Last year two of the richest individuals in the world, Warren Buffet and Bill Gates, announced they intended to donate over 50% of their wealth to charity. Since that time at least 57 people, with an estimated total net worth of at least $320 billion, have joined this group. For more information, one may view their website “The Giving Pledge,” or view the Wikipedia data which includes links to biographical sketches on most of the group’s members including estimates of their individual net worth. Here are some of the well-known individuals who have signed The Giving Pledge:
It is hard to dispute the good intentions that undoubtedly motivate these altruistic decisions. But what happens if all the wealthy people in the United States decide to give away their fortunes, instead of subjecting them to the estate tax? How much revenue is denied the federal government by virtue of these decisions? The table below calculates that at the current marginal estate tax rate of 45%, if the current members of the billionaire givers club fulfill their pledges, at least $72 billion will be denied the federal treasury via the estate tax.
To put this in perspective, the next table calculates how much taxpayers who are not members of the billionaire givers club, those Americans who are neither billionaires, nor even millionaires, will have to pay in taxes in order to cover the $72 billion that the billionaire givers club has denied the U.S. treasury.
The sum of $720 probably doesn’t seem like much to a billionaire, and, of course, this is a one-time hit based on an estate tax, not an annual assessment. But how big is this group going to get? How many more billionaires will divert 50% or more of their entire fortunes to philanthropic entities and deny the federal government the estate tax? What happens when this club grows 10 times bigger?
Another relevant question hinges on who would decide what these billionaires are doing is desirable, and why. A libertarian would certainly applaud any decision to replace compulsory taxes with voluntary philanthropy. But what about activist Democrats who are participating in the billionaire givers club? How do they reconcile themselves to the fact that the actions of their club will essentially impose a regressive tax on people who aren’t as financially accomplished as they are? How do they justify taking this money away from the big-government programs that they support ideologically?
Sooner or later, the federal government of the United States will need to engage in spending that does not exceed revenues. Members of the billionaire givers club should recognize the consequences of their decision are not entirely positive, and they should be particularly aware of this moral ambiguity if they are big-government democrats.