Thursday, December 20, 2012

Zelinsky on the Estate Tax Charitable Deduction

Edward Zelinsky (Cardozo) had an interesting blog post yesterday about the estate tax charitable deduction. Specifically, Zelinsky believes that the commitment of Warren Buffett and other high-wealth individuals to strengthening the estate tax is at odds with their commitment to philanthropy.  Zelinsky argues that:

       It is perfectly plausible to call for estate taxation only for those who don’t distribute their wealth to philanthropy. It is, however, hard to reconcile that position with Responsible Wealth’s advocacy of strong estate taxation. Mr. Gates, Sr., for example, declared that “it would be shameful to leave potential revenue on the table from those most able to pay.” However, that is precisely what happens when large estates go to charity, namely, estate tax revenue which would otherwise flow to the federal government is instead diverted to charity. Such charity may be worthwhile but it does nothing to reduce the federal deficit.

Zelinsky then proposes a few limits on the estate tax charitable deduction. A first alternative would be to allow decedents to deduct only 70% of what they donate to charity.  A billionaire who leaves a $1,000,000,0000 estate to charity would only be allowed to deduct $700,000,000, leaving him with a taxable estate of $300,000,000.  

A second alternative he proposes would allow the first $10,000,000 of charitable bequests to be fully deductible, followed by a phase-out. For example, he suggests that the next $50,000,000 worth of charitable bequests would be 90% deductible, and any remaining gifts only 70% deductible.

Because the unlimited nature of the estate tax deduction (in contrast to the various limits on the income tax deduction) has long puzzled me, I find it refreshing that Zelinsky is bringing up the estate tax charitable deduction.  However, because the goal of the estate tax is to do more than simply raise revenue, I think limits on its charitable deduction can't be analyzed in terms of dollar limits and revenue alone.  A better solution would be to consider the additional social goals of the estate tax and craft limits on the estate tax charitable deduction that reflect those goals. 

Hat tip:  Tax Prof Blog

Miranda Perry Fleischer

http://lawprofessors.typepad.com/nonprofit/2012/12/zelinsky-on-the-estate-tax-charitable-deduction.html

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