I read with great interest the variety of reactions on the internet to Mark Zuckerberg’s pledge this past week to devote, over the course of his life, 99% of his shares in Facebook to philanthropic causes, an amount currently corresponding to $45,000,000,000 and likely to increase over time.
I’d be lying if I could say I was surprised that within that variety existed a strong current of negativity and vitriol directed at Mr. Zuckerberg, but I was, still, dismayed.
I wasn’t alone in my dismay, Sam Altman, one of the principals of Y-Combinator, an incubator for start-ups, expressed his view:
It’s fine to wait to congratulate until they share more specifics on the recipients, but outright hostility in the mean time makes no sense.
— Sam Altman (@sama) December 2, 2015
Many of the criticisms were frivolous–Zuckerberg would still after donating have hundreds of millions to himself, that he’s only doing it for the tax deductions, he’s merely effecting a big PR stunt, that the “unethical” nature of Facebook itself undermines any subsequent good works of the founder, that the lack of success shown by his previous $100 million donation to the Newark, NJ school system mean he will be a poor allocator of resources, etc.
Dealbook’s critique, which was pointed less at Zuckerberg and more at other media outlets who had earlier praised Zuckerberg’s altruism, was more thoughtful, yet still misguided.
All Zuckerberg has done as of yet, is create a Limited Liability Corporation in order to facilitate the transfer of his shares, in order to ensure favorable tax treatment. But making a public pledge isn’t nothing, and the tax benefits from the LLC will effectively accrue to the subject of Zuckerberg’s giving.
Dealbook does allude to an important substantive issue in the debate on the balance between voluntary and involuntary contributions to the public good, remarking that charities rarely fund quotidian needs, like infrastructure improvements. Jesse Eisinger, for Dealbook, warns against the insufficiency of the grace of the super-wealthy to support them.
The assertion about the nature of giving is correct, but the line of argument overstates the danger to the so-called quotidian, which is not in actuality threatened by the prospect of mega-donations by the superwealthy supplanting traditional government-run welfare systems. One reason is that the raw amount of donations and income tax receipts aren’t a seesaw, or at least not a symmetrical one.
If an entrepreneur were to receive a windfall, she could donate a portion of that to charity, and subtract this amount from her gross income, and be taxed on the difference. But for every incremental dollar she donates, while the charity of her choice receives the full dollar, a full dollar to the US Treasury isn’t lost.
Let’s say she’s in the highest US tax bracket of 39.6%. She decides to donate $100,000, split between several organizations which support various causes. The government “misses out” on $39,600, which has been directed to charity, but the organizations also get the $60,400, making the full $100,000. It’s the entrepreneur who forgoes the $60,400.
Secondly, mega-donations, while often making a splash in the philanthropic world (especially when they are directed strategically), make little difference in the amount of tax revenue collected, which in the US draws on a base of about 150 million people, the vast majority of whom do not have the disposable wealth necessary to divert a significant amount of their tax dollars to charity; along with several million businesses, for total annual revenue at in excess of $6 trillion (3.25t at the federal level).
And, while it’s of only limited analytical value, the amount of charitable donations and amount of tax receipts are of course positively correlated over time, in line with growing American prosperity.
Charitable giving, in contrast to the outlays of a bureaucratic vehicle funded by involuntary and systematic contributions, does tend to align disproportionately to causes producing an emotional response in the donor. Non-profits that can successfully make an appeal directly to the donor do well– if they can you make you tear up in an advertisement, they can probably get your dollar. Therefore things that are interesting, cute, especially sad, get funded. You might call this the Hormone Effect, or Oxytocin Effect in philanthropy, which one could argue distorts the distribution of gifts.
But governmental appropriations fall victim to all sorts of biases, traps and inefficiencies as well, the likes of which may be more fit for an encyclopedia than a blog post.
And at the same time, the opportunity to build a legacy by doing great things can motivate the super-wealthy (and others) to make incredible contributions that a government doling out money never would. The Gates foundation, for instance, targets causes in a highly strategic way in order to maximize the efficiency of every dollar donated. And the difference between an organization blindly appropriating to a given cause, and a dedicated individual who has reputational incentives can be exponential rather than incremental.
Part of my aforementioned dismay, and this is directed more at the critiques I branded with frivolity, stems from the de-motivational aspect of the negativity. A whole generation of entrepreneurs is watching this unfold, and potential philanthropists, even those who genuinely want to improve the world, also want to be well-thought of (and especially so compared to the average person). There’s nothing wrong with thoughtful criticism that keeps us accountable, but there’s always the possibility harmful indirect effects when they get nasty. It’s this same nastiness that keeps a lot of capable people of out public service.
Zuckerberg’s pledge to donate 99% of his wealth, and the subsequent positive media coverage, changes the conversation for hyper-successful entrepreneurs and investors, in a similar way to the Gates/Buffett giving pledge to donate 50%. If you’re a billionaire, interested in helping the world but reticent about agreeing to donate half of your net worth, seeing one of the world’s most visible billionaires pledge 99% makes 50% a lot more palatable.
