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DOESN'T ANYONE CARE ABOUT THE CHARITIES?
One other point on the effort to radically defang the estate tax. March saw a sort of strange argument over an Obama administration proposal to fund universal health care by lowering the tax exemption the rich could seek on itemized deductions from 35 percent to 28 percent. Huge furor. Max Baucus and Charlie Rangel quickly disavowed the plan. This, they said, just wasn't the time to harm charitable giving. Even the small slice of charitable giving that's really about the tax break.
Repealing the estate tax would also harm charitable giving -- and in the same way. It would make it less advantageous as a matter of taxation. In fact, it would do it rather more violence than anything the Obama administration was considering. The Center on Budget and Policy Priorities explains:
a meaningful estate tax serves as a strong incentive for giving. If taxable assets are subject to the estate tax at a 45 percent rate, a charitable donation of $100 costs the donor only $55, because the other $45 would otherwise have been paid in estate tax. Under the Lincoln-Kyl proposal to reduce the rate to 35 percent, that donation would cost the donor $65. Brookings economist and noted tax expert William Gale has testified that “reducing the top estate tax rate would have a significantly negative effect” on charitable giving.
The Lincoln-Kyl proposal would also reduce charitable giving through its increase in the estate tax exemption level, which would reduce the already small number of estates that are subject to the tax.
That's a 10 percent change in the rate, which eagle-eyed readers will recognize as a larger change than the seven percent envisioned by Obama. A Congress which rejected a seven percent change in the tax treatment of charitable deductions so poor people could see the doctor would have to be out of its mind to entertain a 10 percent disincentive so rich people could keep more of their money.
COMMENTS (4)
Its important to think of the charitable contribution debate this way. Would you rather have slightly less charitable contributions and universal health care or full charitable contributions and 47 million people uninsured?
I know my answer.
Posted by: phil | April 3, 2009 4:34 AM
Not sure I buy that higher tax rates encourage giving. It's more likely that higher estate tax rates encourage consumption and spending on legal/tax services to aviod the tax.
I'd like to see some data for countries that have much higher estate taxes and whether the wealthy in those countries give more or less to charity than the wealthy in the US. Since it's my understanding that charitable giving as a % of income is higher in the US than in other first world countries, I doubt the data would support it.
Broadly speaking, increasing the size of gov't through taxation discourages charitable giving.
Posted by: MBP | April 3, 2009 11:46 AM
When will we see an outpouring of op-eds from Washington insiders and conservatives about how changing the estate tax will harm charitable giving? Oh, wait, I think I know the answer: never. The estate tax debate operates in its own universe, where logic doesn't apply, only sheer political power and campaign contributions.
Posted by: meander | April 3, 2009 12:17 PM
Money is fungible, so in effect higher income and estate tax rates offer a huge subsidy to charitable giving.
With a 39.6% marginal rate, a dollar to charity from a multimillionaire in the last year(s) of life costs the heirs all of 15.4 cents. More if it's from qualifying dividends or capital gains, of course, but still a nice deal.
This means, oddly enough, that under more progressive income tax and estate-tax regimes the subsidy for charity by the morbidly rich exceeds 100%.
Posted by: paul | April 3, 2009 1:41 PM