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Bill Gates: Evil Businessman or Philanthropist Extraordinaire?

Mac Diva has an ongoing dialog on this topic with one of her frequent readers, Jim, as well as some other bloggers. First, a little side note about the blogsphere: I believe techies are distinctly more libertarian than the general public and also distinctly more anti-Microsoft (this observation comes, e.g., from years of reading the comments to ZDNet stories about Gates and MS, which is usually referred to therein as “M$”). And blog-readers are disproportionately techie, giving them a libertarian and anti-MS twist. Keep that in mind if you follow this issue.

The story so far is that Jeanne d’arc of Body and Soul referred to a Salon story that had some good things to say about MS and got her inbox filled with anti-Gates emails. The whole issue came up because Gates’ father came out against repeal of the estate tax, along with Soros, Buffet, and a few other super-rich poeple. Buffet recently also came out against the current Bush tax cut.

Mac Diva’s reader, Jim, came up with a four point critique [slightly abridged]:

  • …he was well known for not giving much of anything until the Justice Department got on Microsoft’s case.
  • …he gives rather less proportionate to his wealth than others in his circumstances often do.
  • …he very often gives in such a way that it benefits his business, giving software or money towards computer instruction in school and things like that.
  • Four, and perhaps most important, is also the point I’m not positive on, as I’m not a tax expert. But as I understand it, changes in the tax code over the past decade or so, made to encourage giving, allow one to deduct the full current market value of stock given, while the income from that stock is valued at the purchase price. This bypasses capital gains. Since Gates’ Microsoft stock was originally purchased for approximately $50,000, and is now worth billions, the value of each dollar’s worth of stock is essentially nil. This, and correct me if I’m wrong, would mean that if he donates Microsoft stock worth a million, he lists as income the purchase price of that stock — this would be what, $50? Yet on the deductions side of his return, he takes a deduction of $1 million, which in a high tax bracket is worth $250,000 or more. Sounds to me like a nearly quarter of a million dollar profit for “giving” to charity.

Mac Diva does a good job on the first three points: 1) yes, he did give before DOJ’s started watching MS. It’s true that giving went up as DOJ’s cases progressed, but the first case came up in 1993, when MS was huge, but not yet a titan. So the three were simultaneous: increased federal scrutiny, increasing wealth, and increasing giving. There may be some confusion because the Bill & Melinda Gates Foundation was created in 2000, but it was an amalgamation of pre-existing charities and foundations paid for by Gates. 2) On the relative size of gifts, The Gates Foundation currently has $32 billion in assets, which puts the value of Gates’ contributions in the ballpark of 25-40% of his wealth, depending on MS’s stock price (and I recall something about his children getting $10m each when he dies, and the rest to charity; here’s one link). This is, I believe, far above the typical level of giving for the wealthy (perhaps comparable with Carnegie, Sloan, and the Annenbergs).

On point (3) the reader and Mac Diva are correct that in-kind technology gifts involve benefits to MS and by extension to Gates. But Bill Gates is very savvy and presumably factors in such benefits when deciding how much to give. That is, he might well be indifferent between giving schools $800 million in cash or $1 billion in technology. As long as the schools were going to spend at least $1 billion on technology (Word, Windows, Wintel PCs, networks,…) anyway, and don’t have a strong intrinsic preference for Macs or Linux, then the schools are better off. Now the schools have their entire budget to spend on non-tech stuff. If they took the $800m cash and spent it on $1b worth of non-MS IT then they would have $200m less to spend on all other goods.

On to point (4), the one I was asked to talk about. I’m not sure what Jim means by the phrase “the income from that stock is valued at the purchase price”. The income tax owed on long run (held over 2 years) capital gains is 20%*(sale price – purchase price). When stock is donated, the giver is allowed deduct the market price of the stock at the time of the gift from income. If a stock is never sold, capital gains taxes are not paid. Suppose Gates had $50 thousand in 1985 stock that is now worth $40 billion: if he sold it then he’d owe roughly $8b in taxes (capital gains are taxed at 20%, for now). If he gives the stock directly to a charity, then he pays no taxes. In order to avoid paying those taxes, however, he had to give $40b away to charity, which seems reasonable to me.

The one question this raises in my mind is something I’ll refer to my friends at A Taxing Blog. Capital gains are taxed at 20% while income is taxed at 36% [in Gates’ bracket]. Suppose Gates has equal amounts of income in a year from capital gains and from regular income. If he donates all his regular income to charity and then sells the stock, at the end of the day, the money he doesn’t give away is taxed at 20%. But if he donates the stock to charity and keeps the regular income then the money he keeps after charitable giving is taxed at 36%. Either way, charities get the same amount, and Gates has the same pre-tax income, but in the former case, he pays substantially less in taxes. Is this correct?

Nothing in this post is a statement about MS’s business practices (e.g., see this article); the point I am making is that, whether obtained by hook or by crook, Gates gives away a lot of money. This is true both in absolute and relative terms. And yes, there are tax benefits to Gates from these gifts, but not enough to offset the value of the gifts. Referring back to the question posed in the title, the answer is either “both” if you dislike MS, or “Businessman and Philanthropist Extraordinaire” if you like MS. Either way, the Philanthropist label seems deserved and will be even more so if at his death he gives all but $10m per child to charity.


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Blogging in the TImes

I’ve seen a few bloggers linking to the NYT story, “Dating a Blogger, Reading All About It“, which is mostly focused on personal blogs. Also today, the NYT has another story, “As Google Goes, So Goes the Nation“, that talks a bit about blogging.

Dave Winer, whose blog archives go back to 1994, in a post that I agree with entirely, has this to say:

PS: The Times piece, like the Register piece, makes a lot of derogatory and condescending statements about bloggers. An example — “the Web is a tool that enables people who have a life to benefit from the efforts of those who don’t.” This kind of writing is unbecoming a paper of the stature of the Times, and probably reflects a bias, perhaps even a conflict of interest, on the part of the author of the article and the editorial staff at the Times. This is not the first time this has happened. I’ve written about this publicly many times. The editors of the Times have yet to respond.

The sentiment expressed by the Times reporter is very similar to what I found in a clip from the transcript of a recent PBS story on Blogs, which I talked about here. In the PBS story, they had an executive producer from MSNBC of all places, talking about how the real value-add in blogging is the editorial function that MSNBC provides.



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Red vs. Blue, Revisited

Atrios correctly pointed out that I should have weighted the data in computing the average net receipts from or payments to the federal government for the two categories of states. Because the data in the Tax Foundation Report reports “[Federal] Expenditures per Dollar of Taxes”, simply averaging the numbers by state is misleading. Here’s an example of the issue:

An Example of why Weighting Matters
Expenditures per
Dollar of Taxes
Total Tax Revenue Total Federal Expenditures
(=Exp. Per Dollar * Total Tax Revenue)
Blue Blue-1 $1.05 $50 million $52.5 million
Blue-2 $.80 $2 million $1.6 million
Red Red-1 $.97 $30 million $29.1 million
Red-2 $1.20 $4 million $4.8 million

So, with two states in each category, the simple average for the Blue States is (1.05+.80)/2=$.93, which looks like a bad deal. The simple average for the Red States is $2.17/2=$1.09, a great deal. Blue States get screwed and Red States do well! But this doesn’t account for the fact that the Blue State that is a net beneficiary (Blue 1) is much larger than the Blue State that loses out (because Blue 1 pays $50m in taxes; Blue 2 only pays $2m). As Atrios points out, the correct approach is, separately for Red and Blue states, to compute Total Federal Expenditures and Total Taxes Paid and then divide the former by the latter. In this example, this calculation shows that Blue States get back $1.04 per $1.00 paid in taxes, while the Red States break even–a complete reversal of the earlier conclusion. Now Blue States benefit more than Red States, which is the correct conclusion (in this hypothetical example).

In any event, I did the correct analysis for Red and Blue states, and came up with the following picture (click to enlarge):

click to expand

So the basic point remains true: the states that rail most against the federal government also get back more from the federal government than they pay. Factually, this doesn’t bother me. The Blue states are generally more wealthy than the Red States, and this picture is a natural consequence of progressive taxes. The part that bothers me is hearing Ted Stevens (his state gets back over $1.50 per dollar paid in taxes), or Trent Lott ($1.78), or Bill Frist ($1.20) whine about government and taxation without acknowledging this basic point, and their role in contributing to it (see Lott in action here). Dick Armey, on the other hand, may have a point: Texas gets back $.92 per dollar paid in taxes.

If you’re interested, more data and details are available here.


UPDATE: Uggabugga has more, including fancy maps.

UPDATE: Red vs. Blue Income Numbers here; a brief argument for why liberalism causes economic growth here.

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Media Handlers

An it would be amusing if it weren’t disturbing story in the NYT today on how the White House stages events and lighting and backdrops to market the president. For example,

  • “…On Tuesday, at a speech promoting his economic plan in Indianapolis, White House aides went so far as to ask people in the crowd behind Mr. Bush to take off their ties, WISH-TV in Indianapolis reported, so they would look more like the ordinary folk the president said would benefit from his tax cut.” [emphasis mine].
  • “…For a speech that Mr. Bush delivered last summer at Mount Rushmore, the White House positioned the best platform for television crews off to one side, not head on as other White Houses have done, so that the cameras caught Mr. Bush in profile, his face perfectly aligned with the four presidents carved in stone.”
  • “…Mr. Sforza and his aides had choreographed every aspect of the [Abraham Lincoln] event, even down to the members of the Lincoln crew arrayed in coordinated shirt colors over Mr. Bush’s right shoulder and the “Mission Accomplished” banner placed to perfectly capture the president and the celebratory two words in a single shot.”

It’s worth a read. On a more substantive level, is it just me or is there a barely detectible shifting in the tone of the press, toward a more skeptical tone regarding Bush’s policies and proclamations? Not so much in what’s being reported (e.g., no “missing year” stories), but rather in the way it’s being said–the tone in an increasing number of stories seems more questioning. From 1999-recently, my most common reaction to a story covering Bush was, “Did Rove write this?”, and I’m getting that less of late. I can’t quite put my finger on it, but I’ll keep looking for examples. If Somerby is correct, the press aren’t right wing or anti-democrat, just lazy and mindless. So when a few start leaning in one direction, the rest follow (it’s not exactly that they all plagiarize each other, but the end result is largely the same).


I talked about a related subject here, where I speculated “…after the flow comes the ebb. Will conservative news/commentary go the way of Reality TV and Millionaire? I don’t know, but MSNBC is doing its best to drive the format into the ground (of course, for MSNBC’s programming choices to actually affect viewer tastes, somebody would presumably actually have to be watching MSNBC–call me an optimist).”

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Red vs. Blue

Atrios points out that Red states are stealing from blue states. So I went to the full report Atrios cites, added some color-coding, and made some graphs. While the subsidies are much larger in the Red states (those that in principle dislike government subsidizing anything), they are not quite as bad as I thought. I suspect the explanation is that our system is designed to favor smaller states by giving them disproportionate representation in the Senate (two per state) and the Electoral College (1 per member of Congress, so a three vote minimum). Still, the citizens of conservative states don’t seem particularly opposed to federal largesse (It’s always fun to listen to Ted Stevens of Alaska–a top beneficiary–rant and rave against the govenment).

It looks like there’s something funny in the graphs because you might expect that everything has to average out to one. My guess is that they are using income taxes paid by each state and transfers made to each state. Since the government has other sources of revenue (e.g., tariffs), it can pay out more than it collects in taxes. Overall, a small majority of Blue states get less than $1.00 returned back per dollar put in, while the vast majority (27/31) of Red states break even or better. (Click on each image to get the full size version).



UPDATE: Commenter Ross raises the obvious (to him, not me): “Do you think the discrepency between revenues and spending/ transfers to the states may represent deficit?” To which I answer, of course! Although the deficit wasn’t at today’s level in 2001, this is surely the biggest part of the explanation.

UPDATE: Oops, Gore won Oregon. Luckily, since Oregon is dollar for dollar even, it doesn’t really change the basic point.

UPDATE: Atrios points out correctly that these are per-capita figures and that population-weighting could change the picture (see the comments for that and for my response). He or she is right, but the most populous blue states tend to be net payees to the other states (and also tend to be blue), so they will still be net losers. How much so? Atrios did the work that I didn’t do:

“So, I went to the raw data on all of that and wasted too many a few minutes punching it in. In total, “blue” states get 94 cents for every dollar they send to the Feds, and “red” states get $1.08.”

By my earlier logic, Atrios should have come up with a bigger gap than I did, but he didn’t. It may be accounted for by me excluding DC (a huge per capita beneficiary), while Atrios may have counted DC as blue; Atrios probably also correctly counted Oregon as blue. Maybe I’ll look into it over the weekend.

Food for thought: does all of this mean that we should lower taxes in Blue states and lower spending in Red states?

UPDATE: Red vs. Blue Income Numbers here; a brief argument for why liberalism causes economic growth here.

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Stephen Moore

CalPundit made a great catch, noting that Stephen Moore, president of the Club for Growth (a lobbying group devoted to Supply Side policies–Moore is on CNN, Fox, …, writes opinion pieces that appear in major newspapers, and gets quoted fairly often) can’t do simple math. This likely explains his devotion to Supply Side Economics. National Review Online, which published the faulty piece, has since changed the math, without noting the error.

This made me wonder whether Moore has a Ph.D.–he doesn’t. But I did find something that explains a bit about Dick Armey:

Mr. Moore served as a Senior Economist at the Joint Economic Committee under Chairman Dick Armey of Texas. There, he advised Mr. Armey on budget, tax, and competitiveness issues. He was also an architect of the Armey flat tax proposal now before Congress.

I’m not sure if this means that Armey’s misguidedness caused him to hire Moore, or whether hiring Moore caused Armey to become misguided–though I suspect it’s the former. Incidentally, Moore has an MA in Economics from George Mason University. Typically, though not always, people get masters in Economics as a sort of consolation prize when they can’t pass the qualifying exams at the end of the first or second year (Economics is a bit unusual in that very few people enter terminal Masters in Economics programs, because that degree just doesn’t do much for you, so few schools offer them. Instead, you get a Masters by entering a Ph.D. program and then dropping out along the way).


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I Didn’t Think this Would Make it Through the Senate

From the NYT, among others: “Republicans Woo Moderates on Tax Cut“. It looks like the Republicans have 50 votes in the Senate, with Dick Cheney holding the tie-breaking 51st, for an amendment to replace the Grassley-proposed and Senate Finance Committee approved version of the dividend tax cut. Zell Miller voted for the tax cut (as I predicted here), and Democrat Ben Nelson of Nebraska (Red State) also will vote ‘aye’. Voinovich gave in to pressure and agreed to vote yes, stating “[this plan] gets the biggest bang for the buck that we can possibly get” (rather Panglossian).

Technically, Voinovich did not reverse course as the plan comes in at $350b. Of course it only achieved that number via the dishonest accounting of sunset provisions: 1/2 of dividend income is excluded from taxation in 2004, followed by 100% of dividend income from 2005-2007, at which point the exclusion will in principle sunset (so the 10-year cost of the tax cut uses the assumption that dividends will be taxed from 2008 onward). Still, this plan will cost much more in lost revenues than Grassley’s. How did they add this cut and still keep under $350b?

The more robust dividend plan shaves tax cuts for married couples and small businesses to make room for more dividend breaks in the bill, which cuts taxes $350 billion over the coming decade [according to Sen. Don Nickles (R-Ok)].


Olympia Snow held her ground (“My position hasn’t changed”). And the story didn’t say, but it looks like Chafee and Collins also stood firm (48 Democrats + Jeffords + Chafee + Collins + Snow – Miller – Nelson = 50).


X-Posted at ISTES.

UPDATE: Via A Taxing Blog, this Brookings Institute analysis of three tax cut options–$726b, $550b, and $350b (“Our overarching conclusion is that the Administration, House, and Senate Finance Committee proposals are seriously flawed and are strikingly removed from the economy’s current and long-term problems”). It’s good, if very slightly wonky.

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More Jayson Blair

Eric Boehlert of Salon has a story devoted to the race angle. One quote from Jim Dwyer, “a Pulitzer Prize-winning reporter at the Times” struck me as interesting:

…”I’ve worked at six newspapers and seen alcoholic shipwrecks and drug shipwrecks, and people who’ve fallen apart through nervous breakdowns, and they’re all brought back and given a second chance. I’ve seen it happen to people of every race”.

Also, I now have to add Mike Barnicle and Jeff Jacoby to the list of errant reporters who were not affirmative action hires. Jacoby amusingly copied an old Ann Landers piece on What Happened to the Founding Fathers? without attribution and as the product of his own research–this was a story that previously made the email and AM radio circuits. And many of the details of the purloined stories are false–as I said before, it’s easiest to catch the unskilled plagiarizers.


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The 25th Ammendment…

…can be read here. Basically, the President gets to comeback when he says he’s ready, and it takes a majority of the cabinet to initiate a Congressional vote to prevent the President’s return. Should that occur, it takes a 2/3 majority of both houses to prevent the President from returning to office when he feels like it. It was passed by Congress July 6, 1965 and ratified February 10, 1967. I don’t know much of the history behind this, but presumably in the wake of JFK’s assassination there were concerns about preserving stability should the President be incapacitated.

The amendment also says that should a Congressional vote be required, Congress must meet and vote within 21 days (23 days if out of session), leading me to wonder what would happen if a group of legislators opposed to the President’s reinstatement blocked a quorum by simply hiding out in Canada or Mexico? [Note to West Wing writers: with Sorkin and the show’s director now gone, you may be in need of script ideas for next season. This one is for sale].


P.S. This is in relation to tonight’s episode of The West Wing, not some real-world event.

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