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estimated that bequests would have dropped $3 billion, or 35 percent, to $5.5 billion in 1996 had the tax been repealed.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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