NCPA - National Center for Policy Analysis

Does the Estate Tax Increase Giving?

September 24, 2003

The estate tax encourages charitable giving in life and at death by allowing a deduction for charitable bequests. However, "the tax reduces charitable gifts by reducing the amount of wealth decedents can allocate to various uses. The net impact of these effects is ambiguous in theory," say analysts Jon M. Bakija and William G. Gale.

  • In 2001, charitable contributions totaled $212 billion, of which living individuals gave 76 percent, bequests accounted for 8 percent, foundations accounted for 12 percent, and 4 percent was given by corporations, according to the AAFRC Trust for Philanthropy 2002.
  • The estate tax applies to net estates in excess of $1 million, and charitable bequests, amounting to $16.1 billion, or 7.5 percent of the value of gross assets, appeared on one-sixth of estate tax returns.

The Urban-Brookings Tax Policy Center analysts estimate that repealing the tax would reduce charitable bequests by between 22 and 37 percent, or between $3.6 billion and $6 billion per year. But is that true?

NCPA analysts note that these estimates do not include the reduction in wealth reported on estate tax returns due to tax planning to avoid the 41 to 49 percent death tax. By some estimates, two-thirds of the wealth of the nation's richest families goes untaxed. A reduction in such legal tax avoidance, say supporters of permanent repeal, would compensate for the reduced percentage of giving motivated by tax considerations.

Source: Jon M. Bakija and William G. Gale, "Effects of Estate Tax Reform on Charitable Giving," Tax Policy Issues and Options No. 6, July 2003, Urban-Brookings Tax Policy Center.

For a Bruce Bartlett estate tax study


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