Belish/shutterstock
Belish/shutterstock

As billionaire donors have opened up their checkbooks in response to the coronavirus pandemic, it’s hard to forget that the upper class is partly to blame for the fact that we don’t have a stronger government at a moment of crisis.

Starting in the 1970s, wealthy philanthropists and foundations, along with business interests, waged a sweeping attack on government, looking to downsize federal agencies, gut the social safety net, and lower taxes—especially on the rich and corporations. The donor class also pumped billions into electing conservative politicians who’ve been dismissive of expertise and have attacked the public servants who populate public agencies.

COVID-19 is now shining a spotlight on this handiwork. In the face of a viral threat and mounting human suffering, the U.S. doesn’t have the government it needs to cope with either a once-in-a-century public health crisis or an unprecedented economic meltdown. That didn’t happen by accident, although the upper class is by no means solely to blame. Starting in the 1960s, white voters fled the Democratic Party in droves as it harnessed the power of government to extend new benefits to non-whites. The GOP has drawn substantial public support ever since for swinging a wrecking ball at the public sector.

But wealthy interests have played an outsized role in the campaign to bring down government, so it’s no wonder that not everyone is applauding as a handful of billionaires like Bill Gates, Jeff Bezos and Michael Dell make big donations in response to the pandemic. Instead, this crisis is putting an exclamation point on a critique that had already been gaining currency in recent years—that private philanthropists have too much money and power, while government has too little.

Today, as thousands die and millions fall through a frayed social safety net, it’s clearer than ever that America would be better off with higher taxes on the wealthy, a more robust government, and less reliance on charitable giving to solve problems.

After decades of soaring inequality, U.S. society is grotesquely distorted. The richest among us have far more money than they know what to do with, while 27 million Americans are facing a pandemic without health insurance and 22 million newly unemployed people are now navigating a stingy and dysfunctional safety net. It’s outrageous that a vast surge of charitable giving is urgently required to keep so many people from going hungry and losing their homes. Our government should be able to do that, just like it should be able to rapidly scale testing, secure vital medical equipment, and speed vaccine development.

If anything good comes out of a horrifying crisis that is hitting the most vulnerable the hardest, it will be a new commitment to building a strong public sector and raising the revenue needed to fund a government that can truly take care of its citizens.

Achieving that goal will mean reducing the bloated concentration of wealth at the top of the income ladder—since it’s the rich who can afford to pay higher taxes. Likewise, deep-pocketed U.S. corporations like Amazon and Walmart can easily afford to pay their workers better wages and benefits. No amount of charitable giving by Jeff Bezos or the Walton family can ever be a substitute for making the businesses they control do right for workers and communities.

Still, like it or not, big philanthropy is here to stay. And thanks to five stubborn realities, the giving of billionaires will actually become more important going forward, not less. While public policy can and should work to downsize the upper class and upsize government, reversing the trends of recent decades, we’re going to need the rich to give at higher levels going forward than they do now as the public sector inevitably falls short.

Here are the five realities I’m talking about.

1. Even with vastly higher taxes on the rich, the U.S. will continue to have a lot of billionaires. 

Higher taxes on the rich are a must and would shrink their ranks—and influence—over time. But that would be a very slow process. If Congress embraced the most radical tax plan ever put forth by a presidential candidate—the wealth tax proposed by Senator Bernie Sanders, with a top rate of 8%—and that tax worked effectively (a very big “if,” according to many experts), it would slow the creation of huge new fortunes. But the wealth of today’s richest Americans wouldn’t shrink all that much. The historic average rate of return of the stock market is 10%. And of course, the wealthy can invest in assets that often do a lot better than that. Billionaires aren’t going away anytime soon.

2. Even if far higher taxes on billionaires did make a significant dent in their fortunes, they’d still have plenty of money for philanthropy. 

In 2017, the wealthiest U.S. households gave away just 1.2% of their assets—a paltry slice of their money, but enough to give these donors a huge footprint in society. A far less rich billionaire class that gave away a higher percentage of their wealth—say, 2%—could still wield enormous influence through their giving. The fact is that big philanthropy doesn’t actually cost that much, relative to the wealth of billionaires. Some of the most influential members of the donor class, like Tom Steyer, are only worth a few billion dollars. Donors like him, who focus their giving on politics and public policy can get a lot of bang for the buck. Today, even after the market’s retreat, there are 383 Americans with assets over $5 billion. Before the crash, some 75,000 U.S. households had investable assets of at least $30 million. Cut those numbers in half, and the donor class would still be here.

3. Changing laws won’t get rid of big philanthropy.

Various proposals have been floated in recent years aimed at limiting the charitable giving and also reducing the influence of such giving on politics and public policy. None of these reforms are likely to do much. Even if we got rid of the charitable tax break altogether for wealthy givers, they’d still give heavily to advance the causes they care about. Just look at the billions in non-tax deductible donations that flow into elections. In my book, “The Givers,” I laid out ideas for limiting tax-deductible giving to influence public policy. But I’m not optimistic these and similar reform ideas will ever go anywhere, given that nonprofit policy groups across the political spectrum are all dependent on charitable gifts. And even if reforms were enacted, wealth would likely still find ways to sway policy.

4. Government will continue to fall short.

The COVID-19 crisis has underscored the need for huge new investments to address glaring inequities and cope with major challenges like climate change and future pandemics. But while a wealth tax and other higher taxes on the rich could go a long way to helping pay for these new initiatives, there’s still the problem of the massive budgetary shortfalls that loom ahead as the cost of current government programs balloons. Look through the CBO’s latest Long-term Budget Outlook and you’ll see what I mean. Even before the pandemic threw the federal government even deeper in the red, the CBO projected that “Large budget deficits over the next 30 years are projected to drive federal debt held by the public to unprecedented levels.” Many state and local governments also face huge shortfalls as a result of underfunded pension obligations.

The truth is that just paying for the government we already have—never mind the additional new investments we need—will require not only raising taxes on the wealthy; it will require raising taxes on the upper-middle class, too, and probably the middle class. Progressive critics of billionaires rarely mention these inconvenient fiscal facts. Instead, they peddle the fantasy that if billionaires were properly taxed, government would have all the money it needs. Dream on.

5. Philanthropy will become even more important.

Looking ahead, two facts are crystal clear: First, we’ll never have enough government to address all our nation’s needs thanks to the long-term fiscal crunch at the federal, state, and local levels. And second, we’ll continue to have lots of billionaires with plenty of money to spare. The vision of downsizing the billionaire class and upsizing the public sector can drive a lot of positive change. But make no mistake: it can only get us so far.

As a result, like it or not, big philanthropy—and the urgent need for more of it—will remain a major feature of American life going forward. The real question that critics of billionaire giving need to focus on is not, “how do we get rid of these plutocrats?” Rather, it is, “how can we encourage the super-rich to give much more in ways that meet the pressing needs of the most vulnerable people in America and the world, don’t further amplify their already outsized influence, and help to shift who has power in society?”

This kind of big philanthropy is no pipe dream. We can see it in the giving of donors like George Soros or, most recently, the billionaire couple that created the Libra Foundation, Susan and Nicholas Pritzker. I can name other examples, too. What we need is more giving like this. Some changes in charitable laws could help push giving by the wealthy in the right direction. But ultimately changes in norms and practices will be much more important.

At Inside Philanthropy, we’ve often explored the question of how to achieve such a sea change in giving. We’ll be writing more on this challenging topic in the months ahead, as America emerges from pandemic into what hopefully will be a very different political moment.

Share with cohorts