion to help build preschools and fight homelessness in September 2018. That’s a little over 1% of Bezos $160 billion fortune.

Moreover Bezos’ fortune grew by $8.9 billion during the week that ended on November 7, 2018. If Time’s estimates are correct, Charles Koch’s charitable contributions make up less than 5% of his fortune.

 

  1. Philanthropy is rarely adequate to deal with the needs or problems of modern society. For example, Bezos’ $2 billion will do little to reduce homelessness.

 

Philanthropy is not enough

Thus philanthropy provides the resources needed to address society’s problems. The amounts generated are usually too small to make a real impact.

In particular, Project Syndicate’s Laura Tyson and Lenny Mendonca estimate California will need to build 180,000 homes to end its housing crisis. Hence, taxes are probably the only way to finance the housing construction the Golden State needs.

Moreover, many of the donations are superficial and driven by ego or public relations. For every Gates or Koch; whose donations are idea-based, there are several fat cats building museums and symphony halls cities rarely need.

How to Tax Philanthropy

Fortunately, there are ways we can tax philanthropy without discouraging it.

For instance, we could place a limit on the amount of tax-exempt donations. I suggest limiting the charitable tax exemption to an individual to $10 million a year.

Another idea is to tax philanthropic exemptions at a different rate. I would suggest taxing all charitable donations that exceed $10 million at 5% and $100 million at 10%.

A suggestion I like is making it illegal to donate equities like stocks and securities to charities. Instead, require all donations to be in cash which will force the wealthy to sell off investments to make contributions.

This could net the treasury a lot of money if we implement a Robin Hood Tax on financial transactions. To explain, the Robin Hood levy is a sales tax on investments.

Limiting the Power and Influence of Philanthropy

An advantage to banning donations of investments is that it could limit the power and influence of large nonprofit foundations.

Furthermore, this will address a major complaint of conservatives that large foundations are accountable to no one. Without large blocks of investments, those entities will at least be accountable to donors.

Taxing philanthropy is an idea Americans need to consider. The power and influence of wealthy philanthropists is distorting our culture and politics. Bringing that power under control will be one of the great challenges of the 21st Century.