CBO Releases Two New Studies Examining Impact of Estate Tax on Charitible Giving

The Congressional Budget Office has released two new reports on the impact of the estate tax on charitable giving. The reports confirm that there is a significant negative impact on charitable giving that would result from the elimination of the estate tax.

The Congressional Budget Office has released two new reports on the impact of the estate tax on charitable giving. The reports confirm that there is a significant negative impact on charitable giving that would result from the elimination of the estate tax.

The first report, "The Estate Tax and Charitable Giving" examines families' contribution to charities to determine the impact of changes to estate tax law and the impact of full repeal. The bottom line result is that the study estimates that raising the exemption level to $2 million or $3.5 million would reduce charitable giving by less than 3 percent, and that permanent estate tax elimination would reduce total charitable giving by between 6 and 12 percent

While the percent numbers may seem small, it is important to note that this is a decline relative to all charitable giving -- which was about $201 billion in 2003. So according to the CBO, eliminating the estate tax would mean a loss in total charitable giving of between $12 and $24 billion per year. Note that this estimate is larger than previous estimates, which were in the $10 billion range (see Bakija and Gale, 2003).

The second paper, "Charitable Bequests and the Repeal of the Estate Tax" is a technical empirical study of the impact of the estate tax on giving, and follows research by David Joulfaian in 2000, and by Jon Bakija and Bill Gale last year. This CBO paper uses both the Joulfaian and the Bakija and Gale methodologies on more recent data. It confirms the results in the previous work and finds that a "variety of estimates" of the decline in bequest giving are in the range of 20 to 30 percent. To put this in context, Joulfaian had estimated a 12 percent drop, while Bakija and Gale had estimated a 37 percent drop. Robert McClellan, the author of the report, shows that the differences in results are primarily due to various differences in methodology rather than differences in the data sample chosen for analysis.

These new studies again confirm that the estate tax does provide an important incentive to give to charity, and that eliminating it would mean significant lost revenue and service cuts for the nation's nonprofit organizations.

For more information on the CBO results, see:

For more on the charitable impact of estate tax repeal see:

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