The “Charity” of Elon Musk

Nobody who has followed Elon Musk’s rampage through the world of business, social media, and politics would be surprised to learn that his approach to charitable giving has been a bit, well, ill-considered. Heedless. Self-serving. Disrespectful of the norms and the rules. Certainly infuriating.

And Musk’s charitable impact? Only a bit more than negligible.

Musk’s charitable misdoings have come to our attention thanks to a shocking-but-not-surprising New York Times story by Pulitzer Prize-winning journalist David Fahrenthold and his colleague Ryan Mac. For those of us who have been writing and speaking about how some of the wealthiest Americans take unconscionable advantage of the charitable tax laws, it’s instructive when the single wealthiest person of all shows just how off the rails high-end philanthropy has become.

First, an assertion and an affirmation: I admire so many philanthropists. I’ve written about MacKenzie Scott’s refreshing and astoundingly generous and trusting approach to giving. I’m blown away by Ruth Gottesman’s recent billion-dollar gift to the Albert Einstein College of Medicine, which will make the school tuition-free for all students going forward – and I love that she refused to have the school named after her. (She responded to the offer by saying, “We’ve got a gosh darn name – we’ve got Albert Einstein!”) Moreover, nearly every day with my clients, I am moved by gifts that may have fewer zeroes and commas than those from Scott or Gottesman, but that produce high impact for important causes, and that are given for the right reasons.

Then, there’s Elon Musk. And people like Elon Musk.

Allow me to sort Musk’s tactics as described in the Times article – and to add one more.

1. The Tax Dodge

According to Fahrenthold and Mac, since 2020, Musk has donated around $7 billion of stock to the Musk Foundation, in the process saving himself some $2 billion in tax payments. Two billion dollars is a lot of money not going to the common good through taxation.

2. The Self-Interest

Musk’s “philanthropy” in large part has gone to enterprises that technically qualify as charitable, but that also support his own business interests and even his family’s welfare. For example, a major recipient of grants from the Musk Foundation has been Ad Astra, a nonprofit school founded by, yes, Elon Musk. In fact, it is a school his own children attend – along with the children of his top executives at SpaceX. As the Times story explains, “In its first year of operation out of [Musk’s] home in the Bel-Air neighborhood of Los Angeles, five of Ad Astra’s 14 students were his own children.”

Ad Astra continues to receive funding from the Musk Foundation, but now it’s relocated to the campus of SpaceX in Texas – and is situated behind security gates. It’s technically a public charity, but it’s not available in any real way to the public.

Speaking of Texas, Musk has recently been giving lots of grants to Brownsville, the seen-better-days border community next door to where SpaceX launches its rockets. His philanthropy particularly ramped up after one of his rockets blew up and scattered debris around the city. Musk has made grants to spiff up Brownsville’s downtown, for example. That’s helpful to some of the residents, of course – but it is also clearly aimed at making Brownsville a more palatable place to live for SpaceX engineers and executives.

Here’s one last example of Musk’s grants directly benefitting Musk: The Musk Foundation gave $5 million to a United Nations program called Giga that helps rural nations connect to the internet. It turns out that two of those countries (Rwanda and Kazakhstan) ended up as customers of the Starlink satellite service. Starlink is a subsidiary of SpaceX, which is owned and controlled by Elon Musk.

Charity begins at home, right?

3. The Self-Aggrandizement

Musk is one for making the grand gesture that will win him praise and attention. Then his follow-through is, shall we say, spotty.

One clear example was when he responded to a young activist in Flint, Michigan, by tweeting, “Please consider this a commitment that I will fund fixing the water in any house in Flint that has water contamination above FDA levels. No kidding.” That would have been wonderful – but instead of responding to the city’s subsequent proposal for funding for new water infrastructure and wide-scale pipe replacements in homes, the Musk Foundation donated $1 million to Flint schools for water filters and laptops. A million dollars is not nothing, but it’s also not close to what he promised. Oh: I need to add that Musk sent a Tesla executive to Flint to give rides around the city hall parking lot in a self-driving car, so there’s that.

How about this as a tagline for the Musk Foundation? “Over-promise. Under-deliver. And free rides in a cool car.”

4. The Underpayment

The federal government requires private foundations like the Musk Foundation to direct 5% of their assets each year to charitable purposes. The rules are loose around what counts as the 5%: Foundations can include many administrative costs, including salaries of staff, even those who are related to the founder/donor. All of which is to say that it’s not hard to meet this minimum distribution of 5%.

But in recent years the Musk Foundation has failed to hit that target. In 2021 the Musk Foundation fell $41 million short. It was even worse in 2022: The foundation missed the mark by $193 million, giving away only 2.25% of its $7 billion in assets.

5. The Lack of Accountability

The consequences for Musk’s disregard of the regulations are negligible, at least in terms of what matters to Musk.

When a foundation under-distributes to charity, the IRS can assess a penalty equal to 30% of the shortfall. If the feds indeed assess this fee, it is the Musk Foundation that would owe the money, not Elon Musk himself. Given that he clearly doesn’t care about charity, and given that this penalty would only mean that his foundation would have a bit less to distribute in the future, I’m guessing that the penalty wouldn’t bother Musk in the slightest.

Now, if, on the other hand, the IRS were to say, “Clearly, this guy is taking us for a ride. Let’s claw back that $2 billion tax deduction from when he contributed stock to the foundation!” – well then, Musk might take notice. But that’s not the way it works, and Musk knows that. His tax break, essentially, is forever, especially for a guy with the money, power, and reach of Elon Musk. So why should he break a sweat to distribute grants?

6. The Understaffing

The Musk Foundation is one of the twenty largest charitable foundations in the country. The foundation has only three board members: Musk and two employees from his family office. And the operation essentially has no staff.

In the past I’ve complained about the tendency for foundations to be overstaffed and unnecessarily bureaucratic, so I’m not typically one to push foundations to hire up. That said, without question, a $7 billion foundation needs professional staffing. Musk clearly has utter disregard for conventions around charitable giving, and he has all the altruism of a turnip. Why should he pay professional staff to run the foundation correctly – and even to create some charitable impact – since none of it really matters to him?

7. The Lack of Transparency

The Musk Foundation provides no contact information. In fact, it has no website, unless you consider this a website. Somehow, I think that one of the leading technologists in the world would have the wherewithal to put up a website. Unless he doesn’t give a damn. Which leads me to…

8. The Disregard

Musk’s attitude reminds me of the Donald J. Trump Foundation, which was shut down by the State of New York in 2019. (Yes, this was many, many Trump scandals, lawsuits, and criminal cases ago.) The court found that Trump had used his foundation as a personal checkbook for causes that feathered his own nest, paid for his personal obligations, or furthered his public image. Like Musk, Trump did not have professional staff, other than the part-time attention of courtiers of the Trump Organization, and his board was VERY closely held – Trump himself, along with Trump Organization CFO and vassal Allen Weisselberg, and the troika of Eric, Ivanka, and Donald, Jr.

Essentially, Musk – like Trump – thinks the rules don’t apply to him. If Musk says it’s a charitable priority, it is. He can make the decisions himself and have the bookkeeper at the Musk family office cut a check. If he fails to make the requisite payout, he has the foundation pay the fine. He gets to keep his tax break whether he runs the foundation well or poorly. Meanwhile, he gives to causes that enhance his businesses and image, and he doesn’t quite step over the legal line into self-dealing.

And throughout, he maintains power. Even though he’s done a miserable job of distributing grants to worthy causes, and even though his charitable preferences have more to do with helping himself than making the world a better place, Musk nevertheless holds the keys to one of the largest charitable foundations in the country. The potential grants from his foundation give him power. People will cozy up to him in the hope that some money will eventually flow their way, if they only play their cards right.

Musk is a terrible man, but he’s not stupid. This all works for him.

9. The Redirect

The Times article fails to mention a long-time tactic of Musk’s: Instead of making outright gifts to charity, the Musk Foundation dumps money into donor-advised funds that Musk controls. This is an old story: Back in 2016, three-quarters of the Musk Foundation’s grants went to a donor-advised fund at Vanguard. That was back when Musk bothered to care about meeting the 5% distribution requirement described above. (Grants to donor-advised funds count toward the required charitable distribution, because DAFs are sponsored by public charities. I know. These grants shouldn’t count. But they do.) Apparently, Musk still likes the tactic, because according to the Musk Foundation’s 990 return, in 2022 over $36 million went to a donor-advised fund at Fidelity Charitable.

This is a way for Musk to look as though he’s giving money away, while he’s really only shifting funds from the Musk Foundation into another charitable pocket he controls. It’s also a way to avoid transparency, because any grants that come out of Musk’s Fidelity donor-advised fund (if, in fact, any grants do come out from it) are not attributed to him or his fund.

Why Does This Matter?

We can look at Elon Musk’s charitable record and say to ourselves, “Well, isn’t he a jerk?!” And we’d be right. But the problem goes way beyond one rich guy flouting the rules.

Congress introduced the charitable income tax deduction in 1917 to encourage wealthy individuals to give to charitable causes. The United States had established the income tax a few years before, and the government did not want the nation’s leading philanthropists, facing this new tax, to fold their tents and let critical charitable services wither. The solution was the charitable deduction. Essentially, Uncle Sam said: I’ll tax you less the more you give to charity.

That arrangement – whereby the government gave up tax-generated income when the taxpayers gave to charities of their choice – has always been ripe for abuse. But we’re now facing a perfect storm of factors driving charitable misdealing into hyperdrive.

• Since 1980 we have seen an astonishing rise in wealth inequality — and with it, increased power for those at the top;
• In response, during recent decades we have witnessed the development of what activist and author Chuck Collins calls “the Wealth Defense Industry,” defined as armies of attorneys, accountants, and investment managers who help high-net-worth families avoid any and all taxes;
• An increasingly activist, conservative Congress has consistently underfunded the IRS, the agency that both regulates charities and enforces tax compliance, and has bullied the IRS into ignoring rogue charities;
• Donor-advised funds, the least transparent and most unregulated entities in the nonprofit world, now receive a quarter of all charitable gifts;
• As a result, fewer dollars are flowing to actual working charities, while the government is sacrificing significant amounts of tax revenue because of the charitable deduction – an estimated $289 billion over five years, according to the Urban Institute.

Big philanthropy has long catered at least as much to the desires of the wealthy as to the needs of society, and people are taking notice. A recent poll by Inequality.org and The Giving Review — organizations on opposite ends of the political spectrum — showed that 83% of respondents think taxpayers should not have to subsidize wealthy Americans who create permanent legacy foundations, while 79% feel that the assets in donor-advised funds should be distributed to charity within five years.

Can we translate that public sentiment into strong reform legislation and enforcement? I surely hope so. Without real change, Elon Musk won’t be the outlier among philanthropists, but the role model.

Copyright Alan Cantor 2024. All rights reserved.