Wealthy philanthropists shouldn't impose their idea of common good on us
Almost all multibillionaire philanthropists in the United States set up tax-exempt, grant-making, private foundations when they want to make the world a better place. Not Mark Zuckerberg and Priscilla Chan. They plan to give away their fortune gradually over the course of their lifetimes, but they’ll do so through a for-profit corporation.
There’s a simple explanation why: private foundations in the US cannot engage in political activity; they cannot campaign for or contribute to candidates for public office or lobby legislators; with limited exceptions, they cannot fund for-profit organizations. By funding their philanthropic work outside the confines of foundation law, Chan and Zuckerberg reserve the right to do all of these. According to their Facebook post: “The Chan Zuckerberg Initiative will pursue its mission by funding non-profit organizations, making private investments and participating in policy debates”.
The Chan Zuckerberg Initiative is structured as a for-profit business just like Facebook, Microsoft or any other limited liability corporation. In addition to avoiding the restrictions that apply to foundations, they gain other advantages. As described in the Chronicle of Philanthropy, they will have fewer disclosure requirements and can “engage in activities that stretch the definition of charity”. In addition, they won’t have to make the annual payout to the government – about 5% of an endowment – required of foundations.
Non-profit regulations in the US have enough loopholes and ambiguities that mega foundations manage to do almost everything except overt political work – including “educating” lawmakers while not lobbying them. Still, Chan and Zuckerberg seem to prefer dissolving the already porous barrier between charitable activities and the market. The model fits not only Zuckerberg’s business experience, but also his growing up in an age that celebrates the free market in all domains.
For anyone worried about growing plutocracy in the US, the Chan Zuckerberg Initiative has one positive feature: it will pay taxes – unless accountants discover new loopholes for this hybrid entity.
In the tax-exempt world of American charity, the mega rich increasingly use their foundations and their celebrity as philanthropists to mold public policy to an extent not possible for other citizens. Tax-exempt foundations exert their inordinate influence without public input or accountability, but they are publicly subsidized: a substantial portion of every foundation’s wealth – 39.6% according to the 2015 tax rates – is diverted every year from the public treasury where voters would have determined its use.
There’s a strong argument to be made that the private tax-exempt foundation doesn’t fit well in a functioning democracy. As the eminent US jurist Richard Posner wrote: “A perpetual charitable foundation, however, is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets … and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either.”
Although the Chan Zuckerberg Initiative isn’t a foundation and will pay taxes, nothing about their project changes the fundamental contradiction of mega philanthropy: the wealthy have the power to impose their personal visions of the common good on everyone else while calling it charity. In the tug-of-war between government by the people and social engineering by multibillionaire philanthropists, Chan and Zuckerberg pull on the side of the powerful social engineers.
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