Mr. Chairman and Members of the Committee:
Thank you for inviting me to testify today. My testimony focuses on the ways in which
estate tax reform or repeal would affect charitable giving. This written testimony briefly
summarizes two articles I have co-authored on the topic. These articles are attached as
appendices to the testimony.
The main point of my testimony is simple: Repealing the estate tax or cutting the top rate
in the estate tax would have a significantly negative effect on charitable giving. This conclusion
is the product of several important facts.
First, the estate tax encourages charitable giving at death by providing a deduction for
charitable bequests. Less obviously, it also encourages giving during life. Charitable
contributions made during life gain a double tax advantage: They reduce income taxes and they
remove the assets from the estate and so avoid estate taxes as well. Aggregate giving from living
individuals far exceeds aggregate charitable bequests. As a result, even if the estate tax is only a
relatively minor determinant of charitable giving while alive, the impact of repeal on giving
while alive could be a large component of the overall impact.
Second, a variety of different kinds of research implies that estate tax repeal 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
represents a 5 percent decline in overall charitable giving and 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.
View full testimony — (PDF - 291KB)