Repeal may be taxing for charities

Opinions divided over effects estate tax plan might have

`Gosh, who knows?'

Md. groups seem unconcerned about possible change

January 29, 2001|By Alice Lukens | Alice Lukens,SUN STAFF

Local charities and foundations are keeping a brave posture in the face of President Bush's attempts to repeal the federal estate tax -- even though it could cut deeply into their donations.

Officials at area universities, hospitals, charities and churches -- many of whom rely on donations from well-to-do donors -- seem unfazed by the possible tax cut. Some say they support the repeal, arguing it would help, not hurt, philanthropy because donors would have more money to give.

But that logic runs counter to at least one national study on the impact of repealing the estate tax, which says that it could reduce total national giving by as much as a third.

Peter V. Berns, executive director of the Maryland Association of Nonprofit Organizations, agrees with that study -- and not with local nonprofit leaders who maintain repeal is nothing to worry about.

He says those who claim not to worry about the cut might be trying to put the best possible spin on a potentially devastating scenario.

"A lot of nonprofits are nervous about taking an opinion on an issue like this because they are afraid of offending donors," he says. "It is not a popular opinion among wealthy people to say the estate tax ought to be kept in place."

The federal estate tax is levied on estates of $675,000 or more. Estates valued at more than $3 million are taxed at 55 percent. The tax encourages giving to charitable causes because people often want to see their money go to charity rather than the government, and because if they give away enough money they might be taxed at a lower rate.

The differences of opinion about the estate tax stem, in part, from the complexity of the issue. Bush's tax plan has many subtleties and no one knows which measures could curtail giving and which could encourage it. Even those who are experts in the field say guessing the impact of tax changes on philanthropy is more art than science. With so little hard data, people are left to draw their own conclusions.

Consistently, however, those who are directly dependent on donors say they support the repeal, while those who are not -- such as Berns -- oppose it.

Two national coalitions of nonprofit groups -- the National Council of Nonprofit Associations and Independent Sector, both in Washington -- agree with Berns that repeal of the estate tax would have a devastating effect on philanthropy in the country.

Independent Sector commissioned a study on the estate tax about three years ago and found that its repeal would reduce charitable bequests by about a third, says Peter Shiras, senior vice president for programs at the group.

Using 1999 figures, Shiras says, that would amount to about $5 billion less in charitable bequests a year. He says that would mostly affect hospitals and universities, which nationally receive about 31 percent of the funding from charitable bequests every year. About 30 percent goes toward starting foundations or adding to existing ones, he says, so cutting the tax could result in fewer foundations being formed.

Religious institutions receive about 9 percent of charitable bequests, he says, and the arts 2 percent, so they would probably suffer less from a repeal.

Audrey Alvarado, executive director at the National Council of Nonprofit Associations, says her group is conducting a Web-based letter-writing campaign to oppose the repeal.

Online, the group's form letter to members of Congress reads: "Studies have shown that repeal of this tax could cost charities $5-6 billion a year, potentially impacting millions of Americans while benefiting only the wealthiest 1.9 percent in America. ...

"I hope you will agree any measure that has such a potentially devastating effect on the nonprofit sector is not in the best interest of the American people."

But in Maryland, those who spend time with donors hold different opinions.

"I'm not convinced it will have as negative an impact as some automatically say," says Robert R. Lindgren, vice president for development and alumni relations for the Johns Hopkins University. He says most people give money to Johns Hopkins and nonprofit groups because they have an interest in helping others, not because of tax breaks.

The university and hospital receive about 17 percent of their funds from planned gifts, he says. Planned gifts are designed to maximize tax savings through trusts, annuities and other vehicles.

Brodie Remington, vice president for university relations at University of Maryland, College Park, says he believes the tax cut might spur people to give more money than before.

"Some past experiences in tax reductions have, in fact, indicated that philanthropy goes up," he says. "People have more money." Remington says the university receives less than 10 percent of its money from planned giving, but has plans to "double or triple" that number in coming years.

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