How the Rich Reap Huge Tax Breaks From Private Nonprofits

https://www.propublica.org/article/how-private-nonprofits-ultrawealthy-tax-deductions-museums-foundation-art

by mavelikara • 3 years ago

313 261 3 years ago

As a side note: One of the primary reasons of how the rich get richer and how public services (our society) degrade is, that we stopped taxing them. For decades now.

Imho, its a shift of the represented interests in policies. We should stop pondering enshitification or greedflation an start seeing it as a systemic issue, that we can observe everywhere.

https://en.wikipedia.org//wiki/Commodification#In_Marxist_th...

tourmalinetaco2• 3 years ago

It should be noted we still “tax” them, as in the laws in place put income tax down, but they grow wealth by paying people full time to legally skirt taxation via schemes like this. However considering the current state of bloat governments are in, I’m not sure that extra money would actually mean anything. Except more to funnel into the military industrial complex and other black book projects.

throwawayqqq113• 3 years ago

I’m not sure that extra money would actually mean anything

In an ideal democracy it would.

Its yet again misrepresented interests. And as an extend to my side note: The decades long shift of interest representation went from the public to the private sphere. The distrust in goverment may be justified, but its no counter argument, because the means of democratic participation is the only viable tool we have left.

FUD helps the parasites. Democracies cannot fail, only the people in it do.

ljf• 3 years ago

I'd be happy if we kept the amount of tax raised to the same £ (here in the UK) - but by actually properly taxing the rich, that could then move more people out of income taxation (they would still pay all the other taxes that we pay in here in the UK).

This would mean the poorest get to increase their take home pay, without increasing wages.

cavisne2• 3 years ago

I was reminded recently of a funny segment by a comedian about how everyone on Hollywood virtue signals about socialism and taxes, yet all of them use LLCs to avoid taxes.

The recent strike showed this off with the trend of publishing residual checks, all of them are made out to shell LLCs.

PrimeMcFly9• 3 years ago

In the US people have been brainwashed to think reasonable taxation is 'socialism' - something they need to have a religious objection to even if they don't know what it is.

koolba• 3 years ago

There’s no such thing as “reasonable taxation” because it’s a subjective concept. It’s no better than saying “the rich are not paying their fair share”.

Say you’re settling the tab for big dinner at a restaurant, if your rich friend pays for the steak he ordered, is that his fair share? If there’s 100 of you and he pays for 1/100 of the check, is that his fair share? What if he pays for half the tab, is that enough to be his fair share?

Is it reasonable for society, through taxes, to take more than half of what you earn? (e.g., in CA the top brackets out you at 37% federal + 12.3% State = 49.3% tax rate. And that’s before sales tax!)

s1artibartfast8• 3 years ago

In the US, taxes are more that 40% of the entire country's GDP.

What do you think a reasonable level would be?

gorwell2• 3 years ago

Nope, they've been brainwashed to think it's "reasonable taxation" and the solution is always more taxation despite massive waste, fraud and corruption.

dools2• 3 years ago

The bigger problem is a fear of public spending because of perceived incompetence. The stigma comes from a time when only governments had run big bureaucratic systems. Now we can see there is little difference between public and private bureaucracies except for a lack of oversight on the latter.

Still the stigma remains and all public spending is filtered through a profit making entity.

AlgorithmicTime• 3 years ago

Well, fix government oversight of public bureaucracies and then we can have a discussion. As it is now, it's pretty clear that elected officials have little control and oversight into the bureaucracies that they nominally control and direct. Make bureaucrats firable. End Chevron deference. Bring back political appointments from the top to the bottom of the bureaucracy.

fifticon• 3 years ago

I see a lot of propaganda expended on convincing the voting public of this "public incompentence", almost as if someone is paying to maintain this status quo.

brigadier13212• 3 years ago

Can you actually give examples of competent public spending? The military is considered one of the competent parts of the US government and the amount of waste is staggering.

On any given night 4000 people are sleeping on San Francisco's streets and the government can't solve that with a $636 million a year budget?

The US spends more per student than any other nation and somehow we have worse educational outcomes?

tommiegannert3• 3 years ago

The big difference is that I can choose not to pay a company I don't like, and that's fine.

Governments will happily make my life crap if I don't pay taxes. I dislike greed as much as the next person, but the monopolized incarceration powers of governments are not to be forgotten.

For some services, collective funding makes sense, like having hospitals that can stop the spread of diseases, or forcing pooling of money to locally maintain an even standard of infrastructure.

littlestymaar2• 3 years ago

The “perceived incompetence” is propaganda-induced perception causes by the private sector and pro-business ideologists… (And when you defund public services it becomes a self-fullfilling prophecy)

PaulDavisThe1st4• 3 years ago

The reduction in upper rate marginal taxes and the narrative about government incompetence were both promulgated by the same people. They are not distinct.

The reality is that all human organizations - government, for-profit, not-for-profit - suffer from incompetence, corruption and inefficiency.

The story that the right likes to tell us is that because there is (typically) a choice of companies (and that they are subject to competition with each other), it doesn't matter (as much) if a company suffers from these things, because you can "go elsewhere".

Vertical integration in so many business sectors, along with corporate mergers and the waning of antitrust really does give lie to this, in my opinion.

For example, all US cell phone companies are shit, they all have shitty websites, shitty customer service, shitty rates, idiot salespeople ... moving from T-Mobile to Verizon because the former screwed something up solves absolutely nothing.

rpgbr• 3 years ago

This stigma, not by coincidence, is reinforced by economic elites. It’s part of their playbook, and they are pretty convincing for a lot of people.

missedthecue• 3 years ago

I don't think it's a stigma. It's observable. Government agencies are created to fix problems. If they fix the problem they are downsized. As an extreme example, the Department of War got very big in WW2, fixed the problem of Nazi Germany and Imperial Japan, and then shrunk. From 40% of GDP, to about 5%, and today a little over 2 or 3%

For most government agencies, it doesn't work this way. They get lots of funding, aren't able to fix the problem, and so the solution is to give them more and more funding. The result is that non or barely functional agencies are getting bigger and bigger, spawn out countless sub agencies and special task forces, and the problems they exist to solve remain. HUD funding for instance has grown multiples, inflation adjusted, since the 1980s, but no American will tell you the housing market or affordability is great right now. And HUD will get another huge increase for the next fiscal year, then again the next, ad infinitum.

This is fundamental problem. Until it's fixed, this fact, or what you term 'stigma' will continue to exist.

spacebanana7• 3 years ago

except for a lack of oversight on the latter.

It’s much easier for regulators to penalise a private sector actor than a public sector actor. Anything which makes the public sector actor look bad can be perceived as an attack on the incumbent politicians, who’re usually the people who hired the regulators.

refurb4• 3 years ago

One of the primary reasons of how the rich get richer and how public services (our society) degrade is, that we stopped taxing them.

Taxes as a percentage of GDP are pretty steady over time. We aren't really taxing less.

https://fred.stlouisfed.org/series/FYFRGDA188S

throwawayqqq113• 3 years ago

I think tieing tax income to gdp is as deceptive as hiding your income to dodge taxes.

The ultra wealthy can shift their assets as they please, the poor cannot. Maybe thats the reason why the graph is steady.

tmnvix• 3 years ago

You can both be right if you assume a shift away from taxing wealth to taxing income (or unearned to earned income).

s1artibartfast8• 3 years ago

The story is pretty different if you include state and local taxes.

https://upload.wikimedia.org/wikipedia/commons/thumb/3/37/Fe...

littlestymaar2• 3 years ago

We stopped taxing them and started to borrow from them instead.

nobodyandproud12• 3 years ago

Most of us here know, but note that the slights of hand are just too good.

They can also hire people to shill in every major forum, so there’s a huge uphill battle just to avoid getting drowned out.

xracy2• 3 years ago

I mean... People say this, as if no one knows where the money is, and we've tried everything. When in fact, everyone knows where the money is, and we've tried very little in the ways of actually taxing rich people.

I have no doubt that if we actually raised taxation rates (Corporate Stock Grants is an easy one that everyone on here will pretend is impossible), corporations, and rich folks would start paying more in taxes. Maybe they would still dodge, but until we actually start doing something saying "nothing will work" is like saying "there's no way to hammer a nail all the way into a board" when you haven't actually hit the nail with the hammer.

Edit: Of course it's un uphill battle if you've done nothing. Everything is an uphill battle when you're not doing anything about it.

00ff5• 3 years ago

False, we never stopped taxing the rich.

We reduced top marginal income tax rates though, so they moved more money into income and stopped hiding as much in shell companies and inventory.

The top 1% earn 20% of national income, but their taxes comprise 40% of federal income tax revenue.

US Gini coefficient (inequality measure) decreases by a third after accounting for taxes and transfers.

karpierz• 3 years ago

You start by saying that wealthy people can pretty freely manipulate the amount of income they show for tax purposes.

The follow-up is that based on the manipulated income data, wealthy people pay disproportionately more taxes?

Swenrekcah• 3 years ago

Assets should be taxed progressively.

Capitalism results in the power coming from capital. Therefore capital taxes should be the primary taxation mechanism.

There are issues with it such as cashflow problems and more, but all systems have issues and they can be overcome.

tourmalinetaco2• 3 years ago

The Hated One also did a rather informative video covering this topic: https://inv.tux.pizza/watch?v=OH4uh8cHuto

dredmorbius3• 3 years ago

Video title "Billionaire Foundation - The Most Immoral Charity In The World "

(inv.tux.pizza is failing to work for me)

giords• 3 years ago

I hate all of this

tyingq2• 3 years ago

There's also the loophole of running a church and designating your home as a "parsonage". Laws vary by state, but there's several that don't mind fully exempting sprawling estates if you represent it as such.

sidewndr46• 3 years ago

I know someone who looked into this and since the facility was a business 5 days a week & a church on Sunday they gave him a 1/7 tax credit. OTOH it made sense, as all he had to do was find a congregation that wanted to meet there.

tyingq2• 3 years ago

That seems like a reasonable, legal example. The Houston Chronical found ones that are unfortunately legal, but not reasonable...like: https://archive.is/SPY8K

jmyeet• 3 years ago

Private foundations are really a massive scam on the public purse so whenever you hear about the Gates Foundation and the like, remember it's just a tax dodge, nothing more.

The way the rules work, a private foundation has to spend 5% of its capital on its intended purpose. Thing is, that 5% can include "administration" costs like paying salaries and benefits for the family. They really need to raise this to 10%, minimum.

Art is a massive tax scam. You should only get a tax deduction on the purchase price (not "appraised value") and only to a public museum and there should be strict requirements as to what a "museum" is.

But it's really quite disgusting what lengths billionaires go to to avoid paying for the society that makes their wealth possible.

the-lazy-guy• 3 years ago

I had a brief look at Gates Foundation spending and it does not look like tax dodge to me: https://www.gatesfoundation.org/about/financials/annual-repo...

It spent about 10% of its endowment for charity last year.

natelegler• 3 years ago

Yeah because the Gates Foundation is going to come right out on their website and say that they are a tax dodge...

zo15• 3 years ago

Can someone explain how that charity foundation thing is a loophole? Who/what is avoiding taxes?

kevingadd• 3 years ago

What the OP described is that as a rich person you can set up a "charity foundation", donate a bunch of money to it (reducing your tax burden), then have the foundation hold on to most of the money and when it spends it, spend it on "administration", which could be hiring your friends and family to do fake administrative work

In the case of the Gates Foundation it's more likely to be real administrative work, but even the "good" ones are sitting on a ton of money that could potentially be put to more profitable (for society) uses

avidiax• 3 years ago

What do you want to do as a rich person?

* Own and enjoy fantastic properties:

- You own so many properties that you'll spend maybe a few weeks per year in each one

- So donate these properties to your own charitable foundation, give tours while you aren't there.

* Have lavish parties

- Call it a charity ball, hold an auction at some point, now you look great and the canapés are tax-free.

* Fly private

- Book a meeting for your charitable purpose wherever you are going. Now you can deduct at least part of the gas for the private jet.

* Enrich your friends and family members

- Give them sweet jobs in your foundation. Pay them competitive salaries without going through a competitive candidate search. Continue this even after you die, essentially a tax-free annuity.

* Lobby for your own business and ideological interests

- Your private foundation can advocate for all sorts of things. Fund self-serving studies. Give full-ride scholarships to top thinkers that think like you. Host tours, vacations, parties and events that benefit your position.

* Improve your social standing

- Give some money to PBS. Open a wing at a school or museum with your name on it.

rout39574• 3 years ago

Let's say you have an investment account with millions of dollars in it. Let's say for the purpose of the example you are earning 30% a year[0]. You're accustomed to use that account to fund your travel. You convert some securities to cash to buy plane tickets to travel all over the world.

You're going to pay capital gains taxes, or just income taxes, on those conversions to liquid capital.

If instead you donate those securities to a "Charity", then the earned interest is not taxed, and you receive a tax benefit for moving the property to the charity entity. If the charity is happy for you to travel all over the world, then you're done. Same benefit accrues, tax burden becomes negligible.

What's left to determine (from our electronic armchairs) is: Does the charity do good for the nation, for the world, to an extent that it's worth forgoing the tax income? I expect that the answer is "Yes" for several of the charities we consider household names. I expect that the answer is "No" for the overwhelming majority of charities, by count or by endowment. We could start by taxing Harvard. :)

[0] Not that anything is dependable year on year, but that's the rate that university endowments made in 2021.

resoluteteeth• 3 years ago

I don't think it's actually a "tax dodge" because having the money donated to a nonprofit does limit what the money can be for and to the extent salaries are paid back to family members that's getting taxed anyway (theoretically they could be shifting it to lower tax brackets but when you look at current US tax rates it's not going to make much difference anyway).

I think there's a real question of whether rich people should be able to get tax exemptions for donating massive amounts of money to nonprofits of their choice with no limit, but it's not a "scam" because Bill Gates is doing exactly the thing that the current tax code is intended to incentivize; he's not using some sort of complicated loophole to use the money for personal purposes while getting a tax exemption, he's just using it for charitable purposes that he chooses, exactly as intended.

That said, personally I don't think it necessarily makes sense to say that someone should be able to e.g. choose to donate a billion dollars of income to an art museum and not get taxed when the tax revenue from that income if it were not made deductible (even if less than a billion dollars) could be used for potentially more important uses once you factor in marginal utility, etc.

Framing it as a "scam" or "loophole" is somewhat misleading imo because it implies that rich people are somehow cheating the system, whereas in reality they are just using the system as intended, but it might actually be a bad system.

00ff5• 3 years ago

The Gates foundation likely gets more altruistic bang for its buck than any government on the planet, and plausibly more than any other organization of any sort.

dtgriscom• 3 years ago

Characterizing the Gates Foundation as "just a tax dodge" is a pretty hot take.

boeingUH60• 3 years ago

The Gates foundation example makes no sense and frankly reeks of ignorance. The foundation has given out over $70 billion in grants since inception [1]…money that came primarily out of Gates’s pockets.

In what way does losing $70 billion imply a tax dodge because he avoided paying $10B to $20B in taxes had he kept that money for himself? You know, he could have simply paid the taxes and kept the remaining $50 billion in in his pockets.

Guvante2• 3 years ago

You can't donate money to dodge taxes.

You need to donate a good and have it be overvalued or maintain control over it.

Gates mostly donated shares who have a fair value (market value). Gates similarly has control over direction but isn't using the majority of the funds for self enrichment.

mycologos4• 3 years ago

I know, I know, "bounties" are a fraught concept. Some people find "snitching" odious. But this is a tantalizing use case. All the author of this piece got out of their legwork was another article, but it also yielded some money for the federal government:

Two days after I emailed Finwall in April inquiring about the Xie Foundation’s purchase of the house, the foundation filed records with the California attorney general’s office, stating that it had “discovered a self-dealing event” and including a federal tax return with the word “amended” handwritten at the top. In his email to ProPublica, Finwall said that, after amending its returns, the foundation “paid some excise taxes related to Mr. Xie’s stay at the property.”

Maybe we can give 1% of the recovered tax to forensic accountant bounty hunters willing to vet the appropriate nonprofit filings. As is, the IRS seems under-resourced for this kind of work, and there's no real incentive for anybody else to do it unless they're a journalist -- and you can only write this kind of story so many times. Maybe each submitted case costs $100 or some other fee sufficient to deter spammers. I strongly suspect there's a class of feisty semi-retired accountants who'd be happy to spend some of their golden years on this kind of thing. If we're worried about small nonprofits, we can set a minimum claimed deduction that's subject to a bounty.

cavisne2• 3 years ago

A fraud whistleblower got a 200 million dollar bounty this year from the SEC

mycologos4• 3 years ago

Cool! It looks like the SEC whistleblower program has more generous terms than 1% [1]:

The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected.

Submitting a tip appears to be pretty simple, too. If you want anonymity you'll need to go through a lawyer, but other than that, it's just a web form [2]?

[1] https://www.sec.gov/whistleblower

[2] https://tcr.sec.gov/TcrExternalWeb/faces/pages/intake.jspx

tyrfing• 3 years ago

Actually $279 million.

An interesting part:

Both the $200 million CFTC award and the $279 million SEC award involved individuals who blew the whistle after the agency had already begun to investigate the misconduct at issue.

nobodyandproud12• 3 years ago

Another thought: What if all corporate accountants were required to be government employees? We can start with transnational companies first. Then LLCs and Incs.

Disincentivize the massive fraud that we see today.

prepend3• 3 years ago

I think this would result in really poor accounting since there’s a big disconnect between a government employer and a company being audited and its books kept.

In theory it works because the government auditor would be more interested in justice than corporate interests. In practice, an embedded external employee would not have the relationships to have viable information and would probably end up doing only the most perfunctory level of work to not be fired.

My org had this issue where our cyber group embedded an employee in each organization (we basically had a federation of different groups with separate funding streams and incentives) but their career ladders were disconnected from the local org. So the boss in the cyber org never really knew the work and just wanted safety. The org wanted to produce for their mission. So it led to this weird cycle where the embedded cyber person would stop stop every new project. The cyber boss was happy and promoted and gave raises. But it was bad for the org because no new projects.

cscurmudgeon2• 3 years ago

Doesn’t the govt lose large amounts of money to various fraud schemes?

https://www.nbcnews.com/news/amp/ncna1279664

May be the govt should have private sector auditors to help with that?

JacobAldridge2• 3 years ago

What if all corporate accountants were required to be government employees?

So then what if a company is seeking to expand internationally, and looking at options for various reasons (including costs, which includes the tax burden). Isn’t it a conflict of interest to have a US government employee weighing in on how to improve a company at the loss of IRS revenue?

And that’s an extreme example. Any company accountant or CFO is going to be involved in regular decisions where “paying less tax” is an important outcome to consider.

gorwell2• 3 years ago

"In November 2022, DOD failed its fifth consecutive audit, unable to account for sixty-one percent of its $3.5 trillion in assets."

mistermann3• 3 years ago

I believe that for the most part, those who call the shots in law enforcement prefer that people involved are subordinate to them such that important exceptions can be made when necessary. Getting amateurs involved screws things up, though it would substantially improve fighting crime.

mycologos4• 3 years ago

Bounty hunters would still be subordinate to law enforcement in this hypothetical scheme, because a bounty submission still has to get approved by somebody inside the appropriate regulatory body. If a corrupt regulatory body wants to protect certain individuals for certain reasons, they can still do that in this system.

Note also that the scheme I'm imagining doesn't give bounty hunters any special powers; we're not deputizing people to kick in doors. For example, my understanding of TFA is that the journalist built their cases through public information. The only exception was using their journalist credentials to get access to a "museum" -- but in that case, simply being repeatedly denied seems like sufficient evidence that it's not a museum open to the public, so being a journalist wasn't necessary to the case anyway.

It's more plausible to me that a regulatory agency might be too proud to use this kind of help. I have no special knowledge of the IRS, maybe they're in that category.

the-rc• 3 years ago

Isn't that what Form 211 does? You can get up to 30% of what the IRS collects.

https://www.investopedia.com/terms/f/form-211.asp

"In 2021, it was reported that 645 claims were submitted, resulting in 179 awards for a total of $36 million on an additional $245 million collected. In 2020, there were 593 claims and 169 awards for a total of $86.6 million paid out on $472 million in additional collections."

mycologos4• 3 years ago

Nice, I was not aware of this. It looks like there are some additional stipulations:

* If the subject of the claim is an individual, they must have $200k+ income in at least one of the relevant years, and the amount recovered must exceed $2mil.

* You can't have obtained the relevant information through your (or your friend/partner/relative's) activities as a federal employee.

* It will probably take about 10 years for the affected party's appeals process to complete itself (see the flow chart on p9 of the linked document, and the chart on p21).

* It also appears that the IRS requires more than the publicly available information described in TFA, as p12 of that document implies that "claims based entirely on publicly available information" are also "non-meritorious". So, the exercise conducted by the journalist appears to not qualify for a reward, even though in at least one of the cases it produced a collection. This bit is unclear to me -- I can't tell if it's just ruling out people who spam submissions saying "public figure X is definitely a tax evader!!!" or if you really need to provide additional non-public documents to get anything. There is a random Forbes article about this [2] that claims "the IRS is happiest when you have first-hand (insider information even better) knowledge of the taxpayer and the tax issues".

But if you jump through all those hoops, you can get 15-30% of the additional money collected. Form 211 itself is pretty short [3].

[1] https://www.irs.gov/pub/irs-pdf/p5241.pdf

[2] https://www.forbes.com/sites/deanzerbe/2021/06/10/tax-whistl...

[3] https://www.irs.gov/pub/irs-pdf/f211.pdf

evancox100• 3 years ago

There is a house—excuse me, “museum”, in my neighborhood for some guy’s hunting trophy collection. Private tours available on request, of course.

What a sham!

hliyan• 3 years ago

It has been my observation that it is not that only people of unscrupulous character become wealthy, but wealth tends to make you progressively more unscrupulous, i.e. not care about anything but yourself and your family unless you are legally compelled to do so.

In my mind, I've come to call this relative wealth toxicity. We all know of power toxicity (power corrupts). I think wealth has a similar effect on human psychology. The "relative" part is because a modern-day middle class person is, in absolute terms, is wealthier than a medieval lord, but do not behave like one. It is the relative power and the rarified social status that wealth brings, that results in the toxicity.

00ff5• 3 years ago

I've observed the opposite. The wealthy people I know are philanthropic. Similarly the upper middle class is more altruistic than the lower middle class, and so on down the hierarchy of needs.

tehwebguy• 3 years ago

This style and format is not for everyone to say the least but this deep dive from Some More News just dropped a few days ago

https://youtu.be/69AtkAHkKEc

steveBK1233• 3 years ago

I visited a park/reserve that definitely walked the line on this stuff. On the one hand it was open to the public 5 days/week, most of the year, provided you purchased!! generally-available tickets in advance.

On the other hand after a few visits I learned that the giant mansion at the center of the park was still occupied by the textile baron owner who set up the foundation. This foundation was setup almost as soon as the mansion was built, and he subsequently lived out his days for 30 years there.

They also charged to use the estate for weddings/catered events.

And they also had the gall to ask people to donate to the foundation. Incredibly, some well heeled locals have given 6 figure donations.

It seemed to me an amazing structure to live out your days on a beautiful estate with the upkeep of the incredible garden/art collection partially subsidized by both the government (tax deduction) and public (ticket sales / events / donations).

He eventually passed away and the foundation leadership devolved into a circular firing squad but that's a separate issue.

seattle_spring3• 3 years ago

Are you by chance talking about the Bloedel Reserve on Bainbridge Island?

steveBK1233• 3 years ago

Nope Longhouse reserve

Glad to hear this is a common scam lol

simonsarris• 3 years ago

How is this comparable? It seems like they are offering excellent public access. It looks like a very expensive garden to maintain, free for high school and college students, veterans, and children under 12, and just $2 for anyone with SNAP/EBT card (Museums for All pass). That seems very reasonable.

It looks like they also put on lots of paid (and free!) performances. This takes a lot of real live human hours to coordinate.

https://longhouse.org/collections/tickets

steveBK1233• 3 years ago

Well it's open 3-4.5 hours/day, 5 days/week in season. Fewer days off season. So we're not talking public park levels of access.

The bigger question is how much of a tax benefit did he get to live with that arrangement, and what % of the garden was covered by his contribution to the foundation vs other revenue.

00ff5• 3 years ago

Most commenters here seem to have a false impression of the distribution of taxation. "The rich pay little taxes" is disinfo. The truth is more like "the rich pay most of the taxes."

The US has had progressive taxation since 1913. Today, taxes on the top 1% of earners comprise 40% of federal income tax revenue, top 5% comprise 60%, while the bottom 50% comprise 2% (however note income taxes are only half of federal revenue). Per CBO, the US gini coefficient falls by 0.17 (a third) when you account for taxes and transfers.

Our legislators have created tons of complexity in our tax codes which people use to reduce their tax burdens. I mainly blame congress and the electorate. Donors are only culpable for funding congressional campaigns' appeals to voters.

mahogany• 3 years ago

The truth is more like "the rich pay most of the taxes."

By itself, this doesn't really mean much; it certainly doesn't address "fairness". For example, even in an inverted regressive tax system, the rich could still pay the most in taxes. This is simply because they earn the most money. And the larger the ratio between rich and poor, the easier it is for the rich to pay the most in taxes, yet still not be affected as substantially by taxation.

Take an extreme example to illustrate: there are 9 earners making $100 per year and 1 earner making $10,000 per year. If the tax rate were 90% for the low-earners and 10% for the high-earner, the high-earner would still pay the most in taxes (more than 50% of total revenue), but few would call this system "fair".

sesuximo2• 3 years ago

I think “top income earners” might be misleading? For the people in the article who donate say 40mil to their foundation and write off that 40mil from their income… if they earned 30mil that year, would they still be counted as a top 1% earner for the year in your metrics?

I think you’re right overall about top 50% and top 1%, but I think as you consider ultra wealthy people it might not be as simple (or at least i wonder about more edge cases; maybe I’m wrong)

jhp123• 3 years ago

"the rich" and "top income earners" are not at all the same group. Many of the richest people make their money through untaxed capital gains.

dpflan3• 3 years ago

Wealth is transfer from one part of the economic system to another, and extreme wealth is basically hoarding; why is it so difficult to reach a point of diminishing returns of wealth and then give it back in some way that is more impactful than arbitrary philanthropy? One cannot simply say government is inefficient because it is pretty clear that this current system is inefficient in distributing wealth and raising the living standards and reducing the suffering of others (because it has specifically been degraded and played by the wealthy so that they retain as much wealth as possible). The game of wealth accruing that everyone is playing is simply based on an economic system right now that depends upon money, and is a closed system facilitated by the government. Where else does _money_ come from? There is no other source. (Crypto is a joke, because is basically now valued in terms of fiat, so let's not add that to this discussion. It is also a small part of the bigger economic system, which again is founded upon fiat.)

So, this game of an economy founded upon money, what's the point? We no longer act as groups gathering resources from the natural environment; we are now individual actors forced to gather an intermediate resources (money), a reality and an abstraction for resource transfer. I am genuinely curious how the economy can truly be used to reduce suffering of others and create more stable societies.

(please note these are armchair philosophy, economics, sociology points, which would benefit from research.)

00ff5• 3 years ago

Philanthropy is a lot less arbitrary than the vast machinery of misaligned incentives we name government.

Like it or not, your tax dollars fund Guantanamo Bay, Trump's family separation/kids in cages, and every other odious federal program. (My state deploys my taxes to terrorize immigrants. Lovely.)

Your philanthropic dollars only fund projects you actually endorse.

dpflan3• 3 years ago

Yes, and tax dollars are also used for beneficial things. Please list those too. Philanthropy can be used to fund suffering-inducing things, so indeed, this is multi-faceted. The point is not that philanthropy can or cannot be useful, the point is that money hoarded is extremely inefficient and wasteful of the usefulness and utility of money (because there are certainly diminishing returns to its utility) -- in a system afforded by the government itself. Life is fleeting, thus so is your experience of your wealth.

SyzygistSix• 3 years ago

Wealth is transfer from one part of the economic system to another

So no wealth is created? The vast amount of medical technology and technology in general would immediately show that this statement is completely false.

dpflan3• 3 years ago

What is wealth?

bpm140• 3 years ago

“He said that tours are limited because the foundation has only a few volunteer docents who are knowledgeable about the home…”

Perhaps they could use some of the $35M in tax breaks to hire some docents?

habosa2• 3 years ago

If you live in the US and like to donate to charity you can have your own private foundation and you don’t have to be a jerk about it! It can be a convenient way for you to do good in the world.

It’s called a Donor Advised Fund and you can donate large sums to it and then direct the money in pieces to charities you support over time. In between the money gets to grow if you choose to invest it, and you get the tax write off at the time of donation not distribution because you can never get the money back.

Why would you do this? Well maybe you had a windfall profit one year (sold your company?) and you want to donate a lot of it before the tax year ends but you’re not sure where yet.

Or maybe you want to donate something besides cash to a charity without the systems to accept it. Like appreciated shares in your company, or cryptocurrency.

If you do this for the right reasons it’s not sinister at all. It’s just a safe and tax efficient way to manage your charitable ambitious.

You can even set one up on your phone, in like 10 minutes: https://www.daffy.org/

(Note: there’s a lot to argue about when it comes to what counts as a charity in the US and the nearly unlimited nature of the income deductions you can get from donating. But in the end I think as long as the tax code stays the way it is it makes sense for people who can afford it to give some money to a cause they support)

6ak74rfy• 3 years ago

True. Don’t know about Daffy but I’ve looked at Fidelity Charitable which does something very similar. “Donate” now, save taxes now, distribute the money when you want but let it grow (however you want) until then.

habosa2• 3 years ago

Fidelity and Vanguard charitable are two of the biggest DAF providers. Daffy is not nearly as well established but I like the UX. Honestly I just use it because donating to most charities via bank transfer is a massive pain and Daffy makes it simple.

AlbertCory8• 3 years ago

All true. I wouldn't expect ProPublica to expose the "other" nonprofits, which provide steady employment at high wages to politically favored people. Like the Clinton Global Initiative pre 2016. Or the NGOs who've turned homelessness into a reliable source of government grants.

If you go to Charity Navigator, you can find the percentage of the charity's income that goes to "administrative expenses." I seem to recall that CGI had about a 90% figure, but this:

https://www.charitynavigator.org/ein/311580204

shows more reasonable numbers: 18.3%. They're based on the 2019 IRS form 990, so it's pretty far out of date.

Re this "once a week guided tour" stuff: I'd be totally in favor of regulations outlawing that. If the taxpayers gave you an exemption for it, then the taxpayers get to see it.

Edit: since the usual HN reply is "do you have a citation for that?" here they are:

https://sfstandard.com/2022/04/27/the-standard-top-25-san-fr...

The largest is Episcopal Community Services:

https://www.charitynavigator.org/ein/951945256

which shows five people making $100K or close to it.

The second largest is the Tenderloin Housing Clinic:

https://www.charitynavigator.org/ein/942681706

with five people making well over $100K.

seattle_spring3• 3 years ago

Do you expect qualified people to work for these charities for free? 100k is not a lot in SF, and it's very likely the people in those roles could make multiples more at private organizations.

AlbertCory8• 3 years ago

1) how do you know they're "qualified"? Which leads to...

2) the Civil Service has rigorous rules on fair, non-discriminatory hiring. Do these orgs?

3) I don't know how you could know "it's very likely the people in those roles could make multiples more at private organizations." For all we know, they're people who've never had a private sector job in their lives.

4) Why can't the SF civil service do these functions?

5) What incentive do these orgs have to actually solve the problem, when their very existence depends on it continuing?

mihaic2• 3 years ago

Honestly, why isn't there a general indignation against the concept of tax breaks for any charitable contribution?

I'm generally not aligned with the libertarians, but let's just lower taxes and simply let people give wherever they want.

The only real benefits that non-profit structures like a 501(c) should be that their donations aren't taxed as income, and that's it.

wskinner• 3 years ago

In America, there is broad implicit approval for the idea that the tax code should be used to encourage (discourage) desirable (undesirable) behavior. We may quibble about the definition of desirability, but most Americans do seem to support this.

mihaic2• 3 years ago

It doesn't seem to be working though when breaks are given so broadly.

Guvante2• 3 years ago

Tax breaks for donations only impact these kinds of schemes.

The majority of donations aren't conditioned on a tax write off from what research has been done.

sesuximo2• 3 years ago

I think the idea is “the government should take money from projects for the greater good” … this is a concept that is 100s of years old

gumby• 3 years ago

Why is there even the concept of a "nonprofit", with tax deductible donations? This has never made any sense to me.

How the Rich Reap Huge Tax Breaks From Private Nonprofits

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