By Rob Schofield
As Congress continues to debate proposals to repeal the federal estate tax, many lawmakers have begun to express reservations about the idea because, among many other things, of the potentially disastrous impact of such an action on nonprofits.
Under current law, charitable bequests are tax-exempt. This means that a charitable contribution costs an estate less than an ordinary bequest.
As a result, the estate tax encourages affluent Americans to donate more to charitable nonprofits than they otherwise might.
And it works. According to the non-partisan Congressional Budget Office, if estate tax repeal had been in effect in 2000, charitable donations would have been reduced from between $13 billion and $25 billion in that year alone.
When one combines these figures with the huge hit to government revenues that repeal would bring about, it’s easy to see why the estate tax is one of the nation’s most effective tools for generating what might be called “common good resources.”
Interestingly, despite its demonstrable benefit to the general equity and welfare of society, some anti-tax, anti-government critics have argued that by providing an incentive for giving to nonprofits, the estate tax is actually a tool of “coercion” by which public officials “extort” generous behavior from individuals.
According to this argument, a popular and longstanding tax break — that’s what the charitable giving incentive is, a tax break — that gives choice to taxpayers and benefits thousands of good causes and millions of Americans throughout the nation is coercive government extortion.
By such convoluted reasoning, virtually every law is a coercive attack on “freedom.” Tax credits for hybrid cars are obviously a plot to force us to abandon our “right” to pollute. Mandatory USDA meat inspections clearly undermine the free market’s ability to weed out uncompetitive food producers.
In contrast, philanthropist Bill Gates Sr. refers to the estate tax as the “grateful heirs tax.”
He terms it “an entirely appropriate tax, which I would describe as a due bill to those who have had the opportunity to enjoy such largess.”
Gates gets it right.
Like so much of American public policy, the estate tax is a pragmatic compromise that democratic institutions have fashioned in order to help fund the government and bring a modest measure of equity and public-spirited behavior to our stratified economy.
Would that all acts of government “coercion” were so logical and effective.
Rob Schofield is director of public policy and government relations at the North Carolina Center for Nonprofits in Raleigh.