Michael Seltzer
07/01/2004
Current discussions of tax policy highlight a crucial question for all of us concerned with human betterment and the civic fabric of our society: To what extent will changes in the estate tax affect charitable decision making?
This question carries a particular urgency. Since Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax has been gradually dwindling; the act eliminates it altogether in 2010. Although the tax is scheduled to return in 2011, many speculate that Congress will be hesitant to reinstate it. The estate tax—considered by many an effective catalyst for charitable giving—will be no more.
This tax was established in 1916 as part of an effort to lay the financial groundwork for the U.S. participation in World War I. Those who make bequests to charitable organizations in their estate plans receive a deduction, and this arrangement has historically benefited nonprofit organizations and the nation as a whole. Robert H. Frank, professor of economics at Cornell University, holds that the estate tax “stimulates charitable giving, reducing the need for tax-financed public services.”
Without the specter of assured taxation, will individuals continue to include charities in their estate plans? In their July 2003 study, Effects of Estate Tax Reform on Charitable Giving, Jon M. Bakija and William G. Gale, two prominent economists at the Urban-Brookings Tax Policy Center, assert that the elimination of the estate tax could cause charitable bequests to slip by 22 percent to 37 percent. They argue that it would dampen charitable giving during our lifetimes as well. “To put this in perspective,” they write, “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.”
Pure Altruists
For many of us, potential tax savings do influence whether
and how much we give both in life and upon death and, in growing numbers,
whether we will create grant-making foundations. Yet there are countless among
us who give without apparent concern for the consequences of taxation. These are
pure altruists in the nomenclature of philanthropic scholars.
For example,
using the royalties from their best-selling books Having Our Say: The Delany
Sisters’ First 100 Years and The Delany Sisters’ Book of Everyday Wisdom,
centenarians Bessie Delany and her sister, Sadie, created the Delany Sisters
Fund at the New York Community Trust. Grants from this fund help individuals,
families and communities striving to improve their lives. Another example is
Aaron Gural, founder of the prominent New York City realty firm, Newmark, who
based his decision to create a family foundation on a simple desire to make the
“world a better place,” a translation of the Hebrew precept, tikun
olam.
Since my first foundation posting in 1969, I have met many women and
men around the country and the globe like Bessie, Sadie and Aaron, who seek to
give back to society, and have created or contributed to existing foundations.
Most economists and other experts in philanthropy feel that, for most people, a
variety of factors—including both altruism and tax considerations—influence
charitable decision making. John Edie, a director at PricewaterhouseCoopers, and
former general counsel for the Council on Foundations, argues that the
statistical effects of the repeal of the estate tax on charitable giving are
actually mixed.
One thing is quite clear, however. We can neither afford any
diminution in our nation’s philanthropic traditions nor any slackening in our
resolve to address the issues of our time. The World Bank’s annual statistical
analysis, World Development Indicators 2004, reports that 21 percent of the
world’s people live on less than $1 a day. For the sake of common good, new
ranks of philanthropists need to discover the joy and satisfaction of giving to
ensure a better world and a healthy planet for today and tomorrow.
Michael Seltzer is the president of the New York Regional Association of Grantmakers. Its mission is to promote and support the practice of effective philanthropy for the public good.