Billionaires and Philanthropy, Death and Taxes II

The previous post discussed some of the broader issues surrounding the attempt by Bill Gates and Warren Buffett (No’s 2 & 3 world’s most wealthy individuals respectively) to encourage other billionaires to pledge to give away the bulk of their wealth if not by the time they die then on their death.

The post queried the role of taxes and the ideas behind voluntary charitable giving and attempted to raise the issue of taxes versus charity on death.

The German publication Spiegel Online has an article suggesting German millionaires were not supportive of signing up to such a pledge. Even though some of those contacted had already donated significant portions of their wealth to charitable causes, the suggestion is that establishing your own charity with vast sums of money is the equivalent of indulging in a hobby or alternatively, a way of retaining control of one kind or another over those funds (via controlling where and how the money is used). It also points out that donations in the US are tax deductible (you would expect that some probably are and others may not be) and that retaining control over money that you have a tax deduction for is not necessarily an efficient allocation of resource (in that money could be pledged to existing charitable or worthwhile causes who would reasonably be expected to use the money to greater effect than an ‘amateur’). These are all my interpretations, so it is worthwhile reading the actual article to gain your own thoughts.

There are all sorts of issues raised in these published articles. Here are a quick few :

  • If you gain a tax deduction for giving away money, should you still determine how that money is spent? Isn’t the taxpayer heavily subsidising your preferences or bias or hobby?
  • Is the German response (which may be quite limited in scope as there are no clear figures given for super-wealthy contacted prior to the article being published) simply an attempt by Germany’s uber-wealthy to deflect potential scrutiny of their competitive position?
  • Is it reasonable to expect that simply because someone has somehow accumulated a vast sum of money that they should be prepared to give a vast sum of money away out of the kindness of their heart- or because of ‘peer pressure’?
  • To what extent should redistribution of wealth be determined by individuals versus the broader community (negatively referred to as “the State” or positively referred to as “representatives of the democratically elected government”)
  • If the super wealthy should distribute a component of their hard-won/ill-gotten gains then what requirement exists for the ‘average’ person to do the same?
  • If everyone had to give a portion of their wealth, wouldn’t that be a potentially devastating progressive tax – hitting the less well off harder? How about family homes? How about farms or family businesses? What if the sole remaining asset was a family work of art?

The aim of the original post was to query the rights and obligations, costs and benefits of simply existing in a particular society, and to query the role of inheritances in contributing to inefficient allocation of available resources within a community. There are the obvious rebuffs to any attempt to discuss this issue legitimately :

  • In a mobile worker world, exactly which community do you owe your obligation to, even if an obligation exists? How does the jurisdiction of the place of death compared to the place where any wealth was accumulated, impact on any redistribution through a death duty or tax?
  • If your parents work hard and do the right thing, shouldn’t they be able to use the resource they have accumulated to ensure the survival and comfort of their children and family?
  • Why should the government/state be entitled to anything upon death anyway – don’t you pay taxes along the way?

If we look at the specifics of the US and Germany, both countries have deficits and arguably structural deficits – even if we only measure directly costed expenditure and tax collection. In other words, any accumulation of wealth within the community involves an element of wealth borrowed from elsewhere that involves repayment by future taxpayers (this was in the previous post). Extended further, those who have accumulated more have done so at a greater cost to the community (all other things being equal and ignoring the howls of indignant rage from the “i earned it/i deserve it” team). Even if this were not true in a specific measurable dollars sense, it is highly likely to be true if the total cost of the community providing the environment in which that self-earned money could be accumulated, is taken into account.

The bigger the deficit the greater the amount owed back to the community – especially owed to future members of that community. Which means more members than just the immediate family of the person who’s hard work, sweat, thrift, ideas, imagination, entrepreneurship and endeavour helped accumulate a big pool of money.

Before arguing too heartily against this broad proposition, consider the fact that the United States has no more jobs available within it today than existed 10 years ago. This means that the bulk of wealth accumulated in that time was accumulated with overseas input – whether in the form of reduced labour or input costs or some other such external means. The external means may not relate directly to the individual that accumulates a large sum of money but that does not mean that their wealth was accumulated entirely in isolation.

More on this line of thought later.


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