Opposition to Eliminating the Estate Tax

Official Statement of Philanthropy New York on:

Opposition to Eliminating the Estate Tax

The estate tax is a complex issue but an important one for the nonprofit sector because of its impact on charitable giving. According to the Congressional Budget office, eliminating the estate tax would decrease donations to nonprofits. The CBO has also found that the estate tax leads affluent individuals to donate far more than they otherwise would, because such donations sharply reduce estate tax liability, and that repealing the estate tax would reduce charitable bequests by 16 to 28 percent.  For this reason, many nonprofit advocacy organizations have opposed the elimination of the estate tax.

The federal estate tax is the tax on property (cash, real estate, stock and other assets) transferred from deceased persons to their heirs. Analysis by the Center on Budget and Policy Priorities says that, currently, the tax is permanently set with a $5.12 million inflation-indexed individual exemption (yielding a $5.45 million exemption for 2016) and 40 percent top rate. CBPP says that only the wealthiest estates pay the tax because it is levied only on the portion of an estate’s value that exceeds a specified exemption level -- $5.45 million per person (effectively $10.9 million per married couple) in 2016.

According to research conducted by The Brookings Institution, repeal of the estate tax:

“Would reduce charitable bequests by between 22 and 37 percent, or between $3.6 billion and $6 billion per year. Previous studies are consistent with this finding, and also imply that repeal would reduce giving during life by a similar magnitude in dollar terms. To put this in perspective, 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. The qualitative conclusion that repeal would significantly reduce giving holds even if repeal raises aggregate pre-tax wealth and income by plausible amounts.”

Importantly for the nonprofit sector, the existence of the estate tax functions as a strong incentive for charitable giving, and the Congressional Budget Office has stated that raising the amounts exempt from the estate tax has had the effect of reducing charitable giving, in addition to the loss of revenue to the federal government. According to research published jointly by Harvard University and the Russell Sage Foundation, the existence of the estate tax has historically played an important role in motivating donors with large estates to establish private foundations, and therefore expand the philanthropic sector and increase long-term charitable giving. The continued existence of the estate tax therefore directly effects creation of new foundations and the health of the philanthropic sector. Therefore,

Philanthropy New York opposes the elimination of the estate tax, and opposes any future increases in the exemption level beyond the current inflation-indexed rate.

Date of recommendation by the Public Policy Committee: October 18, 2017
Timeframe of open member commentary period: October 26- November 10, 2017
Date of official approval by Board of Directors: November 15, 2017