If you have the kind of discretionary funds that Crazy Rich Asians do, or you’re the next Jeff Bezos, or you’re able to spend in the way Microsoft threw money at the issue of homelessness in Seattle recently, this is a plea to use your money wisely.
Over Valentine’s Day 2019, the hue and cry for taxing the rich gained another public acolyte: Sir Richard Branson. He actually said “…if you’ve become a billionaire because of what you’ve done…I think you have a responsibility to make sure that wealth is used to tackle the big problems in this world. If every entrepreneur can use their wealth in that way, most of the problems in the world can be sorted. I think entrepreneurs can be better at doing it than governments.”
The Billionaire’s Club
If you are in the billionaire’s club, the nearby graphic gives you an idea of where Branson stood in relation to his peers in 2017: not even on the chart. Yes: there’s income inequality even at the top. Some are calling this “the 0.001%.”
If you are part of America’s wealthiest 0.01%, your minimum annual salary is $18.9M and you have a net worth (wealth) north of $400MM. That sounds impressive, considering the huge disparity between you, the 0.01%, and the rest of what Occupy Wall Street used to call “the 1%,” whose net worth ranges from about $8M at the low end to about $40M at the high.
We could argue about this or extrapolate it worldwide but the point is how to motivate “the rich” to use their excess wealth wisely, regardless of how rich they are or where they reside.
So, who are the rich? Or, perhaps more accurately asked: what are the rich? Amazon is rich: in 2018 it earned $11.8B…and paid no taxes. Legally. Is Amazon using some of its earnings to tackle those “big problems in this world” Branson mentioned? It would be nice to think so….
While there are legitimate tax loopholes that incentivize the collective “very rich” people, corporations, foundations, and not-for-profits to do the right thing with their wealth, the last time America was in a similar economic situation was 1929, and we all ought to know how things played out back then: to the detriment of the 99.99%, government stepped in to fix things for good, just like it did during the Great Recession 90 years later. And yet, here we are…and now income inequality has become a worldwide issue, both for the real people in the 99% and the crazy rich in the 1%.
The real question
Instead of relying on government intervention, which is well-meant but incompetent to actually resolve anything for the 99%, how do we motivate those with wealth to help solve the problems of the world?
An interim answer must offer tax advantages for doing the right thing, and to do that, the government must relinquish some of its fiduciary responsibility for solving some of the world’s problems. That is, rather than taxing the rich, why not offer tax incentives for those entrepreneurs to risk their wealth on non-governmental solutions?
Social issues and government
Have you noticed that the government is imperfect? It’s difficult and messy to solve problems by deliberation, but that’s how specifically how America’s representative democracy functions. It doesn’t work fast, and the solutions it offers are imperfect because they don’t serve those outside the first standard deviation.
With all fairness and respect, neither socialism nor capitalism is perfect either.
But government – especially the part we elect – likes to claim that it’s reducing poverty (for example), but this claim is hollow given the rise of refugee Americans living on the streets in their own cities, the rise in auto and student loan delinquencies, and the fact that many employed Americans – especially those who work for the Federal government – are only one paycheck away from homelessness, too.
Why do Americans continue to enable the government to fix social problems? History has taught us that no amount of tax revenue is enough to find and fund a sustainable government solution. Exhibit A might be the military/industrial complex that fuels economies worldwide at the expense of manufactured worldwide wars. This is not sustainable.
Even non-governmental organizations that are effective serving the margins, nimble enough to respond to the changing demands of local demographics, and operate under severe cost-efficiency scrutiny, can find themselves suddenly cut off from a sustaining government grant at a moment’s notice when political winds change the government’s least-commonly-denominated mind.
Finally, our collective approach to social issues has become so politicized that objective, compassionate ideas rarely gain traction. Climate change is a great example.
None of this is good.
How can we fix it?
The non-governmental solution
Not-for-profits, which will receive about $25M of Microsoft’s pledge, are some of the most efficient and resilient organizations around. They do great things in niche markets very well. Many of them – the Red Cross, Doctors Without Borders, The Heifer Project – are sustainable. But they share a common restriction: government. Those great solutions might be scalable, except that tax codes keep not-for-profits small. This is a shame because the combined efforts of effective NGOs could resolve many of the issues politics-ridden government can’t.
Dan Pallotta has written about this extensively in his books “Charity Case” (a balanced and honest synopsis of which can be found here), and “Uncharitable: How Restraints on Nonprofits Undermine Their Potential.” Anyone concerned about the world’s collective use of funds for good would be well served to read both books and think deeply about them before blindly trusting the government with sustainable social solutions.
Doesn’t it make sense to unleash the potential for non-governmental organizations to solve problems the government can’t or won’t? Doesn’t it make sense to incentivize the use of stored-up wealth to leverage this opportunity? Let’s discuss it honestly, but doesn’t it make sense to remove government inefficiency from the solution?
The non-tax-advantaged solution
Microsoft will probably make a few bucks from its pledge to resolve homelessness. That’s fine, because without that profit initiative, we assume things would be worse, and there is a certain kind of equitable, righteous transactional exchange that motivates people and organizations. The bigger question is: how do we incentivize Microsoft to actually give more than 5% of that $500M to effective NGOs?
What can we collective offer Microsoft-sized contributors in exchange for their cash?
How could we use the tax code more aggressively to reward wealthy donors that do the right thing on complex, regional social issues, such as homelessness in Seattle? What would that reward look like? Would a reduction in other income taxes be enough? Amazon is still offsetting losses from prior years to legally pay no income tax; could a regional “loss” of affordable housing could be shared as tax credits to businesses that fund sustainable solutions to homelessness in their region?
Microsoft’s noble self-interest
Microsoft knows that employees who face a four-hour commute in order to have affordable housing aren’t going to be great workers, so it has a self-interest in doing the right thing about housing in Seattle.
“At some level we as a region are going to need to either say there are certain areas where we’re comfortable having more people live, or we just want to permanently force the people who are going to teach our kids in schools, and put out the fires in our houses, and keep us alive in the hospital, to spend four hours every day getting to and from work,” Microsoft legal officer Brad Smith told the Seattle Times. “That is not, in our view, the best outcome for the community.”
Do Microsoft and Seattle-area residents have the same self-interest? How can a mega-rich corporation and an hourly-wage worker have the same self-interest? Because it’s not about the money.
Tax-advantaged solutions focus on money, not the means. When intangibles such as quality of life are factored in, money becomes the means. This analogy works for health care, too, as the socialized democracies of Northern Europe would attest. Simply put, it’s more important in the long term for Microsoft to support a healthy Seattle infrastructure than for Microsoft to lower its tax bill.
But, for those who want to soak Microsoft and “the rich” with “their fair share” of taxes, this “solution” doesn’t work. That’s typical of our short-sighted government. Microsoft, after all, has an incentive to do something over and above what the elected government can or will do, and it’s exercising leadership by spending its own funds as it sees best. The government would be wise to follow or get out of the way.
Microsoft will still be paying taxes, including additional ones from profits on loans to developers and buyers of the lower-cost housing that will be built. Richard Branson would agree that taxes aren’t going away any time soon, but he probably applauds Microsoft for doing the right thing, even though it happens to be in the self-interest of everyone except the government.
The noble self-interest of the ultra-wealthy
We Libertarians are often accused of being uncompassionate and selfish. While that’s somewhat misguided, it’s understandable that the utopian novels of Ayn Rand probably lead many to that forgivable conclusion. The truth is that Libertarians are about doing no harm and the right thing, which is why we advocate for collaborative, sustainable solutions that don’t involve government in situations where the government is least effective.
True Libertarians take responsibility for themselves and for those for whom they are directly responsible, such as family members and employees. Very wealthy Libertarians ought to do the same, and America would be wise to leverage this somewhat-forgotten aspect of the American ethos when it comes to durable social solutions. We have already seen this in action: Google and Amazon employees with concerns over corporate ethics have at least drawn attention to what it means for their employers to do the right thing at the global level.
Why shame the very wealthy – of whatever political persuasion – into doing the right thing? The price of not doing so is unavoidable regardless of whether one is at the lowest poverty level or the 0.001%. That price can be calculated in treasure and time, but its real cost is the trend in which we live: globally-unsustainable quality of life. We see symptoms as climate change policy, political defecation instead of governance, and, of course, income inequality, but the real issue comes down to whether we choose greed or gratitude.
Greed or gratitude?
Where has greed gotten us? Russian oligarchs have stripped their country and people of wealth. The next civil war, whether in Russia or America, will probably be fought over race, religion, and money. Greed leads to unsustainable dead ends. Always has. If you doubt that assertion, read history. The Dutch and English Empires fell over greed, and so will any entity based on it, no matter how small.
The grateful give back in ways that resolve issues, beginning with social ones, regardless of the government’s incentives for doing so. Microsoft illustrates how the nobility of self-interest leverages gratitude. The rest of us would be wise to follow…or get out of the way.
Noble self-interest far outweighs feeble attempts to find and implement government solutions that work. Calls to tax the rich would disappear if treasure flowed voluntarily toward gratitude-based solutions that do the right thing for everyone.
How does this affect you? Take a moment to measure your beliefs against the metrics of either greed or gratitude. Do your politics collaborate toward short-term wins or long-term durable sustainability? What are the historic effects of your beliefs on your life, your family and friends, your community, your country, the world? Will your beliefs lead to a repetition of history or advancement over the prior art? What aspects of what you believe are most challenged by trends such as income inequality in the world today? How can you evolve what you believe to become more durable, more sustainable, nobler?
Measure your wealth against these questions. Can you deploy that wealth more wisely? The world wants to know.