Giving it All Away

Russell Sadler

Warren Buffett never made a secret of his decision to Die Broke. Read any profile of the Oracle of Omaha and you will learn about his intention to give away his fortune, estimated at about $44 billion.

It’s the way that Buffett decided to give it away that is making news and may well revolutionize philanthropy.

Many wealthy people create foundations in their name in the hope their money will live after them and solve problems for their community, state, nation or the world.

On a smaller scale, many wealthy people simply leave a bequest in the hope the money will be used for charitable purposes. Some 30 years ago, Oregon banks were managing so many small bequests, their trust officers found they lacked the time and the expertise to manage the money efficiently and comply with the wishes of the benefactors. The Oregon Community Foundation was created to consolidate these small bequests under unified investment management and a small staff that acquired the expertise to see the money was spent as the benefactor requested.

Wealthy Oregonians also created their own foundations to do charitable work. The late supermarket magnate, Fred Meyer, left a large part of his fortune to the Fred Meyer Charitable Trust.

The Fred Meyer Charitable Trust, like most of the foundations of that era, modeled itself after the Ford Foundation, the Rockefeller Foundation and the Carnegie Endowment, with a program staff that developed the expertise to evaluate grant requests and determine where the money would be most effectively spent.

The Bill and Melinda Gates Foundation broke that mold because it had so much money -- $30 billion -- it literally couldn’t give it away fast enough. The Gates’ were forced to pioneer a more efficient mechanism to give money away.

Modern American philanthropy is driven by two major forces -- the desire of wealthy people to give their money away to avoid inheritance taxes and a federal law that requires charitable foundations to give away five percent of their entire endowment annually.

In the go-go 1990s, the stock market was producing double-digit returns on foundation portfolios. Foundations actually had trouble giving away five percent of their holdings productively. Many new tax exempt foundation sprang up in an effort to absorb this enormous flow of cash.

The Pacific Northwest Foundation actually began programs to train foundation boards of directors to be better overseers and managers. PNW also helped other foundations write better quality grant proposals so program officers could decide which foundations might spent money most effectively. But the Bill and Melinda Gates Foundation changed that approach. Instead of hiring a bevy of program executives to evaluate grants and essentially rediscover the wheel, the Gates Foundation simply sent out staff to interview experts in a field and establish a consensus about which person or organization was most likely to solve a particular problem the quickest. If the Gate Foundation board accepted the consensus, that’s the person or organization that got Gates’ grants.

Buffett chose to give a substantial portion of his fortune to the Gates Foundation for a similar reason.

"If you're accumulating wealth, it's very natural to go to somebody you know can handle it better than you can," Buffett explained at a news conference. "I've found some people who are better at giving away money, and I'm turning it over to them."

Gates and Buffett oppose repeal of the inheritance tax. They argue repeal will reduce the incentive of the wealthy to give money to charity. They are also old-fashioned because they believe in the old axiom that “to whom much has been given, of him much is required.”

This is a slap at the Conservative/Libertarian libel that estate taxes are “theft’ of the fruits of capitalist endeavor instead of a means of emphasizing merit over inherited wealth as an driving force in American society.

I also suspect Buffett, a healthy 75, is beginning to feel his mortality.

Asked if he thought it was possible to solve 20 of the world’s major public health problems in his lifetime, Gates said, “I’ll be optimistic and say, absolutely.” Gates is just 50. Gates has 35 years of his life left. Buffett has perhaps 15 years left. Buffett is wise enough to know that no matter how his fortune is spent, he will not live to see the results. Why not leave his money with someone who is young enough and who can use the money wisely enough to see results in his lifetime?

There are a lot of politicians and ideologues who presume to speak for the rich these days when advocating tax cuts that are bankrupting the nation. Perhaps they should sit down and let the rich speak for themselves. The two wealthiest men in America are putting their money where their mouths are.

  • anon (unverified)
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    This article attempts to marginalize tax cut supporters, through the use of a legitimate and solid example (Buffett), however this argument really forgets something.

    Politicans by decree speak for all their constituents. They vote based on what they decide is better for the people that elected them to office.

    To ask the elected representatives of 300 million Americans (who also have mouths and can walk their talk) to sit down as is suggested here and let only two of life's current top financial winners speak for all of us is impossible, nor would you want them to.

  • LT (unverified)
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    Politicans by decree speak for all their constituents. They vote based on what they decide is better for the people that elected them to office.

    Anon--are you saying that from the day your state rep. or other elected official takes office they "speak" for you and you have no way to disagree with them other than to campaign for their opponent when they run for re-election?

    Not how I understand the system--as someone who often called my state rep. last session, often talked to a staffer, rarely had a conversation with the state rep.

  • Ross Williams (unverified)
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    Something I think people should realize, Buffet did not give all his money to the Gates Foundation. He created a foundation in his wife's name that was originally going to be the target of most of his wealth with here deciding where the money would go. She died before him, but he is still putting $5 billion into that foundation. Each of his three children also have foundations that they manage. Apparently each of those will also get $1 billion.

    The primary problem in the foundation world is that a few very large foundations have so much power that their program officers for some program areas effectively become the decision makers about what non-profit groups will thrive. In the case of some, like the Bullet Foundation, they even to try to control the strategies themselves by using their money to force agreement among various groups on a common approach before they will fund anything.

    It appears that, while giving most of his money to Gates, Buffet is at least creating four other major funders. That is a very positive development. I especially liked a comment I read from one os his children, "If someone gave you $50 million what else could you do with it other than give it away?" Paris Hilton is apparently trying to find out.

  • anon (unverified)
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    No, that's not it at all. Our republic works because of common ground, a representative form of government. It seeks to always recognize those who struggle in crutches & wheelchairs, not just those high on a horse (Buffett & Gates).

    Citizens in minority or majority positions on an issue often disagree with votes made or positions taken by their state rep or other elected official. If this includes you, you call them on it and this means getting to work.

    There's lots of ways to disagree and to make your case: phone calls, emails, blogs, letters, drop by during office hours, make a point to appear during public appearances. Find others with a like position and continue to do the same. Stand at on-ramps and hold up a sign. Call a press conference if your rep still isn't responding and get yourself some attention. Go around 'em, find another district rep that agrees with your point of view, and ask him/her for help in getting audience with your own rep and parade his/her lack of responsiveness. Get a media rep to go in with you and make a cold call to the rep's office.

  • Ross Williams (unverified)
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    There's lots of ways to disagree and to make your case

    This assumes that this is an intellectual discussion where there is some objective criteria by which the merits of arguments are being judged. That may occasionally be the case, but I think it is pretty rare. Decisions are based on balancing the political power of those who hold different views, not by working out the arguments on each side and arriving at the "correct" answer. The arguments have more to do with who makes them and how they play to a broader audience with political power than their inherent intellectual merit. Hence polling and focus groups.

  • boikin (unverified)
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    "Perhaps they should sit down and let the rich speak for themselves."

    It seems to me the rich philanthropist would say "Don't wait for the estate tax to suck you dry. They'll waste it."

    Not much of an endorsement for your much loved Government and its ability to solve any problem.

  • Larry (unverified)
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    Buffet does not like the 'repeal the estate tax' folks, but uses his lawyers to avoid the estate tax like the plague. He is a hippocritter. Why doesn't he sell his stock, pay his 50% ($20Billion) in taxes, then give the half the government doesn't take to Gate's charity? He is a big time loser.

    But a rich one,that is forsure.

  • pdxOkie (unverified)
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    44 Billion!? That's a lot of copies of Margaritaville!

  • Ross Williams (unverified)
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    That's a lot of copies of Margaritaville!

    Warren Buffet, not Jimmy Buffet.

    He is a hippocritter.

    Has he taken the hippocritter oath?

    Bad puns aside, there is nothing hypocritical about supporting the estate tax and putting your money into charities to avoid paying some of that tax. In fact, one of the reasons to support an estate tax is that it creates a reason for people to give a good portion of their money to public charities instead of to their kids.

  • boikin (unverified)
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    “to whom much has been given, of him much is required.”

    Morally required. When the State requires it, it's theft.

    Why does a person's money cease to be under his control because he dies? If it's not the product of crime, and reflects a person's thrift, hard work, or concern for family, why does the State assume ownership at any point? Taxes have already been paid. It's arrogant thievery.

  • Bob R. (unverified)
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    When the State requires it, it's theft.

    When the State requires it, it's "taxes", not "theft".

    Our founding fathers were opposed to "taxation without representation", but were not opposed to "taxation" in general.

    You can argue that the estate tax is inappropriate, or spin it and call it a "death tax" if you like, but it is not "theft."

    Words mean things.

    • Bob R.
  • boikin (unverified)
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    Bob R- "Theft" is a mild word compared to those used, on this blog, to describe other products of the democratic process, such as the Iraq War, Bush's tax reductions, and certain Supreme Court confirmations. Language becomes less accurate and less of a concern when those subjects are brought up.

  • Mike Austin (unverified)
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    Isn't this a gigantic tax dodge masquerating as a PR bonanza? Won't Buffett's appointees manage the foundation? Isn't it true that control of the wealth stays in the hands of the board of the foundation (and the board almost certainly consists primarily of his family members)? Isn't it true that Buffett is not actually giving away 44 billion, but that his estate will be using a percentage of the wealth that that 44 billion creates to fund activities that Mr Buffett approves of? Won't Mr Buffett's heirs still control the wealth?

    I hate to sound like a sourpuss, but the entire reason foundations were written into law (at the behest of the robber barons) was to allow the the wealthy to permanently shelter their wealth from taxes, direct public policy through their charitable funding, and reap a tremendous PR windfall. Sure, it beats a sharp stick in the eye. But, as they say, wealth is power, and the only reason to acquire great wealth is to have access to the power that comes with it. Mr Buffett is relinquishing neither his wealth nor his power; he is passing it on to his heirs in a way that is forever tax-free.

  • Bob R. (unverified)
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    While his heirs may have a good deal control over foundation decisions, there are also a good number of laws that deal with how foundation money can and can't be spent.

    Although there are a myriad of ways to conceivably extract money from a foundation for personal gain via inflated salaries, relatives on the payroll, grants to friends, inappropriate expense reimbursements, etc., such things won't add up to any significant percentage of the billions of dollars that will be spent charitably.

    In other words, a sneaky foundation manager may arrange for themselves a few luxury junkets on a foundation-controlled corporate jet, but they won't be using all the funds to take over an entire airline. They may finagle foundation-funded labor into putting in a pool, but they won't be constructing giant ski resort, etc.

    • Bob R.

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