Bill Gates and Warren Buffett got 211 billionaires to pledge half their wealth to charity. Now some are falling short — and still getting massive tax breaks.

It was the winter of 2010 and Mark Zuckerberg was in a hurry. A few months earlier, 40 of America’s richest families had signed the Giving Pledge, a public promise initiated by Bill and Melinda Gates and Warren Buffett to give at least half of their wealth to charitable causes. Death was the Giving Pledge deadline. You could give half your money away beforehand, or you could leave it to charity in your will. Zuckerberg, who at age 26 was among the second group of Giving Pledge signers, made clear that he did not intend to wait nearly that long.

“People wait until late in their career to give back,” Zuckerberg said in a Giving Pledge press release. “But why wait when there is so much to be done?”

In 2015, three years after Facebook had gone public, Zuckerberg doubled down. He and his wife, Priscilla Chan, published an open letter to their newborn daughter, Max. Reiterating both the beneficence and the sense of urgency that Zuckerberg had expressed in 2010, the couple now promised to give 99% of Zuckerberg’s Facebook stock — then valued at $45 billion — to a new philanthropy, the Chan Zuckerberg Initiative, during their lifetimes. “The needs of our world are great,” the couple wrote in their Giving Pledge letter. “We believe passionately that people should not wait to give back.”

But waiting, it turns out, is precisely what Zuckerberg and Chan have done. During its first five years, the Chan Zuckerberg Initiative handed out a total of $2.7 billion in grants — roughly 6% of their wealth at the time they made their pledge. By contrast, traditional private foundations are required by law to spend 5% of their assets each year. At their current rate of giving, the couple would make good on their promise only if they live past the age of 110. And that math doesn’t account for the skyrocketing price of Facebook’s stock, which nearly tripled during the initiative’s first five years.

Zuckerberg, of course, could decide to accelerate his philanthropy later in life and still live up to his commitment. But the Giving Pledge’s slow charitable roll is encouraged by the US tax system, which perversely rewards rich donors for their procrastination. By placing the money they’ve earmarked for charity into a variety of financial vehicles, Zuckerberg and other billionaires can warehouse the bulk of their wealth for years, use it to benefit their own interests, pass control of the vehicles to their children, and in some cases never have to give a dime to charity, all while enjoying a huge tax deduction.

Zuckerberg has transferred more than $1 billion in stock to one of the tax code’s dodgiest philanthropic vehicles, known as a donor-advised fund. The tax benefit offered by DAFs sounds almost too good to be true: Put money or stock or other assets in the fund, take an immediate income tax write-off of up to 30% of your adjusted gross income, and then donate the money … whenever. While some DAF sponsors say they require account holders to periodically donate at least a small portion of their funds, much if not all of the money can sit idle for years, accumulating value through investment vehicles and spinning off fees for sponsors and financial advisors. Since DAFs were introduced in 1991, a new study found, their portfolios have soared to $140 billion, while the total share of charitable contributions that wind up reaching actual charities has fallen by nearly 25%.

“The Giving Pledge is problematic because it only gets the money halfway there,” said Ray Madoff, a philanthropy expert at Boston College Law School who coauthored the study. “I’m not sure the world is better off if superrich people put all their money in charitable vehicles that they pass on to their children and grandchildren, and never gets spent.”

Noblesse oblige

On some level, the Giving Pledge can be read as a plea from billionaires to be left alone. Give us free rein in the marketplace, its argument goes, and we’ll promise to do the right thing, in our own way, on our own time, and for your own good.

That logic harks back to the urtext of American philanthropy, “The Gospel of Wealth,” by Andrew Carnegie, the 19th-century steel magnate. Voluntary philanthropy was Carnegie’s solution to the class tensions that great wealth created. Donors, he believed, should fund “ladders upon which the aspiring can rise” — parks, artwork, universities, libraries. Such gifts promoted a level meritocratic playing field and a “harmonious relationship between rich and poor.” Carnegie made good on his word. After spending his prime years taking advantage of lax labor laws and 12-hour shifts to squeeze profits out of his workers, he spent the last phase of his life giving away almost all of his money — more than $70 billion in today’s dollars.

Like Zuckerberg, Gates, and so many other American philanthropists who followed in his footsteps, Carnegie made sure he received credit for his generosity, slapping his name on buildings and institutions that would survive him. Similarly, billionaires who take the Giving Pledge receive plenty of favorable PR. “Mark Zuckerberg Philanthropy Pledge Sets New Giving Standard,” a Bloomberg headline trumpeted after the Facebook founder announced his 99% vow. The New York Times accompanied the news with clips from a Facebook-produced video of Zuckerberg and Chan being interviewed about their generosity in what appeared to be the living room of a modest suburban bungalow. Readers were invited to share what causes they would fund if they “were like the Zuckerbergs and had $45 billion to spend.”

The philanthropic landscape began to shift in the late 1960s. Congress capped charitable deductions against income, and required private foundations to submit detailed annual reports and spend at least 5% of their assets each year on grants and operating expenses. Nonprofits now hold $6 trillion in assets, and most of the $400 billion they receive in donations each year results in a lower tax bill for donors. Because wealthier donors are in a higher tax bracket, they get a larger tax benefit for each dollar they give. In other words, middle-class taxpayers actually pay more when they give to charity, dollar for dollar, than their wealthier peers. For some wealthy donors, the savings from capital gains, income, and estate taxes can add up to 74% of the value of a single gift, a 3-to-1 match subsidized by the federal government.

The wealthiest donors have a variety of tools for retaining control of their money even after it has legally left their hands. They can establish their own foundations, hire a staff to manage them, and appoint a board. Their newly minted institutions can’t spend the money on residences or yachts, but they can still spend lavishly on travel and staff, and deploy the money in ways that build up the founder’s networks, burnish their public image, raise the profile of their spouses and children, and form alliances with influential third parties. It’s inevitable that those who choose to give away billions will do so in ways that tend to enhance their own power. The question is whether the public should continue to subsidize these activities at up to 74 cents on the dollar.

Zuckerberg, like Gates before him, has argued that the role of big philanthropy is to do what governments and free markets can’t or won’t. This can involve saving the lives of children who need mosquito nets and vaccines or making risky bets into basic research that could take decades to bear fruit. “These investments are high-risk and high-reward,” Gates wrote in his foundation’s first annual letter. “But the reward isn’t measured by financial gain, it’s measured by the number of lives saved or people lifted out of poverty.”

Gates has largely followed through on these grand ambitions, giving away nearly $50 billion in ways that have prevented millions of unnecessary deaths. But not all donors share his utilitarian mindset. Peter Brant, a newsprint magnate, funded an appointment-only “art study center” in a Connecticut barn, to be run by his family’s foundation, and donated artwork that would hang there. Peter G. Peterson, a former investment banker and Giving Pledge signatory, left the bulk of his money to an eponymous foundation largely focused on reducing the national debt, even as its very existence is facilitated by the charitable tax deduction. Paul Allen, the Microsoft cofounder, spent $240 million founding a nonprofit museum originally dedicated to Jimi Hendrix, to which he donated his collection of rock ‘n’ roll memorabilia.

One quirk of the tax code is that all those gifts are treated equally. It doesn’t matter if your money winds up paying for a portrait of Donald Trump, an elliptical machine at Princeton, or mosquito nets for African children. All the tax code cares about is the value of the gift and the tax status of the organization that receives it. Rob Reich, director of the McCoy Center for Ethics in Society at Stanford University, estimates that less than a third of all charitable giving goes to alleviating poverty.

‘A gap between intent and action’

There’s no question that the $2.9 billion Zuckerberg has given to date has made an impact. A research center funded by the Chan Zuckerberg Initiative created a tool that helped track the spread of COVID-19 and processed 165,000 free tests for the virus. Other programs funded by CZI have tackled mass incarceration, affordable housing, disease, and STEM education. The initiative emphasizes that Zuckerberg and Chan did not intend to found a conventional philanthropy. “More than half of CZI employees are technologists working to develop state-of-the-art technology at scale and give it away for free,” a spokesperson said. “We’re not just a grantmaker. We’ve always been an organization that wants to bring other resources to the table.”

The spokesperson also said that Chan and Zuckerberg, who were in their early 30s when they made their 99% pledge, still intend to meet that goal within their lifetimes. The commitment “was coupled with highly ambitious, long-term goals in science, education, and social-justice issues,” the spokesperson added, which “may take many decades to move the needle on.”

Zuckerberg is not the only Giving Pledge signatory to fall behind on his commitments. Elon Musk, who signed the pledge in 2012, has donated only $100 million so far — less one-tenth of 1% of his current net worth, according to Vox. A spokesperson for the Giving Pledge said that each signatory sets their own pace for fulfilling their commitments. “The vast majority of the signatories have indicated they want to fulfill their pledge in their lifetime,” said Rob Rosen, director of philanthropic partnerships at the Bill and Melinda Gates Foundation. “Many understand they will need to accelerate the pace of their giving to achieve their goals. … We are confident and trust that pledgers are following through with their unique plan.”

Part of the problem is the record-setting pace of the stock market over the past few years, which has made the superrich even richer. The value of Zuckerberg’s Facebook stock, for example, has soared by $55 billion since he pledged to devote it to charity. “The wealth gains of many billionaires have outpaced their ability to give away,” said Chuck Collins, a senior scholar at the Institute for Policy Studies. Collins coauthored a study that found the combined wealth of the first 62 Giving Pledge signers doubled between 2010 and 2020.

John Arnold, a billionaire financier who was among the original Giving Pledge signers, told me that even donors with good intentions often wind up missing their own deadlines. “There can be a gap between intent and action,” he said. “People worry that their giving is not going to be effective. Human nature is, ‘I’ll figure it out tomorrow.'” A person familiar with CZI told me that Chan and Zuckerberg never made a year-to-year commitment, and that they still intend to give almost all their wealth in their own lifetimes.

But a closer look at the financial structure of CZI reveals how the tax code rewards the biggest donors in ways that stretch the notion of charity as a selfless act. The majority of Zuckerberg’s shares in Facebook are held not by a charity but by a Delaware corporation called CZI Holdings LLC. As a limited liability corporation, Jesse Eisinger has pointed out, CZI can do lots of things that have nothing to do with philanthropy. It can make its own for-profit investments. It can give money to Zuckerberg’s 501(c)(4) nonprofit, which does public advocacy. And it can generate tax deductions by giving stock to Zuckerberg’s 501(c)(3) private foundation, or his donor-advised fund. When CZI sells Facebook stock, it triggers a capital gains tax of 20% of the profits. But move that stock to the Chan Zuckerberg Initiative Foundation, and it can be sold for an excise tax of less than 2%, while CZI Holdings gets a tax deduction for its full market value. By “giving away” his stock to entities he controls, Zuckerberg ensures that stock will keep on giving back to him in all sorts of ways.

To see how this works in practice, consider the speech that a crimson-robed Zuckerberg gave on receiving an honorary degree from Harvard at the university’s commencement in 2017. The speech ranged widely over public policy and the nature of opportunity, prompting speculation that Zuckerberg might run for president in 2020.

Zuckerberg was granted this august platform at a critical juncture, when Facebook was being blamed for spreading pro-Trump disinformation. Harvard also wound up benefiting from the relationship over the next two years, as more than $22 million in donations flowed from Zuckerberg’s philanthropies to the university. What’s important to remember about those gifts is that they were not made exclusively by Zuckerberg and Chan. The gifts generated tax breaks, which reduced the amount of money the couple owed to the government. In effect, American taxpayers funded them as well. Reich, the Stanford ethicist and the author of “Just Giving,” calculates that such subsidies cost taxpayers upwards of $50 billion each year.

Closing the loopholes

It’s inevitable that those who give away billions will often do so in ways that enhance their own power and status. As with Zuckerberg, they may not even give the money “away.” The gifts sometimes entail moving stock from one donor-controlled pocket (an LLC) to another (a private foundation). Zuckerberg is one of many in Silicon Valley who have made use of donor-advised funds, which allow donors to take an immediate tax break while warehousing their donations in an account that they can pass along to their children. Google cofounders Larry Page and Sergey Brin have parked hundreds of millions of dollars in DAFs, which take only a few minutes to set up. There are more than 500,000 such funds, which now account for more than 10% of all charitable giving from individuals.

“We here are providing a service for the wealthiest folks in the country in order to create the perception of giving,” a former DAF manager in Silicon Valley told Recode. But donor-advised funds, he added, are designed to “suck away from the tax basis, without actually guaranteeing that any of this money is actually going to go out to serve society.”

Unlike private foundations, DAFs are not required to publicly disclose their income or payouts. Filings with the Securities and Exchange Commission indicate that Zuckerberg has given his DAF at least 19.6 million shares of Facebook, currently valued at more than $6 billion. A spokesperson for CZI declined to say how much remains in the DAF. But a list of the 823 DAF grants that the organization announced in 2018 and 2019 revealed that it awarded more than $32 million to the FWD.us Education Fund, an affiliate of Zuckerberg’s 501(c)(4), and the Primary School, a Palo Alto nonprofit where Chan serves without a salary as president and CEO. In both cases, CZI was able to move assets into its DAF, take a tax deduction, and then donate the money to other nonprofit institutions under its founders’ control.

Reich and Madoff, the Boston College expert on philanthropy, are among the founders of a new organization called the Initiative to Accelerate Charitable Giving. They want to close the loophole created by DAFs by requiring account holders to give away all their money in the funds within 15 years, or forgo the upfront tax break. President Joe Biden, meanwhile, has proposed capping tax deductions for charitable gifts at 28%, which would reduce the effective subsidy that taxpayers provide for the philanthropy of the rich.

The idea underlying all the reforms is the same: Stop using tax dollars to reward billionaires who hand out IOUs. Consider Jeff Bezos’s announcement that he would spend $10 billion of his wealth on something called the Bezos Earth Fund. The pledge was considered credible enough by the Chronicle of Philanthropy to put him at the top of its 2020 list of major donors. Other media outlets went further, reporting that Bezos had given $10 billion to fight climate change.

In fact, $10 billion is what Bezos pledged over the long run. The first tranche of donations, announced last November, turned out to be $791 million, slightly more than the $500 million that Bezos is reportedly spending on a 417-foot yacht. Then, in March, Bezos revealed his self-imposed deadline for giving the full $10 billion: the year 2030.

Given all the urgent challenges the world faces, not everyone feels the need to dole out their generosity incrementally. Last year, more than two-thirds of all gifts that wealthy individuals made in response to the global pandemic came from a single individual — MacKenzie Scott, Bezos’s ex-wife. In one year, Scott gave away $4 billion, more than the pandemic donations made by Google and the Gates Foundation combined. Instead of keeping that money within her own nonprofit foundation, LLC, or DAF, Scott donated it to more than 384 charities and advocacy groups. She also gave another $2 billion to historically Black colleges and universities.

Where the Giving Pledge is a nonbinding agreement to give away half of one’s assets over an entire lifetime, Scott gave as much as she could in a single year — about 10% of her net worth — to meet the exigencies of the moment. “I won’t wait,” Scott wrote in her own Giving Pledge letter. “I will keep at it until the safe is empty.”

The crises of 2020, combined with a stock market that has reached historic highs, has revealed which billionaires are serious about emptying the safe, and which may be drawn to philanthropy for other reasons. The core of Andrew Carnegie’s philosophy was that a great fortune should not exist in perpetuity. “The man who dies leaving behind many millions of available wealth,” he wrote, “will pass away unwept, unhonored, and unsung.” But the benefits that accrue to wealthy givers under the current tax code encourage them to continue hoarding their wealth for generations to come. It’s time to consider whether it makes sense to shower the biggest tax breaks on the donors who are least in need of them — and whether “charity” is really the right word for the actions of today’s philanthropic giants.

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