The ultra rich should donate more, instead of paying more taxes

by Marco Liera - 28/07/2014

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In 2012 Americans gave to charity $ 335 billion, that is 2% of US GDP. Out of that amount, $ 240 billion came from individuals and the rest from corporations. Warren Buffett has just donated more than $ 2.8 billion, bringing the total of his giving at $ 23 billion. The Sage of Omaha has pledged to donate 99% of his wealth (by the way, he is still worth $ 63 billion). Bill Gates has already given away $ 28 billion, as in last years he has been mainly engaged in philanthropy via the foundation named after him and his wife.

Buffett and Gates belong to the 0.1% of the U.S. population that has stunningly increased its wealth in recent decades. It has been shown that the enrichment of 1% of the U.S. population was entirely due to that 0.1%. The share of the remaining 0.9% has remained virtually unchanged. The polarization of wealth is increasing, and this seems an inevitable phenomenon of modern capitalism. So, I believe that nudging people belonging to that 0.1% in order to donate more is a smart way to rebalance inequalities. It seems to me more efficient than insist that the ultra-rich should pay more taxes, an attempt often doomed to failure because these people have access to the best advice to elude those increases.

Smart governments should instead encourage its wealthy citizens to donate, using two psychological levers. The first is to reduce the irritation that arises when taxpayers are experiencing the terrible way in which governments often spend their taxes (we should remember that for the rich people, these figures are impressive in absolute terms). The second is to allow rich people to decide the way in which their donations are spent. In philanthropy it is the giver who determines who the beneficiaries are and how money should be used. The role of governments is to set out the principles that should inspire donations in order to apply to them the appropriate tax incentives.

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