Repeal of the United States' federal estate tax, scheduled under current law to occur in 2010, is likely to result in a substantial reduction in charitable giving and bequests by wealthy individuals in the US, according to the Center for Budget and Policy Priorities (CBPP), a progressive think tank.
In its analysis of recent findings by the nonpartisan Congressional Budget Office (CBO), the group concludes that charitable donations and bequests could fall by as much as $25 billion per year in the wake of repeal of the estate tax. The estate tax encourages affluent individuals to donate more than they otherwise would, since estate tax liability is reduced through donations made both during life and at death. Such giving from individuals amounted to $196 billion in 2000.
Federal tax cuts proposed by the Bush Administration and enacted in 2001 provide for the gradual phase-down of the estate tax, and its elimination in 2010. The 2001 law set the amount exempted from the estate tax at $1 million ($2 million for married couples) in 2002; $2 million ($4 million for married couples) in 2006; and $3.5 million ($7 million for married couples) in 2009. It also decreased the top tax rate gradually from 55 percent to 45 percent in 2009.
In 2010, the estate tax is scheduled to be eliminated for one year, then revert to the pre-2001 tax structure, with a $1 million exemption ($2 million for married couples). Yet few observers expect this to occur -- this provision is generally viewed as budgetary sleight-of-hand to hold down the official cost of the 2001 tax cut package.
The Bush Administration is now seeking to make the 2001 tax cuts permanent, including the repeal of the estate tax. According to CBPP, the likely compromise alternative will be reform, rather than outright repeal, of the estate tax. Many reformers favor making permanent the estate tax policy that will be in place in 2009, with exemptions set at $3.5 million ($7 million for married couples).
Bill Gates, Sr., co-chairman of the Bill & Melinda Gates Foundation and a leading opponent of estate tax repeal, carried his message to Washington during the 2004 Congressional debate on reform proposals. "We want responsible reform that raises the wealth exemption, but doesn't greatly diminish the revenue the estate tax generates," said Gates. "If we settle for accelerated repeal or irresponsible reform, we're going to leave another kind of inheritance to the next generation: deep and distressing debt."
The CBO study concludes that a reformed estate tax would still serve as an important tool in encouraging charitable contributions, and would reduce such giving by about $1 billion to $6 billion, compared to the $13 billion to $25 billion reduction in donations projected to occur through repeal of the estate tax. (For more details, see the CBO report, The Estate Tax and Charitable Giving (July 2004) at www.cbo.gov and the Center's analysis at www.cbpp.org/8-3-04tax.htm.)
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