Paul L. Caron

Thursday, September 14, 2006

Google's For-Profit Philanthropy

Google_7 Interesting article in the New York Times:  Philanthropy Google’s Way: Not the Usual, by Katie Hafner:

The ambitious founders of Google, the popular search engine company, have set up a philanthropy, giving it seed money of about $1 billion and a mandate to tackle poverty, disease and global warming. But unlike most charities, this one will be for-profit, allowing it to fund start-up companies, form partnerships with venture capitalists and even lobby Congress. It will also pay taxes....

By choosing for-profit status, Google will have to pay taxes if company shares are sold at a profit — or if corporate earnings are used — to finance There are skeptics ... among tax lawyers and other pragmatists familiar with the world of philanthropy. They wonder whether Google’s directors might be tempted to take back some of the largess in an economic downturn. “The money is at the beck and call of the board of directors and shareholders,” said Marcus S. Owens, a tax lawyer in Washington who spent a decade as director of the exempt organizations division of the IRS. “It’s possible the shareholders of Google might someday object, especially if we go into an economic depression and that money is needed to shore up the company.”

Eric Posner (Chicago) & Anup Malani (Chicago) have an interesting new paper, The Case for For-Profit Charities.  Here is the abstract:

Nonprofit firms may not distribute profits to owners but instead must retain them or reinvest them. Nonprofits that are “charitable organizations” under Section 501(c)(3) of the tax code may receive donations from individuals who are allowed to deduct their donations from their income for tax purposes. We argue that the law should not link tax benefits to corporate form in this way. There may be good arguments for recognizing the nonprofit form and good arguments for providing tax subsidies to charities or donors to charities, but there is no good argument for making those tax subsidies available only to charities that adopt the nonprofit form. Consequently, the “for-profit charity” may well be a desirable institution. Currently, no such entity exists, but the reason is surely discriminatory tax treatment; the charitable activities of many commercial firms suggest that in the absence of discriminatory tax treatment for-profit charities would flourish. Current tax benefits for charitable nonprofits should be extended to for-profit charities, and to the charitable activities of for-profit commercial firms.

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Actually there is such a thing as a for profit "charity", though the word "socially beneficial business" describes it better. It's built on a busines model called "social entrepreneurship", and is one of the hottest emerging business pardigms coming out of the top business schools in the world right now...places like Harvard, Yale, MIT, Stanford, Duke, Columbia and the London School of Business.

Social entrepreneurship...also referred to as social venture business, social enterprise, socially beneficial built on a double bottom line business model, using both financial and social returns to define success. International business plan competitions, academic programs, think tanks and thousands of individuals are creating these businesses. I am one of those individuals.

Mark Lewis
CEO/Strategic Business Intelligence Group

Posted by: Mark Lewis | Sep 30, 2006 5:55:48 PM

Comment from a poster at Marginal Revolution:

There is no such thing as a for-profit charity. If its profitable, its not a charity, its a business. Its just that these left wing nuts are selling do-gooder feelings, and nothing really tangible or productive at all. The word charity is just standard misleading advertising jargon. Selling feelings, sort of like the religions of old (and some new).

There is a great way to redistribute wealth that the left wing is simply ignorant of. Its called work. Productive work. But I guess for the innovators of nothingness and feelings, that's too close to reality for comfort. They are sooooo left wing, but they don't want to lose any money! Hahahahahaha! Typical liberals.

Let the real automakers invent the cars, guys. Stick to kissing the Chinese communist censor's asses and peddling your increasingly worthless software ephemera. Leave the real work for the real engineers.

Posted by: Sandy P | Sep 15, 2006 8:14:46 AM