Theodore Schleifer | Vox

Billionaires are racing to sidestep President Biden’s plan to raise their taxes

2021-06-02T16:31:17-04:00

President Joe Biden. | Brandon Bell/Getty Images

President Joe Biden could soon find out that raising taxes on billionaires is more complicated than it seems.

The new president wants the rich to pay much more in taxes, in order to finance a $1.8 trillion plan to invest in things like child care, education, and tax cuts for the poor that are meant to reduce inequality.

But standing in the other corner of the ring is a sophisticated wealth management and accounting industry that is ready to fight, eager to temper every aggressive proposal and exploit every loophole to please their clients who pay them big bucks to defend every dollar.

Over the next few months — and over the next few years, if Biden’s plan manages to pass in some form or another — these forces will collide. Passing the tax bill is only the first step. The execution could be harder. No matter Democrats’ intentions, they may find that their plan lets tech billionaires off the hook.

And so the wealth management industry is brimming with a cocksure optimism that they can outsmart the bureaucracy.

“The wealthy will find ways around it. There’s too many ways to defer, minimize, or even avoid taxes.”

“The wealthy will find ways around it,” predicted one wealth manager. “There’s too many ways — perfectly acceptable ways — to defer, minimize, or even avoid taxes.”

What wealth managers and pro-tax activists share is a belief that the Biden proposal poses more of a threat to millionaires than it does to billionaires — because billionaires often can be more patient when it comes to dealing with taxes, choosing the exact moment that they want to pay them. Millionaires will have to work harder to find clever workarounds.

The Biden plan would increase the federal rate for individuals making over $450,000 a year to almost 40 percent. It would increase the ultra-rich’s capital gains tax rate — the tax rate paid by wealthy entrepreneurs when they sell a company or wealthy investors when they sell a stock — to a sum of over 40 percent. The White House would end the so-called “Angel of Death” loophole that allows the wealthy to effectively avoid capital gains tax altogether by not assessing the tax if the asset is passed along to an heir. And crucially, Biden plans to increase the enforcement firepower of the IRS, a move that the administration thinks could raise over a third of the $1.8 trillion in revenue targeted by the tax overhaul.

And it’s true that these proposals have sent at least some of the ultra-rich screaming for the brake pedal, more than half a dozen wealth managers and accountants for some of Silicon Valley’s wealthiest families told Recode.

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Over the last few weeks, more than a few wealthy executives and investors — including those who made their fortunes in the tech industry — have fired off emails and marched into meetings with their money managers in a state of panic. Would they really have to pay a capital gains tax that could mean more than half of their yearly earnings go to either the federal or California government? Would their children really be unable to access the intergenerational wealth that the family’s patriarchs and matriarchs worked so hard to build?

Yes, there are “mini freakouts in every client meeting we have,” said one wealth manager for Silicon Valley’s rich.

To prepare for a world in which Biden’s plans might become reality, wealthy people across the Bay Area are rushing to have their teams draw up legal documents to try to prepare for Biden’s plan potentially passing. One source relayed that tax lawyers he works with have already put out word that they will not take any more clients after September because they are anticipating so much last-minute 2021 business. Another said he’s noticed more and more clients talking about moving to tax-friendly Puerto Rico in the aftermath of the Biden proposal.

But there’s a litany of reasons that the tax experts aren’t as concerned as their clients are. And it’s not just because activists and wealth managers expect the Biden plan to be significantly watered down if and when it eventually passes Congress.

There’s the obvious — that the hike in the upper-most tax bracket matters little because the 0.01 percent don’t make their fortunes through a salary; they make it by founding or investing in companies. There’s the sorta obvious — that the increase in the capital gains rate can be circumvented if the wealthy avoid “realizing” the gain at a time when that higher rate is in place. And then there’s the even less obvious — that mega–billionaires can quite successfully go to great lengths to avoid ever paying a capital gains tax by using loans, charitable contributions, and a byzantine system of trusts to keep their fortunes from Uncle Sam.

To Gabriel Zucman, an influential progressive economist who studies tax payments from billionaires, the Biden plan has a “serious limitation.”

“If you’re Jeff Bezos or Elon Musk or the tech billionaires, it’s very easy to hold onto [your] shares and at the same time to borrow money to buy stuff — homes, private jets, or any type of consumption,” Zucman said. “The other thing in the Biden plan is to have taxation of capital gains at death. But obviously most of these tech billionaires are quite young, which means that they could still pay very little tax as a fraction of the wealth for many years and perhaps even several decades.”

Essentially, the tech titans will resist selling shares in a year when the Biden capital gains hike is in effect (not that active executives do much of that selling to begin with, out of fear of spooking the stock market). And that even if Biden succeeds with his plan to ax the provision that allows billionaires to ever avoid paying capital gains tax by bequeathing the asset to an heir — a privilege called the “step-up” basis, or the aforementioned Angel of Death loophole — Silicon Valley’s ultra-rich may have to pay more, but not until decades from now when they die.

The irony is that Zucman, the academic brains behind liberals’ calls for a wealth tax, largely agrees with the wealth defense industry on one key point: That the ultra-rich will be able to successfully fend off some of the Biden plan’s most intrusive proposals, potentially defanging the administration’s plan to raise hundreds of billions in tax revenue. The difference is that to Zucman, that’s why Biden needs to go even bolder. To wealth managers, that’s maybe why Biden shouldn’t even try.

“Regardless of where clients fall on the political spectrum, none of them are excited to pay more taxes”

“Regardless of where clients fall on the political spectrum, none of them are excited to pay more taxes,” said one wealth manager. “I never met a client, regardless of their political affiliation, that isn’t excited about proper estate planning.”

Billionaires or even regular-old millionaires hire these financial aides to preserve their assets. Beating the Tax Man is why they are paid. And so the industry in Silicon Valley is already strategizing about what exactly it will do.

When it comes to the capital gains tax, expect Silicon Valley titans to rush to lock in their gains at this year’s lower rate (assuming the final tax plan does not apply retroactively, a provision that will be vigorously fought.) That means that a rash of startups may look to sell toward the end of the year. Or that investors who feel they need to sell stock at some point soon may do so this year rather than next. Research on previous capital gains hikes shows that there is often a spike in realizations in the year before a new tax takes effect, according to Chye-Ching Huang, a tax policy expert at NYU.

Others may not sell at all, hoping that a new administration or a new Congress may reverse the cuts altogether. And in the meantime, billionaires may take out more loans using their stock holdings as collateral — a common practice for tech titans, as Zucman pointed out.

Wealth managers concede that evading capital gains tax at death will be difficult without the Angel of Death loophole. But they still have a few tricks up their sleeves. They say their clients in their wills will direct more and more of their appreciated fortunes to charity rather than to the US Treasury. (“Charity is a way of maintaining family wealth, not depleting it,” one wealth manager remarked.) They will — and in recent months, already have — ramp up their estate planning, which is the engineering of a complex web of trusts and companies that the rich build to pass money on to their heirs, part of an attempt to die while technically owning nothing in their name.

“If you’ve done a good job, you die with nothing,” remarked one aide to Silicon Valley’s ultra-rich. “In theory, the step-up doesn’t matter because you’ve already given all your assets to your kids, and so who cares? You spend your last dollar the day before you die.”

And even if avoiding the provision is impossible, the tax bill — and the tax revenue, to progressives’ chagrin — won’t come due until the billionaire dies. So for young tech billionaires, this is a problem for the distant future. Who knows what America’s tax policy will look like then? And for progressives, that means less money today to solve today’s problems.

Then there’s also the more general sense that the house always wins, so to speak. Wealth advisers are already trading ideas back and forth for new, underutilized tax hacks, for instance, that could be pursued more aggressively. It’s hard to predict precisely which loopholes will emerge in a new federal tax bill, but it’s remarkable that both tax activists and wealth advisers share this view that the tax avoidance industry will remain strong.

Biden’s plan seeks to combat that by spending $80 billion to beef up the investigative and enforcement capabilities of the IRS. But there is ample skepticism that the Biden plan will raise the $700 billion in revenue that it seeks — in part because the ultra-rich are so good at the cat-and-mouse game.

What is shaping up in Silicon Valley is a battle not just of laws and lobbying, but of wits and wiggle room. Tax activists concede that the wealth managers may have the upper hand in the short run, but hope that they will cut into the fortunes over the long run.

That money, says Huang, would allow America to “make permanent investments in children and families — that are not the heirs to multibillion-dollar families.”

Tech billionaires kick-start the recall fight over Gavin Newsom

2021-05-21T14:53:30-04:00

Reed Hastings is the biggest donor in the California recall election — by far. | Ernesto S. Ruscio/Getty Images/Netflix

California Gov. Gavin Newsom is staring down a recall election over his handling of the Covid-19 pandemic — and tech billionaires are preparing to deploy their war chests.

Netflix founder Reed Hastings has unofficially kick-started the fight by making a $3 million donation to back Newsom, according to a new disclosure filed on Thursday evening. That massive sum — by far the largest of any donation to date on either side of the recall fight — is likely just the first in what’s expected to be a big-money brawl among Silicon Valley billionaires, who are somewhat divided on Newsom.

The recall, likely held this fall, will be 2021’s marquee election, with an expected price tag of over $100 million and featuring candidates like Caitlyn Jenner. And tech billionaires in the state are likely to have starring roles in the warfare.

The donation is significant because Hastings is one of the Democratic Party’s most powerful donors, particularly when it comes to California state politics. Alongside his wife, Patty Quillin, Hastings likes to spend his billions on criminal justice reform and education reform — and on like-minded politicians who back him on these issues.

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It’s also significant because it suggests a new alliance between Hastings and Newsom. Hastings spent over $7 million on an outside group that backed a Newsom rival, former Los Angeles Mayor Antonio Villaraigosa, when he challenged Newsom for the Democratic nomination for governor in 2018.

“We had this strange conversation where I told Reed, ‘I thought you guys would only put in ten million’ — I really thought five — and he said, ‘I’m only putting in half of what I otherwise would, because it’s you,” Newsom relayed to the New Yorker in 2018. Hastings would later text Newsom after he bested Villaraigosa: “If you’ll still have me, I’d be honored to support you.”

So there could be much more where that came from. Hastings has a net worth of $5 billion. And Newsom has a serious leg up in the recall fight when it comes to his state’s billionaires: Anti-Newsom candidates must abide by contribution limits that limit the size of the billionaires’ checks to $32,400. The same isn’t true for pro-Newsom committees like the one that just took in $3 million from Hastings.

And there are Silicon Valley billionaires who will spend their own fortunes against the governor. Investors like Chamath Palihapitiya and David Sacks see Newsom’s coronavirus restrictions as anti-business and have funded anti-Newson efforts. But the contribution limits mean that the pro-Newsom billionaires will have far greater influence.

And many have signaled they’re up for the fight. Newsom, a former mayor of San Francisco, has long cultivated relationships with the Bay Area’s mega-rich. Earlier this spring, 75 tech leaders signed onto a public letter organized by Silicon Valley titan Ron Conway publicly stating that they opposed the recall effort. That roster included Democratic mega-donors like former Google CEO Eric Schmidt, LinkedIn founder Reid Hoffman, and billionaire philanthropist Laurene Powell Jobs.

Few of them have yet landed on campaign finance reports by giving significant amounts. But the size of Hastings’s donation is a reminder of the deep pockets that Newsom can dig into over the next few months as the campaign heats up.

California’s last recall election of a governor, in 2003, cost campaigns a total of $90 million. That’s when voters elected Arnold Schwarzenegger.

Bill Gates will never be the same

2021-05-24T09:29:51-04:00

Bill Gates is mired in deep scandal, after decades of bolstering his philanthropic image. | Indraneel Chowdhury/NurPhoto via Getty Images

For decades, Bill Gates has traveled the globe as near-royalty, knighted by Queen Elizabeth and draped in medals by President Barack Obama. And for the last year, the once pugnacious Microsoft founder has reinvented himself as one of America’s clearest, most humane voices on the Covid-19 pandemic.

It would only take two weeks for Gates to reinvent himself yet again — and not in the way that his past reinventions have gone.

For the first time since the turn of the century, Bill Gates is mired in deep scandal. And what has become clear over the past 48 hours is that Gates will never be the same.

The divorce of Gates and his wife, Melinda, was announced earlier this month but has devolved into a tabloid melodrama featuring secret boardroom investigations, hushed affairs, and the likes of Jeffrey Epstein. Gates was pummeled in a trio of stories over the weekend that detailed his alleged indiscretions, each of which began to shatter the aura that he has cultivated in the 20 years since he took his foot off the clutch at Microsoft.

That image rehabilitation largely worked. Ever since stepping back from Microsoft, Gates has grown to epitomize what might be considered the “Good Billionaire”: a civic-minded, awkward geek who showed how capitalism’s winnings can be marshaled to make the world a better place through philanthropy. No donor was more important in the world than Bill Gates, who, along with his wife, had grown to symbolize something in short supply in corporate America: role models.

And the polling reflected that: 55 percent of Americans told Recode in a survey this year that they had a positive opinion of him; only 35 percent felt the opposite.

But Gates’s world has now come crashing down with incredible speed.

To recap: Gates has apologized and been dogged for over a year by his connections to Epstein, the convicted sex offender who eventually killed himself in federal custody. But Gates is now accused of having vastly underplayed his ties to the ignominious criminal, according to one report. A second report shows a pattern of Gates acting unprofessionally around women he worked with — and handling a sexual harassment allegation against his money manager in a way that upset Melinda. And in the perhaps most damaging revelation, Gates now admits that he had an affair with an employee at Microsoft back in 2000, which triggered an investigation by the tech giant’s board of directors in 2019, a third report says.

Gates’s team denies many of these allegations. But they are sure to capture some mindshare with the American public, piercing the reputation that Gates has worked so long to cultivate. And there’s little reason to think that the last shoe has dropped in a record-setting divorce proceeding that is trending toward ugly.

Will people look at Bill Gates with the same fondness ever again?

What two weeks ago was merely a marriage that had sadly petered out has spiraled into something nastier. Gates will be shrouded in questions for the foreseeable future about his romantic life — to say nothing about the uncomfortable pecuniary and legal questions about the future of his fortune.

People do recover from scandal, especially in this news and political environment. (Philanthropists like Michael Milken were no angels.) Gates will surely have his own side of the story to tell, and the Gates Foundation will still exist, giving him wide influence over the next few decades. But more than other philanthropists, much of Gates’s soft power came from his seemingly unimpeachable public profile, which will now be more than a little tarred by the worst kind of attention.

Even if this is relegated to a rough news cycle or two in the long sweep of history, the short-term consequences are profound given where we are in that history. Gates should be at the forefront of the humanitarian crisis in India, for instance, speaking out about the massive death tolls. (He’s instead drawn controversy for his support of vaccine patent protections.) Now he is on the defensive, and any next interviewer will understandably want to ask at least in part about his private life, depleting the power of his commentary on public health.

This should be a validating moment for Bill Gates, as much as the last year has been. Instead, he will likely be silent, legalistic, and, more broadly, on the back foot. It couldn’t have come at a worse time.

A crypto billionaire donated $1 billion to India. Make sure you include an asterisk.

2021-05-12T22:30:53-04:00

Vitalik Buterin is a 27-year-old billionaire philanthropist. | David Paul Morris/Bloomberg via Getty Images

A cryptocurrency billionaire seems to have made one of the largest contributions to save lives in India from the coronavirus pandemic: Over $1 billion.

But as there so often is in the world of cryptocurrency, there is a massive catch. And it’s a catch that over the next few years will likely come up again and again and again as crypto billionaires ascend to become major players in the world of philanthropy.

Here’s what happened: Vitalik Buterin, the 27-year-old programmer who founded the cryptocurrency Ethereum, disclosed on Wednesday that he had contributed about $1.5 billion worth of coins to nonprofit organizations, some of which came in his own (and relatively stable) Ether.

But $1 billion of that came in a donation of a more … unusual type. He donated it in the form of a meme digital currency called Shiba Inu coin — yes, after the dog breed — that Buterin was gifted for free. (Like the popular Dogecoin, which also features the dog as its mascot, the Shiba Inu coin has much hype but questionable underlying value.) But then, as is prone to happen in the topsy-turvy world of meme assets, Shiba coin proceeded to tank in value immediately after Buterin’s donation was disclosed — perhaps because buyers and sellers expected the billionaire to soon liquidate his holdings.

The saga highlights just how uncharted the territory is in the world of crypto philanthropy — and perhaps the need to come up with a new vocabulary to describe these donations altogether. Should the donation of a meme cryptocurrency be considered equivalent to the donation of a publicly listed stock? What is a “real” donation, what deserves an asterisk, and who gets to make that call? And how can billionaires protect the value of their crypto donations — while also making sure that nonprofits can actually use their money?

That all matters because there is a new generation of philanthropists who have built massive fortunes in not just traditional cryptocurrencies like bitcoin and but also in more out-there coins like those inspired by Dogecoin, the meme digital asset pumped up by Elon Musk. Nonprofits want to welcome these donors but need to figure out how to handle assets that can tank in value overnight.

What happened with Buterin is instructive. Some of his contributions on Wednesday came in Ether, the highly traded cryptocurrency and relatively older coin that he founded back in 2015. $50 million worth of Ether went to GiveWell, for instance, an intermediary that dispenses money to nonprofits that are proven to be the most effective based on rigorous data analysis. The price of Ether was relatively stable after his donation.

But most of the headline value of the donation — and possibly also the tax write-off that comes with it, depending on how the gift was structured — came from the memecoin, not Ether. Buterin was given about 50 percent last year of the total supply of the coin, which is meant as an imitator to Dogecoin. But as soon as Buterin’s donation became public, the value of the coin plummeted about 40 percent.

That meant that the nonprofit, the India Covid-Crypto Relief, suddenly had less money on its hands than it did when Buterin made the donation just moments before. And because of concerns that it could drop even further, the nonprofit’s head had to put out word that they would “act responsibly” to not hurt the price of the Shiba coin. That might mean not selling large chunks of the currency at once to covert into cash and tangible Covid-19 aid.

That sensitivity could mean less liquid money for the relief fund to help India weather the humanitarian crisis that is gripping the country. The country is suffering from an oxygen shortage and is the world’s most troubling hot spot during this phase of the pandemic, with over 4,000 reported deaths some days.

To be sure, this is hardly the first time that a billionaire has made donations in difficult-to-liquidate assets — whether it is rare art or stock in public companies that are held by current C-suite executives. But the rise of cryptocurrencies in the last few years has posed unique accounting and logistical challenges to institutions like the Silicon Valley Community Foundation, a favorite philanthropy of the tech billionaire class.

But it’s clear that this problem, so to speak, is only going to get worse. While many mature nonprofits today are comfortable accepting a digital asset like bitcoin, what new, volatile coins will the ingenious billionaire set seek to donate in the future? And this is increasingly not a fringe hypothetical, given that crypto billionaires are all over the list of the wealthiest people in the world.

There is real money on the line, whether the donations come in bitcoin or Shiba coin. And the world will have to adapt to these crypto billionaires if it wants to see their riches put to good use.

The biggest impact of the Gates divorce may have nothing to do with the Gates Foundation

2021-05-04T23:12:36-04:00

Bill and Melinda Gates are America’s foremost philanthropists. | Michele Crowe/CBS/Getty Images

A divorce is typically a private matter that affects a family, with little consequence for the public at large.

But the split between Bill and Melinda Gates could have far-reaching consequences for global health and American life because they are the country’s biggest charitable donors — a sign, as sure as any, of just how central a role billionaire philanthropists play in our society.

In the immediate aftermath of the surprise announcement, everyone from critics of billionaires to former Gates Foundation executives was grasping for explanations about what this could mean for the world’s most important philanthropy. To some, the divorce suggested that major strategic changes could emerge in the years to come, with entire nonprofit sectors and hundreds of billions of dollars hanging in the balance. To others, the Gates’s divorce was not that dissimilar from any other couple’s — a reflection of the ironclad legal commitments they already made, and the family’s stated commitment to work together.

“I think the real story here is not the divorce itself having an impact, but the reaction the public had to the news,” said Megan Tompkins-Stange, a University of Michigan professor who has studied the Gates Foundation closely. “There was widespread fear and anxiety on behalf of the foundation’s current grantees, which in and of itself illuminates the extent to which the Gates’s actions cause ripple effects in the rest of the philanthropic sector.”

The anxiety surrounding the Gates divorce isn’t surprising when you consider what happened when Jeff Bezos and MacKenzie Scott announced their split in 2019. While we didn’t know it at the time, the philanthropic world ended up transformed by their $36 billion divorce settlement. What’s different with this Seattle tech billionaire divorce is that we know that this deal will reverberate in the world of mega-charity in some way or another because of their track record as major donors.

Bill and Melinda Gates created a charitable trust that today manages about $50 billion on behalf of the Foundation — that money is donated irrevocably and cannot be redirected. But there is another estimated $150 billion or so of Gates wealth that currently sits outside the Foundation’s walls, a sum that presumably will be split between the couple in a to-be-announced divorce settlement.

Now that the money is up to their individual — rather than collective — whims, it is possible that the fortune could end up funding different work than it would have previously. When the Gateses jump-started the Giving Pledge a decade ago, the couple wrote that they “had committed the vast majority of our assets to the Bill & Melinda Gates Foundation.” We don’t know whether that will still be the case after the divorce.

So in some ways, the bigger story is the money that has yet to be apportioned to the Gates Foundation and currently sits at places like Cascade Investments, the Gates family’s personal investment shop.

This money, Gates insiders speculate, theoretically might have gone to the Gates Foundation over the next few decades, but now it might go to outfits like Pivotal Ventures, Melinda Gates’s personal investment company focused on gender equality; or to Gates Ventures, her husband’s investment shop.

One former Gates Foundation executive, granted anonymity to offer a candid view, wondered whether Melinda Gates, over time, would focus more of her energy on Pivotal and less on their jointly run foundation.

The Gates Foundation itself is presenting a calm face: The $50 billion philanthropy said that both Bill and Melinda Gates would remain trustees of the foundation. “They will continue to work together to shape and approve foundation strategies, advocate for the foundation’s issues, and set the organization’s overall direction,” a spokesman told Recode.

But while that may be true now, divorces are complicated, and even an initially amicable split can turn acrimonious or tense with time. So it’s impossible to know how exactly the next few years, or decades, will go.

“Even if they’re both clearly leading the foundation, I don’t see any scenario where it’s not going to turn into the things he cares about and the things she cares about,” said another former exec, who described there as already being a “massive, complex field of landmines between the foundation, Pivotal, and Gates Ventures.”

Even people who used to work closely with the Gates couple disagree with one another about how the divorce might affect the foundation. Asked how big a deal this would be for the Gates Foundation, on a scale of 1 to 10, one former executive pegged it with at least a 7. Another prior Gates aide gave it a 3. A third was even more bullish, saying that when it comes to the program, the impact would be a 0 or a 1.

Big changes could come, said one insider, but only once the Gateses are no longer preoccupied with what is sure to be a complex legal process. In the meantime, at least, some of the former executives predict that internal day-to-day matters could grow more paralyzed if the pair ends up struggling to cooperate, especially for people like Gates Foundation CEO Mark Suzman, who will have to manage the board.

But when it comes to the nonprofits themselves that depend on the Foundation’s largesse? There may be anxiety, but less drama than meets the eye.

And when it comes to the Gates orbit? The dominant feeling is a sullen dolefulness for their mentors.

Bill and Melinda Gates’s divorce could rock the world of charity

2021-05-03T19:49:51-04:00

Bill and Melinda Gates’ divorce will be closely watched, with possibly huge implications. | Getty Images for Global Citizen

Bill and Melinda Gates, the leaders of the world’s most venerated and powerful philanthropy, said on Monday that they were getting a divorce — an earthquake moment in the nonprofit sector.

The billionaire couple sets the strategic vision for the $50 billion Bill and Melinda Gates Foundation, which they co-founded and which spends more than $5 billion a year on causes like US education and worldwide disease eradication. Their divorce potentially has enormous implications for their work.

The Gateses are America’s most famous billionaire philanthropists, with the power and profile to corral foreign governments, lobby for policy change, and inspire other billionaires to donate their money to charity. During the coronavirus pandemic, Bill Gates in particular has been one of the nation’s leading public health experts, appearing seemingly everywhere in the media and encouraging people to take the virus seriously.

The couple made the surprise announcement in concurrent posts on their personal Twitter pages. Upon posting the announcement, Melinda Gates added her maiden name, French, to her Twitter profile, suggesting that she may use the full name “Melinda French Gates” going forward.

In their statement, the Gateses said they would “continue our work together at the foundation.”

“But we no longer believe we can grow together as a couple in this next phase of our lives.”

A Gates Foundation spokesperson said that the philanthropy did not anticipate changes to its work. Both Bill Gates and Melinda Gates will remain co-chairs and trustees of the foundation in their name, a spokesman said.

“They will continue to work together to shape and approve foundation strategies, advocate for the foundation’s issues, and set the organization’s overall direction,” a Foundation spokesman said.

Bill Gates founded Microsoft decades ago but has increasingly turned more and more to his charitable work, resigning from Microsoft’s board last year. Melinda Gates was an early employee at Microsoft herself and has been a hands-on presence for years at their foundation; she also has her own interest in women’s issues that she coordinates through a separate outfit called Pivotal Ventures.

Disentangling a fortune of this size — the Gates family, for instance, is the country’s largest private owner of farmland — is sure to be complicated. The Gates family has a net worth over $100 billion, and their separation could set records for the largest divorce settlement to date. The largest settlement ever was recorded a few years ago when Jeff Bezos, the world’s wealthiest man, finalized a divorce from MacKenzie Scott for about $36 billion.

While a divorce proceeding is typically a private affair, given how important Bill and Melinda Gates are to the world, this separation could have massive consequences for public life.

This Barack Obama adviser is quietly investing $250 million in startup founders of color

2021-04-28T18:06:50-04:00

Barack Obama in Silicon Valley back in 2011. | Stephen Lam/Getty Images

Former President Barack Obama’s financial adviser has been quietly investing in startups led by founders of color through a new investment firm, Recode has learned.

A new venture capital firm called Pendulum Holdings has in recent months been approaching and funding companies led by founders of color, according to people familiar with the matter. The firm is led by Robbie Robinson, who helped set up the financial affairs of the Obama family after they left the White House. He remains an adviser to the family.

The fund, whose efforts haven’t previously been reported, is the latest attempt to better support Black founders, who receive only about 1 percent of venture capital funding, according to estimates. Corporate America has vowed to do better in the aftermath of the Black Lives Matter protests last summer, and one way to do that is to launch firms with an explicit focus on backing these entrepreneurs. Racial diversity in the world of startups matters because these companies create businesses, products, and wealth that can either perpetuate or help close inequality in the first place.

Pendulum also represents another tie, even if loose, between the Silicon Valley startup scene and the Obamas, who have long had a soft spot for tech. Since leaving the White House, the Obama family has struck content deals with companies like Netflix and Spotify and continued to cultivate relationships with venture capitalists.

“The conversations I have with Silicon Valley and with venture capital pull together my interests in science and organization in a way I find really satisfying,” Obama said back in 2016 on the cusp of leaving the White House, stirring speculation that he might be interested in a more hands-on role in the startup world.

To be clear, Obama is not currently an investor in the funds launched by Robinson, although the pair do remain in touch on financial matters. The funds require a minimum $1 million investment to gain access to the deals found by Pendulum, according to a federal disclosure filed by the firm.

Pendulum declined to comment.

Pendulum, which launched in 2019, has kept quite a low profile. It has granted no interviews, operates no website, and has publicly announced no deals since launch, despite being in the process of raising up to $250 million for a pair of investment vehicles, according to securities filings.

But a draft of a not-yet-published website accessed by Recode pulls back the curtain.

“Pendulum is an inclusive & strategic growth investing and advisory platform designed for a new generation of business builders and leaders,” reads the unpublished site, which was found through a public Google search before being deleted after Recode reached out. “Our ambition is to create a system that reimagines how great companies are built and redefines who gets to build them.”

One way in which the firm is trying to redefine who gets to build them is by supporting people of color. The firm targets its investments on founders of color, backing companies like Crown and Conquer, a creative ad agency, and Nickson, a furniture rental startup.

The firm is staffed primarily by people of color. Robinson, who serves on the council for the National Museum of African American History, leads the shop with D’Rita Robinson, his wife and the firm’s co-founder and head of operations. Having more Black Americans making the decisions about what to fund can help make sure that the products and services that startups bring to the world serve a diverse audience.

Robinson has had other prominent clients, but doing the financial spadework for a former president is a particularly unique relationship. Robinson worked for Byron Trott, a powerful Chicago banker who was Robinson’s longtime mentor.

“First of all, to Robbie and D’Rita, thank you so much for helping to pull this together,” Obama said in 2015 at a fundraiser for the Democratic National Committee hosted at their house. “We’re so grateful to the whole Robinson family.”

Two years later, Robinson took a yearlong leave from Trott’s firm to help Obama navigate the world of paid speeches and book deals, sometimes working from Obama’s Washington office. A press release that year from Mayor Rahm Emanuel’s office identified Robinson in part as an “Advisor to President Barack Obama.”

“As the Obamas were concluding their presidency, they reached out to me about potentially working with them,” Robinson told the alumni magazine of Morehouse College in his only public interview about the arrangement. “This was an opportunity I never could have dreamed of yet was very prepared for.”

Elon Musk’s $150 million charity spending spree

2021-04-22T02:28:41-04:00

Elon Musk has donated $150 million to charities this year — more than in all previous years combined. | Simon Dawson/Bloomberg via Getty Images

Elon Musk is on a philanthropy spending spree.

In the months immediately after briefly becoming the world’s richest person, Musk has been transforming his profile as a philanthropist, appearing seemingly every few weeks bearing gifts — in public. That represents a departure from Musk’s penchant for privacy and his relatively thin history as a major donor, despite being one of the country’s wealthiest people for a decade.

In the last few months, the Tesla founder appears to have been on the most aggressive streak of charitable giving in his life, moving so fast that he sometimes fails to give the recipients a heads-up. He is making his largest public donations ever and at a pace that seems to outstrip any other point in his career. All of that activity will be highlighted on Thursday when Musk speaks at a buzzy rollout for his single-biggest donation, a $100 million jackpot for the winner of a climate contest he created.

Over just the first four months of 2021, Musk has committed almost $150 million directly to charities, according to Recode reporting and public announcements. That more than doubles Recode’s best estimate of all his charitable giving before 2021, which amounted to about $100 million based on available information.

And that’s not all. Behind the scenes over the last few months, Musk’s foundation has been spending more time reaching out to other major philanthropists and intermediaries to try and find ideas for grants and learn best practices, Recode is told.

It makes sense that Musk’s lean philanthropy team — it has no known full-time staff — would do that. Philanthropists are often encouraged to borrow one another’s ideas and share notes if they are struggling to find worthy places to grant money — an ailment that Musk has recently copped to.

“Critical feedback is always super appreciated, as well as ways to donate money that really make a difference (way harder than it seems)” he tweeted in January.

Part of what happened next was coincidental. Part of it was the fallout of that tweet. Over the next three months, Musk committed:

$100 million for Thursday’s prize
$30 million to nonprofits in the Rio Grande Valley in South Texas; $20 million of that goes to local district and charter schools, the other $10 million is meant to revitalize the downtown of the city of Brownsville, Texas
$5 million to Khan Academy, a platform for online courses, which came as a complete “surprise” to the nonprofit, a spokesperson said
$5 million to a pair of Boston-area researchers studying the coronavirus
$1 million to Feeding Texas, which operates food banks in the new home state of Musk and his foundation
Gifts of undisclosed amounts to a fund run by Barstool Sports (after initially resisting); a space-focused competition run by SteamSpace; and a project run by UNICEF to expand internet access in the developing world

But it is the XPrize competition that is Musk’s single largest charitable commitment to date. The $100 million will be awarded to entrepreneurs who come up with the best technologies to capture carbon dioxide in the atmosphere and lock it away permanently. Musk is set to unveil the details of the four-year competition and answer questions in a glitzy rollout live from Cape Canaveral, Florida.

That donation was a direct consequence of his January tweet. Peter Diamandis, an entrepreneur who runs the competition, saw his request and replied publicly and then privately to Musk, who had backed a previous XPrize. Diamandis had an idea: What if we did another one on a new issue?

“One of the attributes about Elon is when he’s clear about wanting to do something, he moves very fast,” said Diamandis. Musk eventually agreed to headline a launch event, too. “The reason for the publicity is to get as many people to know that this prize exists.”

Some of Musk’s other donations have been more low-key. Last fall, the head of Musk’s family office, Jared Birchall, “reached out of the blue” to Feeding Texas head Celia Cole after seeing a tweet about her organization. Musk was interested in making a $100,000 donation for Covid-19 relief. When the winter storms struck Texas this winter, Cole’s team reached back out to Musk’s — who added another zero to his first gift.

“It was a quick ask and a quick yes,” Cole recalled. “He seems to be settling into Texas, and maybe he’s working to make Texas his focus.”

Musk is also being quite transparent — even playful, coy, and attention-seeking with tweets that tease multi-part announcements and create several independent news cycles. All of those donations have been announced publicly, despite his previous belief that his charitable giving should be anonymous.

This Elon publicity machine sometimes gets ahead of itself, as he is prone to do on Twitter.

When Musk first announced the XPrize contest in a tweet, he said “details next week” — they didn’t come until almost three weeks later. When Musk told the world that he’d give $30 million to the Brownsville area, he somehow forgot to tell the city of Brownsville, whose mayor said he had no idea the money was coming before the tweet was sent.

That money hasn’t yet arrived. The mayor, Trey Mendez, told Recode that the city “has had initial discussions” with the Musk Foundation about the contribution since the tweet a month ago. City officials are now belatedly putting together a plan for how to spend it.

It was a similar manna-from-heaven moment for the area’s schools, which primarily teach Latino students in a part of the country where more than one-third of families live in poverty. Beginning just after Easter, Musk’s team called a series of meetings with Cameron County superintendents and charter school heads to inquire how much money they might need and what was on their wish lists. $5 million of the $20 million for area schools was deposited last Friday — awarded based on the number of students enrolled in each district.

The other $15 million is expected to be distributed in future tranches beginning this summer for more projects, based in part on any early accomplishments.

“Their judgment will be if we did what we said we’re going to do and if they got the bang for the buck that they wanted us to get, is my impression,” said Roger Lee, whose Rio Hondo Independent School District was awarded $100,000 to boost local transportation services and to support a robotics program at an elementary school.

Musk’s private spacecraft company, SpaceX, has been building operations out in the Rio Grande Valley, and his philanthropy to the area surely helps tend to local relations, too. He has brought superintendents like Lee to SpaceX offices, and his interest in improving local schools and job training could pay dividends in the long run for SpaceX, which Musk says needs to hire more local technical talent.

In his corporate career, Musk has displayed this similar speed and flair for pizzazz. Musk moves quickly — sometimes too quickly — which in mega-philanthropy can get money out the door but can backfire if corners are cut. The pizzazz at Tesla and SpaceX has turned Musk into something of a showman, which if applied to charity, could help burnish Musk’s reputation.

To be sure, even with this spurt of charity, Musk has a long way to go before his name is to be etched among his generation’s great philanthropists. While he is no longer the world’s wealthiest person, Tesla stock has skyrocketed and brought his net worth with it, boosting his estimated assets to $190 billion.

His $250 million or so in disclosed lifetime giving is only about 0.1 percent of those assets, as critics are quick to point out. He has said not to expect major charitable gifts — the types that would satisfy the Giving Pledge he signed, for instance — until decades from now, when he may feel free to finally sell some Tesla stock. And this is all to say nothing of whether Musk’s charitable gifts will actually do any good or whether the system that allows him to choose winners among nonprofits and cities is fundamentally fair and democratic.

But for the first time in a while, Musk appears to be doing the work. Change may be afoot.

Andrew Cuomo and Google’s former CEO push to cap internet prices for low-income New Yorkers

2021-04-16T20:34:04-04:00

Former Google CEO Eric Schmidt is a longtime ally of Andrew Cuomo. | Alejandra Villa/Getty Images

At the beginning of the pandemic, Gov. Andrew Cuomo tapped former Google CEO Eric Schmidt to help him pivot New York to the digital age.

A year later, Cuomo and Schmidt have unveiled the first major change to state policy: A new law signed Friday to expand internet access to low-income New Yorkers.

Cuomo took the recommendation from Schmidt’s reform commission, Reimagine New York, and signed a bill that requires internet providers like Verizon to offer lower-income families basic broadband access for no more than $15 a month, a cap that Cuomo says is the first of its kind in the nation. High-speed plans will be capped at $20 a month.

About 7 million New Yorkers who currently qualify for government assistance will now have access to cheaper internet — a high-speed plan typically costs an average of more than $50 a month, Cuomo said — making it easier for them to attend online classes, communicate with family, and work from home. Americans who lack broadband access are disproportionately low-income and people of color.

“The internet is no longer optional,” Schmidt said on Friday, seated alongside Cuomo. “It’s essential to education. Think of the generation that we could be creating that are not learning because we didn’t give them the right access — and they’re the ones most at risk that need it most of all.”

The law is the most significant accomplishment to date from the Schmidt-led commission. The former Google CEO said from the beginning that the group would have three priorities: expanding broadband access, building out more capabilities for virtual medical appointments, and improving remote learning.

Schmidt is a billionaire philanthropist who splits his time among technical issues like artificial intelligence, political issues like Democratic campaigns, and the intersection of those tech and policy interests — such as ways to bridge the gap between Silicon Valley’s engineering talent and the American military.

Some New York progressives were upset when Schmidt — along with another major tech philanthropist, Bill Gates — were chosen to help guide New York’s post-coronavirus recovery, fearing it would expand the private sector’s influence. A longtime political ally of Cuomo, Schmidt praised the “extraordinary” coronavirus leadership of the New York governor, who is managing several crises, including an FBI investigation over whether he covered up the total number of Covid-19 deaths at nursing homes. Cuomo is also facing unrelated sexual harassment allegations.

In addition to the new state law, Schmidt’s philanthropic group, Schmidt Futures, is also helping to finance internet access for the next school year for up to 50,000 New York families that cannot afford the reduced $15-a-month rate. Hundreds of thousands of New Yorkers “apparently had no internet access at all,” Schmidt said.

Schmidt portrayed the commission as epitomizing the best of philanthropy and how it can collaborate with the public sector during a crisis.

“This is when New York does its best — a combination of private actors and the public doing the right thing for the benefit of all the citizens,” Schmidt said. “Governor, send us more challenges.”

Tech billionaires are staying “very, very quiet” on proposals to tax their wealth

2021-04-14T10:19:57-04:00

Bill Gates has declined to get involved in a tax fight in his home state. | Lintao Zhang/Getty Images

Billionaires like Bill Gates have long said that they, theoretically, would be in favor of paying much more money in personal taxes.

And yet Gates and some of the wealthiest people in the world are staying silent on a series of active proposals that would do just that, sidestepping a legislative package in their home state of Washington that targets them specifically.

Washington is home to four of the richest people on the planet: Gates, Amazon founder Jeff Bezos, Bezos’s ex-wife novelist MacKenzie Scott, and longtime Microsoft CEO Steve Ballmer. And the state in 2021 is also home to some of the most aggressive proposals to tax the ultra-rich, including a first-of-its-kind proposal to tax the wealth of billionaires at the state level.

All four of them have declined to campaign for the tax increase proposals, spurning requests to back the measures and staying on the sidelines.

“They have stayed very, very quiet during this conversation — and it’s not for a lack of trying,” said Noel Frame, the state legislator behind the wealth tax. “I talked to folks who talk to them, and they have chosen not to engage.”

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Frame has approached her contacts with ties to the Gates, Ballmer, and Bezos families to see if the billionaires would be interested in publicly supporting her proposal. But she hasn’t even secured a meeting. Other pro-tax activists in Washington state say they have recently spoken with some of those families in recent months about the need, in general, for rate increases.

Asked about the wealth tax, Gates spokespeople didn’t return repeated requests for comment. A spokesperson for Bezos said his boss had no comment on the measure. And aides to Ballmer and the publicity-shy Scott didn’t return a request for comment.

Their silence and inaction bother some activists because Gates and Ballmer, at least, claim to support paying more in taxes. And yet it is relatively easy for a billionaire to say in a television studio or in a blog post that they, in theory, support a far-away, unlikely-to-ever-happen tax increase. Far more is on the line if they are asked to spend their social capital and proactively back a measure that is tangible and alive, working its way through the legislative chambers that they routinely prod on other matters they care about.

So in some ways, the measures in Washington state are a test of whether their rhetoric was just rhetoric — or whether they are prepared to back their beliefs up with muscle.

“Silence is consent,” said Chuck Collins, an inequality critic who collaborated with Gates’s father to push for higher taxes. “Here’s the proposal that your state legislature is considering. Yes or no? Where do you stand?”

These proposals are not all loony legislative long shots that are patently unworthy of their attention, either. The state Senate just narrowly passed the capital gains tax, a priority for Gov. Jay Inslee. And although the wealth tax proposal is seen as unlikely to become law this session, the measure was voted out of committee late last month, a sign that there is some momentum behind it, or at least credibility.

Both measures face their fates this month in the final days of the legislative session. Washington is one of the only states in the country without a state income tax, and progressives there have spent the last decade exploring ways to add new revenue streams, all of which would probably trigger legal fights.

More of the advocacy and energy in Olympia has revolved around the likelier-to-pass capital gains tax proposal, which takes a 7 percent cut off of sales of stocks or bonds in excess of $250,000. While it does not as narrowly target billionaires, it still effectively taxes the well-to-do. Anti-tax activists say it would make Washington, which does not have any capital gains tax right now, a less hospitable place for business.

The wealth tax proposal would levy a 1 percent fee on all assets over $1 billion, an attempt — like its national inspirations — to increase the tax burden that the ultra-rich pay. But critics charge that, unlike the national proposals, Washington state billionaires can easily move out of state and could do so if it passes, sapping Washington of any tax revenue from them at all.

“Why are you going to give these people a reason to make their economic domicile a different state?” said Matt McIlwain, who has helped organize the tech community against tax proposals and runs a venture capital firm that invested early in Amazon. “Come on, Bezos grew up in Texas and Florida. He’s got a bunch of operations and projects in his own life — not to mention different aspects of what’s going on in Amazon — in other states. He doesn’t need Washington state to be his home state.”

The state is the latest battleground in the simmering fight over how much America should tax its richest citizens. The mega-wealthy are facing calls for higher taxes in part due to the pandemic, which has widened inequality. And so while passing a wealth tax through Congress is quite difficult, tax advocates are capitalizing on a vulnerability for the rich: They tend to live near one another, making state and local proposals a side door of sorts into achieving a similar outcome.

Gates, Ballmer, Bezos, and Scott have all gotten much wealthier over the last year when Big Tech stocks surged as the world relied more on tech companies. The foursome has about $500 billion in assets, according to tracking by Bloomberg. At the beginning of 2020, they controlled about $320 billion.

While recruiting billionaire endorsements is not a priority for either the pro-tax or anti-tax activists, Frame said she reached out precisely because it would rebut her critics’ arguments.

“Any time you have the affected taxpayer coming to the table and saying, ‘I’m okay with this change. I’m okay with this increase. Yes, please tax me,’ that’s always a coup,” she said.

Guided by his father, Bill Gates Sr., who served as the public face of a failed push 10 years ago for a state income tax, the younger Gates has been the most consistently vocal about wanting to pay substantially more in taxes. That’s been especially so in his home state of Washington, which he has said has “the most regressive tax system in the country.”

Gates has expressed concern that taxes could go “too far” — including, at times, wealth taxes. But, in general, he has said he supports substantially higher rates, including higher federal estate taxes and capital gains taxes, along with an institution of a state income tax in Washington, which it currently lacks.

“I think the rich should pay more than they currently do, and that includes Melinda and me,” Gates said in a year-end 2019 blog post about his views.

Ballmer’s tax views are more of a moving target, but he has in recent years voiced more and more comfort with increases. An avowed deficit hawk, Ballmer has stressed the need for a closer look at federal spending patterns. But he has also increasingly sounded more fiscally liberal in recent interviews, saying in 2019, for instance, “I certainly know that there are things I believe in that might require more” in tax revenue.

“Because I’ve been very fortunate, I can say to you I’d be happy personally to pay more taxes,” Ballmer said at a conference earlier this year.

Bezos, whose politics have been described as libertarian, has displayed an anti-tax streak: He, along with Ballmer, donated to a group a decade ago that opposed a measure trying to create a state income tax in Washington. And when Bezos said last week that he supported Amazon paying more in corporate income taxes to finance Joe Biden’s infrastructure plan, he didn’t offer anything about whether he backed paying more in personal income taxes — another part of the Biden economic package — to finance that same policy goal.

And then there’s Scott, who has the most limited paper trail on these policy questions. She has said nothing to date explicitly about taxes. She has, however, repeatedly expressed deep concerns about wealth inequality — reflecting recently on how the pandemic functioned as a “wrecking ball” for the poor while enriching billionaires, stirring a speculative belief from progressives that she may agree with them,

Activists on both sides aren’t necessarily surprised these billionaires have taken a pass right now. Some Washington political observers think billionaire non-engagement is only sustainable because the wealth tax currently faces long odds this legislative session. The capital gains tax on the cusp of becoming law took years of advocacy before it became a front-burner debate in the state.

And yet John Burbank, a longtime Washington tax activist who has met with Ballmer aides in recent months to discuss progressive state tax policy more generally, said he actually saw the billionaires’ inactivity and neutrality as a win for his side.

Why? Well, he said, at least the billionaires weren’t actively speaking out against the bill — as they might have in the past.