January 28, 1999 | Read Time: 3 minutes
A long-debated proposal that would eliminate the tax deduction for charitable bequests appears to be gaining momentum in Congress, leading some fund raisers to worry about a significant decline in major gifts from the estates of wealthy donors.
Nearly 200 House members, almost all of them Republicans, are co-sponsoring a bill by Rep. Christopher Cox of California that would repeal federal estate and gift taxes and eliminate the accompanying deduction for charitable bequests. The bill came on the heels of a report last month by the Congressional Joint Economic Committee that analyzed the economics of the estate tax. The report concluded that “the deduction for charitable bequests stimulates little or no additional giving” — a position, some fund raisers contend, that ignores the billions of dollars that donors do leave to charity.
A report on major tax-restructuring proposals by Price Waterhouse and the law firm of Caplin & Drysdale, in Washington, concluded that abolishing the estate tax would have reduced charitable bequests in 1996 by about $3-billion out of an estimated $7-billion.
The study, commissioned by Independent Sector, the Council on Foundations, and some 20 other groups, also concluded that the impact of the estate-tax deduction on bequests could grow as members of the baby-boom generation inherit trillions of dollars from their parents.
Estates under $650,000 are not required to file an estate-tax return. The filing threshold is scheduled to rise to $1-million by 2006.
Proposals to eliminate the estate tax have failed in the past, and many observers believe the current effort would not survive a White House veto. But the possibility of repeal already is stirring concern in some non-profit circles. On an Internet discussion list this month, one lawyer wrote that “all of us in the non-profit sector need to be ever vigilant and do whatever we need to do to preserve” tax deductions on charitable gifts.
Major charity lobbying groups, however, have not mobilized against the Cox proposal so far.
Independent Sector, a national coalition of charities and foundations, has no position on the bill, said Matthew Hamill, vice-president for public policy.
Charitable Accord, a Washington lobbying organization for charities, has not yet met to evaluate the measure. The National Committee on Planned Giving, which represents fund raisers and estate-planning professionals, does not have an official position on the bill but is “carefully monitoring” its progress, says Sandra Kerr, staff liaison for government relations.
Repeal of the estate tax has long been a favorite cause among conservatives. They argue that the tax forces the sale or closure of family businesses, encourages wasteful consumption instead of savings, and helps drive up interest rates while raising little if any net revenue for the federal government.
Besides eliminating gift and estate taxes, the Cox bill would repeal the tax on so-called generation-skipping transfers. Those taxes apply to non-charitable gifts that “skip” a generation, such as trusts that grandparents leave to grandchildren.
Some charity officials say that eliminating the estate tax — and its accompanying charitable deduction — would make little difference to many donors.
Thomas W. Cullinan, executive director of gift planning for the University System of Maryland, sees a “nominal effect, if any.”
Mr. Cullinan points out that only a fraction of Americans have estates that are valued high enough to require the filing of an estate-tax return.
In addition, he cites studies showing that donors who give to colleges tend to be motivated not by financial considerations but by a desire to support the mission of the institution.
But many charity experts believe that the loss of the estate-tax deduction could be significant.
“It doesn’t mean that every single taxpayer would alter his or her charitable giving,” says Emanuel J. Kallina II, a Baltimore tax lawyer. But, he says, “a tremendous number of people would alter the amount they give.”
