Modern "Philanthropy"

Mark Zuckerberg’s letter [to his newborn child announced] that he and Priscilla Chan were giving away 99% of their Facebook shares [to his and Chan’s mission of advancing human potential and promoting equality].

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There were some early skeptics, those quick to impute a selfish motive. But they were soon deafened by the global chorus of well-wishers chanting the same refrain: thank you, Mr Zuckerberg. Thank you for your revolutionary gift. It turns out neither assumption was right. There was no gift. Nor, in contrast to what we’ve been hearing over the past few days, is there anything particularly revolutionary about Zuckerberg’s new business model.

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Whether you call it charity or philanthropy, one thing is clear about Zuckerberg’s business transaction: he didn’t surrender anything. He set up a new investment company, a limited liability company called the Chan Zuckerberg Initiative, and transferred $1bn in Facebook shares to it.

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The most eloquent scribe of the philanthrocapitalism movement is Felix Salmon, a once-sceptic turned believer who offered this homage to Zuckerberg’s new investment vehicle: “Mark Zuckerberg isn’t going to be satisfied with small, visible interventions which don’t scale – feeding the hungry, say, or giving to the poor. Such activities improve the world, but they don’t change the world.” Zuckerberg, Salmon insists, wants radical change – and giving to the poor won’t achieve that.

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Philanthrocapitalism is what happens to charity after capitalists swallow it.

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[T]here is little direct evidence of positive outcomes for the global poor and considerable evidence that such trends tend to enrich the wealthy at the poor’s expense.

  Guardian

Mark Zuckerberg did not donate $45 billion to charity. You may have heard that, but that was wrong.

Here’s what happened instead: Zuckerberg created an investment vehicle.

Sorry for the slightly less sexy headline.

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Zuckerberg and Chan did not set up a charitable foundation, which has nonprofit status. He created a limited liability company, one that has already reaped enormous benefits as public relations coup for himself. His PR return-on-investment dwarfs that of his Facebook stock.

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Zuckerberg didn’t create these tax laws and cannot be criticized for minimizing his tax bills. If he had created a foundation, he would have accrued similar tax benefits. But what this means is that he amassed one of the greatest fortunes in the world — and is likely never to pay any taxes on it.

  Pro Publica

In 2012, Fidelity Charitable [the philanthropic arm of the giant Boston-based asset management firm] collected $3.6 billion—more than the American Cancer Society, or the Boys and Girls Club, or the American Red Cross.

Like those better-known institutions, Fidelity Charitable generates an immediate tax deduction for its donors. But the resemblance ends there. [...] Though legally public charities, [accounts like FC] are more like holding tanks that let would-be philanthropists deposit money, collect the tax benefits up front, and then decide later which causes they actually want to give to. Legally, there’s no limit to how long the money can sit there.

Such accounts, known as donor-advised funds, have attracted an ever-larger chunk of American donations since the 1990s. One recent estimate put the total amount of money now sitting in donor-advised funds at $45 billion—more than the endowment of the Bill and Melinda Gates Foundation.

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With much of America still suffering from the effects of the Great Recession, the sheer amount of money piling up in tax-exempt investment accounts has begun to rankle some experts on charity. Though it is impossible to draw a direct line that shows these accounts are diverting money from working charities, critics point out that while Americans have been giving away the same percentage of their disposable income for decades, these funds have been growing at a rapid clip.

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By law, all the money in donor-advised funds does ultimately have to go to charity, and proponents say it doesn’t matter when. The funds, they say, may even attract money that might not otherwise be donated and make it possible for people who aren’t wealthy enough to start private foundations to engage in long-term giving. But for critics, it’s part of a worrying shift in philanthropy, away from direct individual giving to investment in huge endowment-style accounts that amass money faster than it is spent, while money managers collect fees along the way.

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At firms like Schwab and Vanguard, the new service allowed investors to deposit money into a special giving account, name it after themselves if they wanted to, and then make grants when they felt like it: granting big lump sums when the desire struck them, or dribbling money out over time. Best of all, it made philanthropy into a user-friendly tax planning vehicle for clients: A person who was selling a business in December—and thus facing a steep tax bill at year’s end—could quickly donate a large sum of money and get a tax deduction without having to decide until later what causes to support.

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In response to [...] dizzying growth, a small group of critics, mostly from academia and the nonprofit world, have started pointing out the unintended ways that donor-advised funds are distorting American philanthropy.

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With donor-advised funds, there’s simply no legal requirement that the money flow at all. “They’re getting the same deduction as if they had given the money to a soup kitchen,” said Alan Cantor, a New Hampshire-based consultant who works with nonprofits. “We as taxpayers [should be able to] force them to meet the needs of society by getting the money out, where it’ll do some good.”

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“All of the relevant parties—the sponsoring organizations, the commercial bank they’re related to, and the financial adviser for the donor—are all better off if the money stays in the fund and doesn’t go to a charity,” said Madoff. “If it goes out to the Salvation Army, all those parties lose their fees.”

Another problem is that private foundations, which are required by law to donate at least 5 percent of their assets per year, have started using donor-advised funds as a way to satisfy their payout requirements: According to a report by Giving USA, Fidelity, Schwab, and Vanguard reported that private foundations contributed a total of $92 million to their donor-advised programs in 2011—a significant chunk of which might have otherwise been put to work.

   Boston Globe

And since you asked (I'm sure you did, didn't you?), I think Mark Zuckerberg's "letter" to his newborn daughter, declaring his philanthropic purpose, was a shameful way to promote himself.

...but hey, do what you want...you will anyway.