I posted this on a different thread. I think it is tax avoidance.
One way to look at this is that Zuckerberg just robbed the treasury of $45B. Part of that would have come in through capital gains taxes and the rest through the estate tax.
What they do with that money is up to them, not the state. It's a pretty sweeping end run around the taxation system.
Maybe we'll get lucky and he'll use the money to good end like Gates is doing. And maybe not.
This is a heck of a tax code we've got, it's trickle down on a grand scale.
I don't understand. This is how the tax code works. If you give the money away to charity the Government doesn't take income tax on it. That is a law that was passed. The whole point is to get people to give money to charities because that's a good thing.
It's been argued that it gives a few incredibly wealthy people undue influence on public spending. Instead of being taxed and then spent according to the government's priorities, which is at some level accountable to the public, a few wealthy people get to decide what programs have merit and pour their money into them.
Or put another way, the people who create something worth $300B out of nothing get to decide what happens to their share of the $300B. And as a bonus, these are people with demonstrated success in their ventures, and they are given free reign to pursue their vision fully. Whereas the public sector is a mess of a dysfunctional congress, infighting, posturing, pork, global warming deniers, and discourse targeted to short attention spans and the 24 hour news cycle.
There is something very troubling about the idea that the more successful/valuable your creation becomes, the less entitled you are to invest the fruit of your success into your next idea.
Thats based on the false assumption that money comes from nothing and that we live in this perfect system where we deserve the money we earn and those that don't earn it don't deserve it.
Mark, for example, was born, lived, grew up, went to school, started a business, etc, etc in the US and benefited from all of the things the US offers. You owe a lot to your government, and subsequently the 'tax payers', than you statement seems to suggest. Also the idea that Mark deserves all of his money because he earned it is also false. There are millions of people that have worked harder to succeed in life than Mark. Mark just got lucky. I don't mean to diminish his accomplishments, but luck plays a large role with any individuals success. That is one of the founding reasons for proper wealth redistribution.
I certainly agree with progressive taxation, and that Mark owes a lot to his upbringing, and that luck plays a role. I was reacting to the claim that wealthy people have "undue influence on public spending." They should have outsized influence based on their outsized success.
I find it hard to argue that you owe anyone else in the U.S. because everyone receives similar benefits. Mark didn't receive "extra" benefits above and beyond any other U.S. citizen. In fact, the richer you are the less you benefit typically.
So then it would be just as likely that a Mark should emerge from a poor third world country, right?
When I was younger I had the naive opinion that my successes were my own doing. As I got older my opinion changed. Yes, I had something to do with it, absolutely. But a lot of it was being the right person in the right place at the right time.
I did not say his successes were his own doing. I was only commenting on the fact that it was implied he "owes" taxpayers. Sure he may owe a lot to other people, but to taxpayers in general? not so much in my opinion.
One would hope the rich receive less benefits. You don't owe it directly to the tax payers, you owe it to your country as a whole. Again money does not come from nothing(well sort of, but what it represents lol). To think money you earn is money you deserve is very entitled and inaccurate.
Mark did receive extra benefits, he came from a family that was at the very least middle class or even at the very least American. This put him at a greater advantage then most of the rest of the country/world, an advantage he never earned from hard-work. It was just luck.
How is that "fair", well its not and the world is not "fair". That's why we have taxes, with the hopes they preform some for of wealth redistribution. Sadly wealth redistribution in the US is frowned upon and often not very well done.
One would hope the rich receive less benefits. You don't owe it directly to the tax payers, you owe it to your country as a whole. Again money does not come from nothing(well sort of, but what it represents lol). To think money you earn is money you deserve is very entitled and inaccurate.
Mark did receive extra benefits, he came from a family that was at the very least middle class or even at the very least American. This put him at a greater advantage then most of the rest of the country/world, an advantage he never earned from hard-work. It was just luck.
How is that "fair", well its not and the world is not "fair". That's why we have taxes, with the hopes they preform some for of wealth redistribution. Sadly wealth redistribution in the US is frowned upon and often not very well done.
<em>And as a bonus, these are people with demonstrated success in their ventures...</em>
And no experience in medicine, famine relief, climate science or any of a hundred other areas.
And let's remember that plenty of billionaires are climate change deniers, sitting at the center of dysfunctional corporate hierarchies full of infighting, posturing, and suspect expense accounts.
Honest question: do you think the world would be better off if 100% of the budget of the Bill and Melinda Gates Foundation went straight to the US Federal Government instead?
Sure, Bill Gates didn't start off with that experience. But from what I have seen of the foundation, I believe they are more effective in bettering the world, dollar for dollar, than the US Government.
The Gates Foundation's purpose is "bettering the world". The US Government's purpose is "bettering the US". With that in mind, it's not particularly suprising that the Gates Foundation would be better at your given task.
So the complaint now is that the money is going to where it's most needed rather than to the US specifically? This argument is sounding less like an argument for justice and fairness and more like simple jealousy.
"...the people who create something worth $300B out of nothing..."
This is a false statement. I applaud people who succeed in their businesses but accruation of lots of capital to a few people is not only due to them but due to the existing society around them. Infrastructure which facilitates logistics and enables a pool of workforce, stable civil society, etc. Not to talk about the economic system which makes financial transactions cheap and predictable.
If you don't like the idea of redistribution, let's think it like this: from the point of view of personal wealth, the economy is like a giant casino where the games are more complicated but most people actually win - and some people win a lot. Taxes can be thought as a fee for the right to participate in the fun and games.
Out of nothing? Would Zuckerburg been able to create Facebook if he was born and raised to subsistence farmers in Afghanistan, and lived his adult life in Sheberghan?
The fact is, people living in advanced nations have had huge investments made in them by their communities/nations in the form of clean water, schools, roads, rule of law and a thousand other things. Citizen's are morally obligated to pay a fair amount of tax, and because Zuckerburg has been widely successful, he should contribute much more that the average joe, even if he doesn't consume enough for it to be "fair".
I agree with that, but if successful entrepreneurs want to do charitable works themselves, I think they should have that freedom -- if not tax-free, then certainly at a much lower tax than if they were buying a fleet of private jets.
No one's saying he can't get profit and put it back into the system, as long as you _pay your taxes_. But if you're not paying your taxes, and you're resorting to the private sector, then you're really just squirreling away your wealth to do what you see is fit. We've seen how that works in 501c4s, with dark money and PACs. We've seen how that worked with Carnegie-style redistribution at the expense of working class labor. And we don't want to see that anymore. If you're going to invest the fruit of your success into a next idea, thats fine, but don't forget that real people, the public, made you that wealthy, and give back to them, the way they want it.
It's very interesting that you think the best way to give back to the public is through...government discretional spending?
A couple thought experiments:
1) If public sector spending was a good vehicle for increasing the public welfare, why don't people donate money to the USFG over other charities? Surely the Effective Altruism movement would be very interested if this were the case.
2) In 2015, the USFG spent $229 Billion on interest on all of the debts it owes, over 6% of its total budget. What makes you think paying off interest of the bad decisions of the legislative branch takes priority over any good-will private sector philanthropy, no matter how ego-fueled?
Mark Zuckerberg isn't taking anything away from the $75k/year guy. He just has more because he created something valuable.
If you are an artist so good that your paintings are worth $1M each, should you get to have them? Or should someone walk in your door and say "whoa there, you have too much now, we're taking your paintings until you have the same amount of wealth as the $75k/year guy"?
> If you are an artist so good that your paintings are worth $1M each, should you get to have them? Or should someone walk in your door and say "whoa there, you have too much now, we're taking your paintings until you have the same amount of wealth as the $75k/year guy"?
If you paint million dollar paintings and leave them in your studio, I guarantee you the IRS will not knock on your door and say "you have too many paintings now, we're going to take them now".
If you sell those paintings, and make an INCOME, the IRS will expect you to pay INCOME TAX.
Seriously. How is the basic concept of taxes so hard to understand?
Wealth taxes exist in other countries and are proposed by some people for the US. I was speaking generally and not in reference to a specific tax regime. And besides, converting the paintings to money would be necessary before it could be used for charitable purposes anyway, so the distinction you are drawing is not very relevant.
I'm not opposed to taxes but I am opposed to the idea that taxes should equalize everyone's wealth and that all big investment should come from the government.
My point was that it's not fair that someone gets to pay a smaller tax rate just because his taxable base is larger. If anything, it should be the other way around. My original income tax vs. capital gains tax parallel was wrong though, but the premise is the same. If Joe Schmoe has managed to invest $5K in the stock market and grew it to $10K, his capital gains tax rate shouldn't be higher than Zuck's.
Zuck is paying his taxes and isn't breaking any laws with any of this. The OP submission and most of these replies really sounds like jealousy than anything else.
The comment I replied to was talking about a tax agency coming into your home/office and claiming privately created artworks because you "have too many".
Eh, the United States spends a lot of that tax money on the military. I don't have a problem with wealthy people making their own call on the guns vs. butter question.
Exactly. Would you trust Mark Zuckerberg with spending 15bn for the supposed betterment of society, or would you trust the US government?
Given that the US government wastes so much via corrupt deals, inefficiencies, insane surveillance, and absurd military spending- I would favor Zuckerberg directing the fund.
So, not a total expert on this, but I'm pretty sure that 17% is the DoD budget, which is (by some estimates) about half of the actual total military spending. By other estimates maybe more than half - it depends what you consider "military spending."
For example, iirc, a significant portion of NASA's budget is for military applications - spy satellites and such. Similarly, the DoD budget doesn't consider veteran's benefits owed to former soldiers, which is a large portion of the long-term obligations comprising the national debt. It also leaves out most of the national security complex (DHS, NSA, FBI), military applications in the Department of Energy, and so on.[1]
I figured some expenses were hiding, but hadn't found enough of them yet.
I'm cobbling together some more data points here. They aren't all for the same year, but are close to recent.
- Veterans Affairs: ~160B [0]
- DHS: ~65B [1]
- "non-military intelligence spending" (I assume including a solid chunk of NSA and CIA): ~55B [2]
- FBI: ~8B [3]
- retirement from Treasury (for service before 1984. The reference is interesting!) ~8B [4]
This tallies up to an additional $296B or 8% (for 25% total).
The Project On Government Oversight has a similar table [5] that includes some of my items, some additional items, and excludes some of mine. It reaches a $1 trillion "National Security" budget, which shakes out to about 28% of spending.
Thanks for the linking and push to keep digging! The "Military budget and total US federal spending" section of the article linked in the parent was a good jumping off point for me, as well.
Eh, but you're assuming that money to charities is always a good thing. There are a) some pretty terrible charities out there and b) some patently fake charities that are designed as money laundering schemes.
The tax code works because it was written by people who had huge amounts of wealth and were pissed that the federal government (the People of the U.S.) created an income tax.
No other developed country has such crazy laws regarding charity donations as the U.S.
So why is everyone already assuming Mark's charity is going to be one of the terrible ones? I don't see why he wouldn't give an honest shot at improving the world, as a young idealist. Maybe he won't do a great job at it, but people should reserve judgement til then.
Mark hasn't been improving the Internet so far (actually FB made it worse in numerous ways), so why do you think he has any incentive to improve the world as a whole ?
I'd say you're making the assumption that it will be used for good, when so many charities are indeed used for tax evasion (and other more nefarious purposes). When you condition these probabilities on how most charities actually operate, and on Zuckerberg's past behaviour, a high level of cynicism proves to be the rational position.
Facebook is abusive of people's personal privacy, even though it is generally an effective tool for improving people's (layperson's?) communication.
So, it's probably a better idea to approach it with a cynical perspective instead of an optimistic (naive?) one. It could turn out to not be estate-tax evasion... however it seems unlikely.
> No other developed country has such crazy laws regarding charity donations as the U.S.
Wrong. France has the "Association Loi 1901" law and it's pretty much the same thing, a money laundering scheme for most of the organizations benefiting from it - most of the time politicians using public money to finance such organizations where they put their friends and families in charge.
I've wondered if the charity Claire Underwood works at in House of Cards was intended to be a commentary on this sort of thing.
Claire takes a huge salary from donations by corporations, then Frank spends it. They seem to be intimately involved with San-Corp at every turn but there are lots of questions raised that never get answered. For example it's never explained why so much of the staff was rapidly cut, or why they pivoted to international work. I think they were even present in the whole Russo ordeal where the environmental initiative is replaced by natural gas after that bill fails. At the same time it is never directly implied that the CWI was an outright money laundering scheme.
Well, implicit in this discussion is also the notion that tax revenue is always a good thing. I think both assumptions are poor, but I'd sure take charity over tax revenue any day of the week.
This is not a charity in the tax sense (a 501(c) organization), it's a limited liability company. So if there are tax benefits, I don't think they come from a government policy to increase charitable spending.
I don't understand this comment - You don't have to be a charity to do charitable works, and an LLC can be a charity. Note that the Bill & Melinda Gates Foundation is a Foundation (which is not all that different from an LLC without shareholders from a tax+reporting perspective), and does lots of charitable works.
But is it really charity? Unfortunately, the charity exemption is given to many things that aren't very charitable at all, including some that are materially and intentionally bad for society (i.e. many that engage in overtly religious and/or political behavior). I'm willing to give Zuck the benefit of the doubt for being sincere and meaning well, but only time will tell if this is true charity.
It's an LLC, isn't it? That means that the LLC will pay capital gains tax when the stock is sold. The government gets its money either way.
The estate planning part is more complex, I'm not qualified to answer that, but even in that article the linked option basically talks about how you can get a 40% discount on the value, but the estate tax basically kicks in regardless once you transfer LLC shares to your kids.
So it's not quite as cut-and-dried as saying, "Zuckerberg just robbed the treasury of $45b"
No the loopholes is that if the LLC donates the appreciated shares to charity it will get a deduction of the fair market value. However if a tax-exempt entity (Charity) then sells the stock it does not pay capital gains.
But then the money doesn't get the protections and shelter as part of the LLC which may very well likely invest as a for-profit entity. In other words there are other reasons to create the LLC that aren't about avoiding taxes. And my point still stands this way there is no capital gains paid [edit] on shares donated to charities. Yes there may be taxes paid on shares donated to for-profit entities or liquidated by the LLC. There's multiple scenarios here my capital gains comments only refers to donations of shares directly to a non-taxable entity.
If any of the shares the LLC holds are donated to a public charity, there will be no tax implications for the LLC, as if Z donated the shares directly or operated a private foundation, and without any of the freedoms of the LLC.
If any of the shares the LLC holds are liquidated by the LLC or granted to for-profits, situations where the "other reasons to create the LLC" are in effect, capital gains tax WILL be owed.
The LLC is as if he held the shares personally, when it comes to capital gains.
The estate situation is very different, not cut and dry, and that's what is being discussed in this article.
They do not avoid capital gains taxes by doing this.
Also, more broadly, when you see a "sweeping end run around the taxation system", it may be instructive to consider why everyone else doesn't just do the same. Legal tax avoidance techniques are not secrets.
When your upside on doing fancy tax maneuvers is several billion, you can afford IRS lawsuits. And you can afford the initial time for a lawyer to set this all up.
Average people are using Turbo Tax for yearly taxes and relying on common law to handle their estate, because that's all they can afford.
Most charitable gifts are a form of tax avoidance (and _all_ of them potentially are if a person's income is such that it makes sense to take advantage of itemized deductions). People get receipts for charitable contributions precisely so they can deduct those amounts from their taxable income. Zuckerberg's plan is of much larger scale, but the fact is that the tax code is set up to encourage charitable contributions by making them non-taxable. The tax code is set up this way, quite understandably, to encourage individuals to make charitable gifts, by creating an extra "bang-for-your-buck" for people who choose to make them.
The linked article seems to suggest that Zuckerberg is trying to take advantage of the system by gaining tax-exempt status while effectively _not_ making charitable gifts, that he is somehow trying to pass everything to the child while taking advantage of tax-exempt status of a charitable organization. I'm skeptical both that his intent is to try to do this, and that there is any scheme that could legally accomplish this.
On a different, but related, note, if I were a parent with $40Bn (or $30Bn, $20Bn, $10Bn, or even $1Bn) I would certainly avoid any plan where the bulk of my estate was to be left to my child. Having that much money is a big responsibility, and it's not something that's likely to add to a person's quality of life. Quite the contrary, it's likely a hindrance, not something I would want to saddle my child with. At most, leave them some large amount ($5M, $10M, $20M, $50M?), something basically guaranteed to make them a wealthy person who doesn't need to worry about money, but hopefully not enough to require that responsible management of their fortune be a main focus of their life. (I realize there are moral implications of having that much money for anyone who has even $10M -- perhaps even $1M -- but when the amounts get astronomical, say to hundreds of millions or more, the moral responsibility really does -- or should -- become almost overwhelming. Not a burden I'd want to put on my child.)
I've never understood that about deducting charitable donations. I've always had the principle that I shouldn't be getting anything for my charity. Otherwise, it wouldn't really be a donation to me. It would be make it conditional. I'm giving this money away, but give me some back from the taxpayers?
I might sound like a sucker, but that's just always been my thought on it. My mother once said something to me like that as a kid and I've applied it donating.
You never end up with a net plus by giving to charity; you are always giving away money. This is because the amount of tax you avoid is always less than what you gift. For example, you may gift $100, which ends up reducing your tax bill by, say, $30. If charitable gifts weren't tax-deductible the equivalent would have been paying $30 in taxes and having $70 left over to give to charity (for same $100 loss). The tax-advantaged status gives charitable gifts an extra bang-for-your-buck by giving you same net result (total outgo of $100) while allowing you to direct all $100 to the charity of your choice.
Also, notice that you're not somehow "getting something back" from other taxpayers in this scenario. You're just lowering your tax bill.
But the money still goes to charity. Essentially person A is just indirectly donating to their pet charity using political capital. As long as the charity is legit, I don't see the problem.
Right, there is no problem, this is not controversial. The linked article that started this thread is suggesting that somehow Zuckerberg plans to get this tax-advantaged treatment by making gifts to an organization that is not actually charitable. That would be a problem, but I would suggest that the linked article is mistaken in saying that this is what Zuckerberg is doing.
The reasons are mainly historical, but the non-profit lobby (consisting of charities, 501c3 non-profit organizations, churches and university endowments) holds so much power, that stripping them of tax-sheltered status would be a third rail for any politician running for office.
The historical reasons assume that many everyday community efforts (feeding the hungry, sheltering the homeless, abused women and children, planting trees, sheltering stray animals) is better done (and financed) at community level by community efforts rather than by central government and sending money to Washington D.C.
> People get receipts for charitable contributions precisely so they can deduct those amounts from their taxable income.
I don't understand how this is considered tax avoidance? It's not like you get more money this way, you just get to give slightly more to charity than you might otherwise, which is the point of the deduction.
It's tax avoidance because if you hadn't gifted that $100 to charity then your taxable income would have been $100 higher and you would have paid higher taxes. You "avoided" paying tax on the amount that you gifted to charity.
Not really. Taking a lower-paying job not only avoids taxes, it lowers your income (both pre-tax and after-tax).
With charitable giving you can avoid taxes but still retain exactly the same after-tax income (assuming that you were going to gift to charity regardless of whether you got deduction or not). That is, you can gift $100 to charity, deduct the gift, and so avoid (say) $30 in tax. In this case the gift to charity effectively results in you having $100 less than before. Or, for same net result to you (minus $100), you could gift (after-tax) dollars to charity, say $70, and pay the $30 in taxes that you avoided in previous scenario. Only in second case you ended up giving only $70 to charity, because $30 goes to government. In first case you gave all of the $100 outlay to charity, avoided the $30 tax.
Well as long as he doesn't use half of it to start a bunch of wars in the middle east, we'll probably end up ahead of what would have happened if it would have gone to taxes. As you said, if Gates' leadership is followed, I think we'll end up wayyyy ahead of what would happen if it goes to taxes (especially if you consider that ironically enough many of the people that actually need the help might get it - like poor in other countries benefiting from malaria cures, vs whatever domestic interests would do with the money here)
There are a lot of questions wrapped up in yours :)
Briefly: if you pare Government back to core functions, you don't need much money. In New Zealand, we (meaning the Libertarianz) estimated it at around $2,500 / working adult / year. That (back at the turn of the 21st century) would get you courts, police, Parliament, defense, embassies and the glue to run it all.
Then you need a way of raising the money. Probably, most working people can afford $2,500 per year to keep civilisation running, especially if they're not paying any other taxes. Maybe a poll tax? Seems reasonable that those paying also do the voting. Could simply solicit donations, or maybe run a lottery.
But no: you couldn't run a socialist country that way. Which is sort of the point :)
One way to look at this is that Zuckerberg just robbed the treasury of $45B. Part of that would have come in through capital gains taxes and the rest through the estate tax.
What they do with that money is up to them, not the state. It's a pretty sweeping end run around the taxation system.
Maybe we'll get lucky and he'll use the money to good end like Gates is doing. And maybe not.
This is a heck of a tax code we've got, it's trickle down on a grand scale.
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