American charitable giving not unduly affected by estate taxes

On 9 June the U.S. House of Representatives passed an estate tax repeal bill with
an almost veto-proof 279 votes, including 65 Democrats. The opposition forces are gearing up for a Senate fight and are focusing on the impact of repeal on charities. They point out that a substantial amount of money is given to charity each year through charitable bequests.

According to just-released data from the American Association of Fund-Raising Counsel, last year gifts to charities from estates amounted to $15.6 billion, 8.2 percent of the $190.2 billion given to charity in 1999 (see figure http://www.ncpa.org/pd/gif/pd062600a.gif. Taxes reduce the cost of charitable giving since gifts are deductible both from taxable income and estates.

A 1998 study by U.S. Treasury Department economist David Joulfaian estimated that giving might decline. But in more recent papers for the National Bureau of Economic Research and the Brookings Institution, Joulfaian says two factors might mitigate the potentially negative effect on charitable giving.

The very wealthy give much less to charity during their lifetimes than the less wealthy, and considerably more to charity from their estates. This suggests that elimination of the estate tax will simply encourage the wealthy to give more during their lifetimes and less at death, and not necessarily reduce the total amount of their lifetime giving.

Also, charitable giving increases with income and wealth. While lower tax rates may raise the tax price of giving, they also increase net wealth and income, which raises giving.

In the prestigious Journal of Political Economy, William Randolph of the Congressional Budget Office found strong evidence that people adjust their lifetime giving in response to ups and downs in tax rates and income. He concludes that charitable giving responds much less to changes in the tax price, and much more to permanent changes in income.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, June 26, 2000.

For text http://www.ncpa.org/oped/bartlett.html

For more on Estate Tax http://www.ncpa.org/pi/taxes/tax63.html#2