More on the Chan Zuckerberg Giving Pledge
Pricsilla Chan and Mark Zuckerberg have written a beautiful, moving open letter to their daughter announcing that they intend to direct their wealth to projects that advance human potential and promote equality. The open letter is truly lovely —it seems full of the values and positive aspirations for the world they hope to instill in their newly born daughter.
The announcement signaled the establishment of a very large philanthropic entity, the Chan Zuckerburg Initiative. Its not surprising that it has been the focus of questions about the structure and ways it will move forward with its projects and investments. Quartz published an article that purports to debunk some of the concerns that are being raised by Chan and Zuckerberg’s giving pledge, (“5 criticisms of billionaire mega-philanthropy, debunked.”)
The Quartz article notes that some have suggested that the transfer of stock to a limited liability company (LLC) may have been intended to avoid capital gains taxes. But Zuckerberg has clarified in a Facebook post subsequent to his initial announcement that he intends to pay capital gains when the stock is sold. This is a welcome clarification. But this is not the primary issue.
What is at issue is the aggressive but legal international corporate tax planning that Facebook is engaged in, and the re-writing of tax laws to benefit wealthy individuals, dramatically lowering their effective tax burden. This chart gives an idea of how tax rates for wealthy individuals in the U.S. have fallen since the 1970’s, even as their pre-tax income has exploded:
With respect to corporate tax, some of the international tax planning Facebook is undertaking is described here and here. Facebook’s SEC filing makes clear that its is fully aware that how it has structured its company operations, including its international operations and how it has treated its intellectual property, greatly impact on its tax liabilities.
Zuckerberg tells his daughter in his open letter, “I will continue to serve as Facebook’s CEO for many, many years to come.” His continued use, as Facebook’s CEO, of international tax avoidance practices risks reducing his giving pledge to ‘I’ll use the proceeds from money I have made using business practices that are harmful to society in ways that I think will better society.’
Charity or philanthropy does not absolve Zuckerberg or other wealthy individuals from the need to take into account and think about how their business practices impact society.
Chan and Zuckerburg, through their initiative, have an opportunity to use their contribution to make an important statement — Facebook as a company has benefited from infrastructure provided by everyone else’s tax dollars, we want to give back. They should consider making a voluntary payment to the U.S. Treasury in an amount they view as equivalent to what would be consistent with a tax code that did not allow abusive international corporate tax planning and placed a fair tax burden on extremely wealthy individuals.
And at the very least, when they are asked by observers shocked by such an idea, “Who would ever pay more tax than they owed!?!,” they could smile and answer, “We did. To make the point that we need corporate tax reform.”
Charity or a political agenda?
The Quartz article also notes that it is unclear if Chan and Zuckerberg are planning “to sway political processes via their donations.” Zuckerberg’s open letter does not say whether or not the LLC itself will be making lobbying contributions. It does say of the LLC that, “We must participate in policy and advocacy to shape debates. Many institutions are unwilling to do this, but progress must be supported by movements to be sustainable.”
The Quartz article then goes on to state, “as far as we can tell from his statement at least, they plan to use the money to alleviate disease, improve education, and fight poverty.” These are all worthy causes, but this does not mean that the approach and policies the initiative will promote will be apolitical or free of an ideological agenda.
In fact, one of the investments the Chan Zuckberg Initiative has already made involves a $10 million investment in a highly controversial for-profit education company, Bridge International Academies. The investment in this company, operating in Kenya, Uganda, Nigeria and India, has been the subject of intense criticism from civil society organizations. This is because the civil society organizations believe the World Bank and other investors are diverting funds and political will away from improving the existing free public school systems, and instead are directing funds to this and other for-profit education companies whose schools are frequently unaffordable for the very poor bottom 20 percent of the population. This is consistent with the World Bank’s strong ideological bias in favor of the delivery of public services by private companies instead of strengthening and making the public sector more accountable. (Sometimes privatization might make sense. But always, in every case, friends at the World Bank?)
By any measure, the investment is a highly risky, experimental project for the over 100,000 children in Kenya who attend Bridge schools. The project is pushing for explosive growth in the number of for-profit schools (scale is needed for profitability) in a developing country context, which is risky on its face. There is limited capacity for the Kenyan government to monitor or regulate the quality of such schools.
Therefore, it is not correct to view the projects that Chan and Zuckerberg intend to support as apolitical charity. They are likely to involve important public policy choices that in some cases will be controversial. It is appropriate to raise questions about how the projects are being carried out, and transparency from the initiative about its activities.
The Chan Zuckerberg announcement has likely touched a nerve because it comes after we have seen a series of individuals in recent years whose wealth has given them tremendous influence on policy through their philanthropic entities. Some of these entities have raised concerns because of the agendas they have pushed and how they have advanced them. Hopefully, the Chan Zuckerberg Initiative will put into action their founders’ views that “progress must be supported by movements to be sustainable” and will build constituencies and public support to make the changes they wish for their daughter’s generation happen.
https://www.facebook.com/zuck/posts/10102507695055801?pnref=story
