Ducking Debate on Repeal of Estate Tax

PABLO EISENBERG

When President Clinton listed his reasons for wanting to veto legislation to eliminate the estate tax, charity was among his key concerns. Non-profit groups, he said, stand to lose $5-billion to $6-billion a year if donors don´t have any incentive to make gifts as a way to circumvent the estate tax.

While it is commendable that the president mentioned the impact on philanthropy, neither he nor members of Congress have heard all that much opposition to the estate-tax legislation from non-profit groups.

It is surprising that charitable organizations have been so silent on an issue that not only could do direct harm to their own finances but also goes so strongly against the mission of any organization whose purpose is to improve our democracy and to promote economic and social justice.

Part of the reason charities have been so silent is that the entire movement to repeal the estate tax has been a stealth initiative. The effort was carefully conceived, well organized, and above all, designed to provoke little attention so that average citizens wouldn´t realize the special benefits that members of Congress were trying to give to the nation´s wealthiest citizens.

Even though it seems a certainty that the Congressional vote to eliminate the tax won´t survive a presidential veto, this issue is not going away — and the reluctance that charities have shown in taking a stand thus far is likely to weaken future efforts to preserve the tax.

The estate tax might be seen by some as a cause that primarily affects elite non-profit institutions — the universities, museums, and philanthropic foundations that are usually the prime beneficiaries as wealthy people figure out that charity offers an excellent alternative to forcing their heirs to pay big estate taxes. Those organizations will most definitely suffer a loss in donations and bequests if the estate tax is abolished, as several studies have documented.

But that is only part of the concern. Non-profit organizations that focus on poverty, social welfare, social services, health care, housing, the environment, urban problems, children, and myriad other issues will also be severely hurt. They should make preservation of the estate tax a priority.

Those organizations need to recognize that repeal of the estate tax will be costly to both federal and state governments. The U.S. Treasury will eventually lose more than $50-billion a year, while state governments also will be deprived of significant sums because they base their own taxing of estates on the federal system. The bottom line will be that non-profit groups of many types will have a tough time obtaining more government support for their constituents and causes.

While the costs to the Treasury and the potential loss of charitable bequests are clearly the most direct reasons for non-profit organizations to care about the estate tax, there is an important moral issue at stake. Repeal of the estate tax would seriously undermine the progressive nature of our tax code by granting additional tax relief to the wealthiest Americans.

The gap between the very rich and the poor continues to grow. Eliminating the estate tax would further widen that disparity, something that no organization dedicated to improving society should support.

The bill passed by the House and Senate this summer would provide a bonanza to the wealthiest 1 percent of American taxpayers: People whose incomes exceed $300,000 a year would receive 91 percent of the benefits.

That said, the estate tax does potentially place undue burdens on small family farms and small businesses. Such inequities could easily be cleared up without undermining the basic goal of the estate tax — that those who make great wealth in their lifetimes should pass a share of it back to the government to use for the good of the entire nation.

The president and the Democratic leadership in Congress offered a measure that would deal with the inequities, but it was rejected by Republican lawmakers who preferred to jettison the entire estate tax rather than just fix it.

Few non-profit organizations, especially at the local and regional levels, have been aware of the estate-tax debate, or even realize how close it could come to becoming law. Charities have not been particularly well served by some of the large national umbrella organizations like the Council on Foundations or Independent Sector, which have been sitting on the sidelines, slow to get out information about the estate-tax issue or to take a position out of fear of alienating wealthy members who support the estate-tax repeal.

Even though many of the council´s foundation members have benefited from the existence of the estate tax, it is to be expected that the organization would want to avoid taking a position on the tax that would alienate wealthy foundation trustees.

Independent Sector, however, is another matter. Many of the major national charities it represents — and their constituents — have a big stake in maintaining the tax, for reasons of both principle and self-interest. Independent Sector has practiced the art of fence sitting, not leadership. Let´s hope it will, as Lady Macbeth suggested, screw its courage to the sticking post and rethink its position.

There is a disturbing irony in the Congressional effort to eliminate estate taxes, one that non-profit groups must point out whenever possible.

At a time when our legislators have cut back on domestic safety-net programs and can´t find the money for programs that support urgent human needs and rebuild the crumbling physical infrastructures of so many cities and towns, they have found the time and energy to fight for another welfare program for the very rich. Have they forgotten that one of every five children is growing up poor, that over 47 million Americans are not covered by any health insurance, or that there is an enormous shortage of low-cost housing?

It is time for non-profit groups to make those issues central, and to tell our legislators to stop wasting their time worrying about tax breaks for those who need them the least. Preserving the estate tax for our wealthiest citizens is good for democracy and for the country.

Pablo Eisenberg is senior fellow at the Georgetown University Public Policy Institute and vice-chair of the National Committee for Responsive Philanthropy. He is a regular contributor to these pages.