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Issue Brief

May 31, 2006

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Repeal or Near-Repeal of the Estate Tax Would Substantially Harm Charitable Giving

Repealing the federal estate tax, or substantially cutting the top estate tax rate, would negatively affect charitable giving, harming vital services in Oregon that rely upon voluntary contributions, including health care, health research, higher education, and human services.

The estate tax encourages charitable giving

Download a copy of this issue brief:

Repeal or Near-Repeal of the Estate Tax Would Substantially Harm Charitable Giving (PDF)

Related materials:

OCPP issue brief (revised May 23, 2006) Permanent Repeal of the Estate Tax Would be Costly

The estate tax provides a significant incentive for charitable giving. Charitable giving not only reduces income taxes, but can help a family avoid estate taxes upon death, as well. The Congressional Budget Office (CBO) and others have found that the estate tax encourages wealthy individuals to donate considerably more to charity, since estate tax liability is reduced through donations made prior to and at death.

Charitable giving would decline if the estate tax were repealed

If the estate tax is repealed, charitable giving will decline. An assessment by the Congressional Budget Office found that if there had been no estate tax in 2000, charitable donations nationwide – both bequests and lifetime giving – would have been between $13 billion to $25 billion lower than they actually were. Charitable bequests would decline by 16 to 28 percent, or by $3 billion to $4 billion per year if the estate tax were repealed. In addition, lifetime charitable donations would shrink 6 to 11 percent, or by approximately $11 billion to $21 billion annually. To put these CBO estimates of the loss of funding to charitable organizations into perspective, grants made to the non-profit sector in 2001 by the 110 largest foundations in the U.S. totaled $10 billion.

The estate tax incentive for charitable giving increases with wealthier estates

Charitable bequests most commonly come from the wealthiest of the wealthy estates. For example, in 2001, the 301 decedents in the country with estates in excess of $20 million gave $6.8 billion to charity. These individuals represented fewer than one out of every 8,000 deaths that year and less than one percent (0.6%) of all estates paying the estate tax, but accounted for fully 42 percent of all charitable bequests, and made average gifts of $23 million. As wealth increases the likelihood of giving increases, as does the share of an estate given to charity.

Repealing the estate tax, or lowering the tax rate, makes charitable donations more expensive and less likely

The presence of the estate tax reduces the cost of charitable donations, which are 100% deductible. Removing the estate tax, or lowering the estate tax rate, would increase the cost of charitable donations. As a result, donors are more likely to react to repeal of the estate tax or to a substantial lowering of its rate by reducing giving than by using the tax savings to increase their giving (as repeal supporters often claim).

Posted in Federal tax.
More about: estate tax

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