NCPA - National Center for Policy Analysis

Philanthropy And The Estate Tax

June 6, 2001

There is considerable controversy about the effect of abolishing the estate tax on charitable giving and bequests to nonprofit organizations. For example:

  • A recent Treasury Department study concluded that repeal would cut charitable contributions by $5 billion to $6 billion a year.
  • Another recent study by several nonprofits estimated that bequests would have dropped $3 billion, or 35 percent, to $5.5 billion in 1996 had the tax been repealed.
  • Independent Sector, a coalition of 750 nonprofits, foundations and businesses, predicts a decrease in bequests of between $1.5 billion and $5 billion, based on 1999 levels, if the tax is abolished.

However, other evidence calls these estimates and predictions into question.

  • The Treasury Department's Office of Tax Analysis found that only one donor in five seeks to minimize the impact of the estate tax by making a charitable bequest.
  • Charitable giving has remained relatively constant as a percent of individual disposable income for the last 40 years, suggesting that disposable income rather than taxes is the main factor influencing giving.
  • Independent Sector estimated that giving would decline by $8 billion in 1987 because the Reagan tax cuts would raise the after-tax cost of giving, but giving instead increased by $6.4 billion.

The estate tax raised only $20 billion in 2000, and many economists estimate that the Internal Revenue Service spends about the same amount to ensure compliance with the estate tax law.

Source: Daniel T. Oliver, "The Estate Tax: Will Its Repeal Hurt Nonprofits?" Alternatives in Philanthropy, May 2001, Capital Research Center, 1513 Sixteenth Street, N.W., Washington, D.C. 20036, (202) 483-6900.


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