In August 2011, the 170 metre obelisk honouring George Washington at the heart of the city named after him was damaged in a rare east coast earthquake. It needed $15 million in repairs. Congress put up half the money but for the balance appealed to private donors. David Rubenstein answered the call.
Seven or eight million was chump change for the co-founder of the Carlyle Group, a hugely successful private equity firm. At the time he was said to be worth around $2.6 billion. He was into what he called “patriotic philanthropy”.
Part of why he had such a pile to give away was a quirk of the tax code that allowed him to treat profits he made investing other people’s money not as income, which in his case would have been taxed at 35 per cent, but as capital gains, then taxed at 15 per cent.
Politicians on both sides of the partisan divide, Donald Trump included, have pledged, piously and often, to close so-called carried interest tax loophole, but somehow it never seems to get done. The reason is simple enough. The billionaire hedge fund and private equity types who exploit carried interest not only have money to spare for philanthropy. They can also afford to buy Congress.
Rubenstein is lionised for his generosity. Asked on 60 Minutes about the Washington Monument donation, he said: “The government doesn’t have the resources it used to have. We have gigantic deficits and a large debt. And I think private citizens now need to pitch in.”
Plutocrats buying themselves grotesquely skewed tax treatment that robs the public fiscus of billions has a lot to do with government being short. But perhaps Rubenstein missed the irony.
Carlyle has lately been in the news over a chain of nursing homes, HCR Manorcare, the second largest in the country, which it bought for $6.1 billion in 2007. The chain filed for bankruptcy in March amid sickening reports of neglected and mistreated residents.
To work, the deal relied on Medicare, the national, tax-funded health scheme for retirees, to supply revenue and, of course, to pay Carlyle’s advisory fees. But in 2011, Medicare cut payments to nursing homes in a belt-tightening necessitated in part by the 2008 financial crisis and Wall Street’s success in getting Congress to stick Main Street with the bill.
So, as Rubenstein was winning kudos for restoring the Washington Monument, his colleagues sold Manorcare’s buildings and grounds to recoup their investment and then had Manorcare, already crippled with debt, lease them back. To stay afloat, the company had to slash costs. No prizes for guessing who paid the price.
Predatory capitalism devoid of any sense that being a citizen comes with obligations to one’s fellow citizens is eating at the soul of this country. Extract whatever value you can, from wherever you can, even the defenseless denizens of old age homes, and use the profits to buy the rules you need to maximise short term profit. That is the way. The market demands it!
No matter that your fellow Americans are committing suicide at record rates or overdosing by the thousand on the opioids you got them hooked on with grotesquely cynical marketing. No matter that there’s an epidemic of obesity and diabetes because of the high-margin fatty, salty, sugary dreck you get them to gorge on. No matter that America’s life expectancies are shrinking even as the medical-industrial complex sucks up a sixth of the economy. No matter that you have maddened this country into making a depraved, semi-literate demagogue president.
Philanthropy cannot wholly mask the stench. Indeed, as Anand Giriharadas writes in Winners Take All — The Elite Charade of Changing the World it may well compound it, funded as it is by the predators themselves. They have no interest in fomenting systemic change which might involve their having to make a sacrifice of two for the greater good.