CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

CBO

PAPER

JULY 2004

The Estate Tax

and Charitable

Giving

© Royalty-free/Vol. 70/Corbis

The Congress of the United States O Congressional Budget Office

CBO

The Estate Tax and Charitable Giving

July 2004

A

PAPER

Preface

This paper by the Congressional Budget Office (CBO), prepared at the request of the 

Ranking Member of the Senate Finance Committee, examines the effect that changing the 

estate tax would have on donations to charity. Because charitable bequests lower the taxable 

amount of estates, the tax gives people an incentive to contribute to charity at death rather 

than leave assets to heirs. Furthermore, the estate tax provides an incentive to make charitable 

contributions during life. The paper finds that increasing the amount exempted from the 

estate tax from $675,000 to either $2 million or $3.5 million would reduce charitable giving 

by less than 3 percent. However, repealing the tax would have a larger impact, decreasing 

donations to charity by 6 percent to 12 percent.

Robert McClelland and Pamela Greene of CBO’s Tax Analysis Division wrote the paper 

under the direction of Roberton Williams and G. Thomas Woodward. Kurt Seibert and 

Benjamin Vallis provided research assistance, and Julie Somers, David Weiner, and Arlene 

Holen provided useful comments. In keeping with CBO’s mandate to provide objective analysis, the paper makes no recommendations.

John Skeen edited the manuscript, and Christian Spoor proofread it. Denise Williams prepared early drafts of the text, the tables, and the figure. Maureen Costantino designed the 

cover and prepared the report for publication. Lenny Skutnik produced the printed copies, 

and Annette Kalicki prepared the electronic versions for CBO’s Web site (www.cbo.gov).

Douglas Holtz-Eakin

Director

July 2004

Summary 1

Characteristics of Contributors 1

Incentives for Charitable Giving 3

Effects of Raising the Exemption Level and of Repealing the 

Estate Tax 4

Appendix A: How CBO Estimated Changes in Charitable 

Contributions 9

CONTENTS
vi THE ESTATE TAX AND CHARITABLE GIVING

Tables

1. Schedule of Tax Rates and Estate Tax Exemptions Under

Pre-2001 Law and Current Law 5

2. Estimated Effects on Charitable Contributions in 2000 from

Changes in the Estate Tax, Under Different Scenarios

for the Growth of Assets 6

3. Estimated Changes in Individual Income Tax Revenues

in 2000 from Changes in the Estate Tax, Under

Different Scenarios for the Growth of Assets 8

4. Estimated Effects on Charitable Bequests in 2000 from

Changes in the Estate Tax 8

Figure

1. Estimated Changes in Charitable Contributions in 2000 from

Changes in the Estate Tax 7

Box

1. Families’ Wealth and Their Contributions to Charity 2
The Estate Tax and Charitable Giving

Summary

Under current law, the federal estate tax will diminish 

through 2009 as rates fall and the amount of wealth exempt from the tax increases. The tax then disappears entirely in 2010 but returns the following year to levels set 

by 1997 law. Those changes will affect not only estate tax 

revenues but also donations to charity. A person with a 

taxable estate who makes charitable donations, either 

during life or at death, reduces the size of his or her estate 

and thus lowers the estate tax liability. As a result, the person faces a lower effective cost of giving, which provides 

an additional incentive to make those gifts. Thus, although the principal role of the estate tax is to raise revenues, its impact on donations may be a policy consideration.

Reducing the estate tax by exempting more wealth from 

the tax has two separate, opposite effects. By raising aftertax wealth, the lower tax may induce some people to give 

more to charity. At the same time, those individuals 

newly exempt from the estate tax have less incentive to 

give and may reduce their giving. This report examines 

potential reductions in charitable giving during life (charitable contributions) and at death (charitable bequests) 

that would result from three changes to the estate tax: increasing the amount of wealth exempt from estate taxation to $2 million or $3.5 million or repealing the tax. 

(Those changes are due to take effect in stages under current law but then are due to lapse.) To allow for possible 

variation in how people expect their wealth to change 

over time, the analysis of each change considers four scenarios that assume different rates of growth of assets during owners’ lives. The analysis does not consider changes 

in either estate tax rates or the credit against the estate tax 

for state death taxes.

The analysis finds that permanently raising the amount 

of wealth exempt from the estate tax to either $2 million 

or $3.5 million would reduce charitable giving by less 

than 3 percent, as increased giving by the wealthiest donors would partly offset lower giving by donors with 

wealth below those cutoffs. However, permanently repealing the estate tax would cause a larger decline in charitable giving—of 6 percent to 12 percent. For the federal 

government, reduced giving would directly raise income 

tax revenues by lowering the amounts claimed as itemized 

deductions for charitable contributions. That revenue 

gain would partially offset the loss in revenue caused by 

repealing the estate tax.

Characteristics of Contributors

According to the American Association of Fundraising 

Counsel’s (AAFRC’s) Trust for Philanthropy, charities received an estimated $201 billion in 2003. Nearly 90 percent of such giving occurs during donors’ lives; those gifts 

are termed charitable contributions. The balance of those 

gifts, made from donors’ estates, are charitable bequests.1

Using the most recent suitable data on individuals’ giving 

(as opposed to information on nonprofit organizations’ 

receipts), this report examines charitable giving in 2000. 

By the Congressional Budget Office’s (CBO’s) estimation, individuals contributed $196 billion to charity 

1. See Center on Philanthropy at Indiana University, Giving USA 

2004: The Annual Report on Philanthropy for the Year 2003 (Indianapolis, Ind.: AAFRC Trust for Philanthropy, 2004). The amount 

cited is not the total amount reported to the Internal Revenue Service (IRS). Total charitable giving may differ from that reported 

on tax returns for several reasons. Only a portion of charitable 

contributions is report to the IRS—that given by people who 

itemize their deductions on their tax returns. (The amounts that 

people reported may overstate their actual contributions, however.) Similarly, only a portion of charitable bequests is reported—

that willed by decedents with estates exceeding the filing threshold 

for the estate tax.
2 THE ESTATE TAX AND CHARITABLE GIVING

that year, and about $16 billion in charitable bequests 

was deducted on estate tax returns.2

 (See the appendix for 

an explanation of CBO’s estimation of charitable contributions.)

According to the CBO’s analysis of the 2001 Survey of 

Consumer Finances (sponsored by the Board of Governors of the Federal Reserve System), which records income and contributions in 2000, more than 60 percent 

of contributions in 2000 came from families whose adjusted gross income was in the top quintile (the top 20 

percent). Families with adjusted gross income in the top 

10 percent made about half of all contributions, and 

those in the top 5 percent gave about 45 percent of all 

contributions. 

In general, as might be expected, wealthier families are 

more likely to contribute than less wealthy families, and 

their average contributions are larger (see Box 1). Families 

with a net worth greater than $675,000 (the amount exempted from the estate tax in 2000) made about twothirds of the total contributions.3 Families with assets 

greater than $3.5 million made about 45 percent of contributions; and families with assets greater than $7 million, about one-third. Families with assets greater than 

$20 million made about one-sixth of all contributions.

In 2000, about one-sixth of decedents’ estates filing estate 

tax returns left a charitable bequest. Altogether, those bequests totaled $16 billion. Charitable bequests were even 

more heavily concentrated at the top of the wealth distribution than charitable contributions: over 70 percent of 

reported charitable bequests were left by decedents with 

estates larger than $3.5 million; more than 60 percent 

Box 1.

Families’ Wealth and Their Contributions to Charity

According to the Congressional Budget Office’s analysis of the Survey of Consumer Finances, about 40 

percent of the people surveyed contributed at least 

$500 to charity in 2000. Families giving at least that 

much donated an average of $4,400. Not surprisingly, wealthier families were both more likely to 

contribute and contributed more (see the table). 

About a third of families with less than $500,000 in 

assets contributed $500 or more. But about threequarters of families worth between $500,000 and $1 

million contributed at that level, and more than 90 

percent of families with more than $3 million in assets did so. Average contributions also climbed from 

$2,300 for families with less than $500,000 in assets 

to almost $400,000 for those with $50 million or 

more.

Source: Congressional Budget Office based on Board of Governors of the Federal Reserve System, Survey of Consumer Finances 

(prepared by National Opinion Research Center, University of Chicago, 2001).

Net Worth

Millions of 

Families

Percentage of Families

Giving at Least $500

Average Contribution from 

Families Giving at Least $500

Less than $0.5 Million 90.79 32 $2,300

>$0.5 Million to $1 Million 8.26 73 $3,000

>$1 Million to $3 Million 5.21 82 $5,900

>$3 Million to $5 Million 0.93 90 $19,200

>$5 Million to $50 Million 1.28 95 $37,500

$50 Million or More 0.02 95 $391,400

2. Why that estimate of total contributions is larger than the 

updated figure of $175 billion estimated for that year in Giving 

USA 2004 is unclear.

3. Net worth should not be confused with the taxable estate. When 

calculating the taxable estate, net worth may be reduced by such 

things as charitable bequests, discounts for owning minority 

shares of assets, bequests to a surviving spouse, funeral expenses, 

and an executor’s commission.
THE ESTATE TAX AND CHARITABLE GIVING 3

were left by decedents with estates larger than $7 million; 

and more than 40 percent, estates in excess of $20 million.

Single and widowed individuals are more likely to make 

charitable bequests and to leave larger charitable bequests 

than married individuals are. In 2000, 40 percent of estate tax returns that were filed on behalf of single individuals included charitable bequests, and 23 percent of returns filed for widows or widowers did—compared with 

only 6 percent of returns filed for married individuals. 

Charitable bequests left by single and widowed individuals are larger as well; for single decedents, bequests accounted for 37 percent of the estate and for widows and 

widowers, 21 percent—but for married decedents, only 7 

percent. Those patterns presumably arise because married 

people can take advantage of the spousal exemption to 

avoid taxes on some wealth and are more concerned 

about providing for spouses than providing for charities 

and because widowed people are more likely than single 

individuals to have children to whom they wish to leave 

money.

Incentives for Charitable Giving

People make charitable gifts for a variety of reasons. Over 

and above those reasons, the tax code may influence the 

level of giving by affecting both its “cost” (relative to that 

of other possible uses for the money) and the amount of 

resources available to individuals to give. Provisions in the 

individual income tax and the estate tax affect both factors. 

Current income tax law allows most taxpayers who itemize their deductions to reduce their income subject to taxation by the amount of their charitable contributions. As 

a result, the roughly 30 percent of taxpayers who itemize 

do not pay income tax on allowable amounts contributed 

to charity. Those deductions reduce the cost of giving: a 

taxpayer in the 25 percent bracket who donates a dollar 

sees his or her tax bill drop by 25 cents, thus cutting the 

after-tax cost of the donation to 75 cents. Lowering tax 

rates effectively increases that cost. For example, if the 

rate was cut from 25 percent to 20 percent, the after-tax 

cost of donating a dollar would rise from 75 cents to 80 

cents. In essence, lowering tax rates increases the price of 

donations, reducing the incentive to donate.

In a similar manner, charitable bequests are exempt from 

the estate tax, which effectively reduces their after-tax 

cost. A charitable bequest of a dollar from an estate facing 

a 45 percent estate tax yields a 45-cent reduction in the 

estate’s tax bill and thus cuts bequests to other beneficiaries by only 55 cents. The reduction effectively lowers the 

cost of the charitable bequest in terms of what heirs receive. Again, cutting estate tax rates raises that cost: reducing the rate from 45 percent to 32 percent would increase the cost of donating a dollar from 55 cents to 68 

cents. 

Besides affecting the relative cost of giving, both the income and estate taxes affect how much taxpayers have to 

give. The lower the level of taxes, the more after-tax income or wealth there will be available to give to charity. 

Therefore, repealing the estate tax could, in principle, induce people to leave more to charity than does the impetus currently provided by the estate tax.

Increasing the exemption level has an effect similar to reducing tax rates for some, but not all, estates. Raising the 

exemption level increases the after-tax wealth for everyone facing the estate tax, and some of that additional 

wealth may go to charity. However, for those people with 

estates previously subject to the estate tax but now exempt, the tax rate falls to zero, which raises the cost of 

charitable bequests to 100 percent of the amounts willed. 

Consequently, those people’s charitable bequests may, in 

principle, rise or fall, depending on which effect is stronger. Taxpayers with taxable wealth above the new exemption level face the same tax rate as before but have a lower 

estate tax liability. Those taxpayers still have a tax incentive to make charitable bequests. Because they have more 

money available to give away, they will probably leave 

more to charity. The total effect of raising the exemption 

depends on the relative strength of a declining incentive 

to give and of increasing wealth.

The estate tax also provides an incentive to contribute to 

charity during life. Such contributions have the same effect as charitable bequests in reducing the assets subject to 

the estate tax and also may be itemized deductions under 

the income tax. Changes in the estate tax should affect 

charitable contributions the same way as they affect charitable bequests. If an increase in the exemption level eliminates the expected estate tax burden for a family, the estate tax no longer provides an incentive to make 

contributions during life, so those contributions may fall. 

If the higher exemption does not eliminate the estate tax 

burden, then the tax incentive to contribute remains and 

more assets are available to be donated—and charitable 
4 THE ESTATE TAX AND CHARITABLE GIVING

contributions should rise. Whether aggregate charitable 

contributions rise or fall depends on which effect dominates. 

Empirical analyses find, as expected, that repealing the estate tax would cause charitable giving to decline. One 

prominent analysis concludes, for example, that repealing 

the tax would cause charitable bequests to fall by about 

12 percent.4

 Other analyses suggest that charitable bequests could fall much more than that: one concludes 

that charitable bequests would decline almost 40 percent, 

and another analysis estimates a 22 percent drop.5

 The 

potential decrease in charitable bequests has been cited by 

charitable groups such as the National Council of Nonprofit Associations and Independent Sector in their opposition to repealing the estate tax.6

However, one observer has pointed out potential gains 

that the federal government would realize from a significant decline in charitable giving.7

 First, taxpayers who reduce their charitable contributions would claim fewer 

itemized deductions on their income tax returns, thus 

raising revenues. Second, because assets would be retained by donors and not moved into the untaxed charity 

sector, the income earned on those assets would remain 

subject to income tax, further increasing revenues. Those 

effects could partially offset the revenue loss from the repeal of the estate tax.

Few studies have examined the effect of the estate tax on 

charitable contributions, and estimates are highly uncertain. Although derived from careful econometric analysis 

of tax data, past estimates have been based on donors’ behavior shortly before death, but donors expecting to die 

soon would probably be more sensitive than others to the 

estate tax.8

 Because donors make most contributions to 

charity well before death, imputing the behavior of those 

near death to the whole population may overstate the 

sensitivity of contributions to changes in the estate tax. A 

recent analysis examining donors age 50 or older finds a 

weaker effect of the estate tax on charitable contributions.9

Effects of Raising the Exemption Level 

and of Repealing the Estate Tax

The Economic Growth and Tax Relief Reconciliation Act 

of 2001 (EGTRRA) established the amounts effectively 

exempted from the estate tax at $1 million ($2 million for 

married couples) in 2002, $2 million ($4 million for 

married couples) in 2006, and $3.5 million ($7 million 

for married couples) in 2009. It also decreased the top tax 

rate gradually from 55 percent to 45 percent in 2009.10

In 2010, the estate tax is eliminated. After that year, the 

law reverts to the pre-EGTRRA tax structure, with a $1 

million exemption ($2 million for married couples) 

(see Table 1).

Because EGTRRA phases in gradually, opponents of repealing the estate tax have proposed to freeze the reductions at some point before 2010, while proponents have 

proposed making the repeal permanent. That situation 

suggests three potential scenarios for evaluation: immedi4. David Joulfaian, “Estate Taxes and Charitable Bequests by the 

Wealthy,” National Tax Journal, vol 53, no. 3 (September 2000), 

pp. 743-764.

5. Jon M. Bakija and William G. Gale, “Effects of Estate Tax Reform 

on Charitable Giving,” Tax Policy Issues and Options, UrbanBrookings Tax Policy Center, no. 6 (July 2003), available at 

www.urban.org/UploadedPDF/310810_TaxPolicy_6.pdf; and 

Robert McClelland, Charitable Bequests and the Repeal of the Estate 

Tax, Technical Paper 2004-08 (July 2004), available at 

www.cbo.gov/Tech.cfm.

6. National Council of Nonprofit Associations, “Position Statement: 

Estate Tax,.” July 26, 2000, available at www.ncna.org/

index.cfm?pageID=299; and Independent Sector, “Policy Position 

on the Estate Tax and Charitable Tax Bequests” (March 2001), 

available at www.independentsector.org/programs/gr/

EstatePosition.html. 

7. Martin Feldstein, “Kill the Death Tax Now,” Wall Street Journal, 

July 14, 2001; and “Estate Tax Repeal Makes Sense,” Boston 

Globe, February 27, 2001.

8. Gerald Auten and David Joulfaian, “Charitable Contributions 

and Intergenerational Transfers,” Journal of Public Economics, vol. 

59, no. 1 (1996), pp. 55-68.

9. Pamela Greene and Robert McClelland, The Effects of Federal 

Estate Tax Policy on Charitable Contributions, Technical Paper 

2001-2 (March 2001), available at www.cbo.gov/Tech.cfm.

10. Estate and gift tax law provides an unlimited spousal exemption. 

With minimally competent estate planning, a married couple can 

take advantage of that provision and a “bypass trust” to double the 

amount of wealth exempt from taxation. Prior to EGTRRA, the 

estate tax and the gift tax were part of a unified tax. Because the 

difference between the two created in EGTRRA does not affect 

the current analysis, only the estate tax is explicitly mentioned. A 

surtax of 5 percent is applied to estates between $10 million and 

$17.184 million. 
THE ESTATE TAX AND CHARITABLE GIVING 5

Table 1.

Schedule of Tax Rates and Estate Tax Exemptions Under Pre-2001 Law

and Current Law

Source: Joint Committee on Taxation. 

Notes: TRA97 = Taxpayer Relief Act of 1997; EGTRRA = Economic Growth and Tax Relief Reconciliation Act of 2001; n.a. = not applicable.

Rates shown under pre-2001 law and for 2001 under EGTRRA do not include the 5 percent surtax on estates between $10 million and

$17.184 million.

ately and permanently setting the exemption level at $2 

million ($4 million for married couples); immediately 

and permanently setting the exemption level at $3.5 million ($7 million for married couples); and immediately 

and permanently repealing the estate tax. 

For each of those cases, CBO evaluated only the simulated change in the exemption level and did not take into 

account EGTRRA’s provisions reducing estate tax rates or 

that law’s change in the treatment of state death taxes 

(shifting from a credit to a deduction). Limitations of 

available data preclude estimating the parameters needed 

to simulate the effect of rate changes. Moreover, the likely 

changes in state tax law in response to the change in the 

treatment of state death taxes add uncertainty to estimating the effective change in the federal tax rates. However, 

if the marginal tax rates for combined federal and state estate taxes were to fall, the declines in charitable contributions and bequests would be larger than those described 

in this report.

CBO’s analysis simulates the response of charitable contributions by households in 2000 to each change in the 

estate tax. The estimates presented answer the following 

question: in 2000, how would households have changed 

their charitable contributions in response to an increase 

in the exemption level? For example, if an individual in 

2000 believed that the exemption level at the time of his 

or her death would be $3.5 million instead of the scheduled level, how would his or her charitable contributions 

have changed? 

Because a person’s expected estate depends on how he or 

she anticipates assets to grow over time and that expectation is unknown to analysts, CBO simulated changes in 

charitable contributions under several scenarios for the 

growth of assets. That procedure provides a range of estimates that may bracket the actual outcome. 

The four scenarios for the growth of assets assume fixed 

assets and low, medium, and high growth rates (see the 

appendix for details). The fixed-asset scenario assumes 

that people believe they will have the same wealth when 

they die as in the year they reported their wealth. The 

low-, medium-, and high-growth scenarios assume real 

annual growth rates of 2 percent, 3 percent, and 4 perPre-2001 Law (TRA 97) Current Law (EGTRRA)

Top Rate

(Percent)

Amount Exempted

(Dollars)

Top Rate

(Percent)

Amount Exempted

(Dollars)

2000 55 675,000 n.a. n.a.

2001 55 675,000 55 675,000

2002 55 700,000 50 1,000,000

2003 55 700,000 49 1,000,000

2004 55 850,000 48 1,500,000

2005 55 950,000 47 1,500,000

2006 55 1,000,000 46 2,000,000

2007 55 1,000,000 45 2,000,000

2008 55 1,000,000 45 2,000,000

2009 55 1,000,000 45 3,500,000

2010 55 1,000,000 n.a. Repeal

2011 55 1,000,000 55 1,000,000
6 THE ESTATE TAX AND CHARITABLE GIVING

Table 2.

Estimated Effects on Charitable Contributions in 2000 from Changes in the 

Estate Tax, Under Different Scenarios for the Growth of Assets

(Percentage change)

Source: Congressional Budget Office. 

Note: Under the fixed-asset scenario, people believe they will have the same wealth at death as in 2001. The low-, medium-, and highgrowth scenarios assume real annual growth rates of 2 percent, 3 percent, and 4 percent, respectively. See the appendix for details.

a. Estates in excess of $10 million are assumed to be insensitive to the incentive effect of the estate tax rate.

cent, respectively, combined with typical patterns of saving and spending over the course of a life.11 It is possible 

that very wealthy people plan to leave fixed amounts to 

their heirs and to give away the remainder of their estates. 

Such people would be unaffected by the tax incentive to 

contribute to charity. To allow for that possibility, an alternative set of estimates assumes that those people with 

wealth greater than $10 million are entirely unaffected by 

the tax incentive to contribute. In applying the scenarios, 

CBO estimated only the responses of people who were 50 

years old or older in 2000—and therefore more likely to 

take account of the estate tax.12

Permanently raising the effective estate tax exemption to 

$2 million ($4 million for married couples) would have 

caused charitable contributions in 2000 to decline by no 

more than 1 percent (see Table 2). Permanently raising 

the exemption to $3.5 million ($7 million for married 

couples) would have caused a similar decline.

The small change in charitable contributions occurs for 

two reasons. First, although raising the exemption level 

reduces the tax incentive to contribute, the predicted effect is small. Second, the drop in contributions is partially 

offset by increased contributions from wealthier households, who would have more disposable after-tax wealth 

and an unchanged tax incentive to give.

For example, under the fixed-asset scenario, increasing 

the exemption to $3.5 million would have caused contributions to decrease by about $2 billion, or about 1 percent. Aggregate contributions from families with less than 

$7 million in assets would have decreased by slightly 

more than $3 billion, but aggregate contributions from 

wealthier families would have increased by $1 billion (see 

Figure 1).

Repealing the estate tax would cause a much larger decline in charitable contributions. If people with estates 

larger than $10 million responded to the tax incentive, 

eliminating the tax would have caused charitable contributions to decline by 6 percent to 11 percent in 2000. 

Repealing the estate tax raises the cost of giving for all 

households that would have owed estate taxes, so the balancing of losses from one set of households with gains 

from another does not occur. Under the alternative assumption that people with estates above $10 million do 

not respond to the tax incentive, contributions would still 

have declined by up to 3 percent.

The decrease in charitable contributions would also increase individual income tax revenues, partially offsetting 

Alternative Tax Law Fixed Assets Low Growth Medium Growth High Growth

$2 Million Exemption 0 -1 0 0

$3.5 Million Exemption -1 -1 -1 -1

Repeal of the Estate Tax -7 -11 -7 -6

Repeal of the Estate Tax 

with Large Estates Unaffecteda -1 -3 0 -1

11. Those scenarios, described in more detail in Greene and McClelland, The Effects of Federal Estate Tax Policy on Charitable Contributions, were created in John J. Havens and Paul G. Schervish, 

“Millionaires and the Millennium: New Estimates of the Forthcoming Wealth Transfer and the Prospects for a Golden Age of 

Philanthropy” (Social Welfare Research Institute, Boston College, 

October 1999), available at www.bc.edu/research/swri/

meta-elements/pdf/m%26m.pdf.

12. If people’s giving is not influenced by the estate tax until they are 

much older than 50, the estimates in Tables 2 and 3 may be upper 

bounds.
THE ESTATE TAX AND CHARITABLE GIVING 7

Figure 1.

Estimated Changes in Charitable Contributions in 2000 from Changes

in the Estate Tax

(Billions of dollars)

Source: Congressional Budget Office.

Note: The results presented in this figure are based on a simulation in which assets are fixed; that is, people believe they will have the same 

wealth the year they die as in the year they reported their wealth.

the revenues lost from repealing the estate tax (see Table 

3). Unlike changes in the exemption, repealing the estate 

tax could increase individual income tax revenues by up 

to $6 billion, nearly a quarter of the $25 billion collected 

in estate taxes in 2000. Even if people with assets worth 

more than $10 million are insensitive to changes in the 

incentive, the offset could exceed $1.5 billion.

Those increases are relatively large because most contributions are made by taxpayers who itemize their deductions and are wealthy. Further, those taxpayers tend to be 

in the top tax bracket, so a decrease in contributions 

sharply increases income tax revenues. Finally, itemized 

contributions ($140 billion in 2000) are much larger 

than estate tax revenues ($25 billion in 2000), so even 

small percentage changes in itemized contributions are 

large relative to estate tax collections.

The effect that changes in the exemption has on charitable bequests follows a pattern similar to that for charitable contributions, although the declines are much greater. 

An exemption of $2 million or $3.5 million would have 

led to an 8 percent to 15 percent decline in charitable bequests in 2000 (see Table 4).13 Although the percentage 

decreases are much larger than for charitable contributions, the total declines would have been even greater 

without the increased bequests from larger estates. 

0 to 0.675 > 0.675 to 3.5 > 3.5 to 7.0 > 7.0 to 20.0 More than 20.0

-5

-4

-3

-2

-1

0

1

2

Exemption Increased to $3.5 Million

Estate Tax Repealed

Assets in an Estate (Millions of dollars)

13. The ranges presented represent an estimate plus or minus a 3 percent margin of error, defined here as a 95 percent confidence 

interval. Estimates of the change in charitable bequests from 

repealing the estate tax come from McClelland, Charitable 

Bequests and the Repeal of the Estate Tax. That analysis uses the estimated responses to changes in estate tax rates and wealth to simulate the effect that repealing the estate tax would have had on each 

estate leaving a charitable bequest in 2000. Estimates of the effect 

of increases in the exemption follow a similar method.
8 THE ESTATE TAX AND CHARITABLE GIVING

Table 3.

Estimated Changes in Individual Income Tax Revenues in 2000 from Changes in the Estate Tax, Under Different Scenarios for the Growth of Assets

(Billions of dollars)

Source: Congressional Budget Office. 

Note: Under the fixed-asset scenario, people believe they will have the same wealth at death as in 2001. The low-, medium-, and highgrowth scenarios assume real annual growth rates of 2 percent, 3 percent, and 4 percent, respectively. See the appendix for details.

a. Estates in excess of $10 million are assumed to be insensitive to the incentive effect of the estate tax rate.

Because repealing the estate tax reduces the incentive to 

contribute for all decedents who would have faced it, that 

step would have induced a decrease in charitable bequests 

of 16 percent to 28 percent.

Altogether, for charitable contributions and bequests in 

2000 combined, raising the exemption level to $2 million 

or $3.5 million would have decreased giving by less than 

3 percent. Repealing the estate tax would have decreased 

giving more substantially—by 6 percent to 12 percent.

Table 4.

Estimated Effects on Charitable 

Bequests in 2000 from Changes in the 

Estate Tax

Source: Congressional Budget Office. 

Note: For each change in the exemption, the range represents a 

margin of error of plus or minus 3 percent; for repeal, plus or 

minus 6 percent.

Alternative Tax Law Fixed Assets Low Growth Medium Growth High Growth

$2 Million Exemption 0.2 0.3 0.1 0

$3.5 Million Exemption 0.5 0.4 0.2 0.1

Repeal of the Estate Tax 4.1 6.4 3.7 2.8

Repeal of the Estate Tax

with Large Estates Unaffecteda 0.4 1.7 0 -0.2

Alternative Tax Law

Percentage 

Change

$2 Million Exemption -8 to -14 

3.5 Million Exemption -8 to -15

Repeal of the Estate Tax -16 to -28 
A

How CBO Estimated Changes

in Charitable Contributions

The 2001 Survey of Consumer Finances (SCF), sponsored by the Federal Reserve Board of Governors, provided the basic data that the Congressional Budget Office 

(CBO) used to analyze charitable contributions. Shortcomings in those data required two modifications. First, 

the SCF has no information on charitable contributions 

of households giving less than $500 in the previous year. 

However, CBO’s analysis assigned an average contribution to each such household, even though not all households in fact made such contributions. That imputation 

increased the estimate of total contributions in 2000 

from $180 billion to $184 billion. Because few of those 

households have enough assets to be liable for the estate 

tax, assigning average values for contributions has little 

impact on the estimated effects of changes in the estate 

tax. 

Second, by design the SCF excludes all members of 

Forbes magazine’s list of the 400 wealthiest Americans. If 

Giving USA 2001 included them on a list of people giving more than $5 million in 2000, CBO added in their 

contributions and wealth.1 That addition increased the 

estimate of total giving in 2000 by $12 billion, to $196 

billion.

As described in the body of this paper, CBO estimated 

wealth at the time of death under four scenarios for the 

growth of assets: zero (with fixed assets), low, medium, 

and high. In each case, CBO subtracted typical expenses 

such as executors’ fees, funeral expenses, and minority 

discounts—determined through a linear regression of 

log(expenses) on log(gross estate) using 1999 estate tax 

data.

The low-, medium-, and high-growth scenarios were calculated by John Havens and Paul Schervish using SCF 

data.2

 Tables containing details of the scenarios are provided in a CBO technical paper by Pamela Greene and 

Robert McClelland.3

The fixed-asset scenario assumes that families believe that 

their wealth in an estate will equal their wealth in the year 

that the survey was conducted. 

The low-growth scenario allows assets to grow at a real 

rate of 2 percent per year, but households also save and 

spend over their life cycle. In this scenario, households 

save until the head of household is 50, spend down savings slowly from age 51 to age 60, and use up their savings more rapidly after age 60. That dissaving after age 60 

causes total assets to decline from their peak. 

The medium-growth scenario allows assets to grow at a 

real annual rate of 3 percent. Compared with the 

low-growth scenario, this scenario has households save a 

APPENDIX

1. See Center on Philanthropy at Indiana University, Giving USA 

2001: The Annual Report on Philanthropy for the Year 2000 (Indianapolis, Ind.: AAFRC Trust for Philanthropy, 2001).

2. John J. Havens and Paul G. Schervish, “Millionaires and the Millennium: New Estimates of the Forthcoming Wealth Transfer and 

the Prospects for a Golden Age of Philanthropy” (Social Welfare 

Research Institute, Boston College, October 1999), available at 

www.bc.edu/research/swri/meta-elements/pdf/m%26m.pdf.

3. Pamela Greene and Robert McClelland, The Effects of Federal 

Estate Tax Policy on Charitable Contributions, Technical Paper 

2001-2 (March 2001), available at www.cbo.gov/Tech.cfm.
10 THE ESTATE TAX AND CHARITABLE GIVING

larger percentage of their wealth until the head of household is 60 and then begin to spend down their accumulated assets. These households do not become net dissavers until the head of household is 81.

The high-growth scenario assumes that assets grow at a 

real annual rate of 4 percent. Compared with the other 

scenarios, this one has households save a larger percentage 

of their wealth until the head of household is 60 and then 

begin to spend down their accumulated assets. The high 

real growth rate means that these households never become net dissavers; earnings on their assets always exceed 

their spending and their wealth always grows.

Because tax law is written in terms of nominal dollars, 

not real dollars, calculating the estate tax burden required 

that real growth rates be translated into nominal rates using projected inflation rates. That adjustment estimates 

the value of each estate in nominal dollars, on which the 

tax burden can be calculated. All scenarios assume that 

households believe that their estates will be subject to current tax law. Assets grow until the survey respondent’s estimated age of death as reported in the SCF. For married 

couples, assets continue to grow until both partners have 

reached their estimated ages of death. 

For each scenario, CBO calculated the estate tax liability 

and tax price for each family under the law that existed in 

2000. CBO then recalculated those values assuming a $2 

million exemption and a $3.5 million exemption. When 

considering the effect of repealing the estate tax, CBO set 

the tax burden and tax price to zero and one, respectively. 

The analysis calculated the percentage change in contributions by applying the elasticities estimated in Greene 

and McClelland’s 2001 technical paper to the percentage 

changes in wealth and average tax price caused by each 

change in the estate tax. 

Very wealthy families may not be sensitive to tax considerations in that they may leave fixed amounts to their 

heirs and give away the residual. To account for that possibility, CBO’s analysis estimated the effects that changing estate tax law would have on charitable contributions 

under two alternative assumptions: (1) families at all 

wealth levels potentially subject to estate and gift taxes respond to both the wealth and price effects resulting from 

the change, and (2) only families with potentially taxable 

estates under $10 million respond to both the wealth and 

price effects resulting from the change. Households with 

wealth exceeding $10 million respond only to the wealth 

effects of the reform.

In addition, CBO examined the impact of the Forbes 400 

under two alternative assumptions: giving by Forbes 400 

members was assumed to be as sensitive to the estate tax 

as giving by others, or their giving was assumed to be 

completely insensitive to the estate tax. The difference in 

results was less than the rounding error of the reported 

change in contributions.