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Comment by jmyeet | Hacker News Reader

Private foundations are really a massive scam on the public purse so whenever you hear about the Gates Foundation and the like, remember it's just a tax dodge, nothing more.

The way the rules work, a private foundation has to spend 5% of its capital on its intended purpose. Thing is, that 5% can include "administration" costs like paying salaries and benefits for the family. They really need to raise this to 10%, minimum.

Art is a massive tax scam. You should only get a tax deduction on the purchase price (not "appraised value") and only to a public museum and there should be strict requirements as to what a "museum" is.

But it's really quite disgusting what lengths billionaires go to to avoid paying for the society that makes their wealth possible.

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The Gates foundation example makes no sense and frankly reeks of ignorance. The foundation has given out over $70 billion in grants since inception [1]…money that came primarily out of Gates’s pockets.

In what way does losing $70 billion imply a tax dodge because he avoided paying $10B to $20B in taxes had he kept that money for himself? You know, he could have simply paid the taxes and kept the remaining $50 billion in in his pockets.

I had a brief look at Gates Foundation spending and it does not look like tax dodge to me: https://www.gatesfoundation.org/about/financials/annual-repo...

It spent about 10% of its endowment for charity last year.

Yeah because the Gates Foundation is going to come right out on their website and say that they are a tax dodge...

Mind furnishing some evidence of their alleged wrongdoing then?

These are annual financial reports, a very good first step for an investigation. At some point, if someone claims it is a tax dodge, they need some modicum of evidence. None was provided.

I don't think it's actually a "tax dodge" because having the money donated to a nonprofit does limit what the money can be for and to the extent salaries are paid back to family members that's getting taxed anyway (theoretically they could be shifting it to lower tax brackets but when you look at current US tax rates it's not going to make much difference anyway).

I think there's a real question of whether rich people should be able to get tax exemptions for donating massive amounts of money to nonprofits of their choice with no limit, but it's not a "scam" because Bill Gates is doing exactly the thing that the current tax code is intended to incentivize; he's not using some sort of complicated loophole to use the money for personal purposes while getting a tax exemption, he's just using it for charitable purposes that he chooses, exactly as intended.

That said, personally I don't think it necessarily makes sense to say that someone should be able to e.g. choose to donate a billion dollars of income to an art museum and not get taxed when the tax revenue from that income if it were not made deductible (even if less than a billion dollars) could be used for potentially more important uses once you factor in marginal utility, etc.

Framing it as a "scam" or "loophole" is somewhat misleading imo because it implies that rich people are somehow cheating the system, whereas in reality they are just using the system as intended, but it might actually be a bad system.

The Gates foundation likely gets more altruistic bang for its buck than any government on the planet, and plausibly more than any other organization of any sort.

You can't donate money to dodge taxes.

You need to donate a good and have it be overvalued or maintain control over it.

Gates mostly donated shares who have a fair value (market value). Gates similarly has control over direction but isn't using the majority of the funds for self enrichment.

Can someone explain how that charity foundation thing is a loophole? Who/what is avoiding taxes?

What the OP described is that as a rich person you can set up a "charity foundation", donate a bunch of money to it (reducing your tax burden), then have the foundation hold on to most of the money and when it spends it, spend it on "administration", which could be hiring your friends and family to do fake administrative work

In the case of the Gates Foundation it's more likely to be real administrative work, but even the "good" ones are sitting on a ton of money that could potentially be put to more profitable (for society) uses

What do you want to do as a rich person?

* Own and enjoy fantastic properties:

- You own so many properties that you'll spend maybe a few weeks per year in each one

- So donate these properties to your own charitable foundation, give tours while you aren't there.

* Have lavish parties

- Call it a charity ball, hold an auction at some point, now you look great and the canapés are tax-free.

* Fly private

- Book a meeting for your charitable purpose wherever you are going. Now you can deduct at least part of the gas for the private jet.

* Enrich your friends and family members

- Give them sweet jobs in your foundation. Pay them competitive salaries without going through a competitive candidate search. Continue this even after you die, essentially a tax-free annuity.

* Lobby for your own business and ideological interests

- Your private foundation can advocate for all sorts of things. Fund self-serving studies. Give full-ride scholarships to top thinkers that think like you. Host tours, vacations, parties and events that benefit your position.

* Improve your social standing

- Give some money to PBS. Open a wing at a school or museum with your name on it.

>- Give them sweet jobs in your foundation. Pay them competitive salaries without going through a competitive candidate search. Continue this even after you die, essentially a tax-free annuity.

It's not "tax free" when those salaries are taxed just like any other salary.

Because you donated huge sums to your nonprofit, it reduced your tax burden by a significantly high amount, and that is probably a higher amount than what your friends and relatives will pay in taxes on their paychecks in your foundation, so you were able to keep more dollars from going to Uncle Sam and among your circle of loved ones instead.

>Because you donated huge sums to your nonprofit, it reduced your tax burden by a significantly high amount

You know what also reduces your tax burden by a significant amount? Not taking the money out of your business and putting your friends/relatives on the payroll. That it also doesn't get taxed because it's a business expense. I'm not sure what the point of going through the charity is.

Let's say you have an investment account with millions of dollars in it. Let's say for the purpose of the example you are earning 30% a year[0]. You're accustomed to use that account to fund your travel. You convert some securities to cash to buy plane tickets to travel all over the world.

You're going to pay capital gains taxes, or just income taxes, on those conversions to liquid capital.

If instead you donate those securities to a "Charity", then the earned interest is not taxed, and you receive a tax benefit for moving the property to the charity entity. If the charity is happy for you to travel all over the world, then you're done. Same benefit accrues, tax burden becomes negligible.

What's left to determine (from our electronic armchairs) is: Does the charity do good for the nation, for the world, to an extent that it's worth forgoing the tax income? I expect that the answer is "Yes" for several of the charities we consider household names. I expect that the answer is "No" for the overwhelming majority of charities, by count or by endowment. We could start by taxing Harvard. :)

[0] Not that anything is dependable year on year, but that's the rate that university endowments made in 2021.

Characterizing the Gates Foundation as "just a tax dodge" is a pretty hot take.

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