Economy

What To Expect From Mark Zuckerberg’s New Initiative, Based On His Mixed Philanthropy Record

CREDIT: AP Photo/Jeff Chiu

Facebook founder and young billionaire Mark Zuckerberg announced this week that over his lifetime he will donate 99 percent of his corporate stock shares — currently worth about $45 billion — to an initiative dedicated to “advancing human potential and promoting equality.”

Yet, as Buzzfeed reports, the Chan Zuckerberg Initiative is not a traditional charitable trust. It’s an LLC which can invest in for-profit corporations as well as make donations to non-profits and fund advocacy work.

Though Zuckerberg and his wife may indeed donate billions to charity in the future, the couple will also potentially avoid many millions in taxes.

By donating the shares, instead of selling the shares and donating the money, Zuckerberg avoids a capital gains tax of at least 20 percent. When the initiative gives away stock to various charities, those charities then can cash it in tax-free. “And since Mr. Zuckerberg will get credit on his tax return for the market value of what he donates,” notes Forbes, “he can use that to shelter billions of other income.” The Initiative will also allow his children to avoid paying an estate tax when they inherit his wealth.

Since the shares will be doled out over Zuckerberg’s presumably long lifetime, the public may not know the final destination of the money for decades to come. The open letter to his baby daughter published Tuesday laid out several broad, ambitious goals, including “preventing, curing or managing all or most [diseases] in the next 100 years,” “providing everyone with basic healthcare,” and promoting “personalized” online education.

An examination of the young billionaire’s already checkered philanthropy record provides more insight into how those priorities might play out over the next few years.

The Newark Debacle

Both before and after his social media behemoth went public, Zuckerberg donated hundreds of millions of dollars to an array of causes, including the San Francisco General Hospital and Trauma Center and the Center for Disease Control. But perhaps the most high-profile gift was $100 million to New Jersey Gov. Chris Christie’s plan to overhaul the struggling Newark Public Schools.

That 2010 effort, co-led by now Democratic Sen. Cory Booker, involved firing a thousand teachers and more than eight hundred support staff, spending at least $20 million on private consultants and PR firms, and closing several low-performing schools and allowing charter schools to open in those same buildings.

While student test scores were dismal before the financial windfall — with only 30 percent of 3rd to 8th graders reading at grade level — only 36 percent of students scored high enough on language arts to be considered proficient during the 2014 school year. 47 percent were considered proficient in math. The effort is widely viewed as a failure.

Moving FWD

In his open letter, Zuckerberg notes that his initiative will “participate in policy and advocacy to shape debates.” He has already done this through the organization FWD.US, which he co-founded with other tech moguls in 2013 with the goal of forcing Congress to pass comprehensive immigration reform.

Yet despite Zuckerberg’s past advocacy for combating climate change, the group funded political ads praising vulnerable Republican and Democratic members of Congress for voting for the Keystone XL tar sands pipeline and for opening up Arctic National Wildlife Refuge for oil drilling.

The group’s ultimately unsuccessful support for comprehensive immigration reform included lobbying for provisions that would have allow tech companies to hire more foreign guest workers who could be paid less than U.S. nationals.

Who decides?

As Christine Ahn, author of the book “Democratizing Philanthropy” argues, moves such as Zuckerberg’s take money that could be taxed and controlled by the voting public and keep it in the hands of a few wealthy individuals — who she argues have an incentive to maintain the status quo that made them rich in the first place. While the “1 percent” of the U.S. has been setting up tax-skirting charities and foundations since the days of Carnegie and Rockefeller, Zuckerberg is also part of a more recent trend of moguls who gift their own stock to their own organizations. It’s become so common that financial advisers recommend it as a tax-saving move for the newly rich.

Zuckerberg confirmed in federal government filings that he and his wife will be the only ones deciding how the fortune is spent going forward. While the couple — who advocate for causes ranging from clean energy to immigration reform — may be better stewards of these billions than the U.S. Congress, but he cannot be held accountable to the public in the same way. You can call and pressure your representative in Congress, or organize to vote them out in the next election. It’s doubtful a Facebook message to Zuckerberg would have the same impact.

UPDATE DEC 4, 2015 11:42 AM

On Thursday, after a wave of criticism, Zuckerberg posted a letter defending his decision to set up an LLC rather than a charitable trust.

The mogul claims the and his wife "receive no tax benefit" by putting their shares into the initiative, and argue the move allows them "flexibility to execute our mission more effectively."

They also vowed to put any profits the LLC makes from investing in corporation to charitable uses.

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