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| Philanthropy |
Taxing Dilemma
Michael Seltzer
07/01/2004
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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.”
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