Can Philanthropy and Investing Replace the Failing Welfare State?
Michael and Susan Dell are donating $6.25 billion to help fund savings accounts for 25 million children nationwide. Ray and Barbara Dalio are doing something similar in Connecticut. They have announced a contribution of $75 million to benefit 300,000 children in their home state.
The accounts to which Dell and Dalio are contributing can be opened after July 4 of this year, thanks to a provision inside the Working Families Tax Cuts Bill. In addition to such private charitable contributions, children born between 2025 and 2028 are eligible for $1,000 of seed money from the U.S. Treasury.
Dell and Dalio’s praiseworthy philanthropic projects have inspired others to give. Charter Communications, Charles Schwab, and other American companies have promised to match the federal government’s initial $1,000 deposit for the children of their employees.
Many more companies are expected to build regular contributions into their work perquisites programs. Parents or anyone else can also deposit up to $5,000 per year per child. As with current retirement accounts, the money can be invested in low-cost index funds.
At age 18, these savings will be converted into IRAs, with penalty-free withdrawals available to purchase homes, pay for higher education or job training, or start businesses. Fully funded accounts will have over a quarter of a million dollars by the time the child becomes an adult.
Even without additional contributions, these Americans will be able to make a down payment on a house or meet their college expenses. If left invested until retirement, these cradle-to-conclusion-of-work accounts could be worth millions through the magic of compound interest.
The Dell and Dalio gifts are for ZIP codes with median incomes below $150,000. If the Dells and Dalios are interested in helping middle- and low-income families, shouldn’t they just give $250 to the children now rather than funding the accounts? Because they made their fortunes through entrepreneurship and investment, their goal is not to “alleviate poverty” but to empower these children and enable self-sufficiency later.
Dozens of welfare failures spawned by FDR’s New Deal or LBJ’s War on Poverty made people reliant on government to tax, borrow, and redistribute other people’s money. These private accounts, on the other hand, treat lower-income families as agents with dignity and the ability to shape their own fate.
For almost a century now, bureaucratic anti-poverty programs engineered outcomes from the top down and smothered the initiative and independence they claimed to encourage. The most visible result of the so-called “Great Society” is that poverty rates stayed the same for 60 years.
Who are the seniors with comfortable retirements? Those with pensions or personal investments. Yet, we are led to believe that what stands between us and poverty is a government program. That mindset turns autonomous human beings into wards of the state. Free men become serfs.
Can the different approach of the Trump Accounts make a difference? When Oklahoma seeded newborn accounts with $1,000 for a college savings plan, parents reported higher expectations for their kids’ education. They were more hopeful for their future and more confident in making long-term plans.
The Dells’ and Dalios’ approach isn’t the first of its kind, but its alliance with Trump’s plans carries new hope. Growing up with something that belongs to you, something you can build on, subtly but powerfully shapes your decisions. Even tiny savings accounts can change the trajectory of a life.
A Lesson from Chile
As Americans ponder the question of whether philanthropy and investing can replace the failing welfare state, we can draw inspiration from one of the most remarkable economic success stories of the past 45 years. We are talking about Chile’s pension reform led by Dr. José Piñera.
A staunch supporter of free enterprise, he crafted a bold plan to privatize his country’s retirement system. Elitists argued that ordinary people can’t handle such responsibility. Yet, voluntary personal accounts funded by workers gave all of them a stake in their country’s progress.
As a result, Chile achieved some of the highest retirement returns in the world. Piñera’s reform tapped into the same truths that Trump and these philanthropic families embrace. People thrive when treated as responsible adults, when they control their own money and plan their own future.
The lesson from Chile is that structural poverty begins to evaporate when people own assets, not when they receive allowances. America has tried nearly every form of top-down management of poverty, only to write a story of failure. If the definition of insanity, as someone once said, is doing the same thing over and over again and expecting different results, then the next chapter must be about bottom-up empowerment instead.
About the Authors
An award-winning author and producer of free-enterprise thought leadership, Kristin Tokarev earned a B.B.A. in economics and an M.S. in Business Analytics from Northwood University. Dr. Glenn Moots is the Political Science and Philosophy Department Chair at Northwood University. Dr. Alexander Tokarev is an Associate Professor of free market economics and classical liberal philosophy at Northwood University. This piece is featured in the October edition of When Free to Choose, Northwood’s signature publication dedicated to exploring the importance of free enterprise and other tenets of The Northwood idea. Click here to receive When Free to Choose in your inbox!