First You Get the Money, Then You Get the Power

  • Peter Frase

The American plutocracy’s habit of portraying itself as an oppressed minority has become a source of ongoing amusement, and Chrystia Freeland has the latest chapter of this comedy in the New Yorker. She presents a series of quotations and anecdotes that will be barf-inducing to anyone who hasn’t had their head pickled in Ayn Rand aphorisms. I particularly enjoyed the guy who compared Barack Obama’s treatment of the rich to the oppression of black Americans, and the guy who compared Wall Street supporters of the President to battered wives.

But the most illuminating and distinctive part of the essay is the way it highlights this curious argument about the “self-taxation” of the rich:

Many billionaires have come to view charity as privatized taxation, paid at a level they determine, and to organizations they choose. “All things being equal, you’d rather have control of the money than the government,” Cooperman said. “Even if you’re giving it away, you’d rather give it away the way you want to give it away rather than the way the government gives it away.” Cooperman and his wife focus their giving on Jewish issues, education, and their local community in New Jersey, and he is also setting up a foundation that will allow his children and grandchildren to support their own chosen causes after he dies.

Foster Friess, a retired mutual-fund investor from Wyoming who was the backer of the main Super pac supporting the Republican primary candidate Rick Santorum, expounded on this view in a video interview in February. “People don’t realize how wealthy people self-tax,” he said. “If you have a certain cause, an art museum or a symphony, and you want to support it, it would be nice if you had the choice.”

It would, indeed, be nice if you had the choice. Obviously charitable donation is only equivalent to tax-funded government spending if you are indifferent to democratic accountability. So it’s not surprising to hear this kind of rhetoric out of the ultra-rich, who tend to be committed to an ideology of meritocracy that is fundamentally hostile to democracy. The less cautious apologists, like Bryan Caplan, will straightforwardly propose “relying less on democracy and more on private choice and free markets.” Left unsaid is that “choice” in the private market consists mostly of the choices of the people with the most money.

This is why a class compromise over the welfare state is so elusive. It doesn’t matter whether the rich agree that they benefited from their society in the “you didn’t build that” sense, nor does it matter whether higher taxes on the rich and more spending on social programs and jobs will ultimately promote more economic growth. This is about power. Even those who piously declare their desire to “give back” to society insist on doing so only on their own terms.

Traditionally, the socialist movement has emphasized the need to subject the investment decisions of capitalists to democratic accountability, but it’s just as important to talk about democratic control over social welfare spending. The choice we face is not really whether there will be a social safety net, the struggle is over whether we will have a democratic welfare state or a kind of private welfare state run according to the whims of rich philanthropists. The latter, even in the improbable event that it could replace public spending in terms of overall dollars, would be both undesirable as a matter of democratic principle, and a lot less likely to consist of the kind of universal, unconditional income support that is most consistent with individual freedom.

A more specific policy point about this issue of “self-taxing” is that it highlights what an obscenity the tax deduction for charitable donations is. The Joint Committee On Taxation reports that this deduction (including both individual and corporate donations) cost the federal government $41.3 billion in 2012, and the cost is projected to rise to $54.7 billion by 2015. Data from the Tax Policy Center shows that over 95% of this benefit goes to the to 40% of the income distribution, and over a third of it goes to the top 1%. This data also shows that repealing the deduction would be equivalent to a 0.5% tax rate increase on the top 20%, and a 1% rate hike on the ultra-rich top 0.1%.

It’s bad enough that this deduction encourages the transfer of social welfare functions from the state to the unaccountable non-profit sector. But a lot of “charitable” spending is of questionable social value anyway. Leon Cooperman, described in Friedland’s article as the “pope” of the whiny billionaire movement, recently gave $25 million to the Columbia Business School, which means that the government is subsidizing his efforts to help the reproduction of the capitalist managerial class. The Bill and Melinda Gates foundation, one of the largest charitable foundations in the country, is a major promoter of the neoliberal “education reform” movement that played a major role in the battle between Rahm Emanuel and the Chicago Teachers Union. And large chunks of charitable donations (including Mitt Romney’s) go to churches, which are more important as conservative ideological and political actors than they are as sources of aid.

Leon Cooperman is both a signatory to the Warren Buffett/Bill Gates “Giving Pledge,” which commits him to giving the majority of his assets to philanthropic causes, and a passionate supporter of Mitt Romney. There is no contradiction there. Cooperman and Romney are both committed to the same principle: there’s nothing wrong with helping the needy, as long as only rich people have the right to decide when, whether, and how it gets done.

You can look at people like Gates and Cooperman as the alternative to the decaying, narrowly rapacious capitalist class I described in this post. They aren’t altruists or class traitors, they’re just demonstrating their enlightened self interest as a ruling class, and a recognition that they need to dedicate some resources to collective projects that help perpetuate the society they dominate. But they’re still the class enemy, and they’ll remind you of that as soon as their power is seriously threatened.

Update (2 October 2012)

Corrected a mistake in the data on the charitable contributions tax deduction. An earlier version referred to the wrong table from the Tax Policy Center.