Mark Zuckerberg’s Philanthropy Uses L.L.C. For More Control
nytimes.com
nytimes.com
It would have been 100% fully within his right to simply keep it all, or blow his fortune on snorting Fabergé eggs, or buying classic cars and crashing them.
Instead, he's giving almost all of it away. He's choosing to retain control over how it's given away? Well so what! It's still way better than keeping it all.
I am no fan of Facebook, but man, the amount of vitriol coming out about this move just astounds me. Giving away 99% of your wealth is apparently not commendable unless you do it just right. Meanwhile, how much are the commenters themselves giving away? Oh, somewhat less than 99%? Yeah.
I can put 99% of my wealth in a LLC and claim I'm giving it away. that doesn't make it true.
If he was being honest and genuine, it would be in a charitable trust or a non-profit foundation. Unless by "give away" he means "invest in companies and/or political lobbying". [ Hint: Charitable Trusts would function like a LLC in many respects with the guarantee at the end that the money would flow to a charitable cause in the end. ]
Yes but you can write the documents in such a way that it is required. In other words, I'd be willing to give him the benefit of the doubt that it was legally structured that way which is possible with such trusts.
When it's somebody in the very top 1% who up until now has taken large measures to completely avoid and drastically minimise paying tax in numerous countries (which can have substantial benefits for the populace of said countries) at the levels they should be, questions will always be asked.
I also completely agree, he's fully within his rights to blow the lot - this also has a benefit for society anyway (more people working to build him yachts, supercars, mix him martini's, etc., therefore more collected in tax from said blowing of cash).
I don't have a view at the moment on this either way - the proof will be in the pudding as they say and I will reserve judgement till then. I will, however, say he's not actually given anything away - certainly not yet anyway.
I'm not sure there's a less efficient way of helping people than giving money to the government.
> He's choosing to retain control
You're aware that those two things are opposites right?
Giving a thing away means you no longer have control of the thing. That's not a side effect, it's the literal plain meaning of the concept.
Him saying he is going to give it away $44 billion in the future should be evaluated in much the same way as my claim that I will receive $44 billion in the future, with healthy skepticism.
So what? That's fully within his rights.
A rich dude might by lying? That's not headline news.
People seem to confuse my position with something like, "Why isn't everybody praising him to the heavens?" When it's really more like, "Why is anybody paying attention to this?"
Terrible statement. If a commenter here makes 100,000 and gives away 99% well they are now extremely poor. If I have billions and give away 99% my life isn't likely to change.
So yes, for someone with little income donating 5% can already be too much.
Wait, you mean I don't get to decide what other people do with their money? Exactly.
We as a society will be reliant on "hoping the kings are just with their gold" as they make decisions based on their personal preferences. This is undemocratic and should be under perpetual scrutiny. I likely agree with what Chan and Zuckerberg will be doing with this money, but what about other ultra-rich folks giving a ton of money to high priced arts where their relatives all work in high paying jobs in the name of charity? Nothing inherently wrong with this in a vacuum, I love the arts, but when these donations take money away from other tax-reliant services such as schools, the net benefit to society should certainly be considered.
So what's the problem? Those high incomes get taxed at a high rate. There's a reason the rich pay such an extreme portion of all income taxes in the US.
My quibble is that his "birth announcement" makes this sound "all charity" when clearly putting it in an LLC makes it a "all power play" move.
You're right that it is fully within his right to keep it, but then he would have had to do things like pay taxes on it. By doing this he can avoid estate tax and keep the power within his family or inner circle. He can be left to pursue his worldview without interruption.
I'm sure he'll do some great things with his foundation, and others I'll completely disagree with, but the point is it moves us further down this road of oligarchy and reliance on the extremely wealthy.
EDIT: Just wanted to add an example. The Gates foundation put something like $200 million towards Common Core education standards, which was rapidly pushed through and adopted after their funding. Regardless of whether you are for or against it, it goes to show that one extremely wealthy foundation was able to completely change national education policy in less than a decade to reflect their singular worldview. That to me is unacceptable in a democratic society.
What do you expect? As long as not a single cent has changed hands why should anyone praise what up to now is only a PR move?
Contrast that with J.K. Rowling who actually donated money and is now no longer a billionaire.
Dude I've met lots of people who don't make much money and still donate from the little they have. They might be giving only 10% but if you already have difficulties making ends meet this is a lot.
So no, I don't buy into some billionaire putting his money into a LLC to evade the tax and claiming to do something good.
Btw I wouldn't be pointing my finger if it wasn't for the public announcement. He still could do that in private. But don't make a big fuss about it and pretend you are an example.
There's a huge difference between someone who's always spent their life working for others, and someone who has ignored others for most of their life, but then throws money in that direction after they've made so much that they realize what they really want to spend their excess billions on is buying popularity.
So yeah, he might do great things with it, or he might not. We don't have much to go by, other than the fact that he's made a big announcement before he's actually willing to tell us what he's doing, which points to this being a vanity project more than anything.
Even if he does great things with it (which we have no way of knowing at the moment), it doesn't mean that he's above criticism. Some politicians will have massive turkey give-aways to boost their popularity; organized crime leaders are often known for their generosity in their communities. In the world we live in, it's worth taking a look at the person as a whole as well as what their motivations are, rather than just praising any gifts while ignoring ulterior motives.
If and when he does something bad, go wild with the criticism. But making your "charitable foundation" an LLC does not qualify, nor does any of the other stuff I've seen criticized so far.
For now, the 'Institute' is simply being vague about wanting to "do good" in the world, which, if you ask any well-meaning college student or pot smoking hippie, would be a pretty basic premise, but equally ineffective without a step-by-step plan. Might be asking too much on that last point, but look at it this way: A guy stands on top of a soapbox and says he's going to change the world for better, and if nobody in the audience scoffs and asks "How" then is it really a bold statement?
>To sum up, his money is not going to a charity, but to his own LLC, which will let him evade tax by moving his private assets into a foundation.
>Unlike a charitable trust, which is compelled to spend its money on charity, Chan Zuckerberg Initiative, LLC will be able to spend its money on whatever it wants, including private, profit-generating investment.
From: http://says.com/my/news/what-no-one-is-telling-you-about-mar...
You aren't less of a citizen because you try to not pay more tax than you owe. The exemptions for certain types of income are put there because the legislature wants to promote certain activities as beneficial to the public good. Charitable Remainder Trusts are one of those things written into the law. Complain to your lawmakers if you think that's unfair.
Seriously. does anyone reading this post think the government is a better steward of their income than they are? If you think so, then donate 100% of your income to the government and live on public assistance. That option is provided on the tax return you sign here in the USA.
Also, 'rich' is often a placeholder for companies. Companies want to be successful. That means compromise in a million different ways as bold moves can lead to bankruptcy, boycotts, competitors coming in and taking your market share, etc. Companies have an incentive to play ball as they want to survive and be competitive. Government, on the other hand, survives by default and doesn't have to be efficient at all.
The reality is that good government works when we have all players mobilized and part of the process. Its incredibly cynical to just claim the rich make laws to benefit themselves, especially considering that the US runs on a popular democracy model to the point of directly electing the highest office, which is unheard of in parliamentary democracies. The rich are vastly outnumbered. Perhaps you should consider that a lot of regular people vote in policies that are pro-business because they want jobs and wealth in their area. Not everyone can become a silicon valley hotshot or NYC finance banker. Those 'red state' policies you hate so much bring in employers, jobs, create wealth, etc. We tried communism. Turns out it didnt work. In fact it led to the deaths of 50-100m people and created autocracies, war, political persecution, poverty, and misery on a level unimaginable before.
My friends here in Chicago are all looking for new jobs because a couple employers have already left and many are planning on leaving as the tax level and anti-business attitudes here are killing the economy. This is a city of 3m people with a $550b GDP and we have a junk credit rating and no one knows how to pay off these fatcat union pensions. So yeah, be careful what you wish for. When the average guy has political power, he just writes checks for his friends at the cost of the taxpayer and the local economy. Without the business owning class calling some of the shots, there's really no incentive to do anything right as you can just keep dipping into the public treasury and when that runs out just keep raising taxes per the Chicago model. Which inevitably culminates into a Detriot-like bankruptcy.
If you kill all the rich people and take their money, who is going to be left to organize businesses or produce the kinds of inventions that benefit society? The "next-richest" people?
A society that demonizes its most successful members is a doomed one.
A society that demonizes its poorest is a doomed one.
The PhD's, researchers, and managers at Federal organizations make salaries that would classy them as "rich" in this scenario. Just because something is publicly funded doesn't mean its thrifty, efficient, or "for the people." If anything, considering what we know of how governments all over the world work, its more than likely public research and programs are wasteful and corrupt compared to private equivalents.
You can easily use this sort of operation to launder money for the purposes of doing all sorts of things. Transfer your money to an LLC, get a web of LLCs or shelf corporations and "sell" valuable services between them.
If you're a scumbag, in addition to saving on taxes, you can avoid accountability for nasty practices. Slumlords are a great example... many control swaths of cities and use anonymity to hide that fact. So they can do stuff like rig the "prevailing rent" in a area to extract higher public assistance reimbursements, discriminate against people, buy off politicians by giving them sweetheart deals on real estate, etc.
If you're a not so philantrophic rich dude, you can also do shady Koch-brothers style political bribery or establish a presence in South Dakota to exploit loopholes that will leave your family without any tax obligation for several generations. If you're real clever, you use the shady political stuff to create more loopholes for yourself.
I've always found these arguments to be poor attempts at a reductio ad absurdum.
While some people do take vows of poverty, by and large this is not what's meant by advocates of public institutions.
The thing is that there is a large body of services and capital investments that are most efficiently - for both economic and political reasons - conducted by accountable, democratic institutions. The canonical example are roads and firemen but also education and public transit and healthcare and some kinds of housing.
We can debate over the legitimacy of particular governance mechanisms (NIMBYs in the Bay!) or political actors in given jurisdictions (State senators in NY!) but by and large in North America people have some sort of say in outcomes that affect them.
The problem is precisely that by
>following the law and organizing his affairs to retain control of the money he earned
his gift is a considerably less selfless act. It's one thing to "eradicate malaria". It's another completely to "try to make the world resemble what Chan Zuckerberg want".
You're allowed to do this with your own money, of course. But it's considerably less altruistic of you. If you were anywhere at all already suspicious of his intentions given the product his company has developed, the idea that he will be dedicating billions of dollars towards his own (political) agenda is not exactly heartwarming.
Extremely debatable.
That said, public education is such an evident failure that it's doing you a disservice to list it. Alternatives like Sudbury schools tend to be privately or cooperatively owned institutions.
(Also, most firefighters are volunteers, who need not be publicly funded.)
This isn't an anti-firefighter screed, but 75% of what they do can be (and is in some cases) done more efficiently by ambulance crews.
Again that's fine, but call a spade a spade. It plays into the overall narrative on Mark as being slimy and doubletalking about everything.
Everybody has to pay taxes. Some people have the means to avoid paying a fair amount and retain even a higher percentage of their income. The poor pay many direct and indirect taxes which equals a higher percentage of their income than rich.[1]
Not saying that the world needs to be fair for everybody, but it's disingenuous to take advantage of public services and resources and say it isn't your responsibility to pay for them in an equitable way. Warrent Buffet understands this and wants it changed. [2]
And no meaningful tax reform law has any chance of passing due to gridlock in Congress. People like Zuckerberg are flaunting this fact and daring somebody to close loopholes.
[1] http://www.itep.org/whopays/full_report.php [2] http://fee.org/freeman/5-warren-buffetts-federal-tax-rate-is...
I'm just curious where you draw the line.
Tax evasion is illegal.
The grey area of tax avoidance - misusing tax laws in ways that were not intended - is not illegal, but not fine. A variety of bizarre corporate structures and dodges are used and the only purpose they serve is to shuffle tax away from government. There's no reason Starbucks has its own coffee bean roasting company that sells its beans at huge price to the Starbucks coffee shops. The only reason it's been structured like that is to funnel tax away from governments where the shops are to the tax haven where the coffee roasting company is.
When a London business, selling products in London, to people in London, buys Google ads from the Google London office, paying for those ads from their London bank account to Google's London bank account in GBP the only reason someone in Ireland rubber stamps the paperwork is so Google can -quite legally- avoid tax.
These are scumbag moves and they create a lot of hostility.
Nonsense. I can support the idea of a democratic welfare state, and be opposed to the rich avoiding taxes, without having to give up all my money.
I suspect there might be a strawman in here somewhere. Yes, it is OK to do everything you can to try to limit the money you have to pay in taxes. However, so much wealth concentrated among so few people is not very desirable. (I understand that the American public disagrees with me on this.)
I think progressive income taxes and estate taxes are very important. I don't think I am arguing for anything outrageous. I guess a nice sound bite/tl;dr would be to say "I want to cap the income tax at half of total income, regardless of how high the income is". I just wish that people with money understood that their efforts to lower taxes for themselves to absurdly low rates is detrimental to stability. I wish they thought beyond this quarter's tax bill.
That is true for some values of "citizen" and "owe", but not others. If you're using the strict definitions of the laws, it's technically true. If by citizen you mean something like, "participant in a community of place" and by "owe" you mean "should fairly pay" then it's also true. But when you mix those, it can easily be false. Being a citizen in that sense is about full participation in the community, and paying is part of that.
This matters because of your next mistake:
> The exemptions for certain types of income are put there because the legislature wants to promote certain activities as beneficial to the public good.
This is manifestly not how laws get made in the US. Many studies indicate that US legislators are much more sensitive to the concerns of the rich than they are to anybody else. And abstract conceptions of "the public good" don't vote, so they're definitely not sensitive to those.
> If you think so, then donate 100% of your income to the government and live on public assistance.
This is just fatuous. You're arguing with a particularly dumb straw man here. Tax policy is about finding fair ways to pay for collective action and to shape society over the long term. Believing that should work well is not equivalent to your absurd belief that anybody advocating for reasonable tax policy is in favor of the world's dumbest communism.
> Mark will deduct the fair value of his gift to his foundation from his taxable income in the year he makes the donation.
No he won't. The new foundation is an LLC, not a charitable foundation, so he's not eligible to take a tax deduction on it. And even if he was -
1. Giving away 99% of your wealth to save tax on the income from the other 1% is a really dumb way to save money, and
2. They don't have very much taxable income anway - just their salaries, and any capital gains they realise if they sell any Facebook stock.
> Mark Zuckerberg will transfer ownership of his Facebook stock without paying capital gains taxes.
Well, yes - you pay capital gains taxes when you sell something and realise a profit. Since he is not selling his shares, he is not realising a profit, and therefore is not liable to pay taxes on them. Nothing wrong with that!
Setting up a charitable trust means Zuckerberg could spend the money charitably.
Setting up an LLP means Zuckerberg can spend the money charitably, and invest in companies that are going good things even if they're doing it for a profit.
That latter case is better. It doesn't mean the trust is there to make a profit; it's just a move that gives Zuckerberg more options.
Please, someone, tell me how this is a tax dodge.
The only "avoidance" of taxes happening here is during the initial transaction of transferring the Facebook shares to the LLC's ownership. Of course as the LLC sells shares that have gained value, the capital gain would be taxed, as would any dividends or growth from any other investments the LLC makes.
An estate would not be taxed on the value of the LLC, the same way one he is not taxed on the value of his stock. It is taxed when sold. If he assigns family members as owners there would not be additional taxes when he passes away if the LLC's money continues to grow.
>11. Limited Liability Company (LLC) and Family Limited Partnership (FLP) FLPs and LLCs let you reduce estate taxes by transferring assets like a family business, farm, real estate or stocks to your children now, and still keep some control. They can also protect the assets from future lawsuits and creditors.
>Here's how they work. You and your spouse can set up an LLC or FLP and transfer assets to it. In exchange, you receive ownership interests. Though you have a fiduciary obligation to other owners, you control the LLC (as manager) or FLP (as general partner). You can give ownership interests to your children, which removes value from your taxable estate. These interests cannot be sold or transferred without your approval, and because there is no market for these interests, their value is often discounted. This lets you transfer the underlying assets to your children at a reduced value, without losing control.
This LLC is not an effective way to avoid estate taxes on the vast majority of his wealth.
Family LLCs can work for reducing the estate tax if you transfer ownership interests during your lifetime at a reduced valuation, owing to the fact that the membership interests are not marketable, giving them a lower value than the market value of whatever the LLC holds.
The only way you avoid the estate tax is if you transfer an asset to an irrevocable trust or your family members before the asset gains significant value. If you own, directly or indirectly, an asset that has significant value, it is taxed at death.
On all three pence? God bless America.
I tend to believe that he will end up using the new financial structure to do things that are for the greater good, but he hasn't yet.
Well, he has talked about doing something with his money that he thinks is for the greater good.
I think it's reasonable to question the talk vs action part. And I think it's very worth asking whether his idea of the public good is the same as everybody else's.
When he actually does something with the money, I'm sure they'll talk about it, so we can talk about it again then.
I can, however, note that on at least 3 different occasions in the last year or so I've read a heartfelt essay on somebody making sacrifices for the common good -- only to later realize they were just setting up a tax dodge.
I do not think these things are mutually exclusive. You can both work for the common good while trying to legally avoid paying taxes. Heck, I'd rather smart people actively and passionately manage their money for the greater good, especially people with a track record of doing great things. More power to them. But I can relate that as a reader, once I finally figured it out what was going on, I was very disappointed. It was not a pleasant experience.
If/when the LLC gives money (or shares) to a charity that will be tax deductible.
If/when the LLC spends money (or shares) on something not classified as a charity that will not be tax deductible.
If/when Zuck & his wife die and there is still money (or shares) in the LLC those assets will be subject to the estate tax.
Think of it this way: let's say the nonprofit needs pens from office depot. I could also just as easily have paid out of pocket and not donated to the (c)(3) and claimed it as a business expense, with the same net effect and less paperwork
Private foundations have something called "expenditure responsibility" which makes giving funds to a taxable entity (a grant) tremendously annoying. Any misstep makes you liable to some massive surcharges, public scrutiny, and potentially major headaches. It's the antithesis to Mark's "move fast and break things"
There's some argument he should push for a public charity instead. There, expenditure responsibility isn't expressly required, but you're still expected to see that the money you grant is used for our charitable purpose, and still subject to audit.
I'm expecting them to write quite the essay in response. On it's face, I don't think people should fault this decision. I'm fully expecting a strong effort to use this money efficiently, which is no easy task with such a massive sum. Check out GiveWells recent post about trying to "give away" Dustin Moskiwitz and Cari Tuna's money - which I believe is an order of magnitude less in volume, but still very challenging.
Really, a non-tax-exempt entity (whether LLC, corporation, or any other organizational structure) makes sense to coordinate philanthropic activities if you want to have flexibility that a 501(c)(3) wouldn't have and, since the funds are all coming from you, you don't need the incentive to donors that the tax-deductibility of donations to a 501(c)(3) would provide. If its a disregarded entity for tax purposes (which it can be with a sole owner or, IIRC, co-owners who are a married couple who file jointly), then anything the LLC donates to a 501(c)(3) has the same effect on the taxpayers liability as if the taxpayer had donated directly to the 501(c)(3). The same person could even establish one or more 501(c)(3) entities -- again, of any organizational structure, including LLCs -- through which to which the non-exempt LLC would donate funds for purposes that are within the scope of what is permitted for a 501(c)(3).
A LLC also has the advantage of being structured by a custom operating agreement, that can allow the members to cover all kinds of different scenarios to insure their vision is executed they way they intend.