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The Estate Tax and Charitable Giving
The estate tax is an important motivation for charitable giving.
People do not give to charity simply because of the tax code. But the estate tax does encourage an already charitably oriented person to give more, since charitable contributions are fully deductible. Charitable bequests are the second largest type of deduction taken for estate tax purposes, second only to the full deduction for assets left to a surviving spouse.
Eliminating the estate tax will cost billions in lost charitable bequests.
A 2003 study by the Urban-Brookings Tax Policy Center found that estate tax repeal would reduce annual charitable giving in life and at death by about $10 billion, the equivalent of eliminating all current grantmaking by the country’s 110 largest foundations.
The estate tax leverages a significant amount of charitable contributions each year.
In 2001, estate and gift tax filers paid approximately $28.4 billion in taxes. But they also made charitable bequests of more than $16.1 billion, for a total annual infusion of $44.5 billion to address public needs.
The estate tax is an especially important incentive for the wealthiest Americans to give to charity.
In 2001, estates larger than $5 million represented just 5% of all estate tax filers. But those estates gave 64% of the value of all charitable bequests, more than $10 billion in one year alone. Completely repealing the estate tax, rather than raising the basic exemption to $3.5 million or $5 million, would remove this important incentive for the wealthiest Americans to make charitable bequests.
Income-earners tend to be more charitably generous than wealth-inheritors.
We can’t assume that heirs will be as charitable as the people who earned the money in the first place. One study found that for every thousand dollars of earned wealth, an entrepreneur will give $4.56 to charity. For every thousand dollars of inherited wealth, an heir will give only 76 cents.
The estate tax has played a crucial role in creating America’s thriving non-profit sector.
The estate tax encouraged the creation of our major twentieth-century foundations ?Hughes, Mellon, Ford, MacArthur, Johnson, Pew, Packard, and others. It has also spurred donations of art collections to museums and the endowment of universities and hospitals. Repealing the estate tax threatens this entire legacy.
Independent Sector opposes outright repeal.
Independent Sector is a coalition of 700 national nonprofit organizations, foundations, and corporate philanthropy programs that represents tens of thousands of charitable groups across the nation. In 2002, the coalition reaffirmed that “the estate tax is a proven incentive for the wealthiest Americans to give to charitable organizations.?Independent Sector also believes that an estate tax serves to “check the accumulation of vast sums of inherited wealth in the hands of a very few.?
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