The Super-Rich Skate Around Paying Income Tax. Is Philanthropy Complicit?
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Jeff Bezos’ “true tax rate” has been as low as 0.98%, according to a recent ProPublica investigation. lev radin/shutterstock
Last week, the nonprofit investigative newsroom ProPublica published a story titled “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.” In the time since, its revelations have provoked plenty of debate, further heightening an atmosphere of both fascination and outrage surrounding America’s wealthiest denizens.
In short, an anonymous source revealed to ProPublica just how little annual income tax many of the highest-profile super-rich get away with paying. Some ultra-wealthy, like frequent wealthiest human being Jeff Bezos, paid no income tax at all in certain years, even as they accumulated billions in assets.
Singling out a cast of familiar figures like Bezos, Warren Buffett, Michael Bloomberg and Elon Musk, the discussion contrasts their fully legal tax avoidance strategies—paying so-called “true tax rates” well under 5% and often under 1%—with comparatively hefty tax burdens placed upon the middle class.
The article goes on to outline the methods these captains of industry use to limit and sometimes negate their tax burdens, which include borrowing against their ballooning assets (and deducting the interest), as well as—you guessed it—deductions for philanthropic giving.
To be fair, philanthropy occupies something of an ambiguous position in ProPublica’s piece. On one hand, it’s just another handy tax avoidance mechanism—“Many of the richest create foundations for philanthropic giving, which provide large charitable tax deductions during their lifetimes and bypass the estate tax when they die.”
On the other hand, philanthropy also appears repeatedly as a kind of public relations palliative to make up for legal tax avoidance by the super-rich. Buffett, on the record for advocating higher taxes on people like himself, has at the same time maintained that he believes his fortune “will be of more use to society if disbursed philanthropically than if it is used to slightly reduce an ever-increasing U.S. debt.”
Those of us who keep an eye on these matters know that the place of philanthropy in the lives—and pocketbooks—of the super-rich varies with the philanthropist. And at its core, this is a story about public obligation, not private largesse. Nevertheless, ProPublica’s airing of this dirty laundry does shine a light on uncomfortable truths about the place of charitable giving in American life.
Striking, but unsurprising
Though framed as startling revelations, ProPublica’s findings aren’t really that shocking. As investor Carl Icahn put it in an interview with ProPublica, “There’s a reason it’s called income tax.” Income tax targets income, not wealth, and the vast majority of asset gains accruing to the super-wealthy aren’t taxable until they’re traded. Through charitable deductions, creative borrowing and a host of other means—many on display in last year’s Trump tax revelations—the very wealthy have long been known to deflate their annual incomes for tax purposes.
The power of ProPublica’s story lies less in the idea that the wealthy play by a different set of rules—pretty much common wisdom at this point—and more in its meticulous and graphic-laden presentation of the details of that disparity.
From 2014 through 2018, the article notes, veteran philanthropist Michael Bloomberg’s wealth jumped by a full $22.5 billion. But during the same period, he paid a relatively paltry $292 million in tax, putting his “true tax rate” at 1.3%.
Bezos’ staggering accumulation of $99 billion over the same period resulted in a $973 million tax bill, putting his rate at 0.98%. Despite his pro-tax stance, Buffett’s rate was lower still at a measly 0.1%. That is, $23.7 million against a wealth gain of $24.3 billion. One dollar for every thousand.
Almost more damning than the numbers were choice tidbits like the revelation that in 2011, Bezos reported a loss and thus claimed and received a $4,000 tax credit for his children, despite a net worth at the time of around $18 billion.
The picture this paints of the nation’s most prosperous is a deeply unflattering one, and high-profile critics of the wealthy were quick to jump into attack mode. In an op-ed in which he used the report to savage “the myth of the good billionaire,” Anand Giridharadas brought philanthropy into the debate more pointedly than ProPublica did in the original piece.
“It’s easy for people to think… If only the billionaires who haven’t signed the Giving Pledge would give away as much as Mr. Buffett has pledged to, imagine the impact on the world,” Giridharadas wrote. “So I regret to inform you that Mr. Buffett is actually the most dangerous kind of billionaire we have. The worst billionaires are the Good Billionaires. The sort who make it seem like the problem is the distortion of the system when, in fact, the problem is the system.”
MacKenzie Scott appeared fully aware of that strain of criticism yesterday as she unveiled the latest chapter in the biggest ongoing story in big-donor philanthropy. “The social structures that inflate wealth present obstacles to [those struggling against inequity],” she wrote, going on to say that “we are governed by a humbling belief that it would be better if disproportionate wealth were not concentrated in a small number of hands.”
A tax strategy or a PR move
The unfortunate fact is that in acknowledging the systemic roots of her fortune and their downsides, Scott is in a small minority of mega-donors. She’s also in the minority not only in terms of the magnitude and speed of her giving, but also, as far as we can tell, in her high level of personal engagement with it.
While plenty of well-off givers (retired ones in particular) devote a great deal of their time to charitable enterprises, the super-rich figures in ProPublica’s report—and others like them—haven’t been as forthcoming. Though Buffett is highly regarded as a man of charitable intentions, his decision to cede the day-to-day business of his giving to the Gates Foundation suggests a personal preference to spend his remaining years attending to the affairs of Berkshire Hathaway.
In the same vein, both Bezos and Musk appear to find more day-to-day fulfillment in matters extraterrestrial than in the humdrum business of earthly charity. In one memorable 2018 tweet, Musk outlined his giving plans with characteristic space-age aplomb: “About half my money is intended to help problems on Earth & half to help establish a self-sustaining city on Mars to ensure continuation of life (of all species) in case Earth gets hit by a meteor like the dinosaurs or WW3 happens & we destroy ourselves.”
In these and so many other instances, we’re left with the uncomfortable suspicion that the axis upon which many of our professional lives turn, philanthropic giving, is a matter of relatively minor concern to these ultra-wealthy whose offhand decisions can make or break nonprofit budgets. But should that be surprising? These are private sector business people, after all, not nonprofit veterans. However monumental their fortunes, they still have only 24 hours a day to work with, and philanthropy might not be top of mind.
Why mention this? Simply because it’s hard to get around the fact that for at least some of the very wealthy, philanthropy is, for all practical purposes, either a tax matter or a PR matter, at least until some indeterminate point in the future when they’ll pay it more heed. Even taxes themselves are likely nothing more than a background nuisance for these men more concerned with building rockets than with the niceties of the public-private social contract. I’d be willing to bet Jeff Bezos wasn’t even aware he took that $4,000 child tax credit—that it was the act of some anonymous accountant doing what they were paid to do.
Ready for redistribution
Critics like Giridharadas and others have a point when they ask whether it’s ethical for billionaires to exist in the first place. But folks like Phil Buchanan of the Center for Effective Philanthropy also have a point when they maintain that we must first take the world as it is. As problematic as it may be that we need philanthropy as much as we do, nonprofits and the funders that support them can make a difference on any number of pressing problems.
To the latter point, it bears repeating that with few exceptions, the super-rich are quite a stingy bunch who could do with some poking and prodding to get their actual giving to live up to their grand philanthropic pledges. Take the Forbes 400’s mostly unimpressive 2020 philanthropy scores, or mega-givers’ meager showing on COVID relief in 2020. Steps to encourage more billionaire giving, even at the risk of further expanding billionaire influence in the public square, are arguably better than letting the current warehousing of wealth continue.
There are a number of steps currently under consideration—or at least under discussion—to compel billionaires to pay their fair share. Most notably, progressive legislators have championed various forms of wealth tax, and federal lawmakers are now taking seriously a measure to mandate donor-advised fund (DAF) payout and lessen what some have called the “Fidelity effect” on charitable giving.
The point most commonly raised in opposition to such measures, in philanthropic circles at least, is that they would depress charitable giving by the very wealthy. Certainly, that would be a result where some givers are concerned. But it might also be much ado about nothing.
Would a wealth tax of 1% or 2% really destroy the charitable impulses of a class of citizens whose wealth is expanding at rates far exceeding that? Would a 15-year or—come on—a 50-year DAF distribution mandate offset the benefits DAFs confer to donors who have already forever renounced their actual ownership of those funds? It seems unlikely, especially in a world where philanthropy represents the most obvious outlet for vast accumulations of capital that are growing vaster by the day.
The ProPublica investigation is yet another reminder that philanthropy under current rules is often used as a tool to help the wealthy avoid paying their fair share—either as a tax strategy or a PR move. But it doesn’t necessarily have to be that way. Unless it’s something as drastic as doing away with the charitable tax deduction—unlikely to say the least—any step to shift philanthropy from a means of tax avoidance to something actually redistributive could go a long way toward making the sector a more beneficial—and trusted—force in society.
