The old dictum that one cannot be too rich was proved wrong this week when the world’s second richest man donated 85 per cent of his estimated $44 billion fortune to the world’s richest man.
Warren Buffet has long indicated that he meant to leave most of his accumulated wealth for philanthropic purposes.
In his twilight years, widower for the last two years and winding down his business appointments though very much in control of his core business of Berkshire Hateway, Buffet is regarded as solid gold in making value laden investments that deliver beyond the allure of temporary fads.
People are prepared to pay half a million dollars for the privilege of sharing his wisdom over lunch, an auction for philanthropic purposes which Buffett launches annually over E-bay.
To his natural heirs he has left part of the estate which should satisfy all their needs for a hundred lifetimes. In giving away most of his fortune, he is following the steps of Andrew Carnegie and John D. Rockefeller whose endowments have funded some of the greatest discoveries that have served humanity beyond description.
A century ago, John D. Rockefeller was the world’s richest man. His fortune from Standard Oil was endowed to the Rockefeller Foundation. While Alexander Fleming discovered antibiotics in 1928, it was only in 1938, when the Rockefeller Foundation funded the Oxford scientists Florey and Chaim to develop its commercial potential, that Fleming’s discovery started to deliver the benefit we still enjoy today, as it is still the basis of the modern pharmaceutical industry.
What is remarkable about Warren Buffet’s decision is that he has not formed his own foundation to immortalise his name among the greatest philanthropists of all times. Instead, he has given it to Microsoft founder and largest shareholder Bill Gates, and his wife Melinda, to add to the $35 billion fund already held by the foundation that carries their name.
While these figures seem huge, considering they are being funded by a single private source, in macro-economic context they are a mere drop in the ocean. But such philanthropic funding fills a very important gap in development finance.
Certain very worthwhile projects, with a high risk of failure but with great potential for ground-breaking discoveries, cannot find commercial funding, given the corporate world’s obsession with top and bottom line performance measurements from quarter to quarter.
Governments, on the other hand, have a rather poor record for financing such developmental research and a lot of the funding gets wasted in bureaucratic controls which are necessary for accountability purposes but are a barrier to seeing the funds applied as intended by the founders of such philanthropic vehicles.
This gap is then filled by the trustees of such philanthropic foundations. Because philanthropy accepts that projects fail, they support innovation of economic significance that governments would not finance for fear of political liability in case of failure.
Bill Gates, having promoted software innovation that, in one way or another, has changed our lives these last 20 years, is now winding down his executive role with Microsoft to dedicate most of his time and experience to managing the application of Gates Foundation funds to deliver the maximum benefit to the under-privileged, in the hope that in a hundred years time he will be remembered more for his foundation than for the business that made his fortune.
Let me try to put this problem in a local context. If a liberal, market-oriented society such as the USA has found it socially necessary to maintain inheritance taxes – in order to avoid paying which, the super rich simply donate their excess fortune to philanthropic foundations during their lifetime – is it not strange that a social democracy like ours has found it socially acceptable to repeal inheritance taxes except for transfer duty on inherited immovables?
We further found it justified to reduce the tax impact on profits made from the resale of inherited real estate.
Is this fair, when we tax earned income at 35 per cent beyond the easily reached margin while we continue to give favourable tax treatment to unearned income and assets, at the expense of high taxes over earned income?
I can hear all those who are already arguing that inheritance taxes are a form of double taxation, as the donor would have already paid tax on the earnings leading to the estate being willed over to his or her heirs. While even such claims are dubious, given that capital accumulation is in many instances tax free, I am not persuaded that it is fair for our society to continue to build excessive reliance for tax collection on earnings and spending, while exempting from taxation asset transfers through inheritance or donations.
In particular, those who are responsible for protecting people earning their way in life through work rather than capital, ought to make it their battlecry to review taxation in order to reduce the tax paid on earned income and shift the fiscal burden onto those who acquire their wealth without working for it.
www.alfredmifsud.com