For Facebook's Zuckerberg, Charitable Is in Eye of Beholder
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$45 billion can be spent anywhere despite pledge to newborn
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Akin to family office or socially responsible company
However philanthropic the intentions of Mark Zuckerberg, he isn’t bound to give a penny of his $45 billion to charity despite his announcement Tuesday.
In a widely publicized letter to his newborn daughter, Zuckerberg with his wife, Priscilla Chan, said they would give 99 percent of their Facebook Inc. shares to “advance” various missions, including promoting equality and curing disease.
Although this step has been widely interpreted as Zuckerberg and Chan pledging their fortune to charity, they didn’t announce the establishment of a nonprofit group or a charitable foundation. Instead, they will set up a limited liability company. That’s right, an ordinary company.
The vehicle can donate to charity, but it doesn’t have to give away some every year, as a foundation would. It can also make investments and participate in “policy debates.” That means it could turn a profit and make donations to political candidates and pay lobbyists.
“This is not a charitable foundation,” said Victor Fleischer, a tax law professor at the University of San Diego. What they’ve done “is essentially nothing more than a promise to give some money to charity in the future. But the structure somewhat resembles a family office, used both for investment and charitable purposes. The level of activities in the charitable versus investment and political pieces isn’t specified.”
Zuckerberg’s Taxes
The swirl of attention around Zuckerberg’s announcement has also largely missed another important point: the tax code allows the wealthiest to sidestep ever paying any income taxes, gift taxes, estate taxes or capital gains taxes. Although Zuckerberg has twice sold Facebook shares -- in 2012 and 2013, for about $3.4 billion -- he won’t owe capital gains tax on the massive appreciation in his remaining stake unless he sells more shares.
Income taxes are not a big issue for Zuckerberg either: his annual base salary is just $1. (He has reported other taxable compensation related to his personal use of the company’s aircraft.)
Some tax experts have proposed a federal tax on wealth -- regardless of whether the richest sell their stock or other property -- similar to that imposed by countries such as France, Italy and Spain. David S. Miller, a tax lawyer at Cadwalader Wickersham & Taft LLP, has proposed “marking to market” the holdings of the country’s top 0.1 percent wealthiest citizens and imposing a tax at capital gains rates. He estimates it would raise almost $1 trillion over a decade.
‘Double Irish’
Zuckerberg’s wealth has grown as his company has deployed its own tax-avoidance strategies: Facebook has used a popular tax shelter employed by other big U.S. multinationals known as a “Double Irish” to shift profits to the Cayman Islands.
He and his wife described their desire to help others with passion. In the letter to their newborn, Max, the two wrote of promoting equality, and spoke more specifically, and repeatedly, about spending money to cure disease. “We can also help hundreds of millions of children get an education and save millions of lives by helping people avoid disease,” they wrote.
Though not adopting a typical charity’s structure, the couple could even wind up doing something else innovative, creating a new kind of socially responsible company.
“I applaud their emphasis on ‘promoting equality,’ but that starts with paying one’s taxes,” said Gabriel Zucman, an economics professor at the University of California, Berkeley. “A society where rich people decide for themselves how much taxes they pay and to what public goods they are willing to contribute is not a civilized society.”
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