Repealing the Estate Tax Would Plunge Charitable Giving

Then-President-elect Donald Trump is seen with his children during an election night rally, November 9, 2016.

House Republicans’ latest tax plan proposes reducing the number of estates that would pay the estate tax over the next six years and eliminating the tax entirely by 2024, giving away billions of dollars to the children of millionaires and billionaires—including President Donald Trump’s own children. President Trump has specifically highlighted the estate tax as a giveaway to the rich, reportedly saying, “The deal is so bad for rich people, I had to throw in the estate tax just to give them something.”

While President Trump’s claim that the tax plan is bad for rich people is utterly false—his tax plan is decidedly good for the wealthiest Americans—it is true that repealing the estate tax exclusively benefits them. What’s more, this handout to the ultrawealthy would not only increase inequality, it would also undermine America’s charities and faith organizations. New analysis by the Center for American Progress estimates that eliminating the estate tax would reduce the amount people give to charity in their wills by $7.8 billion in 2024.

Currently, wealthy individuals are incentivized to donate to charity in part because these donations are not taxed—whereas leaving that money to their heirs requires the estate pay taxes on amounts greater than about $5.5 million dollars for an individual or $11 million for a couple. These limits would double in 2018 under the House Republicans’ tax plan, giving the wealthiest estates tax cuts of up to $4.4 million, before the tax is eliminated entirely in 2024. The Senate’s tax plan also doubles the limits for the estate tax in 2018, meaning no taxes are paid on the first $11 million of an individual’s estate or $22 million of a couple’s estate. Reducing or eliminating the estate tax would change incentives to give, increasing the amount of money wealthy Americans give to heirs rather than to charities, creating and perpetuating dynastic wealth.

All kinds of charities would see giving through wills decline

Charitable donations gifted upon an individual’s death by their estate, also known as charitable bequests, accounted for 8 percent of charitable contributions in 2016, providing more than $30 billion to a variety of causes. The Congressional Budget Office (CBO) estimates that eliminating the estate tax could reduce charitable giving through wills by between 16 percent and 28 percent—and other studies have found even larger effects. When the estate tax was temporarily repealed in 2010, charitable bequests declined by 37 percent. (See Methodology)

All kinds of charities would suffer if the estate tax were repealed. Using the midpoint of the CBO estimates, CAP estimates that giving through wills to health-related charities such as the American Cancer Society would decline by $650 million in 2024, while giving through wills to religion-related charities—including local community houses of worship such as mosques, synagogues, and churches—would decline by $2.5 billion in 2024.

Charitable giving through wills would decline across the country

The impacts would be felt in every state. In charitable giving through wills alone, the wealthiest West Virginians would give $26 million less in 2024, while extremely wealthy people in Maine would give $37 million less.

A double bind for charities

Eliminating the estate tax would reduce not only charitable giving through wills, it would also significantly negatively affect overall charitable giving during an individual’s lifetime, as wealthy families typically plan over their lifetimes for eventual bequests.

The estate tax repeal also is not the only proposal in the latest conservative tax plan that would discourage charitable giving. For example, both the House and Senate tax plans would increase the standard deduction, a change that would result in an estimated decrease in charitable giving between $4 billion and $11 billion annually.

If these tax proposals were enacted together with President Trump’s budget proposals, charities would be hit hard on two fronts. President Trump’s budget proposed eliminating key community service programs, such as AmeriCorps, as well as deeply slashing programs that families rely on to maintain basic living standards such as Medicaid, Meals on Wheels, and job training. If President Trump and congressional Republicans had their way, they would repeal the Affordable Care Act and enact tax policies that hurt nonprofit health clinics; cut nutrition assistance for struggling families while undermining donations to food banks; and cut the part of the budget that funds disaster preparedness and cancer research at the same time as organizations such as the American Red Cross and American Cancer Association could feel the impacts of tax policy that reduces charitable giving through wills. These cuts would mean that charities would be confronted with an increased demand at the very moment their budgets are shrinking.

While this would be terrible for charities and their workers, it would be even worse for the people they serve. Despite U.S. House Speaker Paul Ryan’s (R-WI) suggestion otherwise, private charities that rely largely on volunteers cannot fill the void left by cuts to critical government services. President Trump’s tax and budget proposals would be a disaster not only for charities themselves but the millions of Americans that they serve and employ.

Katherine Gallagher Robbins is the director of family policy for the Poverty to Prosperity Program at the Center for American Progress. Rachel West is an associate director for the Poverty to Prosperity Program at the Center. Melissa Boteach is the vice president for the Poverty to Prosperity Program at the Center.

Methodology

Economists have estimated a range of possible impacts of the repeal of the estate tax on charitable bequests. As economists Jon Bakija and William Gale recount, studies have suggested charitable bequests could drop between 12 percent to 45 percent if the estate tax were repealed. Using decades of data, they estimate estate tax repeal would reduce bequests between 22 percent and 37 percent. When the estate tax was temporarily repealed in 2010, charitable bequests declined by 37 percent. CAP’s analysis employs the CBO estimates which are more conservative—that is, smaller—than most other researchers’ estimates. The CBO estimates that charitable bequests would decline between 16 percent to 28 percent if the estate tax were repealed. These ranges are relatively broad due to the variety of economic and behavioral factors involved. CAP’s estimates in this analysis relies on the midpoint of CBO’s estimated effects, a 22 percent decline in bequests if the estate tax were repealed.

Estimates in Table 1 are based on data from Giving USA, an annual report published by Indiana University’s Lilly Family School of Philanthropy, for charitable giving between 2012 and 2016. These data represent an average of five years of bequests. These estimates assume that bequests comprise the same share of total contributions across all types of charities.

Estimates for Table 2 are based on data from the Internal Revenue Service Statistics of Income tables from the years 2012 through 2016. These data represent an average of five years of bequests. Because these data only capture information reported on Form 706, which is only filed by estates large enough to be affected by the estate tax or those whose executors are transferring a decedent’s unused estate tax exemption to the surviving spouse, they do not include all charitable bequests. To address this issue, these data are scaled up to match total Giving USA five-year average bequest figures to capture the scope of giving from people across the income distribution. This analysis scales up all states by the same factor.

The data for both figures are presented in 2024 dollars to account for the fact that the House tax plan eliminates the estate tax in 2024, based on CBO projections of future inflation and Federal Reserve Bank of St. Louis data on the Consumer Price Index for Urban Consumers in previous years. The analysis assumes there will be no changes in state estate tax laws.