Rhodri Davies, Programme Leader, Giving Thought

Rhodri Davies

Head of Policy

Charities Aid Foundation

The role of giving

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TAXING QUESTIONS: WHAT DO RUTGER BREGMAN'S DAVOS CRITICISMS MEAN FOR PHILANTHROPY?

1 February 2019

A video of historian Rutger Bregman calling on the world’s elite to “stop talking about philanthropy and start talking about taxes” during this year’s World Economic Forum annual conference in Davos has recently gone viral.

 

Global Elites Feeling the Pressure

Bregman touched a real nerve by bringing to the main stage an argument that had already become a major backdrop of the event. More than ever before, commentators have criticised this year’s gathering of global CEOs, politicians and assorted great and good for being out of step with the times. The continued promotion of the idea that market principles and the private sector are the solution to all the world’s ills, critics argue, seems increasingly detached from a reality in which global inequality continues to widen and political instability has become the norm.

And the Davos elite are clearly feeling the pressure. The mood of this year’s event was less bullish and more fearful than previously. External criticism even punctured the conference bubble and shaped the narrative for the week: ideas such new US Senator Alexandra Ocasio-Cortez’s calls for a 70% wealth tax became mandatory talking points at many sessions (albeit often in a defensive or dismissive way).

Even in this context, however, Rutger Bregman’s boldness in addressing these issues so openly raised many eyebrows; and drew cheers from many who felt he had laid bare a truth that is not often spoken to the elites of Davos.

 

What do we mean by “philanthropy” ?

But when it comes to talking about “philanthropy” did he use too broad a brush?

Philanthropy is a pretty nebulous and ill-defined term. It is used to apply to a vast range of things: from the global donations of billionaire mega-donors to modest community-based giving; and to a wide range of approaches including financial gifts, volunteering, social campaigning and more. It is clear that Bregman’s target is a particular type of elite philanthropy that involves vast donations and which often presents itself as the solution to the world’s most intractable problems. However, he uses “philanthropy” as a term without clarifying this. Is there then a danger that in many people’s minds a charge is laid at the feet of philanthropy as a whole that is really specific to a relatively small world of elite philanthropy? And does this do a disservice to the myriad other forms of charitable giving and voluntary action that continue to be a huge force for good within our society?

 

Philanthropy is not a Replacement for Taxation - And Vice Versa

Bregman’s key point is to differentiate philanthropy from taxation - which he is absolutely right to do. But the problem is that he then implies there is some sort of zero sum game between the two - in which we either pay our taxes or make philanthropic donations – and this doesn’t seem especially helpful. Of course giving is not a substitute for paying tax. Apart from anything else there is a massive difference of scale: as Bill Gates has previously remarked, philanthropy is “at best a rounding error” in the context of public expenditure and the scale of many societal challenges.

And even if the amounts were comparable, giving and taxation fulfil different functions in our society, and as such the profile of what they are spent on is radically different. Thus our starting point should be that people pay the tax they owe, and then start doing philanthropy.

Of course one shouldn’t be naive: clearly there are those among the elite who believe that they should be absolved from paying tax if they make philanthropic donations. As a case in point, at this year’s Davos the billionaire Michael Dell argued that he preferred to give his money away rather than pay tax because he believes he can spend it more effectively than the government. And even among wealthy people who don’t share this view, there is often a suspicion that talking positively about philanthropy is at least in part a way to avoid having less comfortable conversations about tax rates and avoidance.

So Rutger Bregman clearly had a specific target in mind when he said we need to “stop talking about philanthropy and start talking about taxes”. But the danger is that in moving from this specific context to a more  general one, people miss that. Thus what we are left with is a cynical belief that philanthropy is merely part of a system designed to prevent us talking about or taking action to address the fundamental causes of global inequality.

This should be a concern for anyone who thinks that philanthropic giving has a role to play in our society. (A role which, as I have already highlighted, should be clearly distinguished from that of taxation).

 

Tax Breaks for Philanthropic Giving

Of course, we need to recognise that there is an obvious link between taxation and philanthropic giving, because many countries around the world offer tax relief of one sort or another on charitable donations. And there are those who would argue that this is just another way of replacing tax with philanthropy. However, that is the wrong way of looking at it - tax breaks for charitable giving should not be seen as direct subsidies for public goods that the State would otherwise have to provided through taxation (for the reasons we have already explained in terms of the difference in scale and focus of giving compare to public spending). Neither should they be seen as a reflection of some sort of a priori principle that “money given away shouldn’t be taxed” (because that isn’t true of non-charitable gifts, so it is clearly the purpose  of the gift that is relevant rather than the mere fact that it is a gift.)

The right way to understand tax incentives for philanthropic donations is as a general subsidy for the maintenance of pluralistic civil society. (An argument made most clearly in the work of philosopher Rob Reich). This is by no means the only mechanism one could use to achieve this aim, but in many cases governments have clearly decided that incentivising individual giving as a way for people to express choices about public value is a good way of ensuring the plurality and sustainability of civil society. Well - either that, or they just haven’t really thought about it... (Which history tends to suggest is the more likely explanation, as I detailed in a previous blog).

This still leaves important questions about the extent to which tax relief on donations gives an unfair advantage to those on higher incomes- which is certainly true in a deduction-based model like they have in the US. However, those are questions about the way in which we implement the incentives, rather than the underlying justification for them.

The point is that there is a clear rationale for governments to offer citizens tax relief on their charitable donations. So it is not about the State “losing out” to philanthropy somehow, but rather about it acknowledging the wider benefit of the role that philanthropy plays in society and choosing to support that role. Now, you may still disagree that this is something the State should do, but at least we have framed the debate properly so that we actually know what the disagreement is.

 

Philanthropy and Taxation: not either/or

Rutger Bregman made some powerful points at Davos, and the evident discomfort of many in the audience suggested that they recognised the truth in a lot of what he said. I think he is right that we should talk more about taxes, as it seems impossible that we will address the challenges of inequality without ensuring that those who have benefitted so richly from global capitalism pay their fair share. And he is also right that philanthropy should never be used as a fig leaf to avoid facing up to these issues.

However, whilst his argument that “we need to stop talking about philanthropy and start talking about taxes” makes sense in the particular context of Davos, I don’t think it is one we should adopt more widely. Instead, why don’t we talk about philanthropy and taxes? If we had a more open and honest and debate about their respective roles, and about where the boundaries of responsibility lie between State and philanthropy, perhaps we could reach a point where we are not presented with false binary choices and instead can focus on using the full range of resources available to solve the biggest challenges facing society.

Public Good by Private Means


Rhodri Davies' book tells the story of philanthropy through the ages, and examines the relationship between philanthropists, the state and society.

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