Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, July 9, 2008

The Gift and Estate Tax Charitable Deduction -- Good or Bad?

MadoffRay D. Madoff (Professor of Law, Boston College Law School) has recently published her op-ed article entitled Dog Eat Your Taxes?, NY Times, July 9, 2008.

Prof. Madoff uses the recent case of Leona Helmsley's trust which may leave as much as $8 billion for the benefit of dogs (discussed earlier on this blog) as an example of how "American taxpayers subsidize the whims of the rich and fulfill their fantasies of immorality."  Rather than arguing that the charitable deduction is poor policy generally as every deduction be it for charity, a gift to a spouse, or an annual exclusion gift, increases the tax burden on everyone else, she claims that the charitable deduction should be limited as follows:

There should be a limit — a dollar amount or a percentage of the estate — on the estate tax charitable deduction. People could still give to charity as they like, but after a point they would be giving after-tax dollars. The deduction should be lower for bequests to private foundations than for money given directly to good causes.

There is an unstated assumption in Prof. Madoff's argument, that is, that is it appropriate to impose a gift or estate tax in the first place.  Prof. Madoff claims that it is unfair for donors to tie up "our[]" resources.  What she fails to recognize is that none of the resources which the donors are restricting belong to "us" -- they belong to the donor.

Special thanks to Matthew B. Bogin (attorney, Rockville, Maryland) for bringing this article to my attention.  Mr. Bogin pointed out to me that one of the reasons for retaining wealth transfer taxes is that they encourage gifts to charity and that repeal of tax (and hence no need for a charitable deduction) would actually hurt charities.


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And then when the donor dies, those assets no longer belong to the donor. And we impose a transfer tax as we do in every other transfer of income. The estate tax is a tax in the normal course of business, so it it's appropriate to consider the charitable estate tax deduction as a subsidy.

Posted by: jpe | Jul 10, 2008 8:38:14 AM

seconding the above comment: transferable rights in private property are a creature of the state. anything short of a completely confiscatory tax is a subsidy or expenditure. the charitable contributions deduction expresses a public policy that certain activities are to be encouraged, essentially as substitutes for direct government activity.

Posted by: r. | Jul 10, 2008 1:22:58 PM

If that's reductio ad absurdem, it's not especially well-considered. It's not that all income & wealth belongs to the government such that any amount left to the individual constitutes subsidy; it's that we regularly tax transfers, and it's the departure from the norm that makes it a subsidy.

An example of that kind of accounting is the case of school tuition. Any departure from the norm, any lessening of the bill, is recorded as an expense. Does that mean they already own everyone's money? No, of course not. They departed from the norm and didn't charge what they charge in the normal course of business, and therefore record that departure as an expense / subsidy.

Posted by: jpe | Jul 15, 2008 6:27:51 AM

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