Charities Mum on Estate-Tax Cut, Deferring to Donors (Update1)

Sept. 18 (Bloomberg) -- When the Jewish Council for Public Affairs, a New York non-profit group, came out against repealing the U.S. estate tax in 2003, James Tisch wasn't happy.

Tisch, the Loews Corp. chairman, was also chairman of New York-based United Jewish Communities, which helped fund the public-affairs council. His concern, he says: The group, which might be a loser if the tax is repealed, risked alienating its wealthy donors -- the biggest winners.

``It doesn't look particularly good for charitable organizations to be arguing something that's in conflict with what members of their board want,'' Tisch says.

That's the dilemma facing charities, universities, museums and other organizations that rely on donations as Senate Republicans consider another vote on permanently reducing the tax as early as this week. Most of the organizations are following Tisch's advice, keeping mum on the issue in deference to their most generous patrons: the very wealthy who often serve on their boards.

``It's very difficult for some of them to confront their own board members,'' says Diana Aviv, president of the Independent Sector, a Washington-based umbrella for more than 500 non-profit groups that is the only organization of its kind lobbying to keep the estate tax.

Repeal of the estate tax would remove or reduce incentives for wealthy individuals to donate, potentially costing their non- profit beneficiaries as much as $25 billion a year, according to a Congressional Budget Office study.

Beneficiaries

About 18 percent of people who leave a taxable estate also leave money to charity, according to Internal Revenue Service data. About a third of the donations go to colleges and universities, another 31 percent go to foundations that make grants to charities, and the rest goes to orchestras, civic groups and other non-profits, according to a 2002 study by OMB Watch, a Washington advocacy group that argues for retaining the tax.

Congressional and academic studies on the impact of repealing or reducing the estate tax contradict each other. The nonpartisan staff of the CBO estimates that without an estate tax in 2000, giving would have declined that year by $13 billion to $25 billion.

Separate studies by Paul Schervish, a Boston College economist, and the Republican staff of the congressional Joint Economic Committee dispute that conclusion. Those studies say charitable giving might even increase if the estate tax is reduced, because families motivated by altruism would have more money to give.

Increase in Bequests

Research by the Center on Philanthropy at Indiana University in Bloomington concluded that bequests increased more than 10 percent in 2003, two years after the tax was reduced under legislation passed by Congress at the beginning of President George W. Bush's first term. The study attributes the increase largely to rising household net worth and unusually large donations by a handful of estates.

Under the 2001 legislation, the estate tax has been gradually reduced and is currently paid only by people who die leaving assets of more than $2 million. The tax is scheduled to disappear altogether in 2010, then -- unless Congress acts -- return in 2011, when estates valued at more than $1 million will be subject to rates as high as 55 percent.

Push in Senate

Congressional Republicans such as Senator Majority Leader Bill Frist of Tennessee have pushed this year for a permanent repeal. Frist now says Republicans will accept a permanent reduction that exempts the first $10 million of an estate from any tax and sets a 30 percent top rate on the rest.

Democrats have blocked consideration of the legislation, saying it would be too generous to wealthy families and would cost the government $268 billion in revenue over the next decade. With the last debate on the matter before the November elections looming, estate-tax defenders say they need the charities to speak up.

``They're completely AWOL on this issue that's so central to their continued existence,'' says Chuck Collins, executive director of the Boston-based pro-estate tax group Citizens for Responsible Wealth. Collins is co-author of the book ``Wealth and Commonwealth'' with Bill Gates Sr., the father of Microsoft Corp. Chairman Bill Gates, the world's richest man.

Diluting the Message

Tisch, whose family controls Loews, a New York-based holding company and has billions of dollars in assets, says he favors keeping a form of the estate tax that imposes a levy on unrealized capital gains at death. He also says charities should stay out of the fight because it ``dilutes'' their charitable mission when they become involved in policy debates in which they have little or no expertise.

For now, Tisch's view is winning at organizations like the Council on Foundations, a Washington-based philanthropic trade association which represents foundations that are often established by wealthy families to minimize estate taxes.

``We have a longstanding practice of not supporting or opposing tax legislation that has a broad effect on the field,'' says Jeff Martin, a spokesman for the group.

Higher education is another sector that has remained silent on the estate tax. The Council for Advancement and Support of Education, a Washington trade group of fundraisers for academic institutions, estimates that about $3 billion a year flows to colleges and universities from estate-based gifts.

CASE is the only higher-education trade association to take a lobbying position, calling for slightly increasing the amount exempted from the estate tax rather than full repeal. John Lippincott, the organization's president, says other groups are torn between concern at the impact of a reduction and fear of harming ties that have been nurtured with wealthy donors.

`You Want to Be Careful'

``It is simply a reluctance on the part of the fund-raiser, knowing that part of the business is building these relationships,'' Lippincott says. ``You do want to be careful about weighing in strongly on any political issue.''

Aviv, the president of the Independent Sector, says charities may come to regret their silence. She says that a robust grassroots effort might have framed the estate-tax debate differently.

``If we have been stronger at the local level we wouldn't be in this situation at all,'' she says.

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net