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Mark Zuckerberg did not donate $45 billion to charity. You may have heard that, but that was wrong.
Here’s what happened instead: Mr. Zuckerberg created an investment vehicle.
Sorry for the slightly less sexy headline.
Mr. Zuckerberg is a co-founder of Facebook
and a youthful megabillionaire. In announcing the birth of his
daughter, he and his wife, Priscilla Chan, declared they would donate 99
percent of their worth, the vast majority of which is tied up in Facebook stock valued at $45 billion today.
In
doing so, Mr. Zuckerberg and Ms. Chan did not set up a charitable
foundation, which has nonprofit status. He created a limited liability
company, one that has already reaped enormous benefits as public
relations coup for himself. His P.R. return-on-investment dwarfs that of
his Facebook stock. Mr. Zuckerberg was depicted in breathless, glowing
terms for having, in essence, moved money from one pocket to the other.
An
L.L.C. can invest in for-profit companies (perhaps these will be
characterized as societally responsible companies, but lots of companies
claim the mantle of societal responsibility). An L.L.C. can make
political donations. It can lobby for changes in the law. He remains
completely free to do as he wishes with his money. That’s what America
is all about. But as a society, we don’t generally call these types of
activities “charity.”
What’s
more, a charitable foundation is subject to rules and oversight. It has
to allocate a certain percentage of its assets every year. The new
Zuckerberg L.L.C. won’t be subject to those rules and won’t have any
transparency requirements.
In
covering the event, many commentators praised the size and percentage
of the gift and pointed out that Mr. Zuckerberg is relatively young to
be planning to give his wealth away. “Mark Zuckerberg Philanthropy Pledge Sets New Giving Standard,”
Bloomberg glowed. The New York Times ran an article on the front page.
Few news outlets initially considered the tax implications of Mr.
Zuckerberg’s plan. A Wall Street Journal article didn’t mention taxes at all.
Nor did they grapple with the societal implications of the would-be donations.
So
what are the tax implications? They are quite generous to Mr.
Zuckerberg. I asked Victor Fleischer, a law professor and tax specialist
at the University of San Diego School of Law, as well as a contributor
to DealBook. He explained that if the L.L.C. sold stock, Mr. Zuckerberg
would pay a hefty capital gains tax, particularly if Facebook stock kept
climbing.
If
the L.L.C. donated to a charity, he would get a deduction just like
anyone else. That’s a nice little bonus. But the L.L.C. probably won’t
do that because it can do better. The savvier move, Professor Fleischer
explained, would be to have the L.L.C. donate the appreciated shares to
charity, which would generate a deduction at fair market value of the
stock without triggering any tax.
Mr.
Zuckerberg didn’t create these tax laws and cannot be criticized for
minimizing his tax bills. If he had created a foundation, he would have
accrued similar tax benefits. But what this means is that he amassed one
of the greatest fortunes in the world — and is likely never to pay any
taxes on it. Anytime a superwealthy plutocrat makes a charitable
donation, the public ought to be reminded that this is how our tax
system works. The superwealthy buy great public relations and adulation
for donations that minimize their taxes.
Instead
of lavishing praise on Mr. Zuckerberg for having issued a news release
with a promise, this should be an occasion to mull what kind of society
we want to live in. Who should fund our general societal needs and how?
Charities rarely fund quotidian yet vital needs.
What would $40 billion mean for job creation or infrastructure
spending? The Centers for Disease Control and Prevention has a budget of
about $7 billion. Maybe more should go to that. Society, through its
elected members, taxes its members. Then the elected officials decide
what to do with sums of money.
In this case, it is different. One person will be making these decisions.
Of
course, nobody thinks our government representatives do a good job of
allocating resources. Politicians — a bunch of bums! Maybe Mr.
Zuckerberg will make wonderful decisions, ones I would personally be
happy with. Maybe not. He blew his $100 million donation to the Newark school system, as Dale Russakoff detailed in her recent book,
“The Prize: Who’s in Charge of America’s Schools?” Mr. Zuckerberg has
said he has learned from his mistakes. We don’t know whether that’s true
because he hasn’t made any decisions with the money he plans to put
into his investment vehicle.
But
I think I might do a good job allocating $45 billion. Maybe even better
than Mr. Zuckerberg. I am self-aware enough to realize many people
would disagree with my choices. Those who like how Mr. Zuckerberg is
lavishing his funds might not like how the Koch brothers do so. Or
George Soros.
Mega-donations,
assuming Mr. Zuckerberg makes good on his pledge, are explicit
acknowledgments that the money should be plowed back into society. They
are tacit acknowledgments that no one could ever possibly spend $45
billion on himself or his family, and that the money isn’t really “his,”
in a fundamental sense. Because that is the case, society can’t rely on
the beneficence and enlightenment of the superwealthy to realize this
individually. We need to take a portion uniformly — some kind of tax on
wealth.
The point is that we are turning into a society of oligarchs. And I am not as excited as some to welcome the new Silicon Valley overlords.
Jesse Eisinger is a reporter
for ProPublica, an independent, nonprofit newsroom that produces
investigative journalism in the public interest. Email:
jesse@propublica.org. Twitter: @eisingerj.
