Charitable Bequests and the Repeal of the Estate Tax: Technical Paper 2004-08

Working Paper
July 1, 2004

Robert McClelland

Recent years have seen tremendous changes in tax law. For example, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001) phases out the estate tax over 10 years until it is fully repealed in 2010. Those changes reduce federal revenues but also alter various incentives. For example, the deductibility of charitable bequests from one’s taxable estate provides an incentive to make these bequests so that eliminating the estate tax would eliminate this incentive.

Recently, two important articles have presented substantially different estimates of the effect of estate tax repeal on charitable bequests. Joulfaian (2000) estimates the relationship in 1992 between charitable bequests and variables such as the price of giving and after-tax wealth. With those estimates, he calculates that estatetax repeal would cause charitable bequests to decline by about 12 percent. Bakija, et al. (2003) analyze simulated panel data and find that charitable bequests exhibit much less sensitivity to the tax price than is suggested by Joulfaian’s estimates. In spite of this lower estimate, when Bakija and Gale (2003) use that estimate to calculate the effect of estate tax repeal they conclude that charitable bequests would fall by about 37 percent.

This paper re-examines the results of the aforementioned papers by applying their methods to 1999 and 2000 data. Once the differences in methodologies and variable definitions are reconciled, the estimates are quite close. Further, confidence intervals can then be formed around the estimated declinein charitable bequests.