Patrons wait in line for the “Becoming Van Gogh” exhibit at the Denver Art Museum on Dec. 30, 2012. Colorado nonprofits, including the DAM, received nearly $1 billion in publicly reported charitable gifts of $1 million or more between 2006 and 2017.
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? Thus far the answer seems to be yes. Should taxpayers be able to deduct their charitable contributions? Thus far the support for the charitable deduction seems wide and deep. Should federal taxpayers be able to deduct the taxes they pay to state and local government? This has become an area of considerable debate.
But there is one additional area of significant tax reform being discussed that has received less attention than these three issues, yet could have considerable, and unintended, negative impact.
President Donald Trump was on the stump recently to promote his tax reform plan and he emphasized one of the most significant elements of his plan: a proposed full 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 non-profit and philanthropic sector hope that our political leaders will make a different choice.
How many people pay estate taxes? While more than 2.6 million Coloradans filed tax returns last year, there were fewer than 200 taxable estates. Nationwide, only 1 in 500 estates are large enough to be taxed.
Repeal of the estate tax would hurt our country, and the people of Colorado, in significant ways. And 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, however, creates a strong incentive for the super-wealthy to give to charity rather than pay the tax. Removing that incentive will 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, during which the estate tax was not in force. Charitable bequests dropped by 37 percent from the previous year, and then rose by 92 percent in the following year 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 Colorado. In total, nonprofits in Colorado received nearly $1 billion in publicly reported charitable gifts of $1 million or more between 2006 and 2017.
The largest beneficiary has been Colorado State University, which received major gifts totaling more than $205 million — gifts from donors who would certainly have taken the estate tax into consideration while making financial and charitable giving plans. Those gifts include support for programs and scholarships for students in engineering, business and natural resources.
Colorado College has received many millions of dollars to support student scholarships, while the University of Colorado received more than $10 million for its Aging Center, Family Development Center and its department of mechanical and aerospace engineering.
The Denver Art Museum is also among the largest beneficiaries. The museum has received tens of millions of dollars of artwork, including paintings by Monet and van Gogh. Wealthy collectors frequently donate such highly valuable works that would otherwise transfer to their heirs, in part because of the tax liability that would otherwise fall on inheritors.
The estate tax is not a burden. Instead, it does what the tax code is intended to do, which is incentivize behavior that benefits us all. Cory Gardner’s vote will be crucial for whatever tax plan comes out of the Senate. He and his 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 former president of the National Civic League and executive director of Philanthropy for Active Civic Engagement. He is a Colorado native and former Colorado Democratic Party chairman.
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