Copyright 2000 The Washington Post
The Washington
Post
June 13, 2000, Tuesday, Final Edition
SECTION: A SECTION; Pg. A37; THE FEDERAL PAGE
LENGTH: 863 words
HEADLINE:
PHILANTHROPY: GIVE AND TAKE; Repercussions of a Death Tax
Repeal
BYLINE: Kent Allen , Washington Post
Staff Writer
BODY:
If last week's move in
the House to repeal the death tax gains momentum, some in the charity community
fear a collision with their causes.
The legislation, which passed 279 to
136, phases out the tax on estates worth more than $ 1.2 million. Supporters say
it will help farmers and other small entrepreneurs pass on their businesses to
their children, who might otherwise need to sell to meet death tax requirements.
President Clinton has threatened a veto if it passes the Senate.
At
present, the federal government takes as much as half of the portions of such
estates that are not earmarked for charity. Many in the nonprofit world reason
that the tax encourages giving and that its absence would discourage charity.
On the other side are those who say the next generation, who would have
more money in their hands if their parents' estates are spared from taxes, would
be likely to be more generous. In addition, the prospective Democratic and
Republican presidential nominees have both signed on to proposals unrelated to
the estate tax issue that would encourage giving by allowing limited charitable
deductions even for those who do not otherwise itemize when filing.
With
the estate tax in effect, the number of foundations has nearly doubled in the
last decade.
However, it is impossible to measure how the wealthy would
have acted without an estate tax. And for some of the very richest who are still
very much alive, saving on their tax bills does not appear to be the most
important spur to their giving.
Bill Gates, for example, has funneled
more than $ 20 billion of his Microsoft wealth into his foundation in the last
two years. Because much of his donated stock was bought years ago and has
appreciated astronomically as the company took off, the $ 20 billion is not only
deductible, but he benefits again from not having the rise in value declared as
income.
But even under the most liberal IRS regulations, no more than 50
percent of income can be declared as deductible for charity, although the income
against which the deduction is calculated can be stretched out over five years.
And in Gates's case, he can deduct no more than 30 percent of his income because
he has a substantial role in the Gates Foundation as defined by the IRS.
So to fully realize the tax benefits of the $ 20 billion in gifts, Gates
would need on the order of $ 70 billion in income over the next five years.
Absent an incredibly shrewd investment in a multibillion-dollar startup, that
would require selling well over half the company stock he owns. Again, unlikely.
Of course, Bill Gates is unlike virtually any other person, even any
rich person, on the planet. He's not exactly hurting without a deduction. But he
may be similar to those whom Peter Karoff, a philanthropy adviser in Boston who
heads the Philanthropic Initiative (TPI), was thinking of when he wrote "A
Civics Lesson for the Millennium."
"Over the past few years it has
become clear to those of us involved with TPI that we are drawing closer to a
philanthropic big-bang pulled by two powerful forces," Karoff wrote. "One force
is the money, more than any other generation on earth has seen, and the other is
the mood, the disposition to speak, of so many Americans who have become seekers
of meaning in their lives, seeking to redefine their values, their
spirituality."
THE GREATER COMMUNITY: While their grantmaking
focus remains local, community foundations are reaching across the ocean to
teach and learn about improving their work.
In a program sponsored by
the German Marshall Fund of the United States, a transatlantic exchange is
taking place between community foundations in this country and similar
enterprises in Italy, Poland, Bulgaria, the Czech Republic, Britain, Germany and
Slovakia. U.S. participants include foundations in Grand Rapids, Mich.; central
Minnesota; Duluth, Minn.; Columbus, Ohio; and Atlanta.
With a longer
history of community foundations, the American organizations are mainly in the
teaching role; the Europeans will be taking notes.
Launched in 1922, the
Grand Rapids Foundation, for example, claims to be the oldest community
foundation in Michigan. With about $ 160 million in assets, twice its value of
three years ago, the Grand Rapids Foundation distributed $ 3.9 million in grants
in 1998-99, mostly in education and human services.
In Italy, however,
the Community Foundation of Lecco--a city near the Swiss border--was created
only about a year ago. After the country's community-owned savings banks were
privatized in the early 1990s, the banking and charitable functions were
separated into different organizations, not unlike what happens when a public
hospital in this country turns private.
Diana Sieger, president of the
Grand Rapids Foundation, will be visiting Lecco this month, where she expects to
be teaching her Italian counterparts about how to involve the young in
grantmaking.
But education goes two ways. "I hope to learn how
government has played a role with the development of community foundations in
Italy and Europe," Sieger said.
Kent Allen's e-mail address is
allenk@washpost.com
LOAD-DATE: June 13,
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