The Founders' Pledge Act

The problem

Every American startup is built on public equity that never appears on its cap table: federally funded research, federal courts that enforce its contracts, roads, spectrum, an immigration system that delivered half its engineers. The public de-risks the venture and holds no shares in it.

Many founders would happily fix that — a percent of equity at incorporation costs nothing and can become a fortune. But the tax code punishes early generosity. Donate shares at the seed stage and your deduction is measured at today's near-zero valuation, requires an expensive appraisal, and is capped against income you don't have yet. So rational founders wait for the IPO, and most good intentions die somewhere between Series A and the liquidity event. Pledge 1%, the voluntary movement, has signed up thousands of companies precisely because the intent exists — the plumbing doesn't.

The proposal

Create a statutory election — the Founders' Pledge — for gifts of private company stock to the American Permanent Fund (№ 001) or to any qualified 501(c)(3) endowment:

Give the shares when they are cheap. Take the deduction when they become real.

A founder who donates equity at formation pays nothing, files nothing beyond a one-page election, and receives no deduction at the time of the gift. When the Fund actually sells the shares — at acquisition, IPO, or later — the founder's charitable deduction is measured by the realized proceeds, usable over the following ten years, capped at a lifetime maximum.

How it would work

• The gift is irrevocable at formation; the shares vote with management until liquidity, so pledges never threaten founder control.
• No appraisals, ever. The deduction equals cash the endowment actually received — which deletes the valuation-gaming that plagues charitable deductions of private assets today.
• A lifetime deduction cap keeps the benefit meaningful for a YC founder and irrelevant as a loophole for a hedge fund.
• Gifts to the American Permanent Fund get a modest sweetener: the deduction applies against ordinary income, not just capital gains — the nation's endowment should be the most attractive shelf.

The numbers

Roughly 5 million new employer businesses form in America each year; venture-backed companies alone create hundreds of billions of dollars in new equity value annually. If pledges captured even one-half of one percent of realized venture outcomes, the Fund would receive several billion dollars a year of compounding assets — at a revenue cost far smaller, because most of those gains would otherwise never be taxed at all: held until death, they pass through the step-up in basis untouched.

The honest objections

"A tax break for the rich." It is a tax break conditioned on giving the asset to everyone. The founder keeps a deduction; 340 million citizens keep the upside. Compare the status quo, where the same shares pass to heirs with the gain erased. If we must choose which loophole to live with, choose the one where the public ends up owning the equity.

"The revenue cost." Real but self-limited: the deduction is capped, deferred for years, and triggered only by cash the public endowment actually banked. Treasury scores the cost against gains that today are largely never realized for tax purposes.

"Charities will object to the Fund competing for gifts." The election covers qualified charitable endowments too. Universities have accepted founder stock for decades; this simply extends working plumbing to founders at the stage when generosity is cheapest.

"Won't companies game the valuation?" They can't — there is no valuation. The deduction is measured at exit, in cash, by what an arm's-length buyer actually paid. This proposal has fewer abuse surfaces than current law, not more.

Sources

• Pledge 1% (pledge1percent.org)
• IRS Publication 526 (Charitable Contributions), current-law treatment of appreciated property
• Census Bureau, Business Formation Statistics (census.gov)