Our country is having its first serious conversation about comprehensive tax reform in more than three decades, and this debate has put many big issues on the table. Should taxpayers be able to deduct the interest they pay on their mortgages? So far, the answer seems to be a qualified yes. Should taxpayers be able to deduct their charitable contributions? So far, under the House and Senate plans, it appears that very few Americans will be able to take advantage of this deduction. Should taxpayers be able to deduct the taxes they pay to state and local governments? This has become an area of considerable debate.
But there is one other area of significant reform being discussed that has received less attention than these three issues, yet it could have a considerable and unintended negative impact.
President Donald Trump was on the stump last week to promote his tax reform plan, and he emphasized one of the most significant elements of his plan — a repeal of the estate tax. On the surface, this idea may sound fine, especially if it is unfairly referred to as a “death tax.” But once people understand more about this issue, many of us in the nonprofit and philanthropic sector hope that our leaders will make a different choice.
While nearly 650,000 Mainers filed tax returns last year, there were fewer than 50 taxable estates. Nationwide, only 1 in 500 estates are large enough to be taxed. Yet repeal of the estate tax would hurt our country, and the people of Maine, in significant ways.
One of the biggest casualties will be charitable giving. People make large charitable contributions for a variety of reasons, and Americans are certainly generous. The estate tax creates a strong incentive for the super wealthy to give to charity rather than pay the tax. Removing that incentive could cause a substantial decline in very large gifts, the kind that can be truly transformational for charities, colleges, hospitals and the arts.
The best evidence we have comes from 2010 when Congress allowed the estate tax to lapse: charitable bequests dropped by 37 percent from 2009 to 2010, and then rose by 92 percent in 2011 when the estate tax was restored.
What kinds of gifts are we talking about? Research compiled by the Chronicle of Philanthropy and analyzed by the National Committee for Responsive Philanthropy provides us with perfect illustrations. We’re talking about hundreds of millions of dollars for programs that benefit the people of Maine. In total, nonprofits in Maine received nearly $900 million in publicly reported charitable gifts and bequests of $1 million or more since 2005.
The largest of these was from Harold Alfond, founder of Dexter Shoe Co., who left virtually all of his wealth to the Harold Alfond Foundation. That foundation has benefited many thousands of families across the state. It established the Harold Alfond College Challenge, a first-in-the-nation program that offers college scholarship grants of $500 to every Maine resident baby under 1 year of age; built MaineGeneral Medical Center’s cancer care center in Augusta; and enabled Kennebec Valley Community College to serve an additional 1,500 to 2,000 students.
Maine residents and visitors also will reap the benefits of the late David Rockefeller’s gifts for generations to come. Conservation efforts at Acadia National Park and coastal Maine were a special focus of his philanthropy, including recent bequests of $20 million for the Mount Desert Land and Garden Preserve and $5 million to Maine Coast Heritage Trust.
The estate tax is not a burden. Instead, it does what the tax code is intended to do — incentivize behavior that benefits us all. Maine’s Republican U.S. Sen. Susan Collins has opposed repealing the estate tax, and her vote will be crucial as the Senate revises its tax plan. She and her colleagues can and should put forward a tax reform plan that does not include repeal of this powerful incentive for charitable giving.
Chris Gates is the former president of the National Civic League and executive director of Philanthropy for Active Civic Engagement. He lives in Camden.
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