President Donald Trump along with top GOP lawmakers have proposed ending what they call the death tax — a 40% 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% of estates in 2015. Although Republicans call the levy un-American and say it penalizes small businesses and farmers, data from 2013 show that just 3% 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.”
In 2010, when the estate tax was temporarily repealed, gross charitable bequests in IRS tax filings totaled $7.49 billion — a 37% drop from $11.9 billion the previous year.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 life insurance industry sells products to help wealthy people arrange their assets to stay under the estate tax threshold.