Looks like donating to charities to get a tax break, which seems fine. Is there a way that they are controlling how these monies are spent?
I have one, but can see how this leaves a bad taste in mouths. I can "donate" money to my DAF, get the tax break, invest it and it doesn't do any real good by going to a charity until I decide to recommend a grant.
On a related theme, I really like the sentiment shared by the Gates and Buffett families to try and "spend all of our resources within 20 years after Bill's and Melinda's deaths"
> The decision to use all of the foundation’s resources in this century underscores our optimism for progress and determination to do as much as possible, as soon as possible, to address the comparatively narrow set of issues we’ve chosen to focus on.
https://www.gatesfoundation.org/Who-We-Are/General-Informati...
Also, the Gates foundation funds projects that create benefits that continue indefinitely, such as eradicating diseases. Better to do that now and have malaria-free populations contribute to their own increasing prosperity than to keep the money in a bank for later.
My personal hypothesis is that spending is better for the economy than investment, so I would prefer to spend 10% and invest 90% for 20 years, then spend the remainder, than to spend 3% and invest 97%, forever.
More importantly, inflation and opportunity costs will take a big chunk out of your investment. Assuming consistent 2% exponential growth, and a civilization lasting millenia, that generous $8 billion you set aside today for budget year 3018 is worth about $20 in today's dollars.
http://www.in2013dollars.com/2018-dollars-in-3018?amount=20&...
Guy puts $1M in stock or some other non-cash asset that can change in value into a DAF. Gets a tax receipt for $1M and uses it to reduce his taxable income (this is where the subsidy happens).
The $1M may sit in the DAF for years, not going to work in the charitable sector. It may depreciate in value. In this case when liquidated and moved from the DAF to some charity actually doing charitable work, it may be worth substantially less than $1M. Which means although taxpayers subsidized the $1M donation, it's actually a lot less money that's actually put to work in the charitable sector. Of course, it could also appreciate in value.
Source: I built an online DAF for 8 years that's taken in $410,000,000+ in donations.
I commented about this elsewhere in the thread. This is a ridiculous point of view because there is no net tax break for the individual.
If instead of donating $1M in stock, they sold the stock and kept the money, they would have more money than if they donated the stock and claimed the deduction. They get to deduct the $1M, but they don't get to keep it as well.
> Which means although taxpayers subsidized the $1M donation
This is true, but seems like a net benefit. They get to give a gift of $1M that only costs them $600k. But that's still $600k that they could have kept and spent on gilded washing machines and penguin-egg omelets (I'm assuming that this is what the rich spend their money on). Instead, that money, plus a "matching" donation from the government of $400k, goes to a charity that can't really directly benefit the donor.
> I commented about this elsewhere in the thread. This is a ridiculous point of view because there is no net tax break for the individual.
How is there no net tax break? In one scenario they keep the stock and pay more tax, in the other they donate the stock and deduct the charitable gift.
> If instead of donating $1M in stock, they sold the stock and kept the money, they would have more money than if they donated the stock and claimed the deduction.
Unless they don't sell the stock. Or can't (yet) sell the stock (private companies).
> They get to deduct the $1M, but they don't get to keep it as well.
Unless they control the recipient charity where the money ends up.
> This is true, but seems like a net benefit. They get to give a gift of $1M that only costs them $600k. But that's still $600k that they could have kept and spent on gilded washing machines and penguin-egg omelets (I'm assuming that this is what the rich spend their money on). Instead, that money, plus a "matching" donation from the government of $400k, goes to a charity that can't really directly benefit the donor.
You're missing my point. Often the money doesn't go to a charity doing charitable work for years, if ever. Many DAFs only let you allocate the GAINS on the principal to charity (in this case, the gains on $1M). DAFs are another investment vehicle to minimize tax and maximize gains.
Sure there is, because even if the fund and the “charities” it supports don't directly work to the financial benefit of the donor, they serve the interests of the donor, and financial benefit is just an intermediate goal sought as a mechanism to enable serving other interests.
The donor gives up $1m, suppose he has a marginal tax rate of 40% on his income, he can subtract the $1m from his taxable income and save $400k in taxes at the cost of $1m.
The donator is economically worse off. Even in the best case scenario that a $1m donation reduces his to-be-paid taxes by $1m (is that how it works in the US?), there's still no gain. Instead the stock could've been sold for $1m, and there'd be a hypothetical future $1m tax payment, so he'd be left with $0. Or he'd give away the $1m and there'd be hypothetical future tax savings of $1m, so he'd be left with $0, too.
As for the DAF, he can never retrieve that money, nor spend it on anything that's not for the public benefit. Donator has no economic benefits to gain. Perhaps prestige, or donating to a politically-coloured charity (e.g. a charity that informs on abortion rights), but there's no direct economic gains to be made here for the donor right?
I can see why it's problematic if donated stocks in a DAF depreciate. But I see no reason to believe that would consistently happen, nor why there's any reason to not liquidate the donated asset right away and invest the cash into a diversified portfolio until the money is spent on a charitable cause. Typically stock-markets rise in the long-term, so it's more likely that appreciation will occur, in which case the 'subsidy' of a $1m tax break for a >= $1m asset seems well spent.
Would appreciate more info as I've got very little knowledge on this and I don't really see the big issue.
The only issue I see is if assets consistently get misappraised, e.g. a $1m asset appraised at $10m, generating a huge tax break. But that's fraud, illegal.
That's that flaw. The money can be allocated to a charity that the donor controls. Or invested in a private e.g. hedge fund... also potentially controlled by the donor.
It may be fraud, but I'm not sure that's true either. In the hedge fund scenario I'm not how it'd be fraudulent. The money has to go back to the DAF at some point - the hedge fund is an investment vehicle.
In the charity scenario how is it fraudulent? I don't see it but could be missing something.
True, though the 1M saved (from taxation) can also be invested elsewhere to something that might appreciate in value.
If you have your own yes-man assessor, you can inflate the value of your worst-earning asset, donate it to a charitable trust you control, take a tax deduction for the amount you declared to offset the cash flow from your better holdings, decline to distribute for years, as your management company manages the asset for operating costs and your financial management company reaps administrative fees, then eventually buy the asset back from the trust for pennies per dollar of its previously declared value, and repeat.
There are no doubt plenty of legal loopholes that enable this. The net result is perpetual tax avoidance, very little money actually getting spent for charitable purposes, and a founder that can declare he is the most charitable-giving person the world has never seen.
It is yet another example of rich people moving money between their various pockets in lieu of actually spending it. The maximum benefit from moving a dollar is realized when the person who moved it no longer has any control of it after the move. The best thing you can do with a dollar is spend it; it is literally that dollar's sole purpose for existing. Allowing someone else to temporarily use your dollar is just a cruel joke upon them, because most of what they do with it will then belong to you.
Basically is tax free investment and R&D mechanism.
The gates foundation is famous for it, even caught investing in companies doing the total opposite of the foundation mission statement, such as weapon makers.
But the best part is that people think bill is a great guy because he gives away so much.
I'm inferring that you think people are silly for buying into some kind of curated persona. But to provide a counterpoint: even after what you've said, I still think Bill Gates is a great guy for his philanthropy. I don't really care if Gates is motivated by purely ascetic altruism or a complex sea of competing incentives. I'm really happy with the work he does.
That's not to say he's perfect. Some of his charity is controversial, that's definitely true. And I'm generally skeptical anyone is wholly motivated by altruism. But much of his work has had a profoundly beneficial impact on the world on a global scale. I like the world with the Bill & Melinda Gates Foundation as it is more than I like the idea of the world without it.
pet theories regardless of scientific consensus. He also "donates" to creating dependencies on Microsoft/Windows products. And "his" money is money he largely extorted from the computer using public using illegal market manipulation. It's our money.
From this perspective, I believe that it could be argued that "our" money is in fact the money of long-dead people and/or now-extinct societies.
Obviously some charities can have missions that not everyone agrees with, but that constraint is still, well, constraining.
Because dealing with such conditions is a pain, 501(c)(3) charities prefer to receive undirected funds.
Two common examples are donations to museums that are restricted to development of a certain collection or type of work, and donations to universities restricted to funding a specific field of research.
The point is, they aren't actually giving the money away.
If you want to criticize DAFs (which I don’t, but I’d rather debate my opponents’ best arguments, not their worst), the tax credit significantly precedes the distribution to any 501c3s, and those 501c3s might theoretically be benefitting society.
I’m generally in favor of removing the charitable deduction entirely, but the time shifting really doesn’t bother me. Most 501c3 missions barely benefit the people I think actually need and deserve help, in large part they just provide jobs to rich westerners and then as almost an after thought benefit needy people, often with such onerous strings attached that their primary purpose looks like marketing and signaling, not improvements to the aggregate human condition.