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Capitalism Needs More Capitalists like Mark Zuckerberg

Yesterday Mark Zuckerberg announced his intention to give 99% of his Facebook stock to charity.  I found the responses to this announcement largely unfair.  The Guardian referred to it as a form of “imperialism”.  Thomas Piketty called it a “big joke”.  Others referred to it as “tax avoidance”.  The other common criticism was that 1% of $45B left Zuckerberg with $450MM which is, well, a lot of money (too much being the implication).

First, we should applaud Zuckerberg’s move.  This is a 31 year old person who has created more real value and technological advancement than many countries have in the last 10 years.  He built a company from nothing and the public markets value that company at $300B.  Granted, it’s hard to put a value on social media and the other Facebook companies, but I think it’s safe to say that Mark Zuckerberg’s contribution to society has been a tremendous net positive.

Second, Zuckerberg is gifting stock.  In exchange for a service that has added tremendously to many people’s lives, he has largely unrealized gains.  The market perceives this value to be $45B today, but Facebook could be gone in a few years and Zuckerberg will have actually given away very little relative to today’s reports.  We shouldn’t forget that the market value of stock is not realized wealth.

Third, the other common criticism is that this is a form of aristocratic control and tax avoidance.  Peter Kramer, a German billionaire has criticized this sort of giving arguing:

“You can write donations off in your taxes to a large degree in the USA. So the rich make a choice: Would I rather donate or pay taxes? The donors are taking the place of the state. That’s unacceptable.

It is all just a bad transfer of power from the state to billionaires. So it’s not the state that determines what is good for the people, but rather the rich want to decide. That’s a development that I find really bad. What legitimacy do these people have to decide where massive sums of money will flow?

In this case, 40 superwealthy people want to decide what their money will be used for. That runs counter to the democratically legitimate state. In the end the billionaires are indulging in hobbies that might be in the common good, but are very personal.”

I don’t see what’s wrong here.  The donors are “controlling” a rather meager slice of the aggregate spending pool.  Let’s assume Zuckerberg’s $45B is all capital gains to be taxed at the long-term rate of 20%.  We’re talking about $9B in “tax avoidance” relative to the US government’s $2.2 trillion in 2014 tax receipts.  Zuckerberg’s gift shouldn’t be equated to “controlling” the flow of government spending.  Further, Zuckerberg’s company has already created countless millions in tax revenue for the US government via his own stock sales and the income and capital gains it’s created all along the way.  The implication that this is all somehow a net negative for the US economy is ludicrous.

Also, the United States is a representative republic.  Some people seem to think the US government is a true democracy.  That is far from the truth.  535 elected officials decide “what is good for the people”.  Based on recent Congressional approval ratings of 11% it’s safe to say that these 535 people aren’t doing a very good job. Is it really worse to have incredibly intelligent and thoughtful people like Mark Zuckerberg and Bill Gates allocating their (relatively small) personal wealth rather than these 535 people who virtually no one approves of?

The bottom line is, capitalism needs more people like Mark Zuckerberg who contribute positively to society over the course of their lives and then choose to give huge portions of that wealth away.  Mark Zuckerberg is the type of capitalist we need more of.  These actions shouldn’t be torn down.  They should be praised.  After all, capitalism works best when capitalists serve others.  What better way to serve others than by giving the world superior goods and services AND also giving away the financial wealth that represents those goods and services?

NB – It is not even clear whether the LLC Zuckerberg has formed will avoid taxes.  After all, were he to sell shares inside of the LLC he would incur capital gains and as the owner of the LLC he would pay taxes.  More likely, Zuckerberg will gift shares to his various endeavors thereby creating more flexibility for his LLC than a 501C3 would allow.  So, this isn’t necessarily about tax avoidance as much as it’s about flexibility.  And let’s not forget another thing – Zuckerberg has paid huge amounts in taxes over his life already as he’s sold billions in FB stock.  In addition, the creation of FB and subsequent sales of other owners has resulted in millions and perhaps billions in Federal tax revenue.  So, in order to properly assess the tax situation we’d have to run a proper alternative hypothetical in which FB never existed and the Federal government perhaps never incurs the tax receipts it has….