First things first. Mark Zuckerberg’s decision this week to donate 99 per cent of his wealth to charity over his life breaks all philanthropic records. Not only is he considerably younger than his storied Gilded Age forebears — the Mellons, Rockefellers, Vanderbilts and Carnegies. He is also more generous. They waited until old age or death to bequeath their great fortunes to the common weal. Zuckerberg is just 31.
In this respect, Zuckerberg — and his wife Priscilla Chan — outshine Warren Buffett, Bill Gates and other living philanthropists. With his $45 billion (Dh165.2 billion) fortune, the Silicon Valley prodigy could have frittered a thousand lifetimes on sun, sex and sangria and invested the change in a cure for mortality. Instead he will keep working and devote what he makes to tackling disease, improving education and reducing inequality. As a moral example, Zuckerberg’s gesture may never be matched.
But as a manifesto of how to defeat such problems, his announcement fell short. You need hardly spend an hour in Silicon Valley before you hear the mantra: “We just want the government off our backs.”
In the Facebook post to his newly born daughter, Maxima Chan Zuckerberg, the social media titan pulled off another feat. The 2,234 word letter describes what must be done to tackle the problems Maxima’s generation will inherit. Nowhere do the words “public investment” appear.
Any history of Silicon Valley must stress the degree to which its success was built on federal largesse. Forget Facebook’s algorithms. From the microprocessor to the global positioning system and the computer mouse to the search engine, Silicon Valley owes its key breakthroughs to US public research. The same applies to medical science. Whether it is magnetic resonance imaging or Viagra, America’s health industry has piggybacked off innovations either developed by federal research agencies or heavily subsidised by government. Ditto for hydraulic fracking and solar power. The list goes on.
This is where the details of Zuckerberg’s pledge matter. Lost in the initial euphoria was the fact that his money will be put into a limited liability company, rather than a charity. By the Internal Revenue Service’s definition, this was not a philanthropic donation at all. Zuckerberg thus escapes two limits.
First, he can invest the money in profitmaking ventures. There is no shame in this. Indeed, for ventures that succeed — a new form of tablet-based “personalised learning”, say, or a breakthrough in data forecasting of epidemics — the more commercially viable the better. It is preferable to invest good money in something sustainable than risk throwing good money after bad.
Second, because his vehicle will not be a charity, Zuckerberg will be freed from the need to spend 5 per cent of its capital every year. The chief thing Zuckerberg’s LLC will have in common with a charitable entity is its low tax bill. Zuckerberg has thus pulled off something remarkable. He has ensured that he will pay no tax on transfer of his estimated $45 billion in wealth while being showered with accolades for “giving it all away”.
He is shifting his fortune from one non-charitable entity to another.
Over time, the vehicle may well make huge donations to charity. Recent causes to which the Chan-Zuckerbergs have given include schools, hospitals and efforts to defeat the Ebola virus.
But at this point the philanthropic Zuckerberg and his corporate avatar diverge. In his letter to Maxima, he says every citizen should have the right to “basic health care” and every child should have “equal opportunity” to a great education. It is impossible to achieve these goals without taxpayer-funded services.
Yet Zuckerberg and his fellow Silicon Valley titans are world leaders at minimising their corporate liabilities. Last year, Facebook paid just over £4,327 (Dh24,022) — yes £4,327 — in UK corporate taxes. In 2012 it paid none at all. The company had written off generous employee stock options as an expense. Facebook’s international headquarters is in Ireland, which has specialised in helping global companies lower their tax bills. Companies such as Apple pay far below the average US corporate rate. The same applies to Facebook.
America’s taxpayers have grounds for complaint. Instead of repaying royalties on the public innovations they have commercialised, Silicon Valley hires lawyers to find clever ways to avoid paying taxes on their earnings. It hardly seems like a fair return.
So here is a radical idea. Zuckerberg should amend his pledge and announce he will pay normal taxes on his wealth — say 30 per cent — and invest 69 per cent in his philanthropic LLC. That would still amount to around $30 billion. Call it a new kind of “giving pledge”. Buffett, who came up with the original pledge that billionaires should give away at least half of their wealth, has already proposed that the very rich should pay a minimum tax on their income.
The sage of Omaha may lack the vigour of youth but he has learnt a few things from decades of experience. In his view, the wealthiest Americans do not give back a fair return in taxes. Zuckerberg has plenty of time to grasp the relevance of that insight.