When Paul Allen signed the Giving Pledge in 2010, becoming one of 40 people to agree to give at least half their fortune to philanthropy, he was worth $13.5 billion. It was money he’d amassed from co-founding Microsoft, which he then put into the company Vulcan Inc., a group that handled both his philanthropic and investment initiatives. “I believe that those fortunate to achieve great wealth should put it to work for the good of humanity,” Allen wrote when signing the pledge, which had been created by his friend and former colleague Bill Gates and fellow billionaire Warren Buffett.
By the time he died Monday at the age of 65, Allen had given away hundreds of millions of dollars to causes across the globe. Like many of the tech elite, he was a proponent of giving while living, trying to solve contemporary problems. In 2012, The Chronicle of Philanthropy named him the most generous living donor in America, after he gave away $372.6 million in 2011. He gave $100 million to launch the Frontiers Group, which funds unconventional scientific research; pledged $100 million to fight Ebola; and launched a school of computer science with a $50 million endowment. In 2016, he gave away a total of $295 million, or 1.6 percent of his total wealth, according to The Chronicle of Philanthropy. In total, he gave away $2 billion to charitable causes.
He also bought the Seattle Seahawks and the Portland Trail Blazers, and became a minority owner in the Seattle Sounders. He purchased an 18.5 percent stake in DreamWorks and created an independent film-production company, and he opened the Allen Institute for Brain Sciences and the Allen Institute for Artificial Intelligence. He gave $100,000 this year to a group trying to keep Republicans in control of the House; he has also given to Democrats. His super-yacht had a pool, a movie theater, and 41 suites.
But the day he died, he was worth $20 billion—48 percent more than he was when he signed the pledge. It’s a sign of just how broken the American system of wealth is: A billionaire pledges to give away half his fortune and, despite donating generously and spending liberally, ends up with even more money than he had before. The same seems to be true for many of the people who signed the Giving Pledge. Bill and Melinda Gates gave away $141.4 million in 2016, according to The Chronicle of Philanthropy, but that was just 0.2 percent of their net worth of $81 billion at the time. (Their current net worth: $95.9 billion.)
Allen played by the rules: Make billions of dollars through honest, hard work, and then pledge to give away much of it. It’s a model made famous by Andrew Carnegie in his 1889 essay, “The Gospel of Wealth,” in which he argued that citizens would be willing to accept some of the problems caused by capitalism if philanthropists spent some of their earnings to solve some of those problems. But critics have recently started to question a system in which people can make so much money, and then, while giving away much of it, also use that money to reinforce the market-based system that helps perpetuate their wealth. The super-rich “are the beneficiaries of tax laws that give carried interest a major break and help to keep the public coffers low and the schools attended by the city’s poor underfunded,” Anand Giridharadas writes in his book Winners Take All: The Elite Charade of Changing the World. “But these men have been generous, and in exchange for their generosity, these issues will not come up.”
As Giridharadas points out in his book, the super-rich are increasingly doing better and better. The average pretax income of the top 0.001 percent of Americans has risen sevenfold since 1980, while the average pretax income of the bottom half of Americans has stayed the same. And the fortunes of the world’s billionaires grow at more than double the rate of everyone else’s.
It is surprisingly difficult to give away $10 billion. Most nonprofits wouldn’t know what to do with such a large gift, which would likely require growing staff and space exponentially, nearly overnight. The scrutiny around high-profile donations has also made philanthropists skittish: Mark Zuckerberg famously gave $100 million to the Newark, New Jersey, public-school system, only to be criticized for not consulting the local community. The Red Cross reportedly squandered the half a billion dollars it received in donations after the Haiti earthquake. “No one wants to be the one who made a big bet and lost,” Ray Madoff, a professor at Boston College Law School who studies philanthropy and tax policy, told me.
But there is a larger issue here, too, Madoff argues. While the tax system incentivizes people to set aside charitable funds, it does nothing to ensure that these funds ever reach charities engaged in charitable work. Philanthropists can get a big tax break for giving their money to their private foundations, or to donor-advised funds, charities that hold money that must be used for philanthropic purposes, but that have no requirement that the money ever be spent. But there’s no guarantee that the funds set aside actually end up making the world a better place. Private foundations are required to disperse 5 percent of their endowments per year, but they are allowed to put that money in a donor-advised fund. Each year, the majority of the money earned through capitalism is parked somewhere—not given to charity, or to organizations that help the poor or save the whales or give supplies to earthquake victims. Contributions to donor-advised funds reached $23.27 billion in 2016, an all-time high.
“It’s very different to say you’re going to give away 50 percent of your wealth than to actually write the checks, make the transfers of wealth to the organizations,” Madoff said. “That’s where our charitable tax system is failing.” (Allen gave $2.5 million to one such donor-advised fund, the Silicon Valley Community Foundation, according to Forbes.) Six of the top 10 philanthropies in the country last year, in terms of the amount of nongovernmental money raised, were donor-advised funds, according to an annual ranking by The Chronicle of Philanthropy.
The kind of philanthropy that Allen did was also often very complicated, according to Maria Di Mento, a staff writer at The Chronicle of Philanthropy. He created a lot of his own institutes and initiatives, each of which requires time and lawyers and accountants. Thirty years ago, it was easier to just give away a lot of money, she said, but today it takes a lot of legal wrangling among tax advisers and lawyers and the nonprofit’s advisers.
And, of course, in Allen’s case, having money creates more money. The people at the top of Forbes’ annual list of billionaires are by and large the same people who have been there for years: Jeff Bezos, Bill Gates, Warren Buffett, Larry Ellison, David and Charles Koch. Anyone who earns a large amount of money has a wealth-management team whose job it is to put the money in a mix of investments that are all but guaranteed to grow the fortune. The wealth managers can invest in real estate, or in the stock market, or in tech, or just park all the money in a mutual fund and get smaller but steady returns. What’s more, labor is taxed at a higher rate than capital gains, so someone who earns money from investments, rather than from just a salary, receives highly favorable tax treatment that allows him to avoid high taxes. That was the bombshell that Thomas Piketty dropped when he published his massive book on inequality, Capital in the Twenty-First Century, in 2014. Wealth grows faster than income, he wrote, so in rich countries, a small elite will keep growing its wealth, while everyone else has to divide what’s left.
It’s unclear what will happen to the money Allen pledged to give away but did not yet donate. It’s very possible that half of it will go to charity in some form, fulfilling his commitment to the Giving Pledge. In a statement, Vulcan Inc. said, “Paul thoughtfully addressed how the many institutions he founded and supported would continue after he was no longer able to lead them. This isn’t the time to deal in those specifics as we focus on Paul’s family. We will continue to work on furthering Paul’s mission and the projects he entrusted to us.”
Still, the Giving Pledge is almost a decade old, and it now has 185 signatories. Though Allen might be its most high-profile donor to pass away, he won’t be the last. He died in an epoch of growing American inequality—the wealthiest 1 percent of American households now own 40 percent of the country’s wealth. Allen wanted to give away a lot of his fortune, to improve humanity, as he wrote in his Giving Pledge. But he still left behind a fortune whose size is almost impossible to comprehend.
Americans have accepted that people like Allen, who make lots and lots of money by dint of honest, hard work and smarts, should be able to keep that money and do with it what they wish. But even the most well-meaning billionaires have more money on their hands than they know what to do with, and every system is set in place to keep them rich.