© Royalty-free/Vol. 70/Corbis

This paper by the Congressional Budget Office (CBO), prepared at the request of the Ranking Member of the Senate Finance Committee, examines the effect that changing the estate tax would have on donations to charity. Because charitable bequests lower the taxable amount of estates, the tax gives people an incentive to contribute to charity at death rather than leave assets to heirs. Furthermore, the estate tax provides an incentive to make charitable contributions during life. The paper finds that increasing the amount exempted from the estate tax from $675,000 to either $2 million or $3.5 million would reduce charitable giving by less than 3 percent. However, repealing the tax would have a larger impact, decreasing donations to charity by 6 percent to 12 percent.

Robert McClelland and Pamela Greene of CBO's Tax Analysis Division wrote the paper under the direction of Roberton Williams and G. Thomas Woodward. Kurt Seibert and Benjamin Vallis provided research assistance, and Julie Somers, David Weiner, and Arlene Holen provided useful comments. In keeping with CBO's mandate to provide objective analysis, the paper makes no recommendations.

John Skeen edited the manuscript, and Christian Spoor proofread it. Denise Williams prepared early drafts of the text, the tables, and the figure. Maureen Costantino designed the cover and prepared the report for publication. Lenny Skutnik produced the printed copies, and Annette Kalicki prepared the electronic versions for CBO's Web site.

Douglas Holtz-Eakin
Director
July 2004