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Thursday, December 03, 2015

'Mark Zuckerberg’s $45 Billion Loophole'

James Kwak:

Mark Zuckerberg’s $45 Billion Loophole: Much of the Internet is giddy over Mark Zuckerberg and Priscilla Chan’s “pledge” to give “99%” of their Facebook stock to “charity.” ...
Since the last gilded age, the super-rich have generally given to charitable organizations or to their own charitable foundations. That’s why we have the University of Chicago, Carnegie Hall, and the Getty Center, to name a few. Today’s new class of gazillionaires has largely followed in their footsteps: Gates created the Bill and Melinda Gates Foundation, Stephen Schwarzman gave $150 million to Yale, John Paulson gave $100 million to Central Park, and so on. [The "Giving Pledge".]
Well, Mark Zuckerberg has found a different way. Instead, he’s creating an LLC that he owns..., giving his stock to the LLC, and telling us all that the LLC will do wonderful things for the world. ...
That means they can, among other things: Write checks from the LLC to themselves as its owners, pay themselves salaries for running the LLC, borrow money from the LLC, borrow money personally using LLC shares as collateral, sell some of their shares in the LLC to other people, or take cash right back out in many other ways. Use the LLC to buy houses they live in, offices that they work in, etc. Invest in profit-making companies. Contribute to political campaigns or super PACs, engage in direct political activity, or lobby legislators. Pay for his own political campaigns, if he so chooses. Give money to charitable foundations or operating 501(c)(3) nonprofit organizations.
Essentially, Zuckerberg can do everything with the LLC’s money that he can do with his own money. ... This is the next step in the privatization of philanthropy. No more Giving Pledge. Instead, we’ll have the Keeping Pledge:
I pledge to keep all of my wealth and use a lot of it to make the world better place, as long as I get to define “a lot” and “better.”
Mark Zuckerberg isn’t the first person to make the Keeping Pledge. The Koch brothers already did: they’ve given away lots of money to charity, but they’re keeping even more to spend on politics, because they believe that that’s the most effective way to make the world a better place (as they see it). ...
Other super-rich people will feel no pressure to sign onto the Giving Pledge or donate their money to the traditional charity system. Instead, they will create their own LLCs, maintain complete control over their money, and spend it on their own pet projects and political issues. That’s not a good thing.

Zuckerberg's response (to criticism generally) seems to mostly agree (though see the full post above on taxes):

... The Chan Zuckerberg Initiative is structured as an LLC rather than a traditional foundation. This enables us to pursue our mission by funding non-profit organizations, making private investments and participating in policy debates -- in each case with the goal of generating a positive impact in areas of great need. Any net profits from investments will also be used to advance this mission.
By using an LLC instead of a traditional foundation, we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively. In fact, if we transferred our shares to a traditional foundation, then we would have received an immediate tax benefit, but by using an LLC we do not. And just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC.
What's most important to us is the flexibility to give to the organizations that will do the best work -- regardless of how they're structured. ...

    Posted by on Thursday, December 3, 2015 at 04:05 PM in Economics | Permalink  Comments (45)


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