Tax avoiders posing as philanthropists.

[image: thebillionaireshop.com]

Private Foundations....Good, Bad, or Ugly?

You’ve seen their credits roll by following a TV program: “This program made possible by a grant from the John and Catherine MacArthur Foundation.” And you sigh: “What wonderful people John and Catherine must be to donate their money for my benefit.” Or when you see little kids swinging a golf club in another TV insertion sponsored by the Tiger Woods Foundation. How nice! The same goes for Bill and Melinda Gates Foundation, or any of the more than 81,000 private foundations in the U.S. But let’s get serious: Private foundations are tax avoidance vehicles. It’s as pure and simple as that. They allow wealthy persons to avoid paying 39.6 percent in taxes, while paying out only 5 percent of their foundation’s investment assets to charities,

Here’s the real low-down. First, the term “charity” gets stretched almost beyond recognition when it comes to who or what qualifies under the IRS rules. More than 1 million such organizations qualify for private foundation money. While you and I are limited to small contributions to churches, schools, and real charities, the doors are wide open for the wealthy to favor wine tasting groups to bird watching gatherings to…you name it. And their diversions away from the tax collector can equal 30 percent of their income. That means they can lob off 30 percent from personal income and pay no taxes on that money—while keeping control of 100 percent of their diversion. They are only required to pay 5 percent of investment assets out for their “charities.” For those with $100 million of income, that means they get to divert $30 million away from the government and into the coffers of their private foundation. After all they are special, and why should they pay for such mundane items such as wars or weapons systems, food stamps, or aid to the disabled, or for public parks, railroads, bridges and the things you and I pay for. Nope. They get to pick their payees, and then only a tiny trickle flows to them.

What do they do with the rest of their diversions? you may be asking. Almost anything they want including paying a staff to manage the foundation. More likely than not that means themselves, or their children, perhaps both. And their foundations also have “normal” expenses, of course, like homes, and limos, and boats, and airplanes—all titled in the name of the foundation, but controlled by them.

Here’s the third grade arithmetic that supports me. Instead of paying 39.6 percent in income tax on that $30 million diversion, our philanthropist pays 5 percent tax on it. That means he saves $10.08 million in taxes. ($30 X .396 = $ 11.88), and ($30 X .05 = $1.8), and $11.88 - $1.8 =$10.08. Repeat the same procedure 10 years in a row and our erstwhile philanthropist family has just kept $100 million that they otherwise would have had to pay the government. Is this a great country, or what?

And so, after paying a pittance to support charities like research into the sex lives of nymphomaniacs, our wealthy man about town can dabble in almost anything he desires with that money except politics. He can’t contribute any of those dollars to his favorite crooked politician who passed the law that lets him screw you, me, and the government. But not to worry, under the Supreme Court’s ruling in Citizens United, he can give unlimited dollars to his favorite crooks via his corporation or favorite PAC.

Did I mention that they can invest all those “idle” dollars and build up a huge family dynasty so their grand kids and great grand kids in perpetuity will have something to do with their time other than partying or working for a living, or fighting for their country, or anything that smacks of something worthwhile. And so we have the Ford Foundation, the Rockefeller Foundation, the DuPonts, the Mellons, Bill and Melinda Gates all telling us how wonderful they are. Even professional athletes and golfers have jumped onto the diversionary bandwagon. They save millions in taxes while doling out a few dollars of their investment income to a local charity and they smile sheepishly while TV commentators praise them for their generosity and humanity.

There was once a bar in Denver that raffled off a chance to throw a brick through a TV set at the offender of your choice. Now that’s an investment that needs to be revisited. My final thoughts on private foundations—phooey, spitooey!