NYT vs. The Musk Foundation: A Masterclass in Slant
Journalists sometimes claim that "hit pieces" don't exist, and that some concerns are just newsworthy. But how much slant is consistent with really educating the public?
The NYT published a big story this week about Elon Musk’s private foundation. You can get the gist from its headline and description:
Elon Musk Has a Giant Charity. Its Money Stays Close to Home.
After making billions in tax-deductible donations to his philanthropy, the owner of Tesla and SpaceX gave away far less than required in some years — and what he did give often supported his own interests.
This extra detail from near the beginning is also crucial:
[The Musk Foundation] has failed in recent years to give away the bare minimum required by law to justify [its] tax break, exposing it to the risk of having to pay the government a substantial financial penalty.
What follows is quite long and detailed, so here’s the TLDR:
Musk doesn’t have a giant charity. He has a giant private foundation, of a very specific sort under US tax law. While the NYT acknowledges this in places, they don’t seem to fully understand the significant differences, or why they exist.
The Musk Foundation wasn’t negligent on minimum giving for 2021 or 2022, nor for any other year. They simply opted into the standard one-year rolling grace period that Congress put in the law for good reasons. This isn’t a reluctant grace period for the tardy. It’s a strategic grace period for better giving.
The foundation caught up on their 2021 deficit in 2022, as expected and allowed. Assuming they made up their 2022 deficit in 2023, as they likely did, they’ve done nothing wrong. They also face no “risk”. If the law says “no parking fines will be enforced on weekends”, I risk nothing by parking on a Saturday. Leaving at 8am Monday instead would be a choice, not some accident. And Musk had a year.
The NYT knew about this grace period, but decided against mentioning it, opting to frame the foundation as having “failed in recent years to give away the bare minimum required by law”, trusting that readers would somehow intuit from “ok but no fines yet” that nothing concerning had been done. And also ignoring that the law’s explicit bare minimum is just *within the grace period*.
The NYT also framed a long list other things to seem worse than they are. I found just one of their abuse accusations to be (maybe) valid, though it concerns one of the foundation’s most trivial donations. The piece is mostly “just asking questions”, where there’s mostly no outright accusations of illegality, just “concerns” — often presented in prejudicial or outright misleading ways, unpaired with any real curiosity about possible positive explanations or tradeoffs.
I asked the NYT to at least edit in mention of the grace period, and gave them opportunity to preview my other concerns if they so desired. They declined, though did offer their defense as to the first. (Full correspondence here.)
To be clear, this story was worth investigating. Holding powerful people to account is important, especially on abuses of the public trust. And some stories about Musk doing bad or dumb things are indeed true. Even he admits that.
But the NYT did three things wrong here:
They left out essential details
They left out essential context
They simply misunderstood some things
Given that one of the reporters won a Pulitzer for a series on this exact topic, this should warrant serious questions.
It’s also worth noting that the second co-reporter here has a history of this as it concerns Musk. More on that in the next story in this series.
It’s fine if you hate Musk for other things he’s done or said, and it’s fine if even after reading this you still think he’s wrong about how he’s run his foundation. What matters is that you judge with the full details and the context in hand.
So let’s add them.
Note: This post is a prequel, meant to set the tone on how reporters sometimes bend the truth when it comes to Musk. The next instalment is a culmination of 5+ years of research into what really happened during the Thai cave rescue of 2018. It was one of the biggest stories of the year, covered by thousands of journalists. What did they all get wrong, and how? My research partner and I are releasing the first part (covering Musk’s involvement) as a free article.
Bias & Disclosures: I’m for a strong IRS. Serious tax abusers should be caught, shamed, and held to account. As for Musk, I’ve written a fair amount about him over the years, and not always positively. I wasn’t asked to write this, and no money or favors were involved. He and his team were given the same head’s up as the NYT. While I’ve done a modest amount of contracting work for a nonprofit that’s received charitable giving from the Musk Foundation, I had zero involvement in those donations, was unaware of them before I joined, and the nonprofit didn’t know I was writing this until I FYI’d them. They had no editorial input.
Corrections: As always, we reward corrections. See something wrong, misleading, or unfair? Use our anonymous Typeform or drop a comment in this post’s dispute doc.
A Primer
(Note that I’m focusing in this piece on just federal taxes, same as the NYT did. This just keeps things simpler, as states each have their own rates and rules. But know that this will slant the numbers a bit when a donor earns their income in a high-tax state.1)
There are a few basic things about the US tax code and the logic behind it that you need to understand to understand any of what follows. Some may seem surprising, else just wrong. But stay with me. We’ll address each in detail as we go. I encourage you to not take my word for any of them, and to confirm with your local tax attorney.
The private foundations we’ll be discussing in this piece aren’t charities in themselves, nor are they designed to be. They’re more like a second wallet in the donor’s pocket. Once you move money into one, that money can only go to an approved charity. You now just get to choose more slowly. While there are some time limits on this, the IRS is fully ok with you using that allowable time.
Because the foundation is yours, you can give this money to whichever charities you like, same as you could when the money was still in your main wallet. The recipient(s) just need to be approved by the IRS.
While you can’t give away this money in a way that benefits yourself financially, you can absolutely give so as to benefit socially. If you want to give The Met a billion dollars to get your name on a wing, that’s fine. If you want to give to local charities so that locals will like you more, that’s fine too. The point is that you significantly supported the public good, via IRS-approved beneficiaries.
Because the foundation is just a wallet and not a charity in itself, it’s ideal for it to have low overhead. Every dollar spent on eligible expenses is a dollar not going to the end charities. Frugality here is largely virtuous.
While we ideally want foundations doing some level of screening to ensure dollars are going to their best use, there’s no hard minimum here. The IRS has already done essential screening by establishing which charities are eligible.
A dollar put into this charity wallet is not a dollar saved in federal taxes that you can then put back in your main wallet. Under current rates you get back a maximum refund of 40.8 cents. This is super important.
The IRS thinks about charities as unequal partners in doing good. The public puts in a max of 40.8%2, and donors a minimum of 59.2%. The true test for any charity is thus whether it can produce more public good with $1 than the government can with 40.8 cents. If it can, everyone wins — except the donors, who lose financially, but who get to be proud of the extra good while basking in a giver’s glory.
This system is good actually, so long as the intent of the laws are honored. While some donors and charities do actively spite this intent, lots of things that look like they could be abuses aren’t actually abuses when you look at them more carefully. It’s thus important to look carefully.
Tax law is all about tradeoffs, and we have to understand them before we can judge them. (If we dislike them still after, that’s fine!)
That in mind, let’s break down the NYT’s coverage. To make it easier for scanners, each section has its own TLDR up top.
(I’m sorry this piece is long. It’s a shining example of Brandolini’s Law. Even at like 7,000 words I still had to leave a bunch of things out.)
Setting the Tone
(The NYT sensationalized the local impact of a rocket explosion, then criticized Musk for pouring money into the community only in the aftermath, and for how he paid for it.)
Quoting the NYT’s opening (emphasis mine):
Before March 2021, Elon Musk’s charitable foundation had never announced any donations to Cameron County, an impoverished region at the southern tip of Texas that is home to his SpaceX launch site and local officials who help regulate it.
Then, at 8:05 one morning that month, a SpaceX rocket blew up, showering the area with a rain of twisted metal.
The Musk Foundation began giving at 9:27 a.m. local time.
Cameron County is 1,276 square miles, or 891 if you only count land area.
[Note that there’s a correction to the following paragraph, underneath it.]
Per local authorities (here, here, here), debris was limited to “385 acres of SpaceX-owned and state-owned parkland”, or just about half of the predicted and evacuated impact zone. That’s ~0.6 square miles. No deaths or injuries were reported, to wildlife or humans. The only non-Space X property damage reported in the entire county3 was a single broken window, at a suggested repair cost of $300.4 Though it’s true that non-toxic “pulverized concrete dust” scattered as far as six and a half miles away, and that this probably annoyed locals who found it on their windshields etc.
[EDIT 4:15am March 16th. A reader, Graham Kennedy, pointed out on X that I’d described the wrong explosion. I’d been focused on one that had more impact, and missed that it had happened a few weeks later. The right one, SN11, had a bit wider debris field (~1.1sqm), again over SpaceX property and evacuated parkland. Notably though, it wasn’t really visible given the heavy fog. I also couldn’t find reports of any public damage in local or national papers (this says there was none). I hate making mistakes, but deeply appreciate corrections. At Graham’s request, I’m donating to a sea turtle charity near the affected site in his name. Mea culpa.]
Characterizations matter. No locals were exposed to “a rain of twisted metal”. Just some dust. This embellishment sets the tone for what follows. But the deeper problem is that this section also introduces a false theme: that giving money in a way that benefits you or your companies socially is wrong. If this were true, the world would have a lot fewer libraries and children’s hospitals. The tax code has long allowed this, and always should. So long as the tangible benefits accrue to the public.
So let’s look more at what he gave to this community, and how the NYT suggests it improperly benefited him and his businesses.
(Part of the NYT’s concern is also that this money came from Musk’s foundation instead of from SpaceX, If this were a quid pro quo to eg. buy a vote, the IRS would rightly object either way. But companies donate all the time for PR, and if Musk’s motivation here was personal PR that happens to have a halo effect on his companies it’s likely fine to have come through him. You can’t easily divorce the two.5 Notably, it also costs Musk a lot more personally to give a dollar through his foundation than via SpaceX. Though the government gets a worse deal this way, if still a good one.6)
Let Them Eat Baguettes
(In which the NYT disapproved of Musk sponsoring trades education, foreign foods, and public art.)
The foundation paid local schools at least $18 million, which they used to buy everything from classroom laptops to pop-up planetariums to tools for teaching welding to adults. “Some of those adult learners are now working at SpaceX,” said Nereida “Nellie” Cantu, the top official in the Brownsville school district.
The foundation also paid to fix up Brownsville’s dusty downtown. The result was to provide more upscale restaurants — like Le Rêve, Brownsville’s first French bistro — at a time when Mr. Musk was trying to entice employees to move there.
… Brownsville’s mayor said that, so far, Mr. Musk’s foundation has only given about $4.5 million of the $10 million he promised in 2021 for downtown beautification.
But if Mr. Musk’s goal was to improve his company’s public image in Brownsville, the donations appear to have helped.
So, a list of possible offenses:
Some of the locals that didn’t have trade skills before now have them, some of whom are now gainfully employed at an aerospace company.
Locals now have a nicer downtown and a French bistro to eat at, which makes the city more pleasant and attractive, including to SpaceX recruits.
Musk hasn’t given more?
None of this is problematic from the IRS’s point of view. Funding trades education is unambiguously positive! Governments at all levels offer tax subsidies for this, and for good reason: it grows the taxable base, its juices the economy, and it promotes upwards mobility. That some attendees will end up working high-paying jobs at SpaceX and paying more in taxes is in fact good.
Also, I’m laughing deeply at someone having a chance to work at SpaceX and asking their interviewer “but first what’s the local foie gras situation”. More to the point though, did you know that all US companies — including the New York Times — get to write off employee food budgets?7 If food options were a recruiting issue for a $180 billion company, they’d simply hire more chefs. Would you prefer your tax dollars subsidize private eateries or a prettier downtown full of good restaurants?
(The NYT is also apparently mad about a nice mural that the Musk Foundation helped pay for, because it pictures a space ship and a landing pad. I suppose they imagine it a symbol of Musk’s wrongly purchased influence. Personally I see sweet public art that happens to include a space ship because space ships are cool. But to each their own.)
The Bare Minimum
(The NYT gave readers the impression that the Musk Foundation hasn’t given its money away fast enough in some meaningful or concerning sense, knowingly leaving out a very important detail: that a rolling grace period exists, and exists for good reasons.)
Since 2020, [Musk] has seeded his charity with tax-deductible donations of stock worth more than $7 billion at the time, making it one of the largest in the country.
The foundation that houses the money has failed in recent years to give away the bare minimum required by law to justify the tax break, exposing it to the risk of having to pay the government a substantial financial penalty.
First, it’s not a charity! The foundation gives to charities. This is not some inconsequential distinction.
The IRS recognizes a lot of different org structures for do-gooding, each with their own purposes and rules. The Musk Foundation is classified as a private non-operating 501(c)3 foundation. These are typically run by a a solo individual, family, or company. They’re basically just dynastic charity wallets that allow giving to be spread out over time. (We’ll get into this structure more next. The point here is that it’s a wallet that holds money earmarked for charities, not a charity in itself.8)
Secondly, the tax code allows for these foundations for a reason! They allow the donor to get an immediate tax break, yes, though still at a huge personal net loss vs paying taxes and keeping the remainder. The government also takes an excise tax on the foundation’s earnings, and the rest of its earnings go solely to approved charities. If those assets are appreciating at roughly the same rate as the government’s own borrowing costs, they lose nothing by this giving happening over time. And the excise tax is there to balance out charities whose assets perform poorly. It’s a good system.
Though, yes, the government doesn’t want the assets sitting there forever. Money has to actually go out the door. Which is why Congress passed a 5% rule, where foundations have to give out at least 5% of their assets (on a 13-month valuation) each year. But they don’t want to be too strong on this, as these foundations are run by busy people, some grant negotiations move slowly, and hot opportunities arise on their own schedule (eg COVID). There’s a positive balance to strike between ensuring momentum and avoiding undue hurry. So they allow a rolling one-year grace period and expect it to be used.9 If a foundation only gave out 4% of its assets in a given year, they can just give out the balance the next year. Only if they ever fail to do so do they then face a penalty tax, where the government effectively just spends it for them.
Crucially, the Musk Foundation didn’t break this rule! They made up their 2021 deficit in 202210, and presumably made up their 2022 deficit in 2023 (we’ll get confirmation later this year). The NYT left out all mention of the grace period, giving readers the impression that they were already in some kind of non-compliant danger zone.11 (See < footnote for their take on this, judge it how you will.)
This wasn’t an accidental omission. They 100% knew about the grace period. We know this because one of the two reporters (the Pulitzer one) acknowledged it on a podcast (at 13:10), and in a CNBC interview (2:13)12. Why leave it out in the original charging document? They didn’t offer me an explanation. Only a defense.
Now, is it a problem that the Musk Foundation has a pattern of giving slowly, even if within the IRS’s rules, both in letter and intent? We’ll get back to that shortly.
Wide, Whimsical Giving
(Private foundations aren’t quite like donor advised funds, by design. They can give money to whichever approved charities they want, based solely on the primary donor’s whims.)
Emphasis here mine. Also note that I’m going out of order here in pulling from two later bits of the NYT piece, as I have to build a bit of context for the next section.
“The really striking thing about Musk is the disjuncture between his outsized public persona, and his very, very minimal philanthropic presence,” said Benjamin Soskis, who studies philanthropy at the Urban Institute. Where other billionaires have aimed for a broad13 impact on society, Mr. Soskis said Mr. Musk’s foundation lacks “any direction or any real focus, outside his business ventures.”
And
But Kathleen Enright, the president of the Council on Foundations, said she would have advised Mr. Musk to recuse himself from this decision — and let the other members of the foundation’s board decide whether to give. She said that would ensure that Mr. Musk was not letting the needs of his business control the actions of his foundation, which is supposed to be an independent entity with its own charitable goals.
“It’s not his checkbook,” Ms. Enright said. “It’s not a private, family-owned company. It’s a charitable organization.”
While the man-business distinction here is fair to a point (again, you can’t easily separate the two), the latter bit is just mistaken on the core fundamentals.
Being that non-operating private foundations aren’t charities in themselves, their governance structures are entirely different from those of a true charity. Here’s a concise explanation from a large foundation advisory group:
Unlike public charities, which are governed by diversified boards of directors, private foundations are independent legal entities controlled exclusively by their donors. The donors have the final say on how foundation assets are invested and spent; which charities to support; whether others share in foundation governance; and if so, how.
Put another way, the foundation’s primary donor can give to whichever IRS-approved charities they want, for almost any reasons, essentially unilaterally.14 Exactly like they could when the money was still in their main wallet.15 As long as they and their companies aren’t receiving impermissible benefits, this is totally ok.
A 501(c)3 private foundation isn’t a donor advised fund16, though many confuse the two. While all donations should line up with the foundation’s charter in some plausible way, this is loosely enforced because it’s a bit restricting and charters can be more or less edited at will. In practical terms it’s the funder’s charity wallet. The IRS mostly just cares that the money goes to eligible recipients. And in exchange for this latitude, the IRS asks that all donations be publicly reported for scrutiny.17
This latitude is strategic. These foundations are often set up by ultra-wealthy businesspeople. The IRS and Congress expect that these people have a good nose for opportunity, do an awful lot of networking, and have a lot of people knocking at their door. (Relevant example here being Musk getting OpenAI off the ground.) There’s little to gain in constraining them to a narrow area of giving unless you believe it will lead to stronger outcomes based on accrued expertise (we’ll cover the tradeoffs there later). Just give the money to approved charities! Most charities have a limit of how much money they can ingest anyway, so wide and whimsical giving is fine.
More Is Better, Except When It Isn’t
(The NYT naively assumed that more staff is good for a foundation, and neglected to consider both the tradeoffs, like less money to charity, and other relevant context.)
Mr. Musk has not hired any staff for his foundation, tax filings show. Its billions are handled by a board that consists of himself and two volunteers, one of whom reports putting in so little time that it averages out to six minutes per week.
The NYT argues here that the Musk Foundation needs to staff up if they want to be serious about meeting the 5% rule for their now much larger wallet of assets (as Musk amped up donations into the low billions starting in 2021). There’s a way in which this is fair, and much larger way in which it isn’t.
Superficially, you might think “A team of three part-timers to give away hundreds of millions per year? Not serious people!”. But this overlooks a bunch of key things:
More staff means more expenses and less money to charity! The Musk Foundation had a 0.2% overhead last year, on ~$160m in giving. We only want this number to rise if it materially changes his ability to pick the right charities.
It’s difficult to believe that Elon Musk is short on ideas of how to give money away.
His treasurer isn’t some dude coming into the office an hour a week. He’s extremely well-connected and is exposed to opportunities constantly in the course of also running Musk’s family office. He donates an hour per week as a matter of record-keeping. He gets to consider opportunities all the time.
Tesla’s stock (the primary asset his foundation holds) is down quite a bit from when he made his largest donations. By waiting, he’s giving the stock more time to recover, increasing how much the foundation can give. (Some argue that he also wants to avoid downward pressure on the stock price from these sales, but the amounts are too small relative to daily trading volume for this to seem likely.)
They’ve given away hundreds of millions of dollars just fine so far, and were able to meet their 2021 target within the grace period without issue.
Musk did try bringing on another guy a few years ago. It just didn’t work out. But that guy wasn’t being paid by the foundation, so either: (1) Musk didn’t feel like replacing him was necessary, (2) Musk did replace him, possibly with a volunteer, and just hasn’t felt the need to announce this.
Point is though, the 5% rule still exists, and Musk’s hand will be forced. I’d be gobsmacked if their 2023 report doesn’t show that they met their target just fine.
Shibboleth Memes
(The NYT misunderstood why the Musk Foundation has a nearly blank website, failed to note that similar foundations have no websites, and again seemed to be arguing for the foundation to spend unnecessary money on infrastructure that adds little to no value.)
The Musk Foundation’s website initially included slick animations, featuring pictures of satellite dishes and children in classrooms, while encouraging people to apply for grants. By 2005, however, it was wiped clean, replaced by plain black text stating that the foundation was interested in “science education, pediatric health and clean energy.”
It listed no contact information. It still does not.
As for the sparse website, this is a bit of a shibboleth, in that the particular design is something of a status signalling meme (maybe started by Berkshire Hathaway).
Larger point though, foundations have no requirement to have a website or an email address for grant applicants. Both Google founders have comparably sized foundations (Sergey’s, Larry’s) and neither even have a website. This isn’t anything nefarious! It’s just a reflection of there being two kinds of private foundations:
Those that seek to take in outside money
Those that don’t
If you’re the former, like the Gates Foundation, a comprehensive website is important! You have partners and stakeholders to mind, papers to publish, and grant applicants to guide. But if you’re the latter, much of this is irrelevant. Your annual filings are public, which list all outgoing grants. All the IRS cares about is that you give to eligible recipients and file your paperwork accurately while meeting the 5% rule.
So once we solve for that, is the argument really that Musk should be spending the foundation’s money on a more comprehensive website just because?
The Gates Foundation has a nice website, for the reasons mentioned above. But you know what else they have? An overhead of about 12%18. The Musk Foundation’s is 0.2%.19 Now, this isn’t to throw shade at Gates! That’s an impressively low number considering the scale and quality of work they do. They’re just different types of foundations coming at things from a different angle. Both have a place.
That said, lots of foundations spend a lot more than 12% in attempting to develop niche expertise that’s often duplicative and a waste. There’s a high bar to justify that kind of overhead, given that it’s coming out of the pockets of your end recipients. You have to be adding a lot of value. Some foundations do, a lot more don’t.
The IRS has already done a lot of the vetting work for foundations in approving and pulling tax exemptions for eligible charities. Sure, foundations can then do extra grant reviews and other screening, and try to build expertise in some niche to ensure maximal returns. This is one good way of doing it! But it’s also expensive! On the balance, you want a lot of foundations with 0.2% overhead.
(If a foundation wants to give grants to individuals not already vetted by the IRS, they then need to have a more formal screening process and have the IRS approve it.)
The Temple of Whollyness
(Honestly the NYT might have gotten this one right, though they failed to note the relatively tiny size of the maybe-ineligible donation.)
Mr. Musk, instead, used his small foundation to help groups tied to him personally, including a food charity run by his brother and a “Temple of Whollyness” that was set on fire at the 2013 Burning Man festival, an annual event that he often attends.
The food charity one is a red herring. You’re allowed to give to that sort of thing, again because there’s a strong public good and marginal self benefit.20
Anyway, the Burning Man installation. If this reporting is true (I have no idea, but let’s assume yes), this very well might have been an ineligible donation in how it passed through an eligible charity to an ineligible recipient. But what the NYT neglects to mention is that it was only $10k. And also that it’s very funny.
Even so, if it was indeed ineligible, I think Musk should do the right thing and donate an offsetting $10k. Perhaps to a school of journalism, in the NYT’s name.
Schools of Thought
(The NYT laid out details about two charities, both schools, both effectively controlled by Musk affiliates, both funded by the Musk Foundation. It’s unclear if there are any ineligible benefits with either. There are good questions to ask about them though.)
He also founded his own nonprofit school called Ad Astra — Latin for “to the stars” — to explore new ways to teach math and science.
But that school, too, would serve a personal purpose for Mr. Musk. In its first year of operation out of his home in the Bel-Air neighborhood of Los Angeles, five of Ad Astra’s 14 students were his own children.
There’s too much more on this to quote here, so I’ll refer you to the article and just summarize their claims:
The school moved to Texas with Musk, and now operates behind a locked gate on a SpaceX campus. (Crucially, this does not block students from the community.)
For a while it had a website saying “open to the public”, which was at some point taken offline. It has 50 students now, half of whom are kids of SpaceX employees.
There’s also an unclear entanglement with a separate charity run by Musk affiliates called (confusingly!) The Foundation. The Musk Foundation recently gave $100m to the latter to seed a new school and/or university.
The Foundation just bought land in Bastrop, Texas, near facilities owned by The Boring Company (another Musk company).
There seems to be plans to build a larger Ad Astra school on that land. Perhaps co-located with a forthcoming university, or non-Montessori K-12 school.
As a first principle, the IRS wants foundations and charities to be maximally responsive to emerging needs. So it mostly just outlines broad principles, then refers donors’s tax lawyers to a vast collection of past rulings on individual controversies so that they can give the donors effective guidance. This would have been part of the routine back-and-forth when the charities first applied for exemption status.
Given that both Ad Astra and The Foundation got their exemptions, the IRS looked at their filings and said “ok sure”. And they knew where the money came from! It’s possible that Musk has then since bent the rules too aggressively, and that the IRS has either not checked in or turned a blind eye. But it’s also true, and I suspect far more probable, that these transactions were reviewed, there was haggling, and all is fine. No US agency is like, unaware of Elon Musk. And his legal and accounting teams have their own industry reputations to worry about.
Questions that the IRS would have asked Musk:
Why are there two charities instead of one? (Musk doesn’t really gain anything by there being two, so presumably the second was approved for a wider blueprint.)
Do any ineligible people receive a salary from either school? (Doubtful, just given how rich Musk is, but good to ask.)
How far along are plans for The Foundation? And when will it begin more public disclosures? (I have no idea.)
If Ad Astra charges no tuition, did you pay back the school for a proportionate share of your kids’ education expenses? (I reviewed documentation that I believe to be authentic that confirmed he’s done so from day one, take that as you will.)
Has Ad Astra enrolment been meaningfully open to the public? (I’m informed yes, which would explain why half the kids come from outside. It isn’t inherently surprising that children of aerospace employees would outperform on admissions evaluations.) Does it have concrete plans to open up / expand more? (Apparently.) How are those plans progressing? (No idea.)
Again, I don’t know the answers to some of these questions. I think both schools were fair game for the NYT to look into. The IRS will do their thing, and I’m sure we’ll hear more about it. But we have the presumption of innocence for a reason!21 Vibes and premonitions are not journalism. If there was/is actual wrongdoing, by all means let’s push for remedy. We’re just not there yet, and I don’t really begrudge Musk not being interested in answering the NYT specifically given their disingenuous approach.
Feed The World Some Fish
(The NYT pretended that Musk did a takebacksies on an offer to give billions to the World Food Program, when it’s clear that their proposal had nothing to do with his actual offer, which the NYT misrepresented.)
Emphasis again mine:
In October of that year {2021] Mr. Musk had publicly flirted with the idea of a charitable mega-gift. On Twitter, he wrote that if the United Nations World Food Program could describe how it would spend the money, he would sell Tesla stock and give the program $6 billion.
The U.N. program replied with a plan, but Mr. Musk gave nothing.
That is absolutely not what Musk said! The context was:
The WFP’s director went on TV and made a PR challenge to the world’s rich, claiming that they could save 42 million people from otherwise starving over the next year with a one-off donation of some $6bn.
CNN wrote an article about this, with a sensational headline of “2% of Elon Musk’s wealth could help solve world hunger, says director of UN food scarcity organization”.
Someone posted a tweet (with just a screencap of this headline) pointing out that the WFP raised $8.4bn in 2020 and did not in fact solve world hunger.
Musk replied to this tweet (here, here), saying “If WFP can describe on this Twitter thread exactly how $6B will solve world hunger, I will sell Tesla stock right now and do it.”
The WFP published a plan (not on the thread), which wasn’t about solving world hunger, but rather meeting a specific anticipated funding shortfall for 2022. Put another way, feeding a man a daily fish vs. increasing the fish supply.
The obvious reading here is that the WFP and Musk were never talking about the same thing. Musk was reacting to a CNN headline about “solving world hunger”, and the WFP was talking about a one-year bandaid (albeit a very needful one!).
Musk, like most entrepreneurs, favors solving problems at their root. Had the WFP given him a plan that addressed what he was told (via CNN) they were talking about (eg. actually solving world hunger), I’m sure it would have been given a real look. But the provided plan included none of that, and was unsurprisingly left on read.
Net Good
(The NYT suggested it was dodgy for Musk to have given to an UN charity that helps less developed countries get their kids onto the internet because some of these countries were likely to become Starlink customers in the future, as two later did. But they leave out a lot.)
But other grants landed close to Mr. Musk’s own interests.
The Musk Foundation, for instance, gave $5 million to a United Nations program that helps countries identify rural schools that need internet access. In at least two cases, those countries then became Mr. Musk’s customers, connecting their schools with his Starlink satellite service.
So, three things:
This gift was announced in February 2021, before Starlink was even active in any of the countries this program supports. (It still isn’t in many.)
Note the wording here. It isn’t that UNICEF turned around and gave the money back! It’s that two countries that the program works with then made Starlink purchases, neither it seems with UNICEF money. The implication is that Musk’s gift greased the wheels for these countries to be readier future buyers.
Musk’s gift was $5 million, against program assets of $1.7 billion. Not much grease! Every gift helps, but this one didn’t move the needle.
The main problems with this take: the transaction was several steps removed and not quid pro quo. If you could even get someone from the IRS to not hang up on you in pitching this concern, their first question would likely be “was there a comparable provider that may have otherwise won these contracts?” And the answer is no. Starlink is a one of one company until Amazon’s Project Kuiper catches up.22 These buyers were going to buy anyway. At most this just sped them up a bit.
Not the most compelling case! You can see where the gift was maybe tactically shrewd in some very limited way. But that’s not itself unethical, much less legally dubious. And the net good here of getting more kids online faster is very, very strong.
Saving Kids From Cancer Is Good, Actually
(In which the NYT made donating $55m to St. Jude’s Children’s Hospital somehow sound bad, while admitting that how Musk did it definitely wasn’t illegal, but while also wrongly suggesting that he should have at least recused himself when he absolutely didn’t need to.)
One of the [foundation’s] biggest gifts helped one of SpaceX’s customers: Jared Isaacman, a Pennsylvania billionaire, who chartered a trip to orbit on a SpaceX rocket in 2021. Mr. Isaacman said the flight would raise $200 million for St. Jude Children’s Research Hospital by raffling off one of the four seats on the flight. …
But when Mr. Isaacman touched down on Earth, the mission’s Twitter account said it was still short of his $200 million goal.
“Count me in for $50M,” Mr. Musk tweeted back. The Musk Foundation eventually paid $55 million, its largest donation that year.
A few months later, Mr. Isaacman announced he would pay SpaceX for three more spaceflights. He declined to answer questions about the flights or Mr. Musk’s donation.
Experts on nonprofit law said there appeared to be nothing illegal about that gift, because it did not involve the Musk Foundation paying Mr. Musk or his customer directly.
Right, so the NYT at least at admits that giving to sick kids is not in fact illegal. Good start! But then they segue into their expert’s analysis from earlier about the foundation not being his personal charity checkbook and how he ought to have recused himself. But it is precisely his charity checkbook! That’s what foundations like this are! On purpose! Recusing yourself would just be theatre. It’s not a DAF or a charity. It’s your charity wallet! You get to decide!
Anyway, this other billionaire gives away a free trip to space to St. Jude’s (to a former pediatric cancer survivor who now works there), then raffles another. He hopes this raffle will rase $200m for the hospital, inclusive of $100m of his own money. But it doesn’t quite get there before the launch, and Musk then jumps in to help. (It’s not clear how short they were. Musk’s donation was for $55m and per St Jude’s the project raised “more than $250m”.)
Is the conspiracy that Musk called up Isaacman and said “I will give $50m to a charity that doesn’t benefit either of us to save you micro amounts of shame if you promise to fly with Air Musk again”? And then Isaacman said “well I didn’t enjoy BEING IN SPACE that much, but since you insist”. If he was that concerned with hitting his $200m goal, it would have been much, much cheaper to just cover the difference.
More forthcoming reporters might have also noted that no other company exists right now to offer the kinds of additional space adventures that Isaacman signed up for. That a rich guy is getting to go be an astronaut while massively benefiting kids on earth isn’t some crafty scheme. That’s being a goddamn American hero. Godspeed brother, enjoy being cool as fuck, and thanks for saving those kids from cancer.
The Flint Gambit
(The NYT kinda tells the truth about why Musk didn’t give the money he originally promised to Flint residents, in that Flint’s mayor explicitly redirected him from doing so, but again somehow makes the giving he did do there seem bad instead of great.)
On July 5, 2018, [Musk] began interacting with Amariyanna “Mari” Copeny, a youth activist in Flint, Mich., who asked him for bicycles for local kids and clean water for her city, which was experiencing a crisis with its water supply. Less than a week later, Mr. Musk tweeted “a commitment” that he would “fund fixing the water in any house in Flint that has water contamination above FDA levels.”
“Will organize a weekend in Flint to add filters to those houses with issues,” he said in another tweet.
Karen Williams Weaver, a Democrat who was mayor of Flint at the time, said the city asked Mr. Musk to focus initially on helping schools. The Musk Foundation donated about $1 million to schools, paying to install water filters and buy laptops for students. It also gave $125,000 to a charity associated with Ms. Copeny that aimed to help Flint children.
Flint asked for much more.
Right, we again have a switcheroo going on.
Musk offered something concrete (via two tweets, 30 mins apart):
To fix the water in any house in Flint with above-FDA contamination
To do so via filters
This was nice of him. Apparently though the city didn’t actually want that. As one of the journalists here elaborated on a podcast (39:20, 42:01), the mayor told Musk “water and houses [are] being handled by the state” and suggested he give to schools instead. This wasn’t what he’d offered, but he gamely chipped in $1,250,000 anyway to schools and local causes. They then asked him for a bunch of other things, and he didn’t bite.
(At 41:50 in the podcast, the journalist takes a very weird tack, in that he acknowledges that Elon made the narrower offer and Flint declined. But then he follows it up by saying “so he didn’t do the thing he said he was going to do in this tweet”. What??? He didn’t do it because they said “nope, we’re good”. And if you’re agreeing, what’s the point of including any of this???)
Musk did a good thing. He saw a specific problem named on Twitter and said “no bueno, I’ll fund fixing that specific thing.” Local leadership then declined and pointed him elsewhere. He met those needs. They then pressed their luck and hit a whammy. I certainly don’t blame them for trying! Just as I don’t blame Musk for not fixing other problems he never offered to solve! None of this is bad!
Lastly though, an important note about timing. Something else was going on at the same time period that affected Musk’s approach towards giving out loud. And this something also has a lot to do with the New York Times.
More on that in the next edition.
Closing Argument
Lots of charities and foundations abuse the system. This tarnishes the many good ones, and has a corrosive effect on civil society. I’m all for good journalism rooting out the bad actors. But they have to actually be bad actors. And if you can’t reasonably prove that they are, concerns should be framed neutrally and in good faith. It also helps if you develop a reputation that makes subjects want to answer your questions.
At the heart of journalism there’s a fight between “what’s in the public interest” and “what will the public find interesting”. You either start from “this will empower the reader to understand and influence the world better” and then make the piece as interesting as you can, or you start with something you know people will find interesting and shape it into something you can call news.
When you follow the latter impulse, it leads to predictable places. Like this. And it’s not going to stop until people get upset about it.
Musk now resides in Texas, which has no state income tax. But many of his Tesla shares/options were earned in California, which does.
The government is contributing the most when a donor gives stock that’s appreciated in value. But important to note that this just shifts value from the government to the recipient charities, not to the donor. The donor is out more money by donating the stock vs. selling it and paying the tax. They might then donate 100% of the remainder, which would be a better deal for the government. But they very well might not! Which is why the rules are structured like this: to lock in public benefit.
There was also mention of a car nearer the launch site that got hit. If it was in the debris radius presumably it belonged to someone at SpaceX.
SpaceX launched a space ship larger than the Statue of Liberty, and when it blew up the sum total of public damage was $300 and some dust. Rad.
There’s an obvious and unresolvable entanglement to this. When Elon gives, the halo effect extends to SpaceX. And vice versa. Just so, every notable local gift, even if not intended to be a quid pro quo, will have some expected quid pro quo effects. The tax code understands this! It’s been moulded by the real world. The tradeoff to the government is that the donation is still producing outsized public good and the donor is doing so at an expected net loss (they’re contributing 60/40). If the likely benefit is direct or egregious, no more deduction. But if the likely benefit is just “local officials tend to generically prefer folks who give generously over those who don’t”, that’s generally not enough in itself to be an issue.
The government typically subsidizes dollars at a higher rate through private foundations (as they’re mostly coming from earners in the highest tax bracket) versus through corporations (currently a 21% corporate tax). All things being even, they’d obviously prefer to go 21-79 on charitable giving rather than 41-59. But the latter is still pretty good!
It’s either a 50% or 100% deduction, depending if it’s classified as part of taxable employee compensation. You can also get 100% if you let the public eat there for free, though I doubt this would be possible for a company like SpaceX given security access issues. But even at 50% this is pretty big savings, albeit against a corporate rate of 21% vs. Musk’s personal maximum of 40.8%. The difference being that downtown revitalizations provide a larger public benefit, which is why that gap exists. Not only do all locals get to enjoy, but it has a knock-on effect of encouraging more development, new businesses that pay taxes, etc.
It’s possible to have a 501)c)3 private foundation that is also a charity. These are called operating private foundations. But Musk’s isn’t one, and they’re subject to extra rules.
Some grace periods are designed for seldom use, where you don’t want to abuse the grace offered. Say joining a call two minutes late. It’s fine sometimes, but less fine the more often you do it. Other grace periods are more like paying your credit card bill. Your debt is active the day you receive your statement. Your bank just doesn’t treat payments as late for (typically) 21 days thereafter. To use this standard grace period isn’t playing with fire, or wrong, or a true violation. If you pay in full within that window, you’ve paid on time. This case is more like the second one. The IRS cares about non-filers and fraud. They don’t care about you using the grace period. The intent of the rule is ensuring a constant flow of disbursements. How they get divvied up between any two years doesn’t matter much.
If you look at page 9 of the 2022 filing, you can see that the 2021 balance was fully satisfied by 2022 giving, along with part of 2022’s, with 2022’s remaining balance then carried to 2023. Giving is always applied to carried balances first. If the foundation hadn’t covered 2021’s in 2022, they would have been taxed. But they did!
They halfheartedly hedged in the article’s 51st paragraph by saying that the foundation, if it didn’t catch up on 2022, “could owe a penalty tax” (my emphasis). But they don’t ever mention the grace period or why it exists, and they say that the foundation failed to meet “the bare minimum required by law”. See more on this in my discussion with the NYT.
Also the CNBC graphic behind him at 1:45 is super misleading. It reads that the Musk Foundation, for 2023, “did not release details of what they gave away”. That’s because the filing isn’t due yet! This is on CNBC, not the NYT guy. But bad!
I don’t know if “broad” here was a transcription error, but it amuses me because “broad impact” and “lack of direction” are kinda the same thing. I suppose they meant “outsized” impact, presumably from getting effective in one niche.
Some individual states add their own local flavor to the IRS’s federal guidance (see Texas’s here), though in most cases it seems just “here’s where we want you to file stuff” and similar administrative rules, not “you have to give super narrowly”. (It’s possible some states I’ve never looked at more strict, but that’s not relevant here. And if they exist then donors would presumably just locate their foundations accordingly.)
Some people make a lot out of donors avoiding estate taxes. By putting your wealth into a private foundation before you die, you eliminate the chance that your assets will get taxed at 40% (above a threshold) by Uncle Sam. This is true so far as it goes. But from the gov’s perspective, would they prefer a ~40/60 split with your heirs or that 100% go to charity?
Some donors move funds from their 501(c)3 private foundation to a donor advised fund (DAF), which is a similar-ish structure. This counts towards their 5%. Or some just skip the first step and give to the DAF directly. DAFs are a little more constrained than 501(c)3s, in that the donor advises the board on where to donate instead of just deciding unilaterally. But in realist terms the main differences are: (1) a DAF is cheaper/easier to set up, (2) with a 501(c)3 you can give to individuals (with IRS approval) instead of only registered charities, (3) DAFs have minimal public reporting requirements, (4) DAFs don’t have the 5% rule, (5) and 501(c)3s offer a lower tax deduction for non-cash contributions (20% vs 30%).
If they want to give to individuals, they need to collaborate with the IRS on process. If they want to give to charities already vetted by the IRS, they don’t need some big process or theme. They can just give, save the receipts, and mark it down on their annual filing. Journalists and watchdogs can then point out any gifts they find troubling. And I’m all for that in theory, if you do it fairly and honestly and non-sensationally.
There would be an issue though in how much compensation his brother received running it. It seems he’d drawn in ~$12k a year early on, or ~$85k total. Given his wealth, this could have been unintentional. When it was brought to his attention he apparently made a $130k donation.
Some people argue that this is only a legal concept and doesn’t apply to journalism. In my experience these people are mostly journalists. You can “raise questions” in a neutral way, and if you have a reputation for fairness you’ll often get answers! If your source feels you don’t have this reputation and thus stonewalls you, you’re still ethically obligated to be fair and non-sensational.
Other satellite internet companies have existed for ages, but aren’t really that comparable as they aren’t in low-earth orbit. Starlink is simpler, has more coverage, more uptime, and way, way less latency. In many cases it’s also a lot more cost effective, though that can vary.
Fantastic piece, thanks!
You have almost zero info on your "About" page. What credentials do you possess in critiquing the media and press? What experience do you have in journalism, particularly credible journalism? Who pays you to write a rebuttal to a NYT article whereby your rebuttal is as long, if not longer, than the story itself? What is your relationship with Musk or his companies or "foundations?" Please be transparent and honest with who you are, who pays you and what you perceive as your "mission."