Economist says Gates deserves white hat
Angry Bear says Bill Gates is a legitimate philanthropist. You may recall reader Jim raised the issue in the multi-blog discussion of Gates and charity.
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 deuct 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.
I responded to Jim's other points, but acknowledged I am not qualified to make complex determinations about taxation.
To better serve Jim and other readers, I referred the question to economist Angry Bear. He says:
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.
So, Gates has no way out when it comes to sheltering most of his fortune from taxation.
Angry Bear gave his entry an interesting title, Bill Gates: Evil Businessman or Philanthropist Extraordinaire? He believes Gates has earned his designation as a philanthropist.
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.
But, that doesn't mean other nouns, not to mention adjectives, don't apply to Gates under other circumstances.
For the really 'taxed,' AB has some additional thoughts. Go read his entire entry.