Charities will lose out in Bush's tax proposal

Abraham Lincoln, whose birthday we celebrated last weekend, loved telling stories — but even he could not have conceived a story as fanciful as the Bush tax plan. President Bush has portrayed himself as defender of America's charities. Indeed, he initiated a program to increase federal support for faith-based organizations that will benefit both the Martin House Learning Center and the Crisis Ministry, where Princeton students volunteer every week. But the effects of the Bush tax cut will, at worst, harm charities and, at best, help them very little.

The capstone of the Bush plan to help charities is the expansion of the group that can receive deductions for charitable contributions. Bush predicts that "This change will allow every taxpayer to deduct his or her charitable donations and will generate billions of dollars annually in additional charitable contributions." Well, sort of.

What Bush supports is something called the Charitable Giving Tax Relief Act, which has a fair amount of bipartisan support. And it's easy to see why. The bill encourages more people to give more money to charities. In fact, according to the Alliance for Children and Families, this bill promises to increase charitable donations by $3 billion every year. Who would be against that?

Bush also proposes a few other ideas to increase charitable contributions, but this is the one he's most proud of — because this is the one that will help charities the most. If that were all, the tax plan would appear to, as Bush says, "help those most in need." But then there's that little item called the estate tax, or as Republicans call it, the "death tax."

Bush's plan to repeal the estate tax is stashed away on page eight of his eight-page "Agenda for Tax Relief," which he submitted to Congress last week as a laminated brochure. Many people on both sides of the aisle want to reform the estate tax in some way — usually to exclude more small businesses and family farms. But many people do not support repealing the estate tax because it will help the richest two percent of Americans and hurt the country's poorest.

Here's why: every year, many of America's richest citizens give lots of money to charities and universities rather than give that money to the government in the form of taxes. In 1997, $10 billion went to charities and universities, three-quarters of which were given by the richest one percent of Americans. Since you can't take it with you, many people also leave large charitable donations at their deaths rather than pay that money in taxes. And tax deductions for charitable donations encourage those donations.

David Joulfaian, a tax analyst at the treasury department, estimates that charitable contributions by the living rich would decline by $3 billion each year in the absence of an estate tax; charitable bequests would decline by another $2 billion. That's a loss of $5 billion in charitable donations every year — quite a bit more than the $3 billion those charities would gain under the Bush plan.

When you combine the gains collected by charities under the Bush tax plan with the losses accumulated by repealing the "death tax," charities lose. The former Texas governor calls this tax relief. Others would call it a Texan's "tax-plan two-step."