Passing Up Pay

July 11th, 2022
ea, money
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:

  • 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. People have floated the idea that EA should have a norm against donating to your employer.

  • Your employer might say they are willing to pay the larger amount, but if it actually came down to it they wouldn't follow through. Perhaps they think they can get someone else to do the job for closer to what they had been paying you, or they just don't have the funding. One way this could happen is that they would have been fine with the larger amount initially, but over time that no longer makes sense for the organization, and no one notices because money that doesn't need to be spent feels less like real money. The more pay you are waiving, the larger an issue this is.

  • If you know you're costing your employer less, you might hold yourself to a lower standard in your efforts. This would be ignoring major costs like you taking a spot that could go to someone more productive, and the way many top organizations are primarily constrained by management capacity, but I could still see someone falling into this.

  • If you've pledged with Giving What We Can, it was initially not clear to me whether a voluntary and easily-reversed decision to waive pay would count. I wrote to, however, and they said it would.

  • It's less legible. When you donate to a 501(c)(3) you get a tax receipt ("no goods or services were provided in exchange for your contribution" etc) and have something clear to list publicly. But if you instead waive pay the best you can do is write something up explaining what you're doing and get a document from the organization confirming it. It's a lot less clear! Some situations where this could be a problem:

    • In trying to get a mortgage or other loan: "I understand sir, but for the purposes of this loan application what matters is what they've actually been paying you."

    • In media: "These so-called 'effective altruists' claim to donate 50% of their income, but we've reviewed their finances and they aren't actually donating anything."

  • Social Security tax, unlike the other taxes, is nominally to fund your retirement. Paying less here means lower Social Security benefits later: how worried should we be about this? Even if we assume that Social Security is still paying out in full when you're ready to retire, however, it's far less efficient than investing in index funds: it only takes ~$3k/y in 401k contributions to give a higher retirement income than $19k/y in Social Security taxes [1].

  • Money going to the government as tax pays for a lot of valuable things. But it's nowhere near as valuable as funding for, say GiveWell's top charities, or other organizations that are at least as beneficial.

  • As with taxation, if you have other means-tested things in your life such as college or affordable housing these two cases are very different.

  • If your opinion of your organization decreases, requesting to resume being paid your full salary could appear as disloyal or not being a team player. I would hope that this would not be a concern at the kind of organization I'm talking about here, but an organization can be excellent in terms of its impact on the world while still having harmful aspects to its internal culture.

  • It makes discussions around raises confusing. Let's say your organization would be willing to pay you $100k, but you actually only take $75k. After some time, in which you gain experience and become more valuable to the organization, you think they should be willing to pay you $120k, of which you would take $90k (still 75%). Asking for a raise when you essentially have the power to give yourself an equivalent one is very strange!

  • It's much harder to pressure people into making donations than it is into accepting lower pay. For example, imagine funders start caring about employees waiving pay, treating it as a signal of how confident employees are in the organization's performance. It would be really easy for this to filter down into pressure on individual employees and build a harmful culture. (To be clear, I don't think funders should do this. Not only does it have harmful cultural effects, but it isn't even a strong signal: since this is uncommon behavior, it tells you much more about whether the organization has a culture of pay waiving than it does about employee views.)

  • I've laid this out as two options that leave you equally well off. You could instead set it up as two options that have equal altruistic value but where one leaves you with more money. While I agree one could do this, I don't think we should.

  • While don't have the full funding details for either my work or Julia's, my impression is that they are the kind of project that multiple major EA funders (ex) would be happy to support. This means that the effect of donating to them is pretty tricky. Whichever funder would otherwise be covering this part of their funding gap would instead have more money available for their other grants. Since I generally like the way these other EA funders allocate their giving, I think this is fine. Note that this complexity around funding replaceability isn't particular to donating through forgone pay; it's just as much of an issue if you donate money.

  • There is some amount of undercounting here: if someone is considering giving up a $400k job earning to give to do direct work at $200k they're essentially already contemplating donating 50% in foregone compensation. If they then feel like they would need to waive additional pay they may not be willing to make this switch, even if it would be much more impactful than continuing to earn to give. This isn't an issue with waiving pay, however, but instead is about whether we should have a culture where EAs who are taking pay cuts to do directly valuable things also donate.

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.

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