tax policy center
publications
HOME | TAX TOPICS | NUMBERS | TAX FACTS | LIBRARY | BRIEFING BOOK | EVENTS | LEGISLATION | PRESS | TAXVOX Blog | About Us help get RSS feed

Advanced Search

by Topic:

by Author:

by Type:

by Date Range:
  From last wks

     

library

Effects of Estate Tax Reform on Charitable Giving

Jon M. Bakija, William G. Gale

Published: July 10, 2003
Availability:
 PDF |  Printer-Friendly Version

Share:  Share on Facebook Share on Twitter Share on LinkedIn Share on Yahoo Buzz Share on Digg Share on Reddit

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

No. 6 in the Series, "Tax Policy Issues and Options"

This brief was originally published June 23, 2003 in Tax Notes Magazine, published by TAX ANALYSTS.

Note: This report is available in its entirety in the Portable Document Format (PDF).


Since 1916, the United States has imposed a tax on the estates of the wealthiest individuals. The 2001 tax cut reduces the estate tax over time, and then repeals it as of 2010, only to reinstate it in 2011. Because politicians are unlikely to allow this pattern of changes to occur, estate tax reform will return to the policy agenda in the near future.

One of the most important issues in assessing reform options is the impact on charitable giving. The estate tax encourages charitable giving at death by allowing a deduction for charitable bequests. It also encourages giving during life, as explained below. But 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.

We find that estate tax repeal would reduce charitable bequests by between 22 and 37 percent, or between $3.6 billion and $6 billion per year. Previous studies are consistent with this finding, and also imply that repeal would reduce giving during life by a similar magnitude in dollar terms. To put this in perspective, a reduction in annual charitable donations in life and at death of $10 billion due to estate tax repeal implies that, each year, the nonprofit sector would lose resources equivalent to the total grants currently made by the largest 110 foundations in the United States.1 The qualitative conclusion that repeal would significantly reduce giving holds even if repeal raises aggregate pre-tax wealth and income by plausible amounts.

Notes

1. Private communication from Jeff Krehely, National Committee for Responsive Philanthropy, based on analysis of data from the National Center for Charitable Statistics 2001 Private Foundation file.

Note: This report is available in its entirety in the Portable Document Format (PDF).