The Issue
The federal estate tax provides strong incentives to people to donate from their estates to charitable organizations and thereby encourages the donation of significant revenues to support services and programs that are vital to sustaining healthy communities and the well-being of Americans of all ages.
Estate Tax as a Charitable Giving Incentive
The Congressional Budget Office has estimated that
repealing the estate tax would reduce charitable bequests by 16 to 28
percent. The tax has been a critical incentive for wealthy Americans to
support the work of charitable organizations that improve the quality of
life in our communities.
- The Congressional Budget Office found that the estate tax leads affluent individuals to donate far more than they otherwise would, because such donations sharply reduce estate tax liability.
- Giving through charitable bequests totaled $22.8 billion in 2010 – 8% of total giving and contributions from philanthropic foundations, many of which were created through bequests accounted for another $41 billion in 2010.
- The estate tax is a vital source of revenue for the federal government, and atthis time of record deficits and crippling debt, we cannot afford to lose tens of billions of dollars in revenue each year.
- Permanently extending the combined gift and estate tax at 2009 levels would generate an estimated $515 billion in federal revenue over 10 years
- Repeal of the estate tax would result in the loss of over $1 trillion in tax revenues for federal government over the next ten years.
Who is Subject to the Estate Tax?
- Fewer than 3 in every 1,000 estates were subject to the estate tax in 2009.
- Extending the estate tax at 2009 levels would shield virtually all farm and small businesses from tax liability.
- A Congressional Budget Office study found that of the few farms and small businesses that would owe an estate tax liability in 2009, an overwhelming majority would have significant liquid assets to pay the tax without touching the farm or business.
IS Position
Independent Sector called on Congress to preserve this critical tax incentive for philanthropic giving by ensuring that any modifications to the tax did not raise the exemption level or lower the tax rates beyond the 2009 levels ($3.5 million exemption; 45 percent rate).
IS signed onto an Americans for a Fair Estate Tax coalition letter that called for the estate tax to be permanently reinstated during the 2010 lame duck session at no less than the 2009 levels, as well as a coalition letter of nearly 75 estate tax advocates in support of the Responsible Estate Tax Act (S.3533).
Background
As of January 1, 2011, the estate tax has been reinstated with a $5 million individual exemption ($10 million for couples) and 35 percent rate for two years as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (PL 111-132).
President's FY 2013 Budget Proposal
President Obama's FY 2013 budget proposes reinstating the estate tax at 2009 levels in 2013 once the current rates expire, to raise an estimated $118 billion in revenue over 10 years.
CBPP released a report on May 26, 2011 calling on Congress to allow the current estate tax regime to expire at the end of 2012. The report concludes that weakening the tax beyond the 2009 levels is unaffordable and unnecessary given the country's financial circumstances.
