The growth of the Giving Pledge and the federal estate tax
By Edward Zelinsky
By taking the Giving Pledge, wealthy individuals publicly commit to contribute “the majority of their wealth to philanthropy.” The Pledge was started by Warren Buffett and Bill Gates, Jr. Recently, twelve more wealthy families signed the Giving Pledge including Elon Musk, a founder of PayPal.
Eighty-one wealthy families have now taken the Pledge. Mr. Buffett and Mr. Gates deserve commendation for this admirable effort.
As the list of Pledge-takers grows, the absences from the list become more conspicuous. Neither Steve Jobs nor his widow took the Pledge. No member of the Kennedy family has taken the Pledge. Despite the much proclaimed social activism of many Hollywood stars, no actor has taken the Pledge.
It is also becoming clear that the Pledge is in tension with another Buffett-Gates project, the protection of the federal estate tax. Both Mr. Buffett and Mr. Gates are outspoken proponents of the federal estate tax. However, by giving their assets to charity, both men (as well as the other Pledge-takers) avoid this tax.
Perhaps Mr. Buffett and Mr. Gates should be understood as favoring the federal estate tax only for those who don’t give to charity. That is a plausible position but not wholly satisfying. Among its other functions, taxation reimburses the US public for the social overhead which makes possible the accumulation of wealth, e.g., schools, roads, courts, police protection, defense. Without these public services, none of the Pledge-takers would have been as successful as they have been. As Mr. Buffett has famously observed, he would not have been Warren Buffett had he been born in Bangladesh.
It is, for example, hard to imagine the Internet as it exists today without the critical military expenditures which incubated the Internet during its formative years. Those who have made net-based fortunes owe something to the federal taxpayers who succored the Internet during its infancy. Eventual estate taxation of Internet-based fortunes, like Mr. Musk’s, is one way of repaying this moral debt. However, every dollar given to a charity by wealthy individuals deprives the federal treasury of 35 cents of estate taxation the treasury would otherwise have received — no matter how worthy that charity might be.
To reconcile the Buffett-Gates commitment to philanthropy with the Buffett-Gates commitment to federal estate taxation, Pledge-takers should agree that, when their fortunes are distributed to charity, an amount equal to the federal estate taxes they would have paid will first be given to the federal treasury. The amounts remaining will still constitute significant additions to philanthropy. In this fashion, Pledge-takers could both advance the charitable causes they support and recognize the help they have received in amassing their fortunes from public services financed by federal taxpayers.
Edward A. Zelinsky is the Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University. He is the author of The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America, recently released in paperback. His monthly column appears here.