Abolition of the estate and gift tax, dubbed the "death tax"
by its opponents, has been one of the highest priorities of
Republicans in Congress for several years. Although garnering
majorities in both the House and Senate, death tax repeal was
consistently blocked by Bill Clinton. Thus, when Republicans won
the White House last year while keeping control of both houses of
Congress, I am sure that many believed that the estate tax would
soon be history. Now it appears likely that it will survive, the
result of an unholy alliance between a few short-sighted
Republicans, the foundation community and some cynical tax
Ironically, one of George W. Bush's own appointees is
playing a key role in keeping the death tax alive. John J.
DiIulio Jr., recently appointed head of the White House Office of
Faith-Based and Community Initiatives, threw the death tax a
critical lifeline in an interview with the New York Times on
February 8. Asked whether he favors abolition of the estate tax,
he said, "I don't want to be the skunk at the picnic. But no, I
don't think the estate tax should be eliminated--modified, maybe,
but not eliminated."
Seizing upon this break in Republican unity, supporters of
the estate tax quickly rallied. A bunch of millionaires--always
thought to be Republicans because, after all, the Republican
Party is assumed to be the party of the rich--took out an ad in
yesterday's (February 18) New York Times saying that the estate
tax should be retained. Echoing the politically naive Mr.
DiIulio's concerns, the millionaires stressed the importance of
the estate tax in stimulating charitable contributions. "The
estate tax," they said, "exerts a powerful and positive effect on
charitable giving. Repeal would have a devastating impact on
These breeches in the wall of Republican solidarity on death
tax repeal apparently have emboldened those who benefit
financially from it to come out of the shadows. According to
columnist Robert Novak, the lawyers, accountants and insurance
agents who make their livings helping people avoid the estate tax
have begun lobbying heavily on Capitol Hill against getting rid
of the tax. Too clever to make the honest case that abolition of
the estate tax will reduce their incomes, these public spirited
citizens are also warning that an end to the estate tax will
slash charitable giving.
This concern for the interests of charities is mostly
insincere, designed to tug at the heartstrings of those
Republicans, like Mr. Bush, who genuinely believe that the
private sector can replace much of the government's role in
aiding the destitute and disadvantaged. The true goal of many
estate tax supporters is not to help the less fortunate, but to
combat cutbacks in government welfare spending while allowing the
wealthy to maintain their privileged position in society.
The simple-minded notion underlying all this is that much
giving by the wealthy appears to be motivated by the estate tax.
With a tax that can go as high as 60 percent, it only costs some
wealthy individuals 40 cents to give a dollar to their favored
charities in their wills. The assumption is that if the estate
tax goes away, it will then cost $1 to give $1 at death, which
will reduce charitable bequests.
The reality is that the estate tax does more to affect the
timing of giving among the wealthy than the amount. Research by
Treasury Department economist David Joulfaian, recently published
in prestigious economic journals, presents compelling data on
this point. It shows that those with lower amounts of taxable
wealth tend to give much more to charity during their lives,
while the very rich give much more at death. In a sample of
taxpayers, none with estates under $1 million made any charitable
bequests whatsoever. All, however, made substantial gifts during
their lives. At the opposite end of the wealth spectrum, those
with estates larger than $100 million only gave 22 percent of
their charitable gifts during their lives, with 78 percent being
given at death.
It is reasonable to assume that in the absence of an estate
tax, those with large incomes and great wealth would simply give
more during their lives than they do now. After all, even if Mr.
Bush's tax plan were to be enacted, a rich person would still
save 33 cents in federal income taxes for each dollar given to
charity. That will remain a powerful incentive to give.
Moreover, a recent study by the accounting firm of
PriceWaterhouseCoopers estimates that Mr. Bush's proposal to
allow those who do not itemize to also deduct charitable
contributions will increase giving enough to offset any net
reduction in charitable giving by the wealthy owing to abolition
of the estate tax.
Finally, it is worth noting that these millionaires who want
to keep the estate tax mostly don't pay any estate taxes now.
They put all their assets into private foundations that they set
up to memorialize themselves, so that everyone will know what
great people they were and also keep control of their businesses
in their families. According to Mr. Joulfaian, the vast bulk of
the assets of the very wealthy go to setting up such foundations,
whereas the moderately wealthy are more inclined to give to
churches, universities and other existing organizations. In a
recent book, "Writing Off Ideas," economist Randall Holcombe
notes that these foundations often become controlled by leftists,
who use them to promote ideas diametrically opposed to those
whose wealth established them.
Mr. Bush was right to propose abolition of the estate tax
during his campaign. Mr. DiIulio is wrong to fight him on this
and, in any case, his concerns are misplaced. The estate tax
does far less to encourage useful charitable giving, of the sort
his office wants to encourage, than he imagines. Most of the
charitable bequests of the mega-rich simply go to stroke their
own egos and often do more harm than good. If abolition of the
estate tax reduces such giving, society may actually be better