Charitable Contributions in an Ideal Estate Tax

Abstract

Charitable bequests have been fully deductible for federal estate tax purposes since 1918. The unlimited nature of the estate tax charitable deduction contrasts starkly with the income tax charitable deduction, which contains a complex maze of limits based on the donor's income, the nature of the donee organization, and the asset donated. Although many scholars have explored the income tax charitable deduction, few have considered the normative question of whether the estate tax should have a charitable deduction, and if so, whether any limits should apply. This Article fills that void by exploring whether various conceptions of an ideal estate tax base should include a charitable deduction, and if so, what that deduction should look like. Most scholars agree that the primary goal of the estate tax is not solely to raise revenue but also to further one or more of the following social policies: (1) minimizing the accumulation of dynastic wealth, (2) enhancing equality of opportunity, (3) adding progressivity to the overall tax system, or (4) backstopping the income tax system. The ideal estate tax base differs depending on which of these goals the tax is intended to further. This Article examines each rationale in turn to determine whether charitable bequests should be included or excluded from a tax base designed to further that rationale. It concludes that although all four rationales justify some type of charitable deduction as a normative matter, only one (furthering progressivity) potentially justifies an unlimited deduction similar to the existing deduction. All other rationales for the tax suggest a more limited deduction.