Presidential campaign slogans often appeal to progress. Donald Trump’s has attempted to trademark “Make America Great Again,” claiming authorship of the same theme Ronald Reagan used in 1980. Barack Obama got great mileage in 2008 around his “Yes, We Can” theme. Compare on an optimism scale Franklin Roosevelt’s “Happy Days Are Here Again” with Herbert Hoover’s “We Are Turning the Corner,” and you can see one more reason Hoover lost that 1932 election.
Though I believe we should be optimistic about our future, these slogans, along with presidential campaigns more generally, pretend to offer one easy solution to thousands of very complicated problems. At their most basic, the slogans and campaign promises appeal to the notion that if we elect the right president, then progress, greatness and happiness will follow right behind. And, if our candidate is elected, we can feel really good about our achievement: we’ve won the Super Bowl of politics.
By simply choosing between candidate A and B, suddenly we can solve not just how to administer thousands of programs that together spend close to $4 trillion a year, but how to improve economic growth; address social ills; stop international terrorism; deal with worldwide economic, social, and military forces that lead to mass migration—or at least stop them from spilling over our borders; pay people to retire for one-third of their adult lives; make sure that households don’t have to pay more than $5,000 for the $24,000 worth of health care they now receive on average; keep taxes low and debt sustainable; and, of course, regulate the environment, occupational safety, and the financial industry, among others.
But where do we fit in? Do we solve the country’s problems by increasing our benefits from some government programs? By lowering our taxes? That’s what the campaigns tell us. We’re going to get more from or pay less to government AND make the world a better place along the way. Gosh, we’re good.
Identify, if you will, one candidate for president or Congress who doesn’t tell at least 90 percent of us that we are about to get something more from government if we elect her or him. Oh, a few might get less—you know, those lazy people on welfare or those rich tax avoiders who aren’t going to vote the same way as us anyway. Their losses will finance our gains, and $100 billion of higher taxes or lower benefits for a few will somehow cover $1 trillion worth of lower taxes (or higher benefits) for us.
The one-vote-solves-all mantra adds to our sense of dependence and incapacity to make the world better. What does it matter if we work harder or tutor or in other ways provide services and goods that others need? Why should we spend less on alcohol or fancy cars and donate the proceeds to some worthy cause when our contribution is just a drop into the bucket? Why should we fight terrorism by donating to the education of women in poorer countries when we can always send out more troops or bring them home, or raise others’ taxes or lower ours so the economy grows? Why should we gather in our community to address the social ills that threaten a significant portion of its children?
Why can’t others see the solution? We vote the right way, but they don’t; that’s why our problems aren’t solved. Sometimes we win, but then our successful candidate turns coat and fails to solve old problems while allowing new ones to arise. Or our favored son or daughter really tries when elected, but those others deny our democratically achieved victory from attaining its complete fulfillment.
It’s them again; it’s always them.
There is an alternative view. I firmly believe that what we are and what we achieve as a people derives from the sum total of what all of us do. Government can often help us combine our efforts, and, yes, government can block progress as well. Either way, it’s a damn poor excuse for our own failure to act well when we can and our tendency to blame others to excuse our own inaction.
So, yes, let’s engage fully in the elections. Let’s also be optimistic about the future when we live in a nation never so rich throughout all of history, and stand on the shoulders of those who went before us, who added to our store of knowledge, and sacrificed to make our own world a better place. At the end of the day, let’s also admit that progress derives from everyone’s efforts and reject wholeheartedly the dependency that derives from the notion that our role in advancing society comes mainly from flipping a toggle switch.
Mark Zuckerberg and his wife, Priscilla Chan, recently pledged to donate 99 percent of their Facebook shares to charitable purposes over their lifetimes. They are doing it through the Chan Zuckerberg Initiative, which uses a limited liability corporate structure.
Why not give to an IRS-approved charity, or a foundation created by Zuckerberg and Chan, instead? Two reasons leap to my mind, both shaped by nonprofit law. The first, which I fail to see in most commentary to date, is that generous lifetime giving by the wealthy can’t get much of a charitable deduction no matter how structured. Second, the Zuckerberg-Chan pledge falls into a class of efforts sometimes labeled “fourth sector” initiatives, which give much greater flexibility for how the money is used, including combining charitable and business purposes and lobbying for a favored cause—essentially what private individuals can but pure charities cannot do.
Economic Income, Realized Income, and the Charitable Deduction
In studies examining the behavior of those with significant wealth, other researchers and I show how little income they tend to realize, often 3 percent or less of the value of that wealth. That doesn’t mean the investors have earned such low rates of return. In fact, many like Mark Zuckerberg became millionaires or billionaires because they got very high returns. Most of their money, however, tends to be in stock or a closely-held business and, especially for those with only a few million dollars in total wealth, residences and vacation homes. As long as the wealthy don’t sell those assets, they won’t “realize” for tax or other accounting purposes the true economic returns or gains they achieve. And those gains can be substantially more than 3 percent: from 1926 to 2014, including during the Great Depression and Great Recession, stocks produced an average annual return of about 10 percent before inflation.
Related research examining the charitable activities of such wealthy individuals shows that most delay a huge portion of their giving until death. That is, they give from the wealth of their estates, not the income of their lifetimes. Why? Because tax law provides very little incentive to give huge donations to charity during a lifetime. Let’s suppose that Mark Zuckerberg and Priscilla Chan normally realize as income 2 percent of their estimated $45 billion wealth, or $900 million, this year. The charitable deduction is limited to 50 percent of yearly income, which in Zuckerberg and Chan’s case is $450 million; it’s only 30 percent ($270 million) if they want to give to foundation. Thus, if Zuckerberg and Chan give away more than 1 percent of their wealth each year, they run out of allowable charitable deductions. If in an average year they earn 10 percent on their wealth and give away only 1 percent, they are still accumulating much faster than they are giving it away, unless they consume billions annually.
Running out of charitable deductions doesn’t mean that the wealthy gain nothing from giving away money directly to charities earlier in life. Once assets are transferred to a charity, the donors don’t have to pay taxes on the income earned from those assets. But donors such as Zuckerberg and Chan would achieve only modest tax savings from early gifts to charity as long as their taxable income from the alternative remains a small percentage of their wealth. What also might be in play here, and I don’t fully know, is that the charitable side of the Chan Zuckerberg initiative will yield enough losses, transfers, and sales to needy individuals at below-market cost to offset any taxable income otherwise earned on the business side, so it can effectively avoid income tax just as well as an outright charity.
For Benefit Corporations and the Fourth Sector
So limits on the advantages of a charitable deduction provide a significant impetus for wealthy individuals to pledge money for charitable purposes without necessarily giving it to a charity. Donors may also think the flexibility they gain is substantial relative to any potentially modest tax costs. Giving to charity later is always an option, thus avoiding estate tax; meanwhile, other options haven’t been foreclosed.
Among the additional options at play is combining nonprofit and business activity. Among the many efforts of this type that get complicated in a pure charity setting are raising private equity; sharing real estate investment returns with low-income residents; running a business centered around training its workers and building up their equity rather than making profits for investors; investing in new drug research and pledging that the public, not investors, will garner any potential monopoly returns from some successful patent; or investing in green energy by granting some risk protection to private capital partners; and garnering research and development tax credits.
Some states have tried to create special rules applicable to certain “for-benefit corporations” that allow shareholders and charities to share returns. But, for the most part, the walls surrounding charitable money can’t be torn down. Federal and state tax and other nonprofit laws protect money that now essentially belongs to the public (with the charity as fiduciary), not to the donors.
If donors aren’t worried about getting a charitable deduction up front anyway, as is likely the case for Zuckerberg and Chan, the easiest route is to create a potentially profit-making limited-liability business. Meanwhile, donors can engage in all sorts of ventures without having their lawyers shouting “Stop” to each new creative idea because it might violate some charitable law. At the same time, Zuckerberg and Chan need a new entity since they can’t pursue their charitable pursuits directly through Facebook without soon running into problems meeting that corporation’s obligations to other shareholders.
If Zuckerberg and Chan decide that they want to lobby government, they also can avoid any limitation imposed on foundations or other charities.
These types of private initiatives, sometimes labeled as a Fourth Sector, push society in new, exciting, and yet-to-be-determined directions. As I’ve discovered when I raise money for charity, people will often consider giving away much more when asked to think about giving out of their wealth, not just their realized income. Fundraisers, take note: I don’t think we’ve even begun to tap this way of encouraging giving. Also, people often see new possibilities for enhancing charitable purposes when not confining themselves within the walls surrounding a typical charity, with entrepreneurs and venture capitalists often especially excited by the new adventure. Zuckerberg and Chan are merely two of the richer faces giving new attention to these broader movements.
When I was a kid, I asked Santa to bring me a bike or a baseball glove. As an adult, I mainly wished for good health and good cheer for myself and my loved ones. This year, I have a particular request that I hope the man in the red suit can grant: I want to be a drug company.
I want the government to give me a monopoly over what I produce. I want to be able to set almost any price for my products.
I want the government to pay for whatever tens of millions of government-subsidized customers buy from me. I also want the government to pay those who sell my product or spend their time advising and prescribing my product for others.
I want to be paid for years and decades for producing the same thing to meet some chronic need, even if it would be better to produce things that heal or cure. I want to be paid for things that sometimes turn out to be worthless, and to avoid the possibility of my customers haggling over prices or suing me because they don’t pay for those things directly.
I want Congress to give me the power to appropriate money to myself and give up some of the power reserved in the Constitution for itself.
But I’m not done.
I want the government to let me avoid paying tax on the income I earn from the money it pays me. I want to be able to live in the United States and claim citizenship for tax purposes abroad in some low–tax rate country. I want to defer taxes on my income, then have the government forgive that tax debt. And I want congressional representatives who for years—even decades—have been more interested in fighting among themselves than in doing anything about this type of arrangement.
Why not? A recent news flurry surrounds Pfizer’s announcement that it will now become a foreign company so it can avoid US corporate tax and grab money set aside abroad for US tax liabilities. But that’s only the tail on a long list of favors granted it and other drug companies.
I write a lot. Imagine if I put my work under copyright, then lobbied to have a law passed that creates millions of subsidized customers who can have my work for free because I’m billing the government. Of course, I should be allowed to set almost any price for what the government pays on behalf of those customers. And the government could promise to book and magazine sellers that their profits would rise automatically with sales of my writings. Meanwhile, I’ve been around long enough that I’ve got a good share of my income deferred from tax until I draw down my 401(k) accounts, so I should be allowed to rent a shack somewhere abroad, claim a foreign residence, and avoid ever paying tax on that income, even while I live in the States.
Now, don’t blame me if I respond naturally to all those incentives. Or lobby Congress to maintain them. And don’t blame me if I end up producing things less worthwhile than what I could produce. Hey, it’s a free country.
How about you? Maybe together we can invent a company for workers and could be granted power to charge anything we want for providing that work to a large set of government-subsidized customers. We shouldn’t have to pay tax, given all we are doing for the economy. We could get some deep-thinking consulting firms to prove that this would probably solve any future unemployment problem.
What do you say, Santa? For goodness sake, you know I’ve been good, and I’m not pouting. With this wish, I’m just asking for what your competitor, Congress, gave the drug company next door.
On October 22 Paul Ryan announced he “will gladly serve” as Speaker of the House if he can unify the Republicans around his vision for the party and the Speaker’s role within it. He faces an uphill battle: Mo Brooks of the House Freedom Caucus has already voiced his concern at Ryan’s reluctance “to do the speaker job as it’s been done in the past.”
But what if the job, not the person filling it, has become the problem? What if the expectations now placed on any Speaker of the House are so unreasonable that no one can meet them? What if the procedures of both the House and the Senate simply cannot meet modern legislative needs? Then we had best not place our hopes on the right person meeting wrong expectations.
Instead, to succeed, the next Speaker of the House must radically redefine that role and how the House conducts business. Ryan himself has stated that “we need to update our House rules…and ensure that we don’t experience constant leadership challenges and crisis.”
At least since the time of Newt Gingrich, an extraordinary amount of the House’s power has been concentrated in the Speaker’s office (although I sense that John Boehner struggled to simultaneously maintain that power and disperse it). Consider some consequences of this convergence:
- Acrimony. The antipathy that accompanies all concentrations of power has spread not just between political parties, but within them as well. One of Republican Congressman Mark Meadows’ chief complaints about John Boehner was that the Speaker had attempted “to consolidate power and centralize decisionmaking.”
- Attention to party rather than nation. In recent years, the House has attempted to confine enactments to items that receive broad consensus among members of the majority party. But the US Congress cannot operate like the British House of Commons, where party leaders become prime ministers. Our Constitution separates the country’s executive and legislative functions, slowing down reforms both good and bad. Although we can’t imitate most British parliamentary procedures, I do think the British tradition of the Speaker resigning his or her party position to serve all House members is worth looking into.
- Inefficient policymaking. Congressional committees are much weaker than they were 20 years ago. At one time the Ways and Means Committee was the most powerful in the House, and its chair was often as powerful as the Speaker. Working closely with the Senate Finance Committee, Ways and Means often took on the unpopular task of identifying how to increase taxes or cut the entitlement spending under its jurisdiction so the nation’s balance sheets maintained some semblance of order. However, once much of the committee’s power was relegated to a Speaker whose job revolved around keeping members of his party happy, necessary economic choices and the compromises that need to be ironed out in a small group— often including members of the other party—couldn’t be developed or sustained. In turn, the complicated, technical, details of policymaking—whether over a tax cut or a health care expansion—often got messed up when put under the purview of people with limited expertise on the particular laws being reformed.
In sum, a Speaker can’t serve either nation or party well when so much power is concentrated in one office, the acrimony surrounding such concentration rises so high, too many party obligations weaken the Speaker’s ability to focus on legislative obligations, and the assumption that the primary role of the Speaker is to promote partisan politics weakens the ability of the House to make tough choices and creatively draft detailed legislation.
Of course, the Speaker cannot reform his own role in isolation from other roles and rules within the House. As already noted, more legislative power can be returned to committees, and party politics can be relegated to party whips or other officers with no obligations to the House as a whole. Here I agree with many Freedom Caucus members, who claim they want to empower committees, but I disagree that this means that a small group within a majority party should be more likely to get its way. The job of the committee chair, just like the job of the Speaker, is to create legislation that will form enough consensus to pass the House, the Senate, and the presidential veto pen.
The House, led by the Speaker, must also start to tackle other obstacles to legislation. Here are three to start. First, political staffs should be reduced in size and nonpartisan staffs increased. The House budget and tax-writing committees can look to the Congressional Budget Office or Joint Committee on Taxation for objective analyses of legislative proposals; other committees lack independent reality-checkers. Second, the congressional budget process is long overdue for overhaul. As a former head of the Budget Committee, Paul Ryan should be all over this one. Third, the wasteful replication of hearings on the same subject matter across House committee jurisdictions should be curtailed.
There’s no guarantee that any particular reform will suddenly make the House more productive. But continuing under current expectations and processes almost assuredly insures that both the House and the Speaker will fail to meet their fundamental constitutional responsibilities to legislate for the nation.
Disgruntled minorities will always seek whatever power the existing structure grants them. The next Speaker can only meet his huge challenges by boldly changing the rules of the game he is called to officiate.
After weeks of hearing the presidential candidates pander to your interests and mine, asking us to give up nothing or do nothing to create a better nation—after all, the responsibility for our problems always lies with immigrants, or government workers, or the rich, or business executives, or stupid liberals or conservatives, or some other group that we don’t belong to, right?—I happened to listen again to Gene Scheer’s “American Anthem,” which was featured in Ken Burns’ documentary The War. I realized my ideal candidate would inspire with this song’s type of message.
American Anthem (first two verses)
All we’ve been given by those who came before
The dream of a nation where freedom would endure
The work and prayers of centuries have brought us to this day
What shall be our legacy? What will our children say?
Let them say of me I was one who believed
In sharing the blessings I received
Let me know in my heart when my days are through
America, America, I gave my best to you
Each generation from the plains to distant shore
With the gifts they were given were determined to leave more
Battles fought together, acts of conscience fought alone
These are the seeds from which America has grown
Let them say of me I was one who believed
In sharing the blessings I received
Let me know in my heart when my days are through
America, America, I gave my best to you