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Comment by kareemm | Hacker News Reader

That's a fairly simplistic way of looking at it. Here's another way of looking at it: taxpayers are subsidizing tax breaks for the rich.

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.

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> taxpayers are subsidizing tax breaks for the rich

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.

>> taxpayers are subsidizing tax breaks for the rich

> 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.

> 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.

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.

I still don't really see the issue here.

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.

> As for the DAF, he can never retrieve that money, nor spend it on anything that's not for the public benefit.

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.

No, you can’t do either of those things. Either one would be self-dealing, and would constitute tax fraud.

I'm not sure it's self-dealing. Self dealing constitutes a breach of the fiduciary relationship they have on behalf of another party[1]. If they're the donor, direct the DAFs funds, and are the principal in the hedge fund or charity, there's no fiduciary relationship on behalf of another party.

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.

1- https://en.wikipedia.org/wiki/Self-dealing

>Of course, it could also appreciate in value.

True, though the 1M saved (from taxation) can also be invested elsewhere to something that might appreciate in value.

His own hedge fund, for example.

Thanks for your comment and now makes me think there could be a bunch of wiggle room with assets that have a hard to determine value.

Think about how certain individuals that are currently prominent politically have abused the ability to declare the value of their own assets, which are mostly real estate holdings and shell companies.

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.

I'm curious, what goes into building your own donor advised fund? And how did you scale it up so much?

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