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Billionaire philanthropy (Part 2: Philanthropy and democracy)

A perpetual charitable foundation … is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets (in both respects differing from universities), and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either. It is not even subject to benchmark competition‚ that is, evaluation by comparison with similar enterprises‚ except with regard to the percentage of its expenditures that go to administration (staff salaries and the like) rather than to donees. The puzzle … is why these foundations are not total scandals.

Richard Posner, “Charitable foundations: Posner’s comment

1. Introduction

This is Part 2 of my series on Billionaire philanthropy, following the series introduction in Part 1.

Today’s topic is the uneasy relationship between billionaire philanthropy and democracy. It can seem today as though large philanthropic foundations are a natural, almost inevitable feature of the democratic political landscape. But the legal scholar Ray Madoff reminds us that the modern philanthropic foundation is a recent, historically contingent invention:

Given their ubiquity, it might be hard to believe that charitable trusts were not allowed under American law throughout most of the nineteenth century. It was thought to be poor policy to allow individuals to create their own perpetual entities devoted to whatever purpose they thought best. Beginning in the twentieth century, however, the private perpetual charitable trust became not only tolerated but favored in the law and subsidized by the government through the tax code.

Ray Madoff, Immortality and the law

One of the first test cases for charitable foundations in the United States was John D. Rockefeller’s attempt to establish the Rockefeller foundation. Rockefeller initially applied for permission from the United States Congress and was outright refused, in part on the grounds that the foundation would be anti-democratic. During the debate, the Reverend John Haynes Holmes maintained:

[M]y standpoint is the whole thought of democracy. . . From this
standpoint it seems to me that this foundation, the very character,
must be repugnant to the whole idea of a democratic society.

Reverend John Haynes Holmes, Testimony before Commission on Industrial Relations, 1912

That is probably too strong. But what exactly was the good Reverend on about? And why was the United States Congress so concerned about the place of charitable foundations in a democratic society that it was prepared to turn away Rockefeller’s fortune?

To get a handle on these questions, let’s think about the distribution of power and wealth in society today. Much of my discussion will focus on the United States, although similar trends are found in many other countries today.

2. Oligarchy

The rich are getting richer, and the poor are getting poorer. Take a look at this chart of annual income growth in the United States by income percentile in the past few decades:

Annual income growth by income percentile
Thomas Piketty et al. (2018), “Distributional National Accounts: Methods and Estimates for the United States

As you can see, real incomes have been sluggish for the vast majority of the population, but skyrocketed for top income earners [Edit: Thanks to John Halstead for a correction here]. This is one of many factors contributing to a growing wealth gap in the United States.

Congressional Budget Office, “Trends in the distribution of family wealth, 1989 to 2019

Over time, wealth has become dramatically concentrated among the top ten percent of households, with only a negligible proportion of family wealth held by the entire bottom half of American households.

Wealth buys many things, including houses, companies, and yachts. But wealth also buys power and influence. There is a growing consensus among political scientists that the wealthy and the interest groups that they fund wield an outsized influence on American politics.

For example, Martin Gilens and Benjamin Page analyzed the effect of average citizens’ preferences, economic elite preferences, and interest group preferences on the likelihood that a policy will be adopted in the United States. Their results show a slim responsiveness of policy to average citizens’ preferences, but strong responsiveness to the preferences of interest groups and economic elites.

Gilens and Page (2014), “Testing theories of American politics: Elites, interest groups, and average citizens

Here is how Gilens and Page summarize their findings:

Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all. By contrast, economic elites are estimated to have a quite substantial, highly significant, independent impact on policy … Economic elites stand out as quite influential—more so than any other set of actors studied here—in the making of U.S. public policy.

Gilens and Page (2014), “Testing theories of American politics: Elites, interest groups, and average citizens

How is it that economic elites manage to wield so much influence in society? There are many answers to this question, but one answer that is not always highlighted involves philanthropy. As Rob Reich reminds us:

Philanthropy is a form or exercise of power. In the case of wealthy donors or private foundations, especially, it can be a plutocratic exercise of power, the deployment of vast private assets toward a public purpose.

Rob Reich, Just Giving

Once we understand philanthropy as an exercise of elite economic power, with lasting effects on public policy, we are naturally driven to raise questions about the extent to which philanthropy is compatible with the democratic ideal of equal (or at least, not-too-unequal) influence over public decisionmaking.

What exactly is the nature of the tension between philanthropy and democracy? At least three points of tension are worth exploring.

3. Plutocratic bias

It is a democratic ideal that all citizens should have an equal voice in the allocation of public goods. Like other democratic ideals, this principle can be given an intrinsic justification on grounds of liberty, equality or public justifiability, but also an instrumental justification: fairly incorporating a diverse range of voices in decisionmaking is a good way to identify the best policies.

Elite philanthropy introduces a plutocratic bias into the allocation of public goods, giving the wealthy more voice in how public goods are allocated. This happens in two ways. First and most obviously, elite philanthropists have near-complete autonomy in their own philanthropic endeavors. A philanthropist can fund the opera, a soup kitchen, or a recreational sports team, depending on her whims. The public has no formal voice in any of these decisions, which affect the allocation of large pots of public goods in society.

Second, as we saw above, elite philanthropy confers substantial political power upon philanthropists. Most directly, elite philanthropists often fund politicians, either with the aim of changing the balance of power in a contested race, or else with the goal of influencing later policy decisions. For example, Sam Bankman-Fried gave at least $70 million to politicians, and once mused about the prospect of spending a billion dollars on a single election. Money talks, and donations of this magnitude gave Bankman-Fried an unusually strong opportunity to influence the direction of public policy.

The second path to plutocratic bias, through political influence, can have pernicious consequences. That is because political influence does not only confer political power upon wealthy philanthropists. It also gives them the opportunity to wield personal power within society. For example, The Guardian reports that the Securities and Exchange Commission launched an initial investigation into FTX earlier this year. They were stopped after a letter of protest was penned to the SEC by eight lawmakers, five of whom had received large direct or indirect donations from SBF.

Let that sink in for a moment. There is reason to believe that SBF successfully used his political influence to block an investigation into allegations of fraudulent business dealings by influencing members of Congress to pressure the SEC to close an active investigation, which might otherwise have uncovered evidence of fraud months in advance of the FTX collapse. That really happened.

In such cases, plutocratic bias in democratic decisionmaking becomes problematic, not merely because it undermines decisions about the allocation of public goods, but also because it confers illicit power and other benefits on the members of society who need them the least.

4. Accountability and transparency

I opened this discussion with a complaint by the legal scholar Richard Posner that charitable foundations are “answerable to nobody”. The same complaint has been raised by the political theorist Rob Reich, who helpfully splits it into two parts.

First, foundations are largely unaccountable to anyone except themselves. A foundation may allocate its assets in virtually any way that it chooses, and if the rest of us do not like it, we have no legal recourse.

The unaccountability of modern philanthropists is especially concerning when we have reason to believe that philanthropists hold beliefs and values that differ substantially from the beliefs and values held by most citizens. During times of famine, an unaccountable foundation can literally lock the granary doors, then call on police to haul away a hungry mob and use the coercive power of the state to enforce its will.

Unaccountability should therefore be a concern with effective altruists, who aggressively pursue an unpopular longtermist agenda. In such a case, philanthropists use the lack of formal accountability to allocate goods against the democratic consensus, enforcing this allocation with the full backing and power of the state.

Second, foundations lack transparency: they have no legal requirement to explain the reasons for their actions. Although many major foundations do publish annual reports, this is purely voluntary, and the reports may contain exactly those details which the foundation considers important. Some are rather lax about reporting. For example, here is the entirety of the Musk Foundation’s website.

That isn’t an excerpt. It is literally the entire website. On such a slim basis, how is the public to understand what the foundation does with (at least) hundreds of millions of dollars? How are its decisions made?

Although effective altruists have been admirably transparent in explaining the motivations for many of their short-termist funding decisions, effective altruists have recently spent a good deal of money on longtermist causes and organizations with little formal explanation, and certainly nothing like a cost-effectiveness analysis. This is legally permissible, because there is no formal requirement for effective altruists to explain themselves, or to construct explanations which the community at large would find convincing.

A lack of transparency comes into conflict with the democratic ideal that public goods should be allocated on the basis of processes that are transparent and open to all.

5. Tax policy

Just stop talking about philanthropy and start talking about taxes.

Rutger Bregman, remarks during panel, “The cost of inequality”

Even if you think that billionaires should in principle have the right to spend their money as they please, this should not compel you to endorse modern forms of elite philanthropy. One problem is that tax policy amplifies the spending power of elite philanthropists by exempting them from a number of taxes, effectively providing a public subsidy for elite philanthropy.

In many countries, donations coming in to foundations are exempt from income tax, or even capital gains tax on the assets used to fund them. Foundations themselves are often exempt from taxes on property and capital gains, allowing them to build and hold wealth over time. More subtly, foundations are exempt from the inheritance taxes used to break up large individual fortunes, since foundations cannot die.

If public money is being used to amplify the spending power of philanthropists, then it is no longer obvious that the public should have no say in what philanthropists fund. After all, it is not just their own money that philanthropists are spending. In a very real way, they are spending the public’s money as much as their own.

A second problem is that within democratic societies, elite philanthropy can be used to mask an uncomfortable truth: many of the wealthiest members of society are not paying their fair share of public expenditures. Philanthropy allows many billionaires to provide the appearance of fairness, even generosity, even while paying much less than society expects them to pay. For example, an investigation by ProPublica looked at the percentage of income paid to income tax by American wage earners. They found that while this percentage rises for middle income earners, the highest income earners actually pay substantially less income tax than many lower income earners.

Effective income tax rate by annual income
Effective income tax rate by annual income, Analysis by ProPublica

The same analysis also found that tech billionaires, among the largest contributors to effective altruist projects, paid less income tax than billionaires in other sectors.

Effective income tax of top 400 earners by sector, Analysis by ProPublica

In this vein, we must not forget that the opening of the FTX foundation coincided with the movement of FTX into the Bahamas, a notorious tax haven. While we should rightly praise billionaires such as SBF for taking the opportunity to engage in philanthropy, we should also be mindful of their attempts, often blatant, to reduce their public contributions by avoiding taxes. When we take the measure of billionaire philanthropy against tax avoidance, philanthropy often begins to take the appearance of something more like a palliative or a smokescreen than a concerted and costly effort to give back to society. All too often, philanthropists toss society a few pennies while keeping dimes on the dollar away from the tax man.

6. The case for philanthropy in democratic societies

So far, we have seen that there are at least three serious tensions between elite philanthropy and democracy:

  • Elite philanthropy leads to a plutocratic bias in public decisionmaking, which in turn confers illicit personal power on philanthropists.
  • Elite philanthropy is unaccountable and lacks transparency.
  • Philanthropy exploits generous tax subsidies and often masks failures to contribute to public expenditures.

However, most commentators think that it would also be going too far to deny that philanthropy has an important role to play within democratic societies. Why might a democratic society want to make room for foundations?

One reason to make room for philanthropy is that philanthropists can take a long-term vision of society’s needs. There are many institutional and motivational reasons why democratic political decisionmaking tends to be biased towards short-term needs. When properly managed, foundations can take a longer-term view, providing a much needed corrective for political short-termism. Indeed, it is perhaps primarily on these grounds that Rob Reich, himself no friend of many contemporary philanthropic foundations, singled out the Future of Humanity Institute in his 2018 book Just giving as an example of a worthy philanthropic foundation. While I am not sure whether Reich would stick to that assessment given subsequent developments, Reich has a point: effective altruists aim to provide a long-termist perspective that is, within bounds, sorely needed in democratic societies.

Another reason to allow philanthropic foundations is that they can function as a check on the tyranny of the majority. Democratic governance often makes it difficult for unpopular views, groups and approaches to influence policymaking. By allowing public goods to be provided not only by the government, but also by a range of philanthropic foundations, we make room for many different perspectives to be included in the allocation of public goods, even if those perspectives are unpopular.

Relatedly, a broad playing field of philanthropic foundations bolsters experimentation by allowing societies to try out many different models for public good provision on a small scale and observe the results. The most successful models can thus be implemented on a larger scale.

All of this suggests that democratic societies should not be opposed in principle to philanthropy, even elite philanthropy. But we might want to shape policy in a way that curbs some of the worst tensions between philanthropy and democracy.

7. Implications for philanthropy

What follows from this discussion? At least four classes of implications are worth exploring.

First, we should seek ways to increase accountability and transparency of philanthropic decisionmaking. Insofar as philanthropists are involved in allocating public goods and doing so with the generous support of public institutions and public funds, citizens of democratic societies have a good case to have a voice in how funds are allocated. This may mean limiting donor discretion to make arbitrary decisions about how funds are spent, and increasing transparency requirements for foundations to explain and justify their decisionmaking to the public. That could spell trouble for longtermists in particular, who exercise substantial discretion to allocate resources in unpopular ways with little in the way of explanation.

Second, the tax code needs an overhaul. The amount of public money being used to subsidize elite philanthropy is historically unprecedented. This money is being used to amplify the power, influence and agendas of the wealthiest and most influential members of society. None of the arguments just given for allowing philanthropy to have a role in democratic societies could be used to support anything like the current tax-favored status of philanthropic foundations, and it is likely that this status is morally unsupportable.

Third, we need to make sure that legal features of philanthropic foundations are specifically justifiable by appeal to the roles that we want philanthropic foundations to serve in a democratic society. For example, to say that philanthropy allows society to take a long-term vision must of necessity justify a long lifespan for philanthropic foundations, but by what right is that lifespan unlimited, allowing the dead hands of donors to dictate the lives of their distant descendants? And if we want philanthropy to serve as a check on the tyranny of the majority, then why should we so generously support elite philanthropists who already exercise an outsized voice in public decisionmaking?

Finally, our reaction to elite philanthropy must be colored by a background of social critique. The rich are getting richer and the poor are getting poorer. Many of our most fundamental institutions are increasingly structured to the advantage of the wealthiest members of society, who are growing ever richer and more influential even in the supposedly democratic arena of public policy. Wealthy individuals are increasingly finding ways to pay less than their fair share towards the public purse and often use philanthropy in part to be perceived as benefactors instead of tax cheats. None of this is to suggest that all billionaires are bad, or that society is fundamentally or irredeemably corrupt. But even as we genuinely praise philanthropists for their efforts to give back to society, we must not forget the social, political, financial and institutional context against which these donations take place.

What else might we conclude about the place of philanthropy within a democratic society? Are there other sources of tension or complementarity? Perhaps I have missed some important justifications for current attitudes and practices towards philanthropy within democratic societies. Let me know what you think.


8 responses to “Billionaire philanthropy (Part 2: Philanthropy and democracy)”

  1. Richard Avatar

    Hi David, I’d be curious to hear a bit more about some of the value assumptions underlying this post. You advert to various “democratic ideals” that strike me as highly questionable (and not essential to the core functions of representative democracy per se). I’d ideally want to see some kind of evidence that trying to implement those specific “ideals” would actually lead to better results. Do you think this is obvious? Or do you think the “ideals” ought to be implemented even if they (predictably?) lead to worse outcomes?

    For example, you assume that a lack of “accountability” is bad. But that isn’t obvious to me. As a liberal, I generally prefer for people to be able to exercise autonomy (at least in ways that don’t violate others’ rights) without needing to first ask others’ permission, or face risk of punishment (“legal recourse”) if others disagree with their choices. I don’t trust political mobs, and the idea of politicians exercising oversight over philanthropic decisions sounds disastrous to me. (You can imagine how Trump or DeSantis would exploit this, right?) Often the “democratic consensus” is stupid and/or evil, and in such cases it’s straightforwardly good that there are philanthropic resources beyond the control of the demagogues.

    re: Transparency, again, given the general distinction between what is good and what sounds good to ignorant masses, I think it’s very much an open empirical question just how much transparency (and in what forms) would be best. Do you agree that this is an empirical question? And if so, what’s the evidence that more transparency surrounding longtermist funding (for example) would have better results?

    I’m often struck by how (lefty) discourse on this topic often combines extreme cynicism about wealthy philanthropists with wide-eyed idealism about politics and politicians. It’s a weird combination. At least, I find it weird. Do you think it makes sense? If so, why?

    > “If public money is being used to amplify the spending power of philanthropists, then it is no longer obvious that the public should have no say in what philanthropists fund.”

    Hmm, I don’t think it’s legit to choose to subsidize another’s activity, and then suddenly turn around and demand control over them on the basis of these past gifts. If the public doesn’t want to amplify the spending power of philanthropists, then they should simply stop doing that. If billionaires still have too much money, then tax them more. Don’t encroach on people’s autonomous control of their post-tax dollars.

    > “All too often, philanthropists toss society a few pennies while keeping dimes on the dollar away from the tax man.”

    How often do “philanthropists” donate less than they avoid through tax loopholes? Do philanthropists engage in more tax evasion than comparably wealthy (but non-philanthropist) peers? If not, what’s the connection between the two topics? People talk about philanthropy as a “smokescreen”, but most wealthy people evidently feel no need for any such smokescreen for their greed. Do we really want to selectively attack just those wealthy people who are also philanthropists? What’s the motivation for this?

    > “None of the arguments just given for allowing philanthropy to have a role in democratic societies could be used to support anything like the current tax-favored status of philanthropic foundations, and it is likely that this status is morally unsupportable.”

    Isn’t the most obvious argument just the straightforwardly utilitarian one that *philanthropy does more good than other forms of spending, and so it’s worth incentivizing through the tax code*? Do you think it would do more good for would-be philanthropists to instead donate to the US Treasury (or their national equivalent)? This seems like a pretty crucial question to explicitly address!

    1. David Thorstad Avatar

      Thanks Richard! As always, it’s good to hear from you.

      ((Main thread)) I think it is very important to distinguish two questions: (a) to what extent current practices of elite philanthropy are compatible with democratic ideals, and (b) to what extent societies should strive to realize democratic ideals.
      I think that much of what you say can be construed as questioning (b), the extent to which societies should strive to realize democratic ideals. To draw on a distinction “between what is good and what sounds good to ignorant masses” is to express some skepticism about the wisdom of democratic decisionmaking. And I think you mean to make that skepticism explicit when you ask for “some kind of evidence that trying to implement those specific `ideals’ would actually lead to better results”. So in this vein, I think that much of our disagreement turns on (b), the extent to which allocating public goods in a way that is more transparent, accountable, and participatory would be a good thing.

      I think this provides some evidence that I may be right to locate the tension between effective altruists and their opponents as a debate about the degree to which societies should strive to realize democratic ideals.

      As you know, democratic ideals can be given both intrinsic and instrumental justification. We are (I think) in agreement that the instrumental justifications should be emphasized, and that instrumental justifications raise empirical questions that cannot be settled from the armchair.

      I am curious to hear what you think of existing instrumental arguments for democracy (wisdom of crowds; diversity trumps ability theorem; jury theorems; social epistemology and psychology of group deliberation; …). Do you think that these arguments suffer from major objections? Or is the thought that most of these arguments could be used to support a system in which many public goods are allocated outside of standard democratic processes?

      ((First smaller point: subsidies)) I think we may agree on that main point, that the current degree to which philanthropic endeavors are publicly subsidized is indefensible. I do tend to think that, to the extent to which the public is subsidizing a practice, the public has a good case to have a say in that practice. But I also don’t know that this disagreement would come to much if we both agree that the subsidies need to be reduced.

      More generally, I think (correct me if I am wrong) that I hear a lot of agreement with the Bregman worry (“Just stop talking about philanthropy and start talking about taxes.”). I take it the thought is that what critiques of philanthropy really ought to say is that we could get rid of the problem by taxing philanthropists so that the government could spend their money on public goods directly. I have some sympathy for the thought that one of the best thing we could do today to fix the problems discussed here is to raise taxes on the highest income earners and to close tax loopholes.

      ((Second smaller point: Smokescreens)) I think it can be productive to distinguish two questions about philanthropy: (c) what philanthropists intend to achieve with their donations, and (d) what effect those donations actually have in society.
      Sometimes, philanthropy is used as a smokescreen in sense (c): people who made their money in questionable ways use philanthropy to clear their name. Names like Alfred Nobel come to mind here. But you are right that (c) is often not the right place to locate the worry.

      From the broader standpoint of cultural critique, the smokescreen worry is (d): what philanthropy in fact does is to make us love and thank the very people who are impoverishing us (and the system they are a part of). We can think that many of these people are kindhearted people, and even that some dislike their social roles (Warren Buffett has famously and repeatedly demanded to be taxed as a higher rate). But I think all of this is compatible with the worry that one of the most significant social consequences of elite philanthropy is to rehabilitate the image of elite philanthropists and to suppress calls for social reform.

      These consequences can be deeply worrying even from a purely consequentialist perspective, insofar as you think that reforms might need to be made. Mine is the first generation in more than a century that does not always expect to be better off than our parents, and we are increasingly losing our beliefs that hard work can lead to a better life, that capitalism is meritocratic, and that society is on a good course. (All of this is visible from polling data). From such a stance, anything that tends to obscure the need for social reform can look to have negative consequences which might outweigh the direct societal benefits of philanthropy.

      ((Third smaller point: Direct donation) In closing, you ask whether I think it would often be better for philanthropists to donate directly to the US treasury. The answer is yes, with caveats. First, I don’t think this would always be better, since as I mentioned there are justifications for making room for philanthropy within a democratic society. Second, I think it would be much better to donate to the treasuries of developing nations. But with those caveats, yes, I do think it would often be better if philanthropists were to donate their money to governments rather than dictating themselves how the money is to be spent.

      1. Richard Avatar

        > “I am curious to hear what you think of existing instrumental arguments for democracy (wisdom of crowds; diversity trumps ability theorem; jury theorems; social epistemology and psychology of group deliberation; …). Do you think that these arguments suffer from major objections?”

        My main thought here is just that we know full well that voters regularly make terrible decisions (e.g. Trump, Brexit, etc.). So any model-theoretic argument that crowds meeting certain conditions should be wise is clearly inapplicable to the reality we live in; we can argue about which precise model-theoretic assumption is to blame (e.g. maybe the problem is most voters have outright bad values), but there’s no need to get into the weeds when it’s already as plain as day that the model is hopelessly inaccurate. (You don’t really think electing Trump was a wise collective decision, do you?)

        Given this background knowledge, I think we should be wary of extending democracy’s reach beyond its core role of selecting non-tyrannical governments and “kicking the bastards out” when they mess up sufficiently badly. For an extreme example, it would obviously be a terrible idea to outsource your major life decisions (where to work, who to marry) to a vote of the general public. Similarly, if you compare US budget priorities to Open Philanthropy, I think it’s just *very obvious* that the latter organization does a better job, and any legal/institutional changes that tried to make Open Philanthropy more beholden to politicians risk doing far more harm than good.

        Of course, I think much more highly of OP than of most foundations. Maybe the average foundation is even worse than the US government? I’ve no idea. To answer that, I think we’d need to evaluate how they actually spend their money. It’s certainly not a priori that the US govt does better, so the sorts of aprioristic modelling arguments you’re relying on here don’t strike me as fit to task.

        > “I take it the thought is that what critiques of philanthropy really ought to say is that we could get rid of the problem by taxing philanthropists so that the government could spend their money on public goods directly”

        Right, though this is conditional on the critiques being well-grounded in the first place. Personally, I suspect that philanthropy on average does better than government spending on the margin, and so expect that removing the charitable tax deduction would be a bad thing. But it’s an empirical question, and one that I think should be answered by looking at their actual spending.

        I do think higher consumption taxes (esp. on luxury goods, whatever most billionaires end up spending their money on) would be a good idea. But I’d especially want to target billionaires’ *non-philanthropic* spending.

  2. Jason Avatar

    [This comment is from a US perspective, since that’s where I live / what I know.]

    Regarding political contributions / lobbying: It’s worth noting that — at least in the US — these are generally not tax-deductible activities. So while there are definitely concerns about billionaire political activity, tax policy toward charitable contributions is not one of them. I’d also note that — apart from SBF — EA as a movement has tended not to throw a bunch of money at partisan political activity. This problem is also not particularly solvable under current US constitutional law norms in effect since 1976. See Buckley v. Valeo, 424 U.S. 1 (1976).

    More generally: Longtermism isn’t my jam. However, I think the expenditures have to be viewed in the context of the larger US charitable spend. Once you clawback most or all of SBF’s money, the EA spend on longtermism has been less than $100MM in most years. See https://forum.effectivealtruism.org/posts/ZbaDmowkXbTBsxvHn/historical-ea-funding-data. In other words, that amount been less than half the donations to a single opera organization in New York for a year. See https://projects.propublica.org/nonprofits/organizations/131624087 .

    The whataboutism is actually the point here. We all have our ideas about inappropriate or low-value charitable activities. It’s extremely difficult to write tax policy in a principled manner that systematically targets “unworthy” charitable goals, even if there were a consensus about what goals were “unworthy.” Much more likely would be an attempt to weaponize the tax code or accountability rules to go after minority viewpoints (and by minority, I mean those disproportionally shared amongst members of the political party that is out of power). That’s a road I am very hesitant to go down.

    That leaves us with reducing billionaire philantrophic spend (BPS) by removing some or all tax incentives or advantages. That will move some money from BPS to the public fisc, but also some from BPS to billionaire self-centered spend. I’m open to the view that the benefits of such a policy change outweigh the costs, although the costs would be fairly considerable. I suspect the answer would depend in part on the marginal tax rate applied to the relevant billionaires.

    Finally: As a logical matter, to the extent society comes around to your charitable-tax-policy arguments, your accountability/transparency arguments will get less convincing because they are dependent on the indirect public support for tax-deductible charitable activity. No tax deduction, no greater public right to accountability/transparency in Joe Billionaire’s “charitable” activities than his ordinary ones.

    To be clear, I think you’ve identified some real problems here — but I feel that most of them have more to do with billionaires in general than billionaire philantrophy per se.

    1. David Thorstad Avatar

      It’s good to hear from you Jason!

      That’s a nice observation about tax policy regarding political donations in the United States. It is good to see governments getting this aspect of tax policy right.

      You make an important and often neglected point about longtermist funding: a large part of it came from a single source. This raises serious questions about the role of donor discretion within effective altruism. In theory, effective altruists are committed to using reason and evidence to identify and fund the most worthwhile interventions. In practice, the movement took a hard turn towards longtermism in recent years, and it’s worth asking how much of that turn was driven by the availability of funding, rather than by the possession of a knockdown argument for longtermism. (My current plan is to talk about donor discretion in Part 4 of this series).

      I share many of your sympathies about weaponizing the tax code to target specific sorts of charities. I don’t think it would be a good form of oversight, in many cases, to use judgments of worthiness to decide nonprofit status. There are other forms of oversight that may be less threatening, including voluntary oversight brought on by foundations themselves. For example, Rockefeller initially proposed to grant permanent seats on the board of his foundation to the presidents of several major universities, rotating as the presidencies changed.

      You are definitely right that one part of the argument for transparency and accountability has to do with tax policy. In his book, American Foundations, Mark Dowie recounts an amusing anecdote in which George Soros brought discussion on a contentious issue to a close: “This is my money,” he said, “we will do it my way.” A junior staffer objected: “No it isn’t … half of it is ours … if you hadn’t placed that money in OSI or another of your twenty-five or so foundations, sir, about half of it would be in the treasury … it would be ours.”

      I don’t know that the whole force of the appeal to transparency and accountability has to do with taxation. The public has an interest in understanding how powerful actors within society operate. This gives us the power to regulate entities such as corporations, not because they are holding our money, but because their decisions affect us. In general, we expect and receive far less transparency and accountability of foundations than we do of their nonprofit counterparts. (Can you imagine the Musk Foundation’s website as the website of a major corporation?). I think it is high time that our expectations changed.


    Interesting post David. I don’t think what you have said about inequality is correct here.

    You say “As you can see, real incomes have fallen for the vast majority of the population, but skyrocketed for top income earners.” This is not what the Piketty chart shows. It shows positive income growth for everyone above the 5th percentile in the US. Median personal income in the US has increased by 86% since 1967.

    In general I find that income inequality statistics need to be treated with extreme caution. Statistics need to be adjusted for household size, healthcare costs, taxes and transfers, compositional changes (immigratation and emigration), inflation. I find once you account for all this, a lot of the claims about income inequality become less stark.

    You say “The rich are getting richer, and the poor are getting poorer.”. As we have seen, this is not true of the US. It’s also not true at the global level that the poor are getting poorer. Since WW2, global income inequality has declined especially due to growth in Asia.

    1. David Thorstad Avatar

      Thanks John!

      I did indeed mis-speak in glossing the Piketty chart. You’re quite right: for the vast majority of income earners, real income growth has been sluggish, but non-negative, so real incomes have risen, just not very quickly. I’m correcting this in the post now, with attribution. Sorry about that!

      I’m definitely happy to consider alternative ways to present income- and wealth-inequality statistics. Do you have some adjustments in mind?

      As you say, growth in Asia has done wonders for income- and wealth-inequality across countries. Countries that were previously among the world’s poorest are now among the world’s richest, or well on their way to that status. This is a very good thing.

      When we talk about the relationship between philanthropy and democracy, it is usually most helpful to consider units no larger than a single country, since democratic governance does not extend further than this. The point of Section 2 was meant to be that in many countries, income and especially wealth are becoming increasingly concentrated in the hands of a few wealthy households. This poses a threat to democracy, because wealth not only provides its own type of power and influence, but also can be used philanthropically to influence political outcomes. I’d be happy if readers took that point away from Section 2 more than anything else.

      1. John Halstead Avatar
        John Halstead

        I think it is just very hard to have much confidence in a lot of income inequality stats. I have found after looking into these things that a lot of conventional wisdom turns out to be wrong. e.g. not clear that the US is richer than other countries when you adjust for hours worked; inequality doesn’t seem to have increased in the UK since 1990 on many measures. I would be especially cautious citing Piketty’s stuff as I think it is particularly unreliable.

        A paper recently accepted in a top econ journal find little change in the income share of the top 1%, contra Piketty.


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