By now it is no longer news that Mark Zuckerberg is giving a vast amount of his Facebook shares away to his charity-driven LLC.  This was met by “mixed reviews” with people praising Zuckerberg and his wife, but also criticizing them on multiple grounds including (a) that the money was put into an LLC as opposed to a non-profit, (b) that Zuckerberg should have “more accountability” with his money and (c) that he was going to be able to avoid taxes on all of his Facebook shares.

In my next series of posts, I will discuss the recent rise in charitable giving and philanthropy, what it entails, and several defenses for it.  First, let’s discuss some of the criticism listed above for Zuckerberg’s decision as it was kindle that has recently ignited the fire for the charitable giving debate.  In response to the media, Zuckerberg stated:

“…using an LLC instead of a traditional foundation, we receive no tax benefit” but instead “gain flexibility to execute our mission more effectively… In fact, if we transferred our shares to a traditional foundation, then we would have received an immediate tax benefit, but by using an LLC we do not….And just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC.” 

Zuckerberg is right.  After conversing with one of my friends who is an attorney, she told me that he receives less of an immediate benefit converting his shares to an LLC versus a traditional non profit (as Zuckerberg points out).  Furthermore, Zuckerberg has done nothing that isn’t legal or “evades” the law in a tricky way.  It isn’t valid to criticize Zuckerberg for taking advantage of the way our charitable giving and capital gains tax laws are currently structured.  Bill Gates and Warren Buffet have taken advantage of the tax code in similar ways.

Charitable giving has been on the rise since 2010 when Bill and Melinda Gates announced the “Giving Pledge” that asks the wealthy to give away at least half of their money.  Over 115 billionaires have signed the pledge.  Bill gates recently spoke on the importance of philanthropy and charitable giving at the American Enterprise Institute:

“There are things in terms of trying out social programs in innovative ways that governments just, because of the way job incentives work, they are not going to try out news designs like philanthropy can, and they are not bring to have volunteer hours coming in to leverage their resources like philanthropy can.”

During the same speech, Gates gave the example of education and said that the private sector has the power to donate and fund educational ventures where the government is simply unable to do.  Gates has also pointed to the funding and donating of resources to charter schools as another example where philanthropy can solve the gaps of government programs. A recent study on philanthropic giving echoed similar conclusions and argued that entrepreneurs are uniquely qualified to be philanthropists:

“Entrepreneurs bring business methods and disciplines to philanthropy – they don’t like wasting money and like to be focused and planned and their charitable partners to be vetted. Andrew Carnegie, a man famed for the mass manufacture of steel in America, is perhaps the best example of this. Through his charitable projects Andrew Carnegie gave away almost everything he had earned to a wide range of projects, from arts to education. Entrepreneurs tend to be gifted in recognizing and consciously applying the principles of capital accumulation. This is critical to making philanthropy more effective at a time when there is increasing inequality of wealth and income.”

All of this indicates, that contrary to the recent criticism, entrepreneurs do feel a sense of accountability with their money and this translates to their charitable giving.  The giving pledge also provides evidence that this criticism may be unfounded and that entrepreneurs can use the laser focus they have acquired in business to be successful philanthropists.  Next week, I’ll discuss more of the specific arguments in defense of philanthropy and charitable giving.