30th June 2006
Independent - Friday Wisdom Malta
The old dictum that one cannot be too rich was proved wrong this week when the world second richest man donated 85% 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 investment which deliver beyond the allure of temporary fads. People are prepared to 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 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 Rockfeller whose endowments have funded some of the greatest discoveries that have served humanity beyond description.
A century ago John D Rockfeller was the world’s richest man. His fortune from Standard Oil was endowed to the Rockfeller Foundation. While Alexander Fleming discovered antibiotics in 1928 it was only in 1938 when the Rockfeller Foundation funded the
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. Oxford
What is remarkable about Warren Buffet’s decision is that he did not form his own foundation to immortalise his name among the greatest philanthropists of all times. Instead he gives it to Bill and Melinda Gates, founder and largest shareholder of Microsoft, to add it to the $35 billion funds already held in the foundation that carries their name.
While these figures seem huge when considering they are being funded by a single private source, in macro-economic context the figures are a mere drop in the ocean. But such philanthropic funding fills a very important gap in development finance.
Certain very worthwhile projects with high risk of failure but with great potential for round 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 meant by 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 which in one way or another has changed our lives these last twenty years, is now winding down his executive role in Microsoft to dedicate most of his time and experience in managing the application of funds of the Gates Foundation to deliver the maximum benefit for the under-privileged in the hope that in hundred years time he will be remembered more for his foundation rather 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 like the USA has found it socially necessary to maintain inheritance taxes and on top of it the super rich to avoid paying such inheritance taxes 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 resale of inherited real estate. Is this fair when we tax earned income at 35% beyond the easily reached margin whilst 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 tax 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 taxes collection on earnings and spending whilst exempting from taxation asset transfers through inheritance or donations.
Especially those who are tasked to protect those earning their way in life through work rather than capital, ought to make it their battlecry to review taxation to reduce taxation on earned income and shift the fiscal burden on those who acquire their wealth without working for it.