Plans by President Bush to save the wealthiest 2 percent of Americans $236 billion over the next 10 years by repealing gift and estate taxes also could trigger a huge drop in charitable deductions , tax experts and nonprofit officials say.
Because gifts to foundations reduce estate taxes, repealing the tax would eliminate a big rationale for foundations and hurt charities, The New York Times reported Jan. 29.
With no estate tax, experts told the Times, wealthy people likely would create trusts on which they’d owe little or no tax.
The trusts would be required to make much smaller gifts to charity than are private foundations, which must contribute 5 percent of their assets each year.
And if those trusts were created in any of 10 states that allow trusts to exist forever, families could sidestep big taxes on their wealth indefinitely.
In an article for the journal Tax Notes on ways to avoid the income tax that would be created by repeal of the gift and estate tax laws, co-author Jonathan G. Blattmachr, an estate tax lawyer at Milbank, Tweed, Hadley & McCloy in New York, predicts a 90 percent drop in charitable giving at death.
Co-author Mitchell Gans, a professor of tax law at Hofstra University, says the drop in giving could be less because it is not taxes but issues of status and concern for a charity that prompt many bequests.
A national study commissioned by Independent Sector, a membership and advocacy group, found that repeal of the estate tax would reduce charitable bequests by roughly one-third, The Baltimore Sun reported Jan. 29.
Based on 1999 figures, that would mean $5 billion less in charitable bequests a year, Peter Shiras, senior vice president for programs at Independent Sector, told the Sun.
The National Council of Nonprofit Associations is conducting a Web-based letter-writing campaign to oppose the appeal, the Sun said.