We Can Spend Billionaires’ Money Better Than They Can
During the first two months of the coronavirus shutdown, between March 18 and May 19, while millions of Americans lost their jobs and their homes, the total net worth of America’s billionaires rose by over $434 billion. This has prompted many, me included, to bring new urgency to calling out massive wealth inequality in America. I have personally been sharing a lot of content on social media about how unjust it is for just 600 individuals to have accumulated and hoarded such insane levels of wealth — especially as they continue to get richer at a time when most Americans are struggling.
This has led to questions and comments from friends and family about whether or not the government can really spend billionaires’ money better than they can. Given that the ultra-rich are unlikely to give away enough of their money and that there is no accountability at all as to where that money goes, I think the answer is yes.
Before I begin clarifying my argument here, I should acknowledge the primary assumption underlying this discussion: that there are more socially optimal ways of allocating vast sums of money than to have one person (or family) sit on it. While debating this assumption may be an interesting conversation, that is not the discussion you will find in this article. Instead, I take as a given that there are better ways to allocate, say, $60 billion, than to have one person hold it all. This leads to the question of who is best equipped to redistribute some share of that wealth: the billionaire themselves or society acting via the mechanisms of government?
Under the first of these options, that the billionaire them self is best poised to allocate their wealth, two primary concerns seem to arise. First, that the individual will not give away enough of their wealth. Second, that the money that is given will not go to the right places.
I. Billionaires won’t give away enough of their wealth on their own
It seems fairly obvious that billionaires, if left to their own devices, will not give enough of their money away to achieve anything near a socially optimal allocation of resources. In 2018, the ten wealthiest Americans gave on average only 0.94% of their wealth to charity. A recent Washington Post survey of the nation’s fifty wealthiest individuals found that more than a third of respondents did not announce or report any charitable giving whatsoever, and that the cumulative amount donated across the group amounted to less than 0.1% of their aggregate worth.
Even the most generous of the ultra-rich still routinely donate just slightly more than 1% of their wealth each year. Thus, even with tax deductions that can incentivize charitable giving, the ultra-wealthy still choose to give relatively minuscule shares of their wealth away. This is certainly far less than the socially optimal amount of reallocation.
II. Billionaires are unaccountable and may give their money to the wrong places
Even if we were to assume for a moment that multi-billionaires did give away enough of their money, there is still the deeply troubling lack of accountability as to where that money goes. In the best of cases, it may go to projects with effective altruist intentions like providing mosquito nets to regions suffering from malaria. However, for every “good” giver there are many more examples of the ultra-rich using their money for ideological political aims or even personal vanity projects.
Take the DeVos family, worth over $5.4 billion. Since 1999, they have used the power associated with that level of wealth to wage a war on Michigan’s public schools. They used their money, through supposedly charitable giving, to help fuel the growth of charter schools over decades as Michigan’s educational outcomes continued to decline. In neighboring Wisconsin, Diane Hendricks used her billions to help Scott Walker decimate and destroy public sector unions in the state.
These examples merely begin to scratch the surface of how fundamentally American politics have been shaped and restructured because of “giving” from the ultra-rich. From the Koch Network to how the Olin Foundation reshaped the judiciary into its current conservative state, billionaires have used their charitable contributions to curve the arc of history in their favor. And then of course there are also the more absurd projects billionaires have funded; from attempting to clone dinosaur DNA to recreate Jurassic Park or building a fiercely religious town in Florida to having your name carved into the earth to be visible from space. As a progressive, I obviously think that these kinds of contributions have made the world a worse place. But putting politics aside, what should be disturbing to everyone is the lack of democratic accountability in how such vast society-changing sums of money are being spent.
The government, for all its flaws, would necessarily have more democratic accountability built into how funds are allocated and spent. Similarly, the nature of taxation undoubtedly means more can be reallocated from billionaires than they would voluntarily give away. In order to overcome this first hurdle of redistributing enough money, a wealth tax is likely needed as the ultra-rich do not get their billions through traditional wage income. Alternatively, some form of significantly heightened capital gains and estate taxes could help get at the same problem of wealth-hoarding.
How this tax regime is structured will influence where the money goes. But, to oversimplify things, let us assume for now that the money from higher taxes on the ultra-wealthy will all go to the general Treasury Department coffers.
Most federal government spending is non-discretionary, meaning it goes to entitlement programs like Social Security and Medicare. Together, Social Security and combined healthcare spending on programs like Medicare, Medicaid, and CHIP account for about half of the entire federal budget. As research from the post-ACA Medicaid expansion states has shown, these programs improve economic mobility, health outcomes, and financial security. This is putting tax money to good use as programs like Social Security and Medicare are redistributive by nature and they alleviate poverty. Social Security alone is responsible for preventing 21.7 million Americans from falling into deep poverty.
The rest of the federal government’s spending (minus the 8% that goes towards debt servicing) goes to discretionary spending. Most of this share is defense spending, but it also includes federal dollars for infrastructure projects, transportation, and education. The varied nature of where federal dollars goes means that everyone can find something they disagree with. But everyone can also find lots of money going to admirable programs that truly make a difference in people’s lives.
Therefore, the government can fairly easily redistribute more of a billionaire’s money than they would give away themselves, and much of that money will go to genuinely beneficial programs even as things stand today — meaning, that does not even consider the new programs we could fund with higher taxes on the ultra-rich. Elizabeth Warren and Bernie Sanders made this argument during the 2020 Democratic Primary when they rolled out their respective wealth tax plans.
Allowing billionaires to decide where to spend all of this money means that there is no accountability for how power is exercised in our society. If such an immense share of our nation’s resources can be spent or saved at the whims of an individual, we will inevitably lose out on all of the good that can be done with that money. To envision a better future in which everyone can truly thrive, we need to think boldly and collectively.
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