In the next year, the U.S. Senate will decide whether to repeal a tax on inherited estates, a move that some say could drastically cut donations to nonprofits and universities. While one University expert doesn’t expect any drastic effects to the University’s current fund-raising campaign, a government report estimates up to $25 billion could be lost nationwide.
The estate tax, sometimes referred to as the “death tax,” is one of the oldest and most common forms of property taxation. When an owner dies, the federal government taxes the remaining property if it’s worth $1.5 million or more.
The issue has been postponed in the Senate because of Hurricane Katrina, but politicians and media pundits still debate the effects a repeal would have on nonprofit organizations and universities. Also, because the federal government would experience a drop in tax revenue, some people are expecting cuts to federal grants and contracts to universities.
A Congressional Budget Office report published in July 2004 found that the amount of charitable giving to universities, hospitals, museums, churches and many other nonprofit organizations would drastically decrease because donors would no longer benefit from tax write-offs. The report said 30 percent of taxpayers do not pay income tax on charitable donations.
The University has raised $371 million to date in private donations as part of Campaign Oregon: Transforming Lives, a fund-raising project shooting for $600 million to support the future development at the University.
University Development Gift Planning Director Hal Abrams said that he has been following the estate tax repeal but said that it likely won’t have a significant effect on charitable donations to the University because the majority of donations come from people with “mega-estates” worth $20 million. Those with $5 million dollar estates might be less likely to donate if the tax is repealed, he said, but the bigger estates usually have bigger effects.
Abrams said that the current federal budget deficit doesn’t create a climate where the government can politically or monetarily afford to make such a decision, especially in light of Hurricane Katrina relief costs.
“I wouldn’t be suicidal if it did pass, but I don’t think it will,” he said.
The report estimated total contributions to decrease 6 to 12 percent, or $13 billion to $25 billion, if the tax is repealed. The government collected $24.1 billion in estate tax revenues in fiscal year 2004.
According to the report, more than 60 percent of charitable donors in 2000 came from families in the top 20th percentile in adjusted gross income. Families from the top 10 percent contributed about half of the total $196 billion given in 2000. Those in the top 5 percent gave about 45 percent of the total.
Only about 2 percent of all estates are subject to the estate tax, according to IRS.com
Chris Matthews, spokesman for Sen. Gordon Smith, R-Ore., said that Smith is in favor of repealing the estate tax because it protects hard working families and small businesses.
“(Senator Gordon) believes that after a lifetime of work and savings the government shouldn’t come in and take the estate,” Matthews said, adding that families usually have to sell the estate, in most cases farms, to pay off the estate tax.
“No family farm should be sold off because somebody died,” Matthews said. “The government shouldn’t derive tax revenue from death because it penalizes savings and breaks small businesses.”
Matthews also said that it doesn’t make sense that charitable donations would be affected. If families don’t have to pay more taxes, less money will be going to the government and more will remain in their pockets, Matthews said.
“They’ll have more money for charitable giving,” he said. “It only reduces giving to the government.”
Adam Hughes is budget policy analyst for OMB Watch, a watchdog coalition that tries to “lift the veil of secrecy shrouding the White House Office of Management and Budget.” He said that this repeal could cause drastic cuts in contributions to nonprofits as well as reduce federal funding to universities in general.
“Giving a tax break to multi-millionaires is not a good decision right now,” Hughes said. “This doesn’t affect small businesses, it protects the rich.”
Hughes said nonprofits will get a “double-whammy” as charitable contributions are cut and federal revenues decrease. He said government money in some form constitutes about one-third of college funding.
“If this tax is repealed, you’re looking at drastic cuts,” he said.
The U.S. House of Representatives has voted to eliminate the sales tax in four of the last five years, but the Senate still hasn’t voted.
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