InterACT Column: Gates, Buffett, World Poverty, Nonprofit Staff

Jun
11
2010

A Confession

I have not taken a test in a long time, but, if memory serves, some tests have a series of words or images and you have to name what would be next in the series. The title of this essay is a like one of those test questions, and the word that should be next in the series is “taxes.”

Let’s start with libraries. A few years ago, in Salinas, CA, a proposition was put on the ballot to increase sales tax in order to keep the libraries open. The proposition was defeated and soon all the libraries in Salinas closed. In the city of John Steinbeck it was not possible to check out a book by John Steinbeck. Private fundraising immediately ensued and one library was opened part time. (Later the proposition was put back on the ballot and this time it passed).

The relationship to taxes in this story is three fold:

1) Is sales tax the best way to fund libraries (or much of anything)? Sales tax is inherently regressive because everyone pays the same amount regardless of income and so it fall disproportionately on the poor. On the other hand, it is easy to collect and spreads the burden of payment evenly over everyone without causing great hardship to anyone. Another half cent on a dollar is not that much.

2) Why do so few people vote on these issues? In Salinas, 80,000 people are registered to vote, but in this election, 16,000 voted. 10,000 voted against the increase, so basically 10,000 people decided the fate of libraries for the whole community. It is hard to know, but I can only speculate that the majority of these 10,000 voters are not library users.

3) Are there institutions whose importance is so great that their funding should be guaranteed by government, or should private fundraising take care of everything that is not directly related to life and death? And if so, can some of our nation’s high net worth individuals be persuaded to take those on?

The Rich and Their Charity

The announcement that Warren Buffett (the world’s second-richest man) is giving away the bulk of his wealth—about $37 billion—to a variety of foundations, with the vast majority—$31 billion—going to the Bill and Melinda Gates Foundation (Bill Gates being the world’s richest man), captured the attention of just about everyone. This gift will make the Gates Foundation the world’s largest private philanthropy. Their annual payout will double—to $3 billion or three times as much as the Ford Foundation (until recently, the world’s largest foundation) gives in a year.

To get a sense of how much money that is, consider some comparisons:

• $3 billion is more than the gross domestic product of 40 countries, including Laos, Belize, Rwanda, Fiji and Sierra Leone.

• $3 billion is equivalent to 10 percent of all foundation giving in 2005 (foundation giving is only 10 percent of all private-sector giving)

• $3 billion pays for about ten days of the U.S. war against Iraq and Afghanistan

Who Are These People?

What kind of people are Mr. Buffett and Bill and Melinda Gates? We know much more about Warren Buffett’s philanthropy, as he is 75 and has given away money most of his adult life. I would also conjecture that this decision was not easily arrived at, not just because of moving the money outside his family, but because of Buffett’s very progressive views on taxes. Buffett has consistently spoken out against the repeal of the estate tax, and he was removed from the Schwarzenegger campaign when he told Governor Schwarzenegger that property tax in California was far too low. He has spoken of raising capital gains tax, saying that he finds it absurd that he pays less tax when he sells a share of appreciated stock than a social worker pays on the same amount of money she or he earns working with a drug addict. (Capital gains tax is the tax paid on the gain from the sale of an asset—if I buy shares of stock for $100 and sell them for $150, I pay tax on the $50 gain.) Like his late wife, Buffett is a long-time and generous contributor to pro-choice organizations and domestic violence programs.

The Gates are newer to philanthropy. Bill Gates just turned 50. His father, Bill Gates, Sr. is also an outspoken advocate for the estate tax and for progressive tax policies. The younger Gates has not been quoted on this issue. Melinda Gates is the director of the foundation and very hands-on in her approach. She is described by people who know her as a genuinely compassionate person as well as a bright and creative grantmaker.

At the end of the day, it doesn’t really matter who Gates and Buffett are or what they support. The most important question is this: What kind of a system allows anyone—with good, bad, or indifferent agendas—to accumulate that kind of wealth? The fact that the Gates Foundation—bolstered by the Buffett billions—will give grants to projects that all of us would likely agree are worthy and important is good. It is the scale of their giving, which makes them a sort of “private government”—although unelected and unaccountable to a constituency—that is, to say the least, questionable in a democracy.

How it Happened

In 1986, according to Forbes magazine, there were 13 billionaires in the US; worldwide there were perhaps 20. Then the Reagan administration introduced tax legislation that favored the top 1 percent of taxpayers. In one year the number of billionaires in the US almost quadrupled, to 49! More tax cuts and tax shifts followed, so that today there are 230 billionaires in the United States and a total of 793 billionaires worldwide. They are the fastest-growing class in the world.

These people own $3 trillion in wealth. The combined wealth of these 793 people is about 30 percent more than the income of the 3 billion people worldwide who live on less than $2 a day. The GDP of the poorest 48 countries in the world combined is less than the wealth of each of the three richest people in the world (two of which we just mentioned).

What Do Nonprofit Staff Have to do with this?

It is fairly obvious why nonprofits should care about tax policy. Social service agencies are burdened to the breaking point with people needing help at the same time as their government grants are cut again and again. Arts and humanities programs have been cut out of government budgets so completely that some states don’t even have State Arts Commissions anymore and any “public” art is privately funded.

Back to libraries. Over the past few years, our worsening economy and Bush Administration budget cuts have caused massive waves of cutbacks at libraries nationwide. According to a 2004 American Library Association study, libraries in 41 states have absorbed more than $50 million in funding cuts in one year. Public libraries from Seattle, Denver and Honolulu to cities in California, Ohio, Massachusetts, New York, North Carolina, Oklahoma, Michigan and beyond, have suffered branch closures, staff terminations and curtailment of services and hours due to federal and state budget decisions.

The closure and severe limitation of public libraries is a blow to a democratic society. Not everyone can simply buy books, newspapers and magazines at will. Not everyone has internet access in their home or even school. And every child does not have a home in which to read and study.

Katherine Hadley, Director of the Minneapolis Public Library summed it up when she wrote, “Since last fall, when the Library Board faced drastic budget reductions for 2004, hundreds of people in Minneapolis and beyond have written to us about how important the Minneapolis Public Library is to their family, their business, their classroom. The majority of our neighborhood libraries are now open just three or four days a week. This is not acceptable in a city that prides itself on literacy and the right of all residents to fully participate in civic life.”

Take schools: American public schools are, for the most part, in financial crisis. As school districts make difficult budget choices, school library budgets and staff are commonly reduced, frozen or eliminated altogether. Families have come to rely even more on public libraries to provide materials to educate, enchant and encourage children to learn about the world. So, as our public schools shrink, our public school children go to public libraries, which are themselves shrinking.

Tax cuts and tax policy affects nonprofits more than any other institutions, so it’s clear why we should care.

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