While Brussels celebrates past successes, the removal of the veto, the erosion of the Single Market, and accelerated enlargement threaten to turn the European project into something very different from what Spain and Portugal signed up to in 1986.
Five American billionaires have decided to create a new organization to help the poor improve their lives and earn more money. According to Forbes Magazine,
On Thursday [June 17th], the charitable foundations of billionaires Bill Gates (net worth: $116.9 billion), Charles Koch ($67.5 billion), Steve Ballmer ($142.5 billion), Intuit founder Scott Cook ($7.7 billion) and hedge fund investor John Overdeck ($7.4 billion) announced a more than $1 billion pledge to fund a new philanthropic vehicle focused on economic mobility called NextLadder Ventures. That entity will … support organizations focused on using AI and other emerging technologies to improve the financial trajectory of low-income Americans.
To Americans, this kind of charity is common, even natural. It is embedded in the American social genome that people who are immensely successful also give back to their communities. As Arthur Brooks showed in his book Who Really Cares? back in 2007, Americans are more charitable than the rest of the world combined. The big money comes from very wealthy people; the volume of annual gifts comes from low-to-middle-income earners who give a larger part of their incomes than any other income group.
From a European perspective, it is easy to draw the conclusion that the large charitable sector in America is there to replace an absent welfare state. America does not have a single-payer health care system, and parents with a newborn do not get paid leave from work. The poor suffer immensely under American capitalism, right?
The simple answer is no. Europeans are soon going to have to do major reforms to their welfare states. The extent of that reform will depend on how educated the average European is on alternatives to the complete abolition of the welfare state. But Europe cannot afford to wait much longer: the continent is rapidly approaching a point where the pace of a reform will dictate its content. Not only would it help generate more economic growth in general, but it would also help alleviate the political stress around the efforts to grow Europe’s defense budgets.
Europeans tend to believe that they ‘know America’ and that Europe is better than America, especially in terms of caring for the poor. While I am not going to get into a numerical exercise today, a brief look at life on welfare benefits in America shows that it can be quite rewarding.
What stands out about America in terms of caring for the ‘less privileged’ is that we combine a generous welfare state with the aforementioned private, charitable initiatives. This is nothing new: charity is as old as the American constitutional republic; by comparison, the American welfare state is relatively new. The bulk of it was constructed in the 1960s, and the design of its benefits systems was in many ways based on the architecture of the Swedish welfare state. Despite its Swedish heritage, it is not as universal as the original that inspired it: there is no universal, single-payer health care system in America, and we also do not have general income security programs, such as paid family leave.
However, the American welfare state is notably generous with programs for the poor and for low-income households. The federal government provides a benefits program called SNAP (Supplemental Nutritional Assistance Program), which gives eligible families a cash card that they can only use to buy groceries. There is a cash assistance program called TANF, temporary assistance to needy families; there is a special program for women with infants and small children, a housing assistance program, and a program to help low-income renters pay their home heating bills.
Among the bigger programs, again mostly unknown to Europeans, are the Earned Income Tax Credit (EITC) and Medicaid. The EITC program gives cash benefits to low-income households in return for the federal income taxes they pay. Medicaid is a health benefits program that pays for medical treatment for tens of millions of poor and low-income families.
To qualify for these benefits, eligible persons do not have to deplete their personal resources to the extent that they have to do in, e.g., Sweden. In other words, you do not have to be absolutely destitute to enter the alphabet soup of social benefits available to the lowest tier of American income earners.
If we add up all these benefits, life is relatively comfortable for those who can check all the boxes. Back in 2013, the Cato Institute published an updated version of Michael Tanner’s excellent “Work versus Welfare” study. His original study from 1995 found that welfare benefits paid more than minimum-wage jobs in all 50 states; the updated version concluded that the benefits
continue to outpace the income that most recipients can expect to earn from an entry-level job, and the balance between welfare and work may actually have grown worse in recent years.
That was 12 years ago. While Cato has abandoned this pressing subject, the American Institute for Economic Research (AIER) published its own version earlier this year. They document that for a single parent with two kids, the same check-all-boxes package of welfare benefits pays anywhere from $44,900 per year in Arkansas to $102,300 per year if living in Washington, DC.
Adding to America’s welfare generosity, the AIER study also notes that welfare benefits exceed median income in all 50 states.
So far, we have only talked about tax-paid benefits available to the poor. What really sets America apart from Europe is the broad range of private programs, charitable and other, that aim to provide poor and low-income individuals with opportunities for a better life—and, as demonstrated by the aforementioned Forbes article, that lineup of opportunities is only growing bigger. That is exactly the intention behind the initiative that the five billionaires have announced. It begins with $1 billion, to be spent over seven years through the organization’s fund. While the money will be distributed gradually, it will still create a significant number of opportunities for those who qualify.
This new initiative is far from unique. As Forbes notes, Bill Gates and his ex-wife Melinda, to take one example, have
already doled out an estimated $47.7 billion—almost all through the Gates Foundation—to organizations focused on health and poverty alleviation.
Although most of this money goes to global initiatives, the Foundation makes sizable domestic contributions as well. According to the Foundation’s latest annual report, in 2024 it donated $784 million to U.S. poverty-relief programs.
In general, when private organizations aim to help the poor, their initiatives range from traditional, daily-life-oriented programs—often run by churches—to entrepreneurial support programs, favorable bank credit initiatives, and various forms of ‘socially responsible’ venture capitalism. Beyond that, there is also the near-endless list of programs at America’s colleges and universities, with scholarships tailored to support students from low-income backgrounds.
Although most of the academic initiatives are concerned with so-called ethnic minorities, there are opportunities open to poor students from all backgrounds.
Added to all this is the fact that the U.S. federal tax code places the bulk of the tax burden on high-income earners: the 2.4% of income earners who make at least $500,000 per year earn 35% of the taxable income but pay 51% of all personal federal income taxes.
By contrast, the 53% of the households who earn less than $75,000 per year earn 13% of the taxable income—but only pay 7% of all federal personal income taxes.
All in all, the American welfare state is uniquely generous toward the people it sets out to help. Should Europe copy it? No. But its unusual structure and its way of going about benefits can provide an important reference point for anyone seeking inspiration to bring home to their own crumbling welfare state.
