Passing Up Pay

post by Jeff Kaufman (Jeff_Kaufman) · 2022-07-13T14:10:00.157Z · EA · GW · 17 comments

I recently switched from earning money to donate to doing something directly useful. I think this work is very important (or I wouldn't have switched!), and if I were still earning to give it's the kind of work I'd be excited to fund. I also think this about Julia's work; what should this mean for our donations?

We've been donating 50%, and say we decide to continue doing that in future years. Let's say our employers are willing to pay us a combined $300k, so we donate $150k and have $150k left over. Then we pay $51k in taxes and our employers pay another $22k, for a total of $73k in income taxes. This leaves us with $99k for ourselves:

Donate 50%
Income $300k
Donations $150k
Employee-paid taxes $51k
Employer-paid taxes $22k
Post-tax post-donation pay $99k

Since I'm equally happy for us to donate $1 as for either of our employers to keep $1, however, another option would be for us to ask for lower pay instead of donating. Let's say we want to keep the same $99k in post-tax post-donations pay; what does that look like?

Donate 50% Reduce Pay
Income $300k $130k
Donations $150k $0
Employee-paid taxes $51k $31k
Employer-paid taxes $22k $9k
Post-tax post-donation pay $99k $99k

Our family is equally well off in the two cases, but in the donation case $33k goes to taxes that would otherwise go to something much more valuable. That's 11% of what our employers would be willing to pay us, and 1/3 of our post-tax post-donation pay. This happens because while donations are "tax-deductible", that's only for Federal Income Tax (10%-37% in brackets). Social Security (12.4%), Medicare (2.9%), and State (5% for MA) taxes are all calculated on pre-donation income.

While this is more efficient, there are some reasons why this might not be a good idea:

I think these are all real concerns, but an option to save your organization 1/3 of your take-home pay is very significant. I currently think that waiving pay would make sense for most people who would otherwise be donating to their employer or another organization whose funding trades off against their employer's. I'm less sure about our family in particular, since we've generally prioritized legibility more highly due to being given as examples in various situations. I'd be very happy to read additional objections, or reasons why the objections above go farther than I'd thought.


[1] Here's a simple model, all in 2022 dollars. If you earn $150k, you (and your employer) pay $19k/y in Social Security tax, and you get $36k/y in from age 67. If you put $2.8k/y into index funds starting at age 22, earning 6% real returns, you can withdraw $36k/y at 67 for your whole retirement.

17 comments

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comment by Daniel_Eth · 2022-07-13T23:47:50.754Z · EA(p) · GW(p)

My personal view is that targeted small-dollar political donations [EA · GW] (which large donors cannot simply fill, due to campaign finance laws) are likely to be vastly higher value on the margin than corresponding-sized (equivalent size plus tax savings) non-political donations  to organizations that large donors can fill, insofar as such targeted political opportunities arise. So if I was in the situation you're describing, I'd accept the higher salary with the intention of donating to such political opportunities when they arose. Of course, this logic is specific to a particular kind of donation opportunity, and won't generalize to most areas that EAs currently donate to.

comment by david_reinstein · 2022-07-13T15:19:58.585Z · EA(p) · GW(p)

Another possibility could be asking your employer to set aside some of your pay in a fund you can direct. (I intend to make a post on this soon.)

Replies from: Jeff_Kaufman
comment by Jeff Kaufman (Jeff_Kaufman) · 2022-07-13T15:36:06.269Z · EA(p) · GW(p)

I suspect there are some tax issues there? In the US employer donation matching is common, and my previous employer gave all of its employees a sum they could choose where to donate, so that is presumably also fine. I'm less sure you can do what you're proposing, however, without it counting as income.

Replies from: david_reinstein, Linch
comment by david_reinstein · 2022-07-13T17:39:52.130Z · EA(p) · GW(p)

Yes that was a concern. Will talk this point over with people before I post this

Replies from: weeatquince
comment by weeatquince · 2022-07-13T22:34:15.611Z · EA(p) · GW(p)

If the employer set aside the funds in a donation pot which you had no/minimal control over that'd probably be more likey to be legal. (Eg if staff voted where the funds should go)

comment by Linch · 2022-07-13T22:43:44.990Z · EA(p) · GW(p)

Can you do 100x donation matching? Then the deadweight loss is minimal in comparison.

Replies from: Jeff_Kaufman
comment by Jeff Kaufman (Jeff_Kaufman) · 2022-07-13T23:33:27.947Z · EA(p) · GW(p)

The bit that I would expect to be tricky is trying to let employees choose how much of their pay they receive through this kind of "choose where we donate money". If you're just trying to let every employee direct a certain amount of funding, that's already fine.

comment by peterhartree (Peter_Hartree) · 2022-07-14T04:10:56.266Z · EA(p) · GW(p)

For what it's worth: I stopped doing salary sacrifice at a well-funded EA org mainly due to worries about fungibility.

I switched to (mostly) trying to seed fund and encourage individuals that other EA funders might miss, or would be less able to credibly and helpfully encourage.

This has gradually come to seem less useful as EA Funds has been growing and the FTX Future Fund started the regranter programme.

Nonetheless, my guess is that at least 1/3 of the value on this approach comes from encouragement and raising aspirations. So I'm keeping going with this for now.

comment by Max Ghenis (MaxGhenis) · 2022-07-14T04:19:08.766Z · EA(p) · GW(p)

Some may also want to consider how passing up pay will affect benefit eligibility. If you can lower your income to 200% of the poverty line, under current Covid-related policy, you can get the maximum SNAP benefit for your household size in many states, including Massachusetts. That in turn entitles you to other benefits like broadband and school meal subsidies.

All together, a family of four in MA can gain about $12,000 per year by getting their income just below 200% of the poverty line ($55k). That's based on my nonprofit's free open-source app, PolicyEngine US; here's a graph. The application process and purchase restrictions can be annoying, but many online grocers now take SNAP and it's tax free.

comment by Ben Stewart (BenStewart) · 2022-07-13T23:28:39.647Z · EA(p) · GW(p)

This was great and really helpful, thanks for writing it! 

This only works if there isn't some other organization you think would do more good with your money. People may overvalue their particular organization when they would be more objective in choosing among organizations at large.

Extending this thought, there's a consideration that attracts me - a kind of personal worldview diversification.  To take the example of Nucleic Acid Observatory, I might not want to go all in on pandemic prevention by both working on it and directing my counterfactual donations to it through waiving pay. I might instead want to hedge and put some of my donations into, say, animal welfare  (or neartermist global development, or what have you). 

I'm not sure if this kind of personal hedging has strong objections though. E.g. maybe it's a strategy that only makes sense if you're maximising 'the chance that I do some good', but is in tension with maximising the overall good.

Replies from: Jeff_Kaufman
comment by Jeff Kaufman (Jeff_Kaufman) · 2022-07-13T23:31:44.792Z · EA(p) · GW(p)

Since in effect this frees up funding for the kind of funder that funds the NAO, and those funders tend to be diversified, there is still some amount of diversification? See the complicated bullet on funding replaceability.

Replies from: BenStewart
comment by Ben Stewart (BenStewart) · 2022-07-14T00:29:29.454Z · EA(p) · GW(p)

Oh true, I didn't think that bit through.  

I think there's some weaker version that still applies, for two reasons. First because the money that gets freed up may only be freed up within a specific cause area of the funder. Second because even if the freed money  goes back to the funder's general pot, it'd be distributed according to that funder's cause-area split. But if you think you've already put a lot into one cause area, maybe you'd want to push your donations more heavily in the direction of another cause area, rather than just deferring to the funder's split.

comment by Guy Raveh · 2022-07-13T16:31:20.377Z · EA(p) · GW(p)

My usual reply to "convert taxes into donations" type arguments is that evading taxes is bad. I don't think it applies here as such, because the variability in pay makes it a bit unclear what the "right" amount of taxes is that you should have been paying.

However, I think the underlying reasoning still applies somewhat:

  1. Taxes are not your money. They are compensation for the state, for the various services and infrastructure it provides that enable you to do your job.
  2. Therefore I don't really think it makes sense to compare the impact of paying X as tax money to paying X as a donation. It's more akin to worldview diversification: there's some amount - your donations - which is allocated according to your flavor of expected impact; and another one - taxes - that's allocated by democratically chosen representatives in your country. Both are important, and we wouldn't like any one of them to stop existing.

I still think both options you presented are acceptable. But this would change how you take into account the different uses of that amount of money when deciding between them. Ultimately, it looks to me like the disadvantages you listed now outweigh the advantages. Or at least like some point in-between would be better than going all the way.

Replies from: ModusTrollens, sawyer
comment by Arjun Panickssery (ModusTrollens) · 2022-07-16T18:49:22.767Z · EA(p) · GW(p)

Tax evasion is a crime. Tax avoidance—legally reducing your taxable income—is good and more people should learn about it. You shouldn't unnecessarily "compensate the state" for things you don't want it to do.

there's some amount - your donations - which is allocated according to your flavor of expected impact; and another one - taxes - that's allocated by democratically chosen representatives in your country

This is right, and you should just minimize the amount you allocate to the state, whose effectiveness is very low.

Replies from: Guy Raveh
comment by Guy Raveh · 2022-07-16T19:27:13.683Z · EA(p) · GW(p)

I strongly disagree.

comment by sawyer · 2022-07-13T18:23:29.121Z · EA(p) · GW(p)

The relative value of taxes vs donations underlies a lot of EA thinking and doesn't get discussed much, so I'm glad you brought this up. I think it's important how one defines "evading taxes". If we grant the argument that "taxes are not your money" (which is plausible and appeals to me aesthetically), it's pretty critical to identify the "correct amount" of taxes which one owes. I might say the correct amount is whatever the tax authorities say I need to pay, which basically amounts to "whatever I can get away with". Or you might say a bunch of the normal loopholes aren't morally legitimate, and that the correct amount is "whatever your tax bracket says". Or if you're a tax protester, you might say one or taxes are not morally legitimate, and so the correct amount of taxes you owe is in fact less than the tax authorities say it is. 

My point is, establishing how much money I owe in taxes (and therefore how much of my income belongs to the state) is as much a political question as it is a legal or administrative question.

In my opinion (and it seems you agree) Jeff's proposal is sufficient far away from what most people consider "tax evasion" that it doesn't really run into the problem you're identifying. But I occasionally see other EA proposals that look closer to "steal money to buy bed nets".

Replies from: Guy Raveh
comment by Guy Raveh · 2022-07-13T18:54:10.792Z · EA(p) · GW(p)

Yeah, I basically agree.

I think there are two orthogonal axes here - one of property rights and "stealing", and one of the comparison between your group's concerns and your own. And the view that my own concerns are more important on the second axis often comes together with a view about the first one, that says taxes are mine as long as I manage to hold on to them.

But here since (the vast majority of people would agree) Jeff's suggestion is ok on the first axis, I wanted to highlight that this doesn't cancel the need to ponder on the second one.

Sometimes even when you do steal, it may end up being fine to prioritise your own concerns - e.g. if you're a poor person stealing from a store to feed your family. On the other hand, we wouldn't want everyone to do this. In the same way that we can't sustainably help the world if we go live in a tent and donate 95% of our money, we also can't strive to stop paying taxes and redirect all that money to bednets - which would be analogous, but on the level of society rather than the individual. So we need to somehow still drill it into ourselves and our philosophy that it's important to pay taxes.

This problem is even more relevant in other EA contexts right now - where a lot of the movement's money comes from the profits of companies in tax havens (the Bahamas). And this (rightfully) doesn't look good to an outsider. [Edit: this was claimed as false about FTX, and I may very plausibly indeed be wrong]

comment by Guy Raveh · 2022-07-13T19:21:43.093Z · EA(p) · GW(p)

This is where my lack of understanding in finance comes in. So I'll ask a concrete question - if I receive an FTX grant, where does the money come from? Presumably Bankman-Fried's donated money, which you're saying is from selling FTX shares and not from its profits? But then why's a company with very little profit worth so much?