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These days, when philanthropists announce massive donations, they are hailed as heroes.
“With one stunning gesture, Bill Gates has moved from the realm of boy genius to real mensch,” one philanthropist told the New York Times as Gates began donating billions to his foundation in 1998. When Warren Buffett announced he’d give his fortune to Gates to disperse, Fortune’s Carol Loomis called the move “typical Buffett: rational, original, breaking the mold of how extremely rich people donate money.” Just this past month, when Michael Bloomberg gave $1.8 billion to implement need-blind admissions at his alma mater, Johns Hopkins University, he received rapturous praise from bigwigs in higher ed.
It was not always this way. When John D. Rockefeller in 1909 proposed the Rockefeller Foundation (which is a financial supporter of Future Perfect, the Vox section you are reading), he encountered fearsome opposition. Former President Teddy Roosevelt and then-President William Howard Taft denounced the idea, with Roosevelt declaring, “No amount of charities in spending such fortunes can compensate in any way for the misconduct in acquiring them.”
John Haynes Holmes, an influential Unitarian pastor, told Congress the foundation was “repugnant to the whole idea of a democratic society.” A couple years later, another opponent, Commission on Industrial Relations chair Frank Walsh, declared foundations in general “a menace to the welfare of society.”
Rob Reich, a political theorist at Stanford (and no relation to the former labor secretary), begins his new book Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better with the story of the Rockefeller Foundation’s founding, and argues that the skeptics have a point: Foundations, and large-scale charitable giving more generally, pose a real challenge to democratic institutions and norms. He contends that we ought to be less deferential and more critical and skeptical of billionaires giving away their fortunes.
We spoke on Skype about the book, why he thinks the charitable deduction needs reform, and what role philanthropy should play in a democratic society. A transcript, lightly edited for clarity and length, follows.
Dylan Matthews
A lot of writing about philanthropy, my own included, treats it mostly as a matter of individual concern. It’s about individual people, their money, and how they spend it. But you think it’s a social and political question as well.
Rob Reich
The book is not a kind of Will MacAskill/Peter Singer/effective altruist moral investigation of how to do charitable giving better, or what our individual obligations to donate might be. Instead, I start from the premise as a political philosopher that the questions that are worth exploring involve the political and ethical dimensions within a social setting about charitable giving, so that we can squarely fix our attention on the social norms and public policies that gives structure and shape to the individual decisions to give money away.
Big philanthropy — more than ordinary small donations that most people make — is an exercise of power. It’s an attempt to direct your private assets for some public influence, often with a naked aspiration to change public policy. And in a democratic setting, wherever power is exerted, it deserves our scrutiny, in order to understand whether it’s serving democratic purposes or undermining them. And philanthropy shouldn’t be exempt from that examination.
The simple slogan of the book is that we should stop being merely grateful to donors and instead direct our skepticism and scrutiny at their activities.
Dylan Matthews
You note at the beginning of the book that we’ve subjected charities to this kind of scrutiny before, at the beginning of the 20th century.
Rob Reich
It didn’t escape my attention that Future Perfect is, in the language on the website, “made possible by” the Rockefeller Foundation. And the book starts with a 10-page capsule history of the creation of the Rockefeller Foundation just over 100 years ago.
Rockefeller was the Bill Gates or Jeff Bezos of his day. He had amassed the largest pile of wealth that anyone in the United States through more or less monopolistic business practices that involved various attempts at union-busting. He also felt an obligation to return some of this incredible wealth to the society that had made it possible.
What I discovered is that when he was getting serious about his philanthropy, realizing just how much money he had amassed, he decided that it was unlikely to be workable just to basically incorporate a charitable trust in New York state, where he lived.
So he and his adviser, Frederick Gates, decided that they really needed the imprimatur of the US Congress to pass a bill that would incorporate and create the Rockefeller Foundation with the size of assets that it had under its direction with this global, national, and local scope.
But instead of finding a hero’s welcome for his philanthropic aspirations, he was met with extraordinary criticism. People criticized him for trying to whitewash the bad things he’d done in earning the money, and there were people, more interesting to me, who were just opposed to the entire idea that a philanthropic entity with that amount of money in it, the equivalent of almost $2 billion in today’s money, would be a welcome thing in a democracy.
What a large foundation represents is the exercise of the power of a wealthy person to direct private assets for some public influence. It’s a plutocratic element in a democratic setting.
What a foundation represents today is (putting it provocatively and generally) a wealthy person who has a pile of money; does everything she can to diminish the tax contribution she makes to zero, legally speaking; complains about the effectiveness of government in producing various public benefits; declares herself willing to create public benefits or social benefits at her own choosing at the time that she prefers; takes a further tax break for creating a foundation entity; and then asks everyone involved to bend over in gratitude for her benevolence and genius in sprinkling around some social benefits.
That is the moment we sit in.
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Dylan Matthews
The tax break for charitable donations comes up again and again and again in your book. But the Rockefeller example suggests that charitable giving still poses a problem even where there are no tax advantages. When Rockefeller proposed his foundation in 1909, there wasn’t a federal income tax yet.
What problems would foundations still pose, even if we had no charitable deduction?
Rob Reich
Philanthropy can be an exercise of power, and even if it’s unsubsidized philanthropic power, we still are required to scrutinize its deployment.
I got into this whole topic by learning when I enrolled my son in kindergarten that the expected but voluntary contribution to the Palo Alto public schools that year was $2,000 per child.
These tax-subsidized charitable donations by local people in Palo Alto were exacerbating inequalities in school funding and in educational opportunity, not redressing them. And that launched me into trying to understand, “Why do we have tax subsidies in the first place? How did the local education foundation get appointed as a public charity?”
Imagine there’s a budget crisis in DC. There’s not as much money for the police force, and there’s a rash of break-ins and petty crime. Imagine you and the people who live on your block, your well-to-do neighbors, pony up a bunch of money and say you want to give a donation to the DC police department, with a string attached that you want them to use this money to hire a new police officer whose beat will be your block. And, in fact, you’d like a tax deduction to call it a charitable contribution.
To the best of my knowledge, not merely are you not allowed to make a tax-deductible contribution to the police department with strings attached that the new officer be put on your block, you actually can’t make the contribution at all. The police department will send your money back, because private citizens, even using their private resources, can’t direct the operation of a public agency. Evidently, you can sort of do that with public schools through this mechanism I described, but you can’t do it in protection services.
Imagine if, by contrast, a really wealthy person thought that the Marines were the best private security of all, and decided to give $10 million to the Marines for their own private security detail. Again, the US government would turn back the donation, because it was an exercise of private power to direct a public agency. It shouldn’t be subject to the whims of a private donor.
That’s why, independent of a tax break, what philanthropists do doesn’t deserve our automatic praise. It deserves an examination about whether it’s consistent with democratic governance as a whole, and then to be praised if it is and potentially to be rejected if it’s not.
Dylan Matthews
You argue that it would be more consistent with democratic values if we replaced the charitable deduction with a charitable credit. For illustration, you give the example of a credit where every taxpayer gets 25 percent of their charitable giving back, up to a maximum credit of $1,000 per person.
Why is that better, democratically?
Rob Reich
The charitable contribution deduction is a deeply inegalitarian mechanism, because it systematically amplifies and more greatly weights the interests of the wealthy people over middle-class and poor people.
Let’s take a concrete example. Let’s imagine that I’m a wealthy person, taxed at the rate of 40 percent. Imagine you’re a middle-class person, taxed at 20 percent. You and I each make a $1,000 contribution to whatever charity GiveWell is ranking highly these days. You make the $1,000 contribution, I make the $1,000 contribution, it goes to the same charity, the same amount of money. So essentially an identical social good has been produced in the world. Your $1,000 contribution costs you $800, because $200 is a foregone in your tax bill. My $1,000 contribution costs me $600, and $400 is foregone in my tax bill.
So the citizens of the United States are collectively subsidizing, through foregone tax collection, the giving preferences of the wealthy to a much greater degree than the giving preferences of the middle class or poor. And, of course, the giving preferences of the wealthy are not a mirror of the giving preferences of all people. They are in fact quite different.
It just seems like a perverse way to weight the interests of different citizens. If anything, given the marginal value of the 10 billionth dollar to somebody, the lower subsidy rate should seem to attach to the wealthier person rather than the reverse. So that’s why I call ultimately for a tax credit, which would give, in the policy mechanism, the same weighting to your interests, my interests, and Bill Gates’s interests in what we choose to fund charitably.
Dylan Matthews
The moral question that brings up to me is that Bill Gates gives a lot more money to charity than I do. Insofar as changing from a deduction to a credit might reduce his giving, and insofar as I think his charitable giving to causes like eliminating malaria, combating HIV/AIDS, supporting vaccinations, and so on is good, getting rid of the deduction might reduce giving in places where it helps a lot, and hurt people who Gates’s donations could have helped.
What is that analysis missing?
Rob Reich
For someone as wealthy as Bill Gates, the incentive is really not doing all that much work at the end of the day, although I’m happy to concede, just as you suggested with the question, that for very many people and perhaps for wealthy people as well, there might be a marginal effect on their willingness to give.
Assuming that the charitable projects that they’re choosing are indeed objectively producing really important good effects in the world, there could be a loss to human welfare or the production of various good things in the world if we were to diminish the charitable incentive for giving in the first place.
Taking that as a potential trade-off, I don’t agree with the presupposition in that analysis, that the point of any charitable giving incentive is always and everywhere to be harnessed to the production of objectively good human welfare improvements. In this respect, I’m not a strict effective altruist at the level of policy.
I am, by contrast, a pluralist; I want to champion the decentralization of what would otherwise be a majoritarian decision-making structure for the spending of tax dollars to produce various forms of social benefits. And I think part of what makes ordinary charitable giving a good thing is the conversion of every individual’s idiosyncratic, eccentric preferences into some civil society-facing project that by extension produces a diverse, pluralistic civil society, which is good for democracy. I wouldn’t want all of charitable giving to be driven by effective altruist ends.
Dylan Matthews
A lot of the book is addressed to government policy, talking about what our government should do, how our social norms should constrain behavior, how taxes should be collected, etc.
But I, obviously, am not a government. I can’t create social norms on my own. I am not the IRS. I’m just one person. How should the political and social critique you’re making affect me? How should it influence my decision-making?
Rob Reich
This gets to the heart of some deep and difficult questions of personal morality and what we should do as individuals.
There is a really difficult tension to be navigated between doing what could lead to a first best outcome and doing the higher-confidence outcome in my own individual agency that is second best or third best. If I thought to myself, “Hunger is a real problem, no one deserves to go hungry,” I’m really confident that if I trouble myself with that problem, and I went down to the soup kitchen and gave some money and volunteered my time, I could genuinely make some people’s lives better off.
If, instead, I tried to direct my money and my time toward policy changes to get at the root source of hunger … well, I don’t know how successful I’m going to be. It might amount to nothing.
I’m a human being. What is it that I should do in the face of some injustice or some problem? We occupy different social roles. So I can be a donor or a philanthropist in my private capacity, using my assets in my time, or I can be a citizen and try to exercise a form of civic agency as an individual, or perhaps in concert with other people.
And if everyone, one by one, makes the effective altruist calculation that it’s likely to be more successful if we act as a donor than it is if we act as a citizen, that basically structurally guarantees that the first best thing isn’t even tried. I have a not especially analytically rigorous view about taking a portfolio approach, as it were, to our own individual asset management and time direction. I do some activity as a donor, I do some activity as a citizen, and I hope the things I advocate as the latter, possibly with a higher expected value, actually come to fruition.
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