4 ms·

Please explain to me in excruciating detail how you legally end up net better off by donating ten billion.

beckman466 5y ago
"These new philanthropists bring to charity an “entrepreneurial disposition”, Hay and Muller wrote in a 2014 paper, yet one that they suggest has been “diverting attention and resources away from the failings of contemporary manifestations of capitalism”, and may also be serving as a substitute for public spending withdrawn by the state. Essentially, what we are witnessing is the transfer of responsibility for public goods and services from democratic institutions to the wealthy, to be administered by an executive class. In the CEO society, the exercise of social responsibilities is no longer debated in terms of whether corporations should or shouldn’t be responsible for more than their own business interests. Instead, it is about how philanthropy can be used to reinforce a politico-economic system that enables such a small number of people to accumulate obscene amounts of wealth. Zuckerberg’s investment in solutions to the Bay Area housing crisis is an example of this broader trend." [1] Although with your "in excruciating detail" it sounds like you've been presented with the evidence before, yet you are somehow unwilling to admit the failings of the system. This last part is meant as an observation and not as a negative value judgement. This video with Anand Giridharadas is also great: https://www.youtube.com/watch?v=d_zt3kGW1NM https://www.youtube.com/watch?v=d_zt3kGW1NM, as well as his book 'Winners Take All: The Elite Charade of Changing the World'. [1] https://www.theguardian.com/news/2018/may/24/the-trouble-with-charitable-billionaires-philanthrocapitalism https://www.theguardian.com/news/2018/may/24/the-trouble-wit...
geofft 5y ago
I'm not sure I agree with the premise myself, but I find the argument plausible: if it goes into a new charitable organization today, that's $10B off his taxable income this year, whether or not the money goes to actual efforts this year. If he directs donates the money later, then he gets that exact amount as a deduction later. Given that he's stepping down as CEO this year, the difference between a $10B deduction on his taxes this year and the same amount of money deducted across multiple future years when he has less income can be substantial. (This argument assumes that he intends to spend $10B on charitable donations at some point in his life anyway; it's not an argument for why spending $10B is better for his taxes than not spending it at all.)
- solveit 5y ago
  Oh I agree completely that there are better and worse ways to structure donations. And maybe there's even some perversity in the tax code that lets you make a few thousand bucks by making some very specific donations under convoluted circumstances. I just think there's no legal way you can donate 10 billion and come out with more money than not having donated.
0xB31B1B 5y ago
You create a charitable remainder trust, which is a pretty wild tax instrument that allows you to control the assets, “donate them” (~1% a year of the principal) and collect tax benefits on the total amount at the start of the program. https://www.google.com/amp/s/www.wealthenhancement.com/blog/charitable-remainder-trusts%3Fhs_amp%3Dtrue https://www.google.com/amp/s/www.wealthenhancement.com/blog/... For carries of founder stock who have zero cost basis for their stock this can allow you to actually make more money depending on current interest rates.
- skybrian 5y ago
  From a brief skim, you’re irrevocably giving the money away and you still pay taxes on any money you get back from the trust, so I think more explanation is needed. How do you come out ahead, and compared to what? Is this a way of getting a different tax rate?
  - toast0 5y ago
    One nice thing is you can sell without taxes becoming due immediately. Pretty handy if you want to move between a concentrated holding to a diversified holding. Getting the tax deduction upfront and making the donation later sounds nice too, although I'd guess with real investment choices, chances are good the donation is bigger than the deduction. But all of these things really only grant you more utility than just paying the taxes if you get (non-economic) utility out of the donation or (non-economic) utility out of the feeling of paying less taxes. Of course, you could get economic utility out of the donation, but that is likely to be less than legal. OTOH, I could see a possible way to make donating apprechiated assets work out to have economic utility. If the tax rates are high enough, and assuming zero cost basis and high ordinary income, you avoid X * Y% tax by donating, and you reduce tax on other income by X * Z%, where X is your donation, Y% is your total (marginal) capital gains tax rate, and Z% is your total ordinary income tax rate. If Y + Z is greater than 100%, that's a real savings. IIRC, top federal capital gains rate is 20 + 3.8 (net investment income tax), and if you live in california, 13.3 state tax = 37.1% Top federal ordinary income is 37%, if in california that ends up with 50.3% tax rate. Adding those up we get 87.4%, so a donation of apprechiated assets with zero basis doesn't quite create value, but it's close. Maybe some other state has a higher top tax rate.

"These new philanthropists bring to charity an “entrepreneurial disposition”, Hay and Muller wrote in a 2014 paper, yet one that they suggest has been “diverting attention and resources away from the failings of contemporary manifestations of capitalism”, and may also be serving as a substitute for public spending withdrawn by the state. Essentially, what we are witnessing is the transfer of responsibility for public goods and services from democratic institutions to the wealthy, to be administered by an executive class. In the CEO society, the exercise of social responsibilities is no longer debated in terms of whether corporations should or shouldn’t be responsible for more than their own business interests. Instead, it is about how philanthropy can be used to reinforce a politico-economic system that enables such a small number of people to accumulate obscene amounts of wealth. Zuckerberg’s investment in solutions to the Bay Area housing crisis is an example of this broader trend." [1] Although with your "in excruciating detail" it sounds like you've been presented with the evidence before, yet you are somehow unwilling to admit the failings of the system. This last part is meant as an observation and not as a negative value judgement. This video with Anand Giridharadas is also great: https://www.youtube.com/watch?v=d_zt3kGW1NM https://www.youtube.com/watch?v=d_zt3kGW1NM, as well as his book 'Winners Take All: The Elite Charade of Changing the World'. [1] https://www.theguardian.com/news/2018/may/24/the-trouble-with-charitable-billionaires-philanthrocapitalism https://www.theguardian.com/news/2018/may/24/the-trouble-wit...

geofft 5y ago

I'm not sure I agree with the premise myself, but I find the argument plausible: if it goes into a new charitable organization today, that's $10B off his taxable income this year, whether or not the money goes to actual efforts this year. If he directs donates the money later, then he gets that exact amount as a deduction later. Given that he's stepping down as CEO this year, the difference between a $10B deduction on his taxes this year and the same amount of money deducted across multiple future years when he has less income can be substantial. (This argument assumes that he intends to spend $10B on charitable donations at some point in his life anyway; it's not an argument for why spending $10B is better for his taxes than not spending it at all.)

solveit 5y ago
Oh I agree completely that there are better and worse ways to structure donations. And maybe there's even some perversity in the tax code that lets you make a few thousand bucks by making some very specific donations under convoluted circumstances. I just think there's no legal way you can donate 10 billion and come out with more money than not having donated.

0xB31B1B 5y ago

You create a charitable remainder trust, which is a pretty wild tax instrument that allows you to control the assets, “donate them” (~1% a year of the principal) and collect tax benefits on the total amount at the start of the program. https://www.google.com/amp/s/www.wealthenhancement.com/blog/charitable-remainder-trusts%3Fhs_amp%3Dtrue https://www.google.com/amp/s/www.wealthenhancement.com/blog/... For carries of founder stock who have zero cost basis for their stock this can allow you to actually make more money depending on current interest rates.

skybrian 5y ago
From a brief skim, you’re irrevocably giving the money away and you still pay taxes on any money you get back from the trust, so I think more explanation is needed. How do you come out ahead, and compared to what? Is this a way of getting a different tax rate?
- toast0 5y ago
  One nice thing is you can sell without taxes becoming due immediately. Pretty handy if you want to move between a concentrated holding to a diversified holding. Getting the tax deduction upfront and making the donation later sounds nice too, although I'd guess with real investment choices, chances are good the donation is bigger than the deduction. But all of these things really only grant you more utility than just paying the taxes if you get (non-economic) utility out of the donation or (non-economic) utility out of the feeling of paying less taxes. Of course, you could get economic utility out of the donation, but that is likely to be less than legal. OTOH, I could see a possible way to make donating apprechiated assets work out to have economic utility. If the tax rates are high enough, and assuming zero cost basis and high ordinary income, you avoid X * Y% tax by donating, and you reduce tax on other income by X * Z%, where X is your donation, Y% is your total (marginal) capital gains tax rate, and Z% is your total ordinary income tax rate. If Y + Z is greater than 100%, that's a real savings. IIRC, top federal capital gains rate is 20 + 3.8 (net investment income tax), and if you live in california, 13.3 state tax = 37.1% Top federal ordinary income is 37%, if in california that ends up with 50.3% tax rate. Adding those up we get 87.4%, so a donation of apprechiated assets with zero basis doesn't quite create value, but it's close. Maybe some other state has a higher top tax rate.