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If your reaction upon seeing the headline above was “WHO?” then it is fair to say, is it not, that that the mainstream news media has not sufficiently publicized the news made by Smith of late to permeate your consciousness. After you have read about him, it would be prudent to ponder why this might be.
The reason Smith is an Ethics Hero is this: He was the Morehouse College class of 2019 Commencement speaker, and after receiving his honorary degree, announced that he would pay off the entire class’s student debt.
The gift to the all-male, “historically black” college in Atlanta appears to to be worth about $40 million, and will affect nearly 400 students. It is the largest individual donation to a historically black college or university. [ Not to inject a sour note, but if previously racially exclusive white colleges cannot continue their discriminatory ways by designating themselves “historically white colleges,” then the “historically black college” dodge to encourage and justify racial discrimination in both admissions and institutional marketing ought to be retired permanently. The so-designated colleges now have a collective student body that is about 22% white. ]
Smith, 56, got his BA at Cornell University and a master of business degree from Columbia University. He’s the founder of the Austin, Texas-based private equity firm Vista Equity Partners with an estimated worth of about $5 billion. No, he is not among the richest billionaires; for example, Amazon tycoon Jeff Bezos is worth for than 30 times that. George Lucas is wealthier. Robert Smith, who is the first African-American to sign the Giving Pledge, created by Bill and Melinda Gates and Warren Buffett, to commit at least half one’s wealth to philanthropic causes, is one of the poorer billionaires. [Correction notice: I somehow misread a document and had acress Ellen Barkin noted as a billionaire. That was a mistake. Thanks to Jeff Westlake for the flag.]
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Facts: CBS News
Ethics Alarms 
Geez, Jack, I know how much you hate the mairstream media, but this story has been all over the place.
The first paragraph is a little confusing, I’m not sure if Jack is saying it isn’t in the media or it is.
I’m not saying either. However, there is no question in my mind that the news media has not given the story the emphasis it deserves.
For my two cents, I probably heard about it from several sources in the last few days. Probably mostly on radio, but probably also on Facebook.
-Jut
Just as a counterexample, I had not heard.
Me either… but my consumption of mainstream media is virtually nil anyway.
I had not heard of it until this post either. Seems like a story that should have gotten wide reportage.
I have mixed feelings about this gift: Robert F Smith is certainly to be commended for his generosity and perhaps some of these students will use the debt forgiveness money to buy a house or start an intelligent investment program for themselves. However, this reminds me of what frequently happens to Powerball lottery winners after they get the big payoff.
This is a great gesture, most importantly because it hacks off the likes of Elizabeth Wsrren and Ocasio-Cortez. Talk about the Law of Unintended Consequences, I am wondering about the tax implications for these students. The dreaded IRS would consider these “gifts” as regular miscellaneous income which have an impact on the students’ income. The average student loan debt of this class is $100,000. That might have these students owing a nice chunk of change for this tax year.
It depends how it is structured: if made as a tax-free donation directly to the school, I would image there are ways to retroactively apply it as a tax-free scholarship/grant, and any loans could then be refunded to the originating borrower.
The tax in that would be what, $30,000 at most? Maybe $35,000?
Easier to deal with than $100,000+.
Then again, maybe it’s time to eliminate estate and gift taxes – to promote more philanthropy.
No, gifts are not taxable to the recipient, so the students will be fine as far as the IRS is concerned. They need not even report them.
Mr. Smith, on the other hand, will certainly owe some money to the IRS. You’re allowed to give a certain amount each year to any one person. I don’t recall the exact amount, offhand, but it’s in the $12-15k range. Therefore, if the average gift to each graduate was $100k, he would be liable for gift tax on $85k or so per graduate.
I wonder if the media accounts have included this tax when they say that his total gift would end up being about $40 million?
Diego,
Can you document that assertion? My (admittedly rudimentary) understanding of gift taxation puts the liability upon the receiver, not the donor. My opinion is based on stories of raffles, winning a car (and having to sell to pay the taxes) and lawyers advising how much to give to avoid taxes for the recipient.
I am willing to be educated.
I seriously doubt that a man who owns an private equity firm ignored the tax consequences of his gift: it IS somewhat in his wheelhouse.
I disagree, starting post-college life with zero debt is a lot different than getting a huge windfall. It sets you back. Even if you are responsible with money, it cuts into your ability to save.
-Jut
I disagree. Part of the reason that Powerball winners have such a high rate of poverty recidivism is because people that kind of people who buy Powerball tickets tend to have bad financial habits.
Now, I’m not saying that the entire graduating class would have good financial habits, per se, but I think the rate of financial literacy among post-secondary graduates would almost by definition be higher than the average group of lottery players.
I think that’s right. It’s nobody’s fault but their own. Nobody in their right mind would blame the money, or the fact that they got it, for their poor spending habits, lack of self control, or general stupidity.
Yeah, but that’s not a reflection on Smith, but on the recipients of his generosity.
I think it’s wonderful.
I wonder what would happen if a guest speaker that was heckled, booed or walked out on offered to pay off everyone’s student loans?
“… I was going to pay off everyone’s student loans, but the rude actions of your classmates just changed my mind…”
What a funny thought.
Would beatings ensue for the rude snowflakes, I wonder?
It is his money, he can do what he wants with it. I would have suggested, however, he consider incentivizing positive future economic and social behavior from others on the margin with that money instead.
He should be commended for his genorosity. However, his gift caused some to shame Oprah Winfrey into doing tge same. When society begins to expects such gifts from those that “can afford it” we begin the slide into anarchy where anyone with more is fair game to be forced to give to those with less.
I see little difference between a group that uses group bullying to coerce behavior and a small group of people demanding money from those they accost.
As I’m sure you’ll agree, the Oprah protest and Jones’ act should be completely partitioned. He can’t be blamed for the unethical reaction by assholes.I’ll have some other thoughts about Oprah in the warm-up.
Absolutely, they are two completely different things.
Mr Smith’s act was one of beneficence while the demand to Oprah was one of greed.
Neither Mr.Smith nor Ms. Winfrey owe anything to a group of college graduates or just about anyone else. My point was Mr. Smith’s selfless act was used as a cudgel by unscrupulous or childish persons to attempt to coerce other wealthy people to absorb the burdens they themselves or others have obligated themselves voluntarily .
Agreed. The Warrens and Ocasio-Cortezes immediately jumped on Smith’s actions with something akin to, ” that’s a lovely gesture b7t it doesn’t solve the problem that college education is too high so we ned to make it free. If we do that, then we can take their money to provide other free stuff”.
jvb
“Actress Ellen Barkin—you remember her, don’t you? “Diner”? She’s worth more than ten times more than Robert Smith”
That cannot possibly be true. You’re going to have to show your work on that calculation, Jack…
Don’t belittle Oprah– she bought everybody KFC. Robert Smith isn’t even feeding anybody. Robert Smith isn’t even teaching anybody how to fish in order to feed themselves for a life time. I’m sure he means well, but I don’t think that paying off somebody’s college loans is helping that person become independent and self-reliant. They’re getting out of the contracts they signed in order to finance their careers. Maybe they’ll remember that and pass the favor on and the world becomes a better place. Or maybe the college education market will be thrown into MORE disarray with a flood of copycat donations the way it was thrown into disarray by government subsidies and the cost of education will go up AGAIN because students are not responsible for the cost of their education. When Mansa Musa passed through Cairo, he gave away so much gold that the economy collapsed and the next time he passed through, he had to buy it all back to restore the economy. If he wanted to do some good, he should have just helped some poor people. That’s the nice thing about poor people– giving your money to them is fairly harmless. But able college grads? It just seems like a bad idea. I graduated 2010 when everybody was begging the government to pay off their loans for some strange reason. I paid every penny back on my loans. The idea of somebody else paying that for me… just insulting. I incurred those loans. Nobody else. A college grad is not a charity case. Robert Smith could have started a legal aid program, food pantries, etc. But he bestowed his wealth on… college grads. Okay. Yay for handing a crutch to people who can walk under their own power.
Comment of the Day.
jvb
Was this satire?
Someone makes a kind gesture and all we focus on is the possible downsides?
…and we wonder why more of the wealthy don’t make such gestures.
Mark 14: 3-7
Hmm. No, you’re right. You make a good point. He’s giving his wealth and it is his to give as he pleases. Maybe it’s not just college grads he’s helping– maybe he gives to the poor too. Who am I to criticize? I’m no great donor myself. I just think college grads are getting a little entitled and we’re kind of babying them. I believe that people find that inner strength to swim when it’s a choice between learning or drowning. You take their edge away by giving them things. If you want your kid to be tough, don’t run and save them every time things get a little rough. Let them solve their own problems.
“You take their edge away by giving them things. If you want your kid to be tough, don’t run and save them every time things get a little rough. Let them solve their own problems.
We are in violent agreement there.