Killing estate tax could kill charitable giving

In 2010, when the estate tax was temporarily repealed, gross charitable bequests in IRS tax filings dropped 37 percent, and some fear it could happen again

Aug 25, 2017 @ 11:31 am

By Bloomberg News

Most Republicans support killing the estate tax as part of a tax overhaul, but doing so could have dire consequences for something else conservatives cherish -- charitable giving.

President Donald Trump along with top GOP lawmakers have proposed ending what they call the death tax -- a 40 percent levy that's applied to estates worth more than $5.49 million for individuals and $10.98 million for married couples. The tax affected only 0.2 percent of estates in 2015. Although Republicans call the levy unAmerican and say it penalizes small businesses and farmers, data from 2013 show that just 3 percent of estates subject to the tax were businesses and farms, according to the Tax Policy Center.

Charitable organizations have focused their lobbying efforts on how the GOP plan for doubling the standard deduction could affect charitable giving. They argue that a higher standard write-off may keep filers from itemizing deductions, which could lessen any tax incentive for charitable giving. Abolishing the estate tax -- a move that would be popular among many charities' largest donors -- so far hasn't engendered the same level of opposition, despite a similar effect on giving.

"It clearly has a very, very significant negative impact on charitable giving," said Hadar Susskind, who runs government relations for the Council on Foundations, a philanthropic network that encourages charitable giving. "It's not all done for tax benefits, but it's also really clear that's an important driver."

'POLICY NUANCES'

In 2010, when the estate tax was temporarily repealed, gross charitable bequests in IRS tax filings totaled $7.49 billion -- a 37 percent drop from $11.9 billion the previous year. The tax returned in 2011, and charitable bequests soared to $14.36 billion.

William Gale, co-director of the Urban-Brookings Tax Policy Center, said there's "no argument" that the estate tax leads to higher charitable giving. "Charitable contributions are highly concentrated among very wealthy households," he said. "It encourages people to give during life as well."

Susskind said the foundations council is speaking with lawmakers including chief House tax writer Kevin Brady to explain how cutting the top tax rate, increasing the standard deduction and removing the estate tax could reduce charitable giving. Susskind said Brady has been willing to hear suggestions about ways to keep charitable giving intact.

"Killing the death tax is the perfect example of why tax reform is hard," said Sage Eastman, a Republican strategist and former counselor to the Ways and Means Committee. "It sounds great and has a good coalition behind it, but then you run into policy nuances like how it impacts the insurance industry and charitable giving."

The insurance industry sells products to help wealthy people arrange their assets to stay under the estate tax threshold.

CONSERVATIVE SUPPORT

While most GOP members support repealing the estate tax, there may be a couple of outliers. Senator Susan Collins of Maine voted against a nonbinding budget measure to scrap the estate tax in 2015. And Senator Jeff Flake, the Arizona Republican who's been critical of the president, said he questioned whether ending the estate tax would be that stimulative for economic growth.

Still, for some lawmakers, like Representative Jim Jordan of Ohio, the decision isn't complicated. "I want to preserve charitable contributions, but I definitely want to get rid of the estate tax," said Jordan, a founder of the conservative House Freedom Caucus. "It's peoples' money. It's their families' money. It's not the government's money."

"I think the principle behind repeal of the estate tax overrides whatever second order consequences there might be with respect to current estate planning strategies," said Rohit Kumar, a former deputy chief of staff to Senate Majority Leader Mitch McConnell.

COST OF GIVING

House Ways and Means Chairman Brady told reporters last week that Republicans are exploring "fresh ideas" to boost charitable giving, but didn't specify any.

"We want Americans to give more to their church, to the scouts, to the causes they believe in," Brady said during a tax event at the Reagan Ranch in California.

And he said that if Americans have more money as a result of a tax overhaul, they'll give more to charity.

Una Osili, an economics professor at the Lilly Family School of Philanthropy at Indiana University, disputes that notion. Osili said the amount of money donors give is dependent on their income and the cost of giving -- so incentives to reduce that cost will increase donations.

"This is a conflict, no question," for Republicans, Gale said. "But I don't know if they'll let the charitable sector get in their way."

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 30

Conference

Adviser Compensation & Staffing Workshop

The InvestmentNews Research team will present exclusive data and highlights from its bellwether benchmarking study that will identify best practices for setting and structuring compensation and benefits packages throughout your... Learn more

Featured video

INTV

Why broker-dealers are on a roll

Deputy editor Bob Hordt and senior columnist Bruce Kelly discuss last year's bounce-back for IBDs.

Latest news & opinion

Things are looking up: IBDs soared in 2017

With revenue up, interest rates rising and regulation easing, IBDs are soaring.

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

Cadaret Grant acquired by private-equity-backed Atria

75-year-old owner Arthur Grant positions the IBD for the 'next 33 years.'

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print