This was a very big week for American billionaires in the news. On Tuesday, Facebook founder Mark Zuckerberg and his wife Dr. Priscilla Chan marked the occasion of their daughter’s birth to announce that “during their lives” they will donate 99 percent of their Facebook shares to charitable purposes. But just one day after we learned that the new Chan Zuckerberg limited liability corporation will contribute or invest some $45 billion focused on “personalized learning, curing disease, connecting people and building strong communities,” Americans learned something else about the other 399 people on the Forbes 400. “With a combined worth of $2.34 trillion,” the Institute for Policy Studies revealed, the Forbes 400 own more wealth than the bottom 61 percent of the country combined, a staggering 194 million people.”
As it turns out, the stories the one billionaire’s largesse at a time of ever-increasing concentration of wealth are related. In a nutshell, if you want more of the former and less of the latter, just increase the estate tax.
As the Center on Budget and Policy Priorities (CBPP) documented, the estate tax is a major revenue raiser for Uncle Sam. Despite the $246 billion, it is forecast to add to the U.S. Treasury between 2016 and 2025, the tax impacts only about 2 out of 1,000 estates each year. In 2013, only 20 family farms and small businesses paid the levy at all, debunking longstanding GOP mythology. (The impact on family farms and small businesses was infinitesimal in 2000 when the estate tax was 55 percent on individual estates worth more than $650,000; with the tax now 40 percent only on estates over $5.43 million, it almost completely disappeared.)
But eliminating the estate tax—which congressional Republicans and virtually every 2016 GOP presidential candidate wants to do—wouldn’t just blow a hole in the federal budget. That addition of a quarter trillion dollars in new red ink would also slash charitable giving in the United States.
Here’s how the massive gain for millionaires and billionaires would mean serious pain for America's churches, nonprofits, foundations and charities.
In 2003, the nonpartisan Tax Policy Center documented the hemorrhaging that would ensue from killing the so-called “death tax.” As the TPC described, "The estate tax encourages charitable giving at death by allowing a deduction for charitable bequests" and "also encourages giving during life." Its repeal would be devastating for U.S. charities:
We find that estate tax repeal would reduce charitable bequests by between 22 and 37 percent, or between $3.6 billion and $6 billion per year. Previous studies are consistent with this finding, and also imply that repeal would reduce giving during life by a similar magnitude in dollar terms. To put this in perspective, a reduction in annual charitable donations in life and at death of $10 billion due to estate tax repeal implies that, each year, the nonprofit sector would lose resources equivalent to the total grants currently made by the largest 110 foundations in the United States.1 The qualitative conclusion that repeal would significantly reduce giving holds even if repeal raises aggregate pre-tax wealth and income by plausible amounts.
That finding was echoed the next year by the Congressional Budget Office (CBO). Ironically, its director then was Douglas Holtz-Eakin, who later served as the chief economic advisor to Republican presidential candidate John McCain. (Even more ironic, McCain called for the repeal of the estate tax in 2008, despite two years earlier having proclaimed "most great civilized countries have an income tax and an inheritance tax" and "in my judgment both should be part of our system of federal taxation.") As CBO director Holtz-Eakin wrote in "The Estate Tax and Charitable Giving":
Furthermore, the estate tax provides an incentive to make charitable contributions during life. The paper finds that increasing the amount exempted from the estate tax from $675,000 to either $2 million or $3.5 million would reduce charitable giving by less than 3 percent. However, repealing the tax would have a larger impact, decreasing donations to charity by 6 percent to 12 percent.
In 2006, CBPP provided a sobering assessment of what proposed estate tax reforms would do to philanthropy among the wealthiest Americans. Whether the estate tax was repealed outright, the size of the exempted assets raised or the tax rate itself dropped, American charities would suffer painful losses of funding:
- CBO estimated that, had the estate tax not existed in 2000, charitable donations would have been $13 billion to $25 billion lower that year. CBO found that repealing the estate tax would have reduced charitable bequests by 16 to 28 percent and charitable giving during life by 6 to 11 percent.
- The amount by which CBO found that charitable donations would have fallen in 2000 exceeds the total amount of corporate charitable donations in the United States in that year (which equaled $11 billion) and approaches the total amount that foundations contributed to charitable causes ($25 billion).
- A study by Brookings Institution economists Jon Bakija and William Gale found effects of similar magnitude, as have analyses by various other researchers.
That’s one reason why some billionaires have been so supportive of the estate tax and the “Giving Pledge,” an initiative launched by Warren Buffett and Bill Gates through which America’s richest declare they will give away half of their fortunes during their lifetimes. Facebook's Zuckerberg joined that list five years ago. "Why wait," he said, "when there is so much to be done?" Backed by New York City Mayor Michael Bloomberg and Oprah Winfrey among others, Bill Gates and Warren Buffett six months ago in June 2010 call on the super-rich, "starting with the Forbes list of the 400 wealthiest Americans, to pledge—literally pledge—at least 50 percent of their net worth to charity during their lifetimes or at death." Given the $1.2 trillion net worth of that select group at the time, as Fortune then noted, over time the Giving Pledge could mean a $600 billion infusion into American charities.
For his part, Warren Buffett has also long insisted that the rich and famous have another moral responsibility. During a press conference four years ago, Buffett offered a strong progressive argument in support of the estate tax:
"I would hate to see the estate tax gutted. It's in keeping with the idea of equality of opportunity in this country, not giving incredible head starts to certain people who were very selective about the womb from which they emerged.
I'm not an enthusiast for dynastic wealth when there are 6 billion people who have much poorer lives. I can't think of anything that's more counter to a democracy that dynastic wealth. The idea that you win the lottery the moment you're born: It just strikes me as outrageous."
Sadly, few of the other denizens of the Forbes 400 agree. Among just the top 20 wealthiest people in America—a group whose combined wealth now equals that of “the bottom half of the American population combined, a total of 152 million people in 57 million households—some of the biggest names are out to kill the estate tax once and for all.
Take, for example, Charles and David Koch, the brothers who rank fifth and sixth respectively on the Forbes 400. They put their money behind Mitt Romney’s 2012 for the abolition of the estate tax. As it turns out, their group Americans for Prosperity has declared “it’s time to end the federal death tax” and encouraged states to do the same for their own estate taxes.
Then there is the Walton clan, the heirs to the Walmart fortune which by 2010 was worth as much as the combined wealth of 48.8 million Americans at the bottom of the ladder. As far back as 1953 when his Walmart five-and-dime business was in its infancy, "Sam Walton started arranging his affairs to avoid a potential estate tax bill." At the time, his oldest child was 9 years old. "That year, he gave a 20 percent stake in the family business to each of his children, keeping 20 percent for himself and his wife." As Sam put it in his autobiography:
"The best way to reduce paying estate taxes is to give your assets away before they appreciate."
As it turns out, his daughter Alice Walton has an even better way: Get rid of the estate tax altogether.
With their combined wealth estimated at $139.9 billion dollars in 2014, on paper zeroing out the 40 percent state tax would allow the Waltons to redirect roughly $56 billion from the United States Treasury into the accounts of their heirs. (Because of tax avoidance techniques used by the very rich, the effective estate tax rate is closer to 16 percent.) All those zeroes explain why Alice Walton had been trying to kill the estate tax for years. As USA Today summed it up in 2005:
Led by Sam Walton's only daughter, Alice, the family spent $3.2 million on lobbying, conservative causes and candidates for last year's federal elections. That's more than double what it spent in the previous two elections combined, public documents show.
The Waltons have joined a coterie of wealthy families trying to save fortunes through permanent repeal of the estate tax, government watchdogs say. The election of President Bush and more conservatives to Congress gave momentum to the long-fought effort. The Waltons add more.
And that was before the Waltons in 2012 joined Mitt Romney's billionaire Super PAC-Men dedicated to doing away with the estate tax once and for all.
In the meantime, the Walton heirs are doing their best to disprove that old maxim, “you can’t take it with you.” While the Chan Zuckerberg Initiative plans to distribute 99 percent of the couple’s wealth, the family that owns the retailing giant is giving back almost nothing at all.
By 2010, the wealth of Sam Walton's six heirs was equivalent to that of 41 percent of all American households—over 48 million of them—combined. Yet those six siblings combined have contributed a minuscule $59 million—just 0.04 percent of their total wealth—to the foundation that bears their name. That's the shocking conclusion of a 2014 analysis from Walmart 1 Percent, a project of the union-backed Making Change at Walmart:
The central finding of this report is simple: Our analysis of 23 years' worth of the Walton Family Foundation's tax returns shows that Rob, Jim, Alice and Christy Walton--the second generation Walmart heirs--have contributed almost none of their personal fortune to the foundation which bears their family name.
As it turns out, the first generation led by patriarch Sam Walton put $4.7 billion into the foundation, a figure which represents 98.8 percent of all family donations over the past 23 years. The six Scrooges of the second Walton generation ponied up only 1.2 percent. Alice Walton, one of the faces of Mitt Romney's 2012 Super PAC, has given zero. With over $2 billion in assets, the Walton Family Foundation distributed $325 million in 2013. Those dollars went overwhelmingly to their stomping grounds in northwest Arkansas, funding environmental improvements, pet education reforms including charters schools and vouchers and, as Forbes reported, "Alice Walton's stunning Crystal Bridges Museum of American Art." As Walton herself explained to NBC News in 2013:
"I remember what my mom told me. She'd say, 'You know Alice, if you give the thing you love most, you will be giving the right gift.'"
But the thing Alice Walton really loves the most—and the thing American charities and taxpayers alike need most—is money. And that she has no intention of giving.
As the Institute for Policy Studies documented in “Billionaire Bonanza,” there are many policy changes Congress could pursue to reduce the yawning wealth gap in the U.S. Overseas tax havens drain hundreds of billions in revenue from state and federal governments. “One comprehensive approach,” IPS explained,” the Responsible Estate Tax Act (HR 2907and S.1677) introduced by Rep. Jan Schakowsky and Senator Bernie Sanders, includes a number of provisions to eliminate or reform dynasty trust arrangements. This legislation also aims to make the estate tax more progressive by adding graduated rates on larger estates.” That bill also targets the GRAT, the grantor-retained annuity trust device that the Waltons and casino magnate Sheldon Adelson have used to shield tens of billions of dollars from the IRS. And then there’s a tax break on unrealized capital gains at death, one which costs Uncle Sam about $55 billion in tax revenue a year and account for 55 percent of the value of estates worth more than $100 million.
To be sure, as both Pro Publica and the New Yorker detailed, Mark Zuckerberg will gain tremendous tax and political advantages in the structure of his LLC, advantages that will come at the expense of Uncle Sam’s coffers and, potentially, democracy itself. But while there is ample reason to look this Silicon Valley gift horse in the mouth, we can for the time being also offer a, well, charitable interpretation of his generosity. In their letter to their newborn daughter, Max, Chan and Zuckerberg provided this motivation for their initiative to donate or invest 99 percent of their Facebook holdings:
We will do our part to make this happen, not only because we love you, but also because we have a moral responsibility to all children in the next generation.
If Americans believe the rest of Forbes 400 shares that moral responsibility, they must remain committed to the estate tax.