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Zuckerberg & Chan Are Us

Philanthrocapitalism and the public good

Almost forty-eight years to the day before Mark Zuckerberg and Priscilla Chan announced the creation of their limited liability company and pledged to give away 99% of their Facebook shares within their lifetimes, a lawyer lectured a roomful of stockbrokers on “How to Obtain Maximum Tax Advantages by Using Securities to Fulfill Charitable Obligations.” At the behest of the Jewish Community Federation of Cleveland, one of about three hundred umbrella Jewish charitable organizations throughout the nation at the time, the lawyer presented several scenarios in which individuals could make substantial donations of appreciated securities at low out-of-pocket costs. He explained that donors could offset a high percentage of their gifts by taking advantage of the charitable deduction and avoiding capital gains taxes on the appreciation. To the brokers in the room, almost all of this was uncharted territory in a new era of finance and investment, a boundless horizon for doing well for oneself while doing good.

In the coming years and decades, attorneys would build their practices and nonprofits would fill their coffers as the wealthy discovered innovative philanthropic strategies at the intersection of tax law and investment policy. In these years, the IRS and the SEC would become the arbiters of philanthropy, while creative lawyers, estate planners, accountants, and stockbrokers would become shapers of the philanthropic enterprise, replacing the social workers who had once been at its forefront.

Today, supporters and detractors have dubbed “philanthrocapitalism” the mode of charitable giving that merges capitalism and do-goodism. Philanthrocapitalism draws from a deep historical well, but its modern-day structure must be traced to the economic, political, and cultural shifts of the 1960s and 1970s. As government contracted its regulatory presence and scaled back its own capacity to deliver services in favor of subsidizing private providers for social welfare, education, and other human services, it also re-crafted tax and investment policies to empower individuals and private entities (both for-profit and nonprofit).

Although the individual charitable deduction had existed since 1917, only in the 1960s did Congress designate special privileges for so-called public charities, defined operationally and categorically, and, at the same time, provide a process through which private foundations could pay a small tax to enjoy those same privileges. Ironically, Congress’s new regulations lessened its oversight over many facets of the charitable landscape and enabled the nonprofit sector to expand exponentially. Before the 1960s, Chan and Zuckerberg certainly could have set aside some of their fortune for charity — as Andrew Carnegie or John D. Rockefeller did — but they would have done so absent the government’s structural commitment to nonprofit institutions as the preferred vehicle for the delivery of social services. Policies that sanctioned the privatization of the “public good” transformed American philanthropy into a universe of financial institutions wielding an unprecedented level of governing power.

My own research focuses on what I’ve come to call “the American Jewish philanthropic complex” produced by the exigencies of postwar Jewish and American life. To be certain, Jewish philanthropy has a much longer history than its twentieth-century instantiations, yet it has been indelibly reshaped by the late twentieth century neoliberal logic of outsourcing public responsibilities to private actors and, in return, allowing them to collect public rewards, especially in the form of tax relief.

As early as the late 1950s, the most forward thinking Jewish philanthropic organizations became reliant on lawyers to interpret the intricacies of tax code for potential donors and to conduct seminars, similar to the one described above, for their attorneys and financial consultants. Whereas social workers had once stood at the helm of Jewish philanthropic organizations, now lawyers and investment specialists stood on at least equal footing with them.

The 1960s and 1970s are indeed notable for incredible creativity in the philanthropic sector. In response to tax reform — most importantly, the Tax Reform Act of 1969 that created a legal distinction between public charities and private foundations — philanthropic organizations created new financial structures to house charitable dollars. Consider, for example, the donor-advised funds that Chan and Zuckerberg and hundreds of thousands of other Americans have opened to hold and invest charitable dollars. An artifact of the 1969 tax legislation, these funds operate similarly to private foundations in that they allow the donor to exercise almost total control over when and where to allocate charitable dollars. Yet because these donor-advised funds — such as the billion-dollar-plus fund that Chan and Zuckerberg hold at Silicon Valley Community Foundation — are legally defined as residing within a public charity, the dollars deposited in them receive immediate tax benefits, even if, technically, donors could wait in perpetuity to allocate the funds to operating organizations that actually provide public services (rather than simply hold and invest funds).

As donor-advised funds grew in popularity in the 1970s, an increasing number of philanthropies became skilled at the practice of endowment, seeking to aggregate charitable dollars and to diversify investments held in the endowment’s portfolio in order to protect the principal and increase returns. Endowment became a central component of philanthropic practice. Before the 1950s, few Jewish federations maintained endowments (and many had bylaws setting very low ceilings on or simply prohibiting endowment building). By the 1960s, public charities and private foundations across the nation started to turn their attention to establishing and growing endowments.

The chatter about the Chan-Zuckerberg pledge has made some compelling points about the perils and possibilities of the couple’s philanthropic initiative. People across the world may benefit from scientific research, medical advances, and educational opportunities stimulated by the couple’s charitable giving. And yet, we have little evidence and no assurance that Chan and Zuckerberg will make the right choices, whatever those may be, about their allocations, and it remains unclear what, exactly, is philanthropic about the Chan-Zuckerberg “gift” except for their statement that they intend for it to be so.

The couple’s selection of a financial structure that supports and subsidizes their private power to determine the nature of the “public good” is simply an extension of transformations that started in the 1960s and 1970s. Now, as in the late 1960s, any good tax attorney could tell them the benefits of donating appreciated securities. However we judge their motives, we should feel an even greater ethical obligation to examine and judge the broad structures that encourage these forms of private, state-subsidized power.

Tax code and investment policy is often arcane, which is why those who can afford to do so hire experts to decode it. However, it is cynical to imagine that regular Americans don’t care about the extent to which tax deductions and exemptions may advance one particular group’s power to determine the public good outside of the democratic process.

After all, a portion of that money is our money. Chan and Zuckerberg, of all people, would agree that we should have the ability to say whether we like how it is being spent.

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Lila Corwin Berman

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