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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?

by kayhi 8y ago

jjoonathan 8y ago
Yes, that's the "Donor Advised" part of "Donor Advised Fund."
rectang 8y ago
A donor can impose conditions on how a 501(c)(3) charity may spend a particular donation. However, those conditions may not supersede the 501(c)(3)'s duty to avoid using tax-deductible donations to unduly benefit a commercial actor. Because dealing with such conditions is a pain, 501(c)(3) charities prefer to receive undirected funds.
- _delirium 8y ago
  Charities prefer undirected funds, but most will accept restricted funds if the funds are big enough. They often have whole negotiation & legal teams devoted to working with donors to figure out a set of restrictions that's mutually agreeable (i.e. reflects the donor's wishes while minimizing how much of a pain it is to the charity to deal with). 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.
myinitialsaretk 8y ago
There was a good HN comment thread about Donor Advised Funds a few months ago. https://news.ycombinator.com/item?id=17126875 https://news.ycombinator.com/item?id=17126875 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-Information/Financials/Foundation-Trust https://www.gatesfoundation.org/Who-We-Are/General-Informati...
- leetcrew 8y ago
  assuming the gates foundation is one of the "good charities", why is this better than taking sustainable withdrawals from the endowment and spending ~8bn/year in perpetuity? $8 billion every year until the end of civilization is a whole lot more than $150 billion plus appreciation over twenty years.
  - tlb 8y ago
    It's a "good charity" because Bill is actively involved in deciding what are the highest-impact projects. Once Bill dies, it'll be managed by a succession of people who probably aren't as effective. 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.
  - bluGill 8y ago
    The assumption that the gates foundation is "good" today does not imply that the foundation will be good in the future. There are several family foundations that I'm sure are supporting things that the original "robber baron" who earned the money would strongly opposed to.
  - logfromblammo 8y ago
    The actuarial calculation will show that the amount you spend now is exactly equal to the present value of periodic amounts spent into perpetuity, if your assumptions about future rates of return hold forever. 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.
  - LeifCarrotson 8y ago
    8*20 is 160 billion, so your endowment's investment return is pretty optimistic. 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&future_pct=0.02 http://www.in2013dollars.com/2018-dollars-in-3018?amount=20&...
nerdponx 8y ago
the money compounds until they decide where to dole it out. The point is, they aren't actually giving the money away.
- mercutio2 8y ago
  This is technically incorrect. They definitely are giving the money away, to the DAF. You may not like that the money sits in a DAF instead of your preferred charity’s coffers, but it’s still given away, they can never get it back. 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.
  - nerdponx 8y ago
    Thank you for clarifying
kareemm 8y ago
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.
- coldtea 8y ago
  >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.
  - charlesdm 8y ago
    His own hedge fund, for example.
- kayhi 8y ago
  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.
  - logfromblammo 8y ago
    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.
sametmax 8y ago
Not if you control the charity. In the US, charities can have a huge investment portfolio. So you put money into the charity, then the charity invest in what you want to boost, including friends companies or your own. The remaining can be spent on reasearch projects which you can benefit from as well. 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.
- maxxxxx 8y ago
  It's also a good way to give high paying jobs to friends, family or other people you want to give money to.
  - prostoalex 8y ago
    Getting a deduction on 20% capital gains tax and having a family member pay ~35% of income tax on it is not exactly a sustainable strategy for wealth transfer.
    - maxxxxx 8y ago
      It's not only about the money. The receiving person gets a prestigious job and the donor gets good PR for his/her charity.
- throwawaymath 8y ago
  > 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.

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?

by kayhi 8y ago

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?

jjoonathan 8y ago

Yes, that's the "Donor Advised" part of "Donor Advised Fund."

rectang 8y ago

A donor can impose conditions on how a 501(c)(3) charity may spend a particular donation. However, those conditions may not supersede the 501(c)(3)'s duty to avoid using tax-deductible donations to unduly benefit a commercial actor. Because dealing with such conditions is a pain, 501(c)(3) charities prefer to receive undirected funds.

_delirium 8y ago
Charities prefer undirected funds, but most will accept restricted funds if the funds are big enough. They often have whole negotiation & legal teams devoted to working with donors to figure out a set of restrictions that's mutually agreeable (i.e. reflects the donor's wishes while minimizing how much of a pain it is to the charity to deal with). 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.

myinitialsaretk 8y ago

There was a good HN comment thread about Donor Advised Funds a few months ago. https://news.ycombinator.com/item?id=17126875 https://news.ycombinator.com/item?id=17126875 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-Information/Financials/Foundation-Trust https://www.gatesfoundation.org/Who-We-Are/General-Informati...

leetcrew 8y ago
assuming the gates foundation is one of the "good charities", why is this better than taking sustainable withdrawals from the endowment and spending ~8bn/year in perpetuity? $8 billion every year until the end of civilization is a whole lot more than $150 billion plus appreciation over twenty years.
- tlb 8y ago
  It's a "good charity" because Bill is actively involved in deciding what are the highest-impact projects. Once Bill dies, it'll be managed by a succession of people who probably aren't as effective. 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.
- bluGill 8y ago
  The assumption that the gates foundation is "good" today does not imply that the foundation will be good in the future. There are several family foundations that I'm sure are supporting things that the original "robber baron" who earned the money would strongly opposed to.
- logfromblammo 8y ago
  The actuarial calculation will show that the amount you spend now is exactly equal to the present value of periodic amounts spent into perpetuity, if your assumptions about future rates of return hold forever. 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.
- LeifCarrotson 8y ago
  8*20 is 160 billion, so your endowment's investment return is pretty optimistic. 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&future_pct=0.02 http://www.in2013dollars.com/2018-dollars-in-3018?amount=20&...

nerdponx 8y ago

the money compounds until they decide where to dole it out. The point is, they aren't actually giving the money away.

mercutio2 8y ago
This is technically incorrect. They definitely are giving the money away, to the DAF. You may not like that the money sits in a DAF instead of your preferred charity’s coffers, but it’s still given away, they can never get it back. 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.
- nerdponx 8y ago
  Thank you for clarifying

kareemm 8y ago

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.

coldtea 8y ago
>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.
- charlesdm 8y ago
  His own hedge fund, for example.
kayhi 8y ago
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.
- logfromblammo 8y ago
  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.

sametmax 8y ago

Not if you control the charity. In the US, charities can have a huge investment portfolio. So you put money into the charity, then the charity invest in what you want to boost, including friends companies or your own. The remaining can be spent on reasearch projects which you can benefit from as well. 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.

maxxxxx 8y ago
It's also a good way to give high paying jobs to friends, family or other people you want to give money to.
- prostoalex 8y ago
  Getting a deduction on 20% capital gains tax and having a family member pay ~35% of income tax on it is not exactly a sustainable strategy for wealth transfer.
  - maxxxxx 8y ago
    It's not only about the money. The receiving person gets a prestigious job and the donor gets good PR for his/her charity.
throwawaymath 8y ago
> 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.