One other point on the effort to radically defang the estate tax. March saw a sort of strange argument over an Obama administration proposal to fund universal health care by lowering the tax exemption the rich could seek on itemized deductions from 35 percent to 28 percent. Huge furor. Max Baucus and Charlie Rangel quickly disavowed the plan. This, they said, just wasn't the time to harm charitable giving. Even the small slice of charitable giving that's really about the tax break. Repealing the estate tax would also harm charitable giving -- and in the same way. It would make it less advantageous as a matter of taxation. In fact, it would do it rather more violence than anything the Obama administration was considering. The Center on Budget and Policy Priorities explains:
a meaningful estate tax serves as a strong incentive for giving. If taxable assets are subject to the estate tax at a 45 percent rate, a charitable donation of $100 costs the donor only $55, because the other $45 would otherwise have been paid in estate tax. Under the Lincoln-Kyl proposal to reduce the rate to 35 percent, that donation would cost the donor $65. Brookings economist and noted tax expert William Gale has testified that “reducing the top estate tax rate would have a significantly negative effect” on charitable giving. The Lincoln-Kyl proposal would also reduce charitable giving through its increase in the estate tax exemption level, which would reduce the already small number of estates that are subject to the tax.
That's a 10 percent change in the rate, which eagle-eyed readers will recognize as a larger change than the seven percent envisioned by Obama. A Congress which rejected a seven percent change in the tax treatment of charitable deductions so poor people could see the doctor would have to be out of its mind to entertain a 10 percent disincentive so rich people could keep more of their money.
