Yesterday the New York Times ran an editorial that lamented the tributes that billionaire Robert F. Smith was receiving for promising to pay off the debt for all of Morehouse College’s graduates in the 2019 class. In a begrudging acknowledgement that Smith’s gift, estimated at$40 million dollars, “was an act of generosity,” the Times devoted most of its ink to the complaint that his philanthropy functioned to mask the failure of a tax policy that benefitted him, much like the earlier example of Andrew Carnegie giving away millions to build libraries across the country.
According to the Times, the “substitution of philanthropy for public policy” reveals that America does not have the money it needs for crucial investments like health care, education and infrastructure and that’s because a parade of tax breaks has steadily reduced public revenue. In Smith’s case, the culprit, according to the Times, is the carried interest provision that allows private equity firms’ returns to be taxed as investment income at a much lower rate than it would be as earned income.
The Times is right about the failure of tax policy to generate sufficient revenue for crucial government spending. Decades of tax cutting at the federal level and in many states have left the public tanks nearly empty. And its criticism of a growing plutocracy echoes the persuasive argument by Anand Giridharadas that gifts by wealthy individuals help allow them to perpetuate a system that protects their power and privilege.
Where the Times gets it wrong is using the Smith gift as the context for its criticism. What if Robert Smith pledged nothing to Morehouse during his commencement address? Would U.S. tax policy stand a better chance of becoming fairer? Of being more likely to wipe out student debt? Would there be a better chance that Donald Trump would keep his broken promise to close the carried interest loophole?
And what if that loophole were closed, and the government reaped the more than $15 billion it’s estimated would be generated over a decade? Would the money go toward making a college education more affordable? Would it be used to boost Pell grants or other investments that could increase the equity or improve the quality of education? Or would it go toward building a wall on the Southern border? Or throwing a bigger July 4th party?
Rather than minimizing the significance of Smith’s gift or quibbling about whether he should have given some of the money to another HBCU, we should hold it up as an example of how philanthropy could be extended on a broader scale to benefit low and moderate income students struggling to afford college.
Robert Smith’s one gift won’t significantly reduce student debt, but philanthropy dedicated to that purpose, one institution at a time, could. Imagine if college presidents across the nation persuaded their donors to pledge their billions in gifts to endowed scholarships for financially needy students rather than to build indoor football practice facilities or lazy rivers in student recreation centers.
These scholarships could be structured to combat the student debt problem in two ways. First, make them contingent on students borrowing no more than necessary for college-related expenses. Second, increase the amount provided each year as the student continues in college, building an incentive to persist to graduation.
Billionaires can spend their money many ways. They can horde it. They can invest it so they can make more. They can spend it on golf courses that lose money. They can buy bunny sculptures for $80 million.
Or they can, like Robert Smith and Michael Bloomberg, give it away to poor students so they can afford to go to college. Perhaps their wealth was accumulated in part through legal advantages that should be curtailed or financial rules that should be reformed. Let’s get on with that work. But in the meantime, it doesn’t seem to compromise too many principles for all of us – including the New York Times – simply to say “thank you” for their extraordinary generosity and hope that others follow their lead.