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An appeal to charity: using philanthropy to revitalize the estate tax.

I. INTRODUCTION

The tax code encourages certain favored behavior: home ownership, capital investment, retirement savings, to name just a few examples. (1) Although we sometimes debate which activities should enjoy special status, we are nonetheless accustomed to the concept of tax incentives. This Article, however, turns the notion of a tax incentive on its head by suggesting that a favored behavior can revive a tax that is worth saving.

George W. Bush has left no doubt that he wishes to permanently repeal the estate tax. (2) The structure of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) guarantees opponents of the tax the opportunity to make the case for permanent repeal. EGTRRA first gradually reduces the top marginal rate and increases the amount of property that can pass tax-free; then repeals the tax altogether in 2010; and finally reinstates the tax in 2011, with a top marginal rate of 55% and an applicable exclusion amount of $1 million. (3) While this repeal and almost immediate reinstatement kept the overall cost of EGTRRA within specified parameters and avoided certain Senate rules, (4) it also ensured continued debate over the estate tax. (5)

Even those who have advocated permanent repeal, concede that it will negatively affect charitable giving. (6) In 2002, Americans gave more than $175 billion to charity, with bequests comprising approximately 10% of the total, or $19 billion. (7) While results vary widely, most studies have estimated that these figures will decline substantially after repeal. One study, for instance, estimated that repeal would reduce charitable bequests between 24 and 45%. (8) Another pegged the decline at 37%, with the authors noting that this would be "the equivalent of eliminating all current grant-making by the country's 110 largest foundations." (9) Another study that examined both bequests and inter vivos gifts estimated that contributions would decline between 13 and 31% in the last ten years of a taxpayer's life. (10) Other studies have simply noted that when the marginal estate tax rate is higher, so is the ratio of charitable bequests to the gross value of estates. (11) While all of these findings should be viewed cautiously in light of the complex statistical issues involved and the difficulty of distinguishing tax considerations from the other factors that may influence giving, conventional wisdom suggests that charitable giving will decrease in the wake of repeal, perhaps precipitously. (12)

Charitable giving is thought to be sensitive to changes in the Internal Revenue Code (Code) because donors care about the net price of a charitable gift. (13) Because charitable bequests are deducted from the gross estate, they lower the price of giving. For instance, assume that a taxpayer wishes to bequeath $1000 to charity. In the absence of a charitable deduction, the cost of the gift is $1000; that is, every $1 given to charity is $1 less for the heirs. But if the taxpayer has the benefit of a charitable deduction, the gift will cost less than $1000. Assume, for example, that the estate has a marginal rate of 48%. (14) If the taxpayer bequeaths $1000 to her heirs, she will owe a $480 tax, and $520 will be left for the heirs. The net cost of the $1000 charitable contribution is thus $520, because this is what the heirs would have collected had the taxpayer not made the charitable gift.

The combination of estate and income taxes increases the incentive to make charitable gifts. Inter vivos charitable gifts receive an additional tax advantage, because they both qualify for a charitable income tax deduction and remove assets from the taxable estate. Consider, for example, someone who has earned $1000 and is considering whether to give it to charity now or hold it until death. Assume that the taxpayer's marginal income tax rate is 30% and the marginal estate tax rate is 48%. Because of the income tax deduction, the net cost of a $1000 inter vivos gift to charity--measured by what otherwise would have been left for consumption or heirs--is $700. Now assume that the taxpayer declined to make the charitable contribution during life and instead paid $300 in taxes. If the taxpayer wishes to bequeath $1000 to charity at death, she will have to add $300 to the $700 she pocketed after paying the income tax. Thus the cost of giving to charity at death is $820; that is, the sum of $300 plus $520 (the amount the heirs would have received in the absence of the $1000 charitable gift). As every euphemistically-termed "development officer" knows, these kinds of tax advantages are often critical factors in "selling" a gift, (15) particularly for wealthy donors. (16)

This Article suggests that the probable decline in charitable giving creates an opportunity to shift the political wind, so that it blows in favor of estate tax reform rather than repeal. To this end, the Article proposes that charitable bequests receive a credit instead of a deduction. As a result of this change, charitable bequests will effectively offset the amount the estate owes the federal fisc. In the absence of a decedent such as Oliver Wendell Holmes (who embraced taxes as "the price of living in a civilized society" and so identified with the purposes of government that he devised the bulk of his estate to the government itself), (17) decedents would likely specify a charity or a list of charities and then direct the executor to make gifts that are at least equal to the tax owed. This simple change reframes the estate tax debate so that the focus is on charity, which is generally (although not always deservedly) seen as a universal good. (18)

Part II begins by discussing the benefits of a robust estate tax, particularly how such a tax can curb the economic and moral harm that results from concentrated wealth and economic inequality. It argues that the reforms suggested by proponents of the tax--typically raising the applicable exclusion amount or affording special treatment to certain types of assets--are paradoxical, because they make the tax less effective at achieving the goals for which it is hailed. This Part emphasizes that if proponents want an estate tax that actually achieves their goals, they have to rally public opinion. Part III sets forth the proposal for a charitable credit. Part IV draws on insights from cognitive psychology to explain why the proposal is likely to build public support for the tax. Part V explains why the proposal will act as a partial counterweight to traditional arguments for repeal. Part VI examines the effect that the credit will have on charities themselves, including the level of funding that charities might expect. Part VI also explores the giving preferences of the wealthy and, by implication, the proposal's redistributive effects.

First, however, a brief digression about the scope of the Article is necessary. A number of tax scholars and commentators have suggested wholesale alternatives to our current system of estate taxation. The proposals include a progressive consumption tax, (19) repealing section 102 of the Code (which excludes gifts and bequests from the gross income of the recipient), (20) and creating an accessions tax (an excise tax on gifts and bequests that is levied on the donee instead of the donor). (21) This Article does not argue that the charitable credit is theoretically superior to these alternatives, in that it introduces greater fairness, efficiency, or neutrality. (22) Rather, the proposal stems from the political reality that (1) Congress is not poised to enact a progressive consumption tax or other comprehensive tax reform any time soon; and (2) a tax on the heirs instead of the estate is likely to meet as much resistance as the current system. Most estate planners will confirm that their clients are focused not on who pays the tax, but rather on the net size of the inheritance. (23) While an accessions tax or the repeal of section 102 may hold theoretic appeal for tax scholars, "such fine points would inevitably be lost on the public at large." (24) Today's political debate is about whether repeal should be made permanent, and if not, about how the existing estate tax should be modified. (25) My proposal provides a strong counterweight to arguments for repeal and promises to build political momentum to improve the tax--even if "improve" means making the tax less porous and ultimately subjecting a greater number of estates to taxation.

II. THE CASE FOR STRENGTHENING THE TAX

A. Dramatic Wealth Concentration

It is difficult to overstate the extent of economic inequality--or wealth concentration--in the United States. A few statistics, though, help illustrate the point. "The top one-fifth of American households with the highest incomes now earns half of all the income in the United States," (26) and those in the top one-fifth make eleven times more than those in the bottom fifth. (27) Moreover, comparisons between the top and bottom fifths actually understate the level of concentrated wealth because the ultra-elite in the top 1% of American households have fared particularly well. Between 1979 and 1989, the portion of the country's wealth held by the top 1% almost doubled, from 22% to 39%. (28) By the mid-nineties, some economists estimated that these households had captured 70% of all earnings since the mid-1970s. (29) At the same time, the wealth of the middle class was relatively stagnant, and the bottom 60% of American households actually experienced a decline in net worth. (30) As a result, the United States now has greater economic inequality than any other major Western country. (31)

Inheritance helps cement this economic inequality. It is de rigeur to state that of the individuals on the Forbes 400 list of the "most wealthy," 35% either inherited their wealth or built their businesses on inherited wealth. (32) A variety of studies, however, have attempted to more precisely document the connection between wealth and inheritance. (33) Studies that use formal modeling and simulation analysis suggest that anywhere from 32 (34) to 67% (35) of household wealth is attributable to wealth transfers, while studies based on direct surveys have suggested that as much as 51% of household wealth is attributable to these transfers. (36) Inheritance is clearly a significant determinant of the "haves" and the "have-nots." (37)

Recent work by Edward Wolff emphasizes the relationship between wealth and inter-generational transfers. As one might expect, the share of households receiving transfers rises steeply depending upon the household's own income and wealth, (38) as does the actual amount of the transfer. As Wolff explains:
    [There is] considerable skewness in the distribution of wealth
    transfers.... Both the mean and median value of wealth transfers
    tends to rise with household income, with a big jump for the highest
    income class. In 1998, the mean present value of wealth transfers
    for the top income class, $250,000 or more, was almost 16 times as
    great as for the lowest, under $15,000, and the median transfer was
    seven times as large. Wealth transfers increase monotonically with
    wealth, with again a big jump for the top wealth class. The mean
    present value of wealth transfers for the highest wealth class,
    $1,000,000 or more, was more than twenty-five times as great as for
    the lowest, under $25,000 ... and the median transfer was fifteen
    times as large. (39)


This data, however, does not suggest that all transfers of wealth further economic inequality. Indeed, Professor Wolff's study showed that as a share of household net worth, wealth transfers declined with both income and wealth. For example, the present value of wealth transfers amounted to 45% of the total net worth of the lowest income class and only 18% of total net worth for the highest income class. (40) This suggests that because individuals in the lower income classes have so little, even small transfers of wealth can account for a substantial percentage of their net worth. (41) In other words, when the typical lower-income individual receives a gift or inheritance, the transfer helps equalize wealth distribution. (42) As Professor Wolff explains, because the present taxation system exempts small transfers and taxes large ones, "the current structure of the estate tax is quite good from the standpoint of equity." (43)

It was large transfers of wealth that President Theodore Roosevelt sought to curb when he first proposed an inheritance tax in 1906, "so framed as to put it out of the power of the owner of one of these enormous fortunes to hand more than certain amount to any one individual." (44) In the spirit of Roosevelt, proponents of the tax hail it primarily as a means of controlling economic inequality. They argue that concentrated wealth has many negative effects, especially on economic growth and the democratic process.

B. The Harms of Economic Inequality

The effect of wealth concentration on economic growth has been discussed extensively. (45) For much of the twentieth century, economists believed that economic inequality fueled economic growth. This view was grounded in the marginal propensity of the wealthy to save, the ability of the very wealthy to shoulder the sunk costs that are involved in establishing new enterprises or industries, and the belief that the poor would have special incentive to work hard. (46) In fact, however, more recent economic studies are "remarkably unanimous in suggesting that high concentrations of wealth correlate with poor economic performance," particularly when the studies examine growth over periods of ten years or more. (47) Because studies that examine only five-year periods offer more support for the traditional view that inequality fuels growth, (48) many economists argue that concentrated wealth creates growth-impeding forces that manifest themselves only over the long term.

Virtually all commentators agree that wealth inequality leads to underinvestment in both physical and human capital, although they offer competing theories to explain how this ultimately affects the long-term growth rate. Some scholars argue that wealth inequality creates social tension and political instability, which increase uncertainty and therefore discourage investment. (49) Others argue that instability threatens the security of property rights (particularly when the poor have great incentive to engage in rent-seeking or predatory activities at the expense of the rich) and thus reduces capital accumulation. (50) In a different vein, scholars have argued that inequality affects fertility rates in ways that reduce economic growth, (51) or, alternatively, that inequality impels voters to seek redistribution through the tax system, which further distorts the economy. (52) Still other researchers have suggested that countries with highly concentrated wealth inadequately invest in education, which leaves the poor trapped in multi-generational poverty and thereby slows economic growth. (53) But while scholars might disagree about why concentrated wealth affects economic growth, they do agree about the ultimate result; namely, that greater inequality reduces the rate of growth over the long term.

Many writers have suggested that economic inequality also undermines democracy, because concentrated wealth helps ensure that some citizens will have much more influence and power than others. (54) Only 600,000 Americans (one quarter of 1%) contribute to political candidates; of these political donors, 81% have annual incomes that exceed $100,000. (55) Loopholes in campaign finance laws allow the wealthy to make substantial contributions to candidates of their choice. (56) Most studies find a relationship between contributions and access, between contributions and the attention that issues receive behind the legislative scene, and between contributions and Congressional roll call votes that do not attract significant publicity. (57) Some studies have also suggested that wealth distorts the results of voter initiatives and referenda, because total expenditures are a key determinant of which side wins the vote. (58) While it is true that national organizations (like AARP or the Sierra Club) can sometimes act as counterweights to wealth, much of politics is local. At this level, even small amounts of wealth may have powerful effects. (59) The potential and actual effects of wealth on democracy are so serious that one scholar has proposed an "equal-dollars-per-voter" amendment to the United States Constitution. The amendment would guarantee that each eligible voter had equal financial resources to support or oppose any candidate or initiative in any election and thereby assure that wealth alone does not allow greater participation in the electoral process. (60)

Louis Kaplow, in contrast, has argued that "concentrations of wealth [may actually] enhance democracy by providing important sources of countervailing power" to incumbent politicians, particularly when they or their political parties are unresponsive. (61) In this regard, however, it is significant whether the wealth is "new" or dynastic. If the wealth is "new," then there is a greater possibility that its holder has genuine talent that she can bring to bear on political issues. On the other hand, when wealth is simply transmitted within the same family from generation to generation, "it is less certain that the subsequent generations will have new perspectives, life experiences, or ... diverse views and ideas." (62) Consequently, "[w]hat is most important for democracy is not that great fortunes should not exist, but that great fortunes should not remain in the same hands." (63)

C. Appealing to a Sense of Fair Play

In addition to emphasizing the negative effects of wealth concentration, (64) proponents of estate taxation offer moral arguments that are based largely on notions of fair play and equal opportunity. As Ronald Chester has described, "American society tolerates substantial inequality of individual rewards largely because of the belief that the greater the variation in award, the greater the competitive effort and productive efficiency of individuals." (65) Historically, this tolerance for disparate end results was thought to be morally justified because America provided endless and equal opportunity. (66) The institution of inheritance, however, means that some individuals will receive assets that are not "earned" and instead depend wholly on the economic success and benevolence of others. These individuals are usually those who are born into wealthy families; in 1998, for example, 66% of all wealth transfers came from parents, 21% from grandparents, 9% from other relatives, and 3% from friends or other sources. (67) Inheritance clearly gives beneficiaries an advantage that is for the most part unconnected to their own talents or gifts.

Of course, despite the rhetoric about equal opportunity, and even discounting inheritance, no one seriously contends that the metaphorical "starting line" runs straight across all demographic groups. Instead, the economic status of parents is a key determinant in predicting the economic status of their children. Indeed, much research (as well as common experience) demonstrates that "the differences in the likely life trajectories of the children of the poor and the rich are substantial." (68) For instance, one study estimated that a son of parents whose income is in the top decile has a 22.9% likelihood of reaching the top decile, and a 40.7% chance of attaining the top quintile; that same son has only a 2.4% likelihood of occupying the lowest decile, and a 6.8% chance of occupying the lowest quintile. (69) In contrast, the son of parents in the poorest decile has a 31.2% chance of remaining there, and a 50.7% chance of occupying the lowest quintile; that same son has only a 1.3% chance of attaining the top decile and a 3.7% chance of reaching the top quintile. (70) Thus the economic status of the parent is highly predictive of the child's.

While no one knows precisely what accounts for this lack of mobility, most researchers assume it is the product of many different factors: the greater investment that wealthier parents are able to make in their children, particularly with regard to education and health; the genetic and cultural transmission of certain cognitive skills and personality traits; race and other group membership; and transfers of wealth via inheritance and inter vivos giving. (71) Many of these forms of "inheritance" are wholly outside of governmental control; in any event, most of us would not want to live in a society that attempted to regulate them. While education, personality and other non-monetary forms of inheritance are value-laden and complex, material wealth is value-neutral and discrete and thus more easily regulated than other forms of inheritance. (72) To the extent that America wants to level the playing field, inter-generational transmission is the easiest and most acceptable place to start.

As illustrated by the passage of EGTRRA, proponents of estate taxation have recently made little headway with their moral and economic objections to concentrated wealth. Lee Anne Fennell has suggested that the moral case is unpersuasive because it frames the tax in a particularly negative way, so that the emphasis is on pulling individuals backwards, not propelling them ahead. (73) Deborah Geier has speculated that Americans have changed the way they view wealth, and that these new attitudes affect the perception of estate taxation. Americans used to view wealth as "in part due to luck or good genes or being in the right place at the right time in the right country in the right era." Today Americans are more likely to "feel that whatever wealth comes under their control is attributable solely to their own hard work and merit." (74) In the wake of this attitude change, using the estate tax to level the playing field seems as unjust as allowing individuals to benefit from "an accident of birth" once did.

These observations about the psychology of estate taxation may help explain Richard Schmalbeck's sense "that listeners either accept these arguments [in favor of the tax] or not, and that more detailed elaboration is unlikely to change many minds." (75) But the case for the tax is not helped by the ease with which opponents can argue that regardless of the relative merits of breaking up concentrated wealth, the estate tax simply does not accomplish this task. After all, estate taxation has been in place continuously since 1916 and dramatic economic inequality has only increased. Because the estate tax has failed to level the playing field, concerns about concentrated wealth do not provide adequate rationale for retaining the tax, or so this particular argument goes. (76)

There are at least two responses to this line of reasoning. First, research suggests the United States would have even greater economic inequality without the tax. For example, one recent study used formal economic modeling to predict that repealing the estate tax would lead to a 32% increase in the share of wealth held by the wealthiest 1% of asset-holders. (77) In other words, the estate tax reduces the level of inequality, even though it does not come close to altogether eliminating it. The second, and perhaps more forceful, response is that arguments about the failure to curb concentrated wealth speak only to what the tax currently does, not to what the tax could do. (78) Indeed, Mark Ascher has proposed modifying the estate tax so that, subject to the marital and a few other limited exemptions, all but $250,000 is subject to the tax at a marginal rate of 100%. (79) No crystal ball is necessary to predict that if such a system were ever enacted, the estate tax would be an extraordinarily effective means of breaking up concentrated wealth. Of course, Ascher's proposal is so contrary to current political sentiment that even the most hopeful supporters of estate taxation do not imagine that it will ever become law. The central point, however, is that a stronger tax could dramatically decrease economic inequality.

D. Adding Teeth to the Tax

In light of the estate tax's potential effect on concentrated wealth, its proponents' current political tack presents a conundrum. Although estate taxation is defended as a means of targeting concentrated wealth, many of its supporters have responded to the repeal movement with proposals to increase the special treatment afforded family farms and family-owned businesses (80) or, more commonly, to raise the applicable exclusion amount (and thus altogether exempt even more estates). (81) For instance, during the 2004 presidential campaign, John Kerry proposed that family-owned farms receive an exclusion of $10 million, and that all estates with a net value under $4 million not be subject to the tax. (82)

Presumably, proposals such as these aim to build support for estate taxation by assuring "ordinary" Americans that they will not be subject to the tax. (83) As passage of EGTRRA illustrates, however, this approach has been utterly unsuccessful. But in addition to failing to sway popular opinion, these alternative proposals make the tax less effective at breaking up concentrated wealth and fail to address (and, in some instances, actually compound) the other criticisms often levied at estate taxation.

For example, the estate tax has the potential to contribute significant progressivity to the federal tax system. (84) That is, the tax might make it more likely that the rich will be taxed at higher rates than the poor. While the concept of progressivity does not have unanimous support, many scholars embrace it as a fundamental goal of the tax system. (85) Moreover, most agree that at various points in history, the estate tax has been powerfully progressive. During the early 1970s, for instance, the estate tax "contributed nearly one-third as much to the progressivity of our tax structure as did rates in excess of the average individual income tax." (86) But today, when taxes are levied on less than 2% of decedents, (87) the estate tax is fairly criticized for making an insignificant contribution to overall progressivity. (88)

This ever-declining contribution, however, is one of our own making. Since the 1970s, Congress has gradually narrowed the relevant tax base by increasing the applicable exclusion amount, and thereby wholly exempting even greater numbers of estates from taxation. (89) As one commentator has written, "[w]hen transfer taxes affect the top six or seven percent of the population, as they did in the mid-1970s, their contribution to progressivity may have meaningful significance. However, when the affected population drops to ... today's level, the [contribution] to progressivity ... is miniscule." (90) Ironically, recent proposals by proponents of the tax to raise the applicable exclusion amount would further undermine progressivity, and thereby aggravate what is already identified as an estate tax failure.

Proposed alternatives to repeal would exacerbate other shortcomings of the tax as well. For instance, because the estate tax has raised approximately $25 billion annually, (91) or slightly less than 2% of government revenues, it is often dismissed as a source of revenue. (92) Obviously, any narrowing of the tax base will make the tax generate less revenue, not more. As another example, scholars criticize estate taxation for violating principles of horizontal equity, that is, for its failure to give similar treatment to persons who transfer similar amounts of wealth. (93) The myriad special rules that apply to specific forms of property--such as favorable valuation rules for land used in farming, or the exclusion or inclusion of life insurance depending on who has the incidents of ownership at the time of death--all function to undermine horizontal equity. (94) Moreover, the cumulative weight of these rules and others creates a complex and porous system. Taxpayers who engage in sophisticated strategies can exploit the "loopholes" to pay significantly less tax than they otherwise would. (95) This diminishes horizontal equity and further erodes progressivity because a wealthy person who engages in avoidance may pay a lower estate tax than someone who is less wealthy and does not plan ahead. (96) Reform proposals that include more special rules, or that simply fail to "clean up" the existing system, play right into the hands of estate tax opponents.

Indeed, scholars have proposed amendments to the tax that would go a long way toward addressing the shortcomings that critics emphasize. For instance, Professors Jay Soled and Charles Davenport have suggested that Congress reduce the applicable exclusion so as to broaden the tax base. (97) They also have recommended (1) rules that would prevent abuse in the valuation of closely-held property and gifts for which the donor retains an interest; (2) rules that would include in the gross estate any insurance on the decedent's life that is payable to family members; and (3) a general "prohibition against recognizing the legitimacy of transfers that are mere ploys designed to circumvent a transfer tax." (98) Others have proposed changing the gift tax to make it a more effective backstop for estate taxation. (99) Although critics often acknowledge the theoretic potential of these reforms, they are quick to dismiss them as political nonstarters.

Given the current popular sentiment, these critics are probably right to discount proposals for real reform. Indeed, a 2002 study conducted by National Election Studies found that almost 70% of persons surveyed favored repeal, while the "25 percent [that] opposed repeal ... were mostly 'not strong' opponents." Even 66% of those surveyed with family incomes of less than $50,000 favored repeal. (100) In light of this data, the initial challenge for estate tax proponents is to turn the tide of public opinion. This is the promise of the charitable credit, which the next Part proposes.

III. REPLACING THE CHARITABLE DEDUCTION WITH A CHARITABLE CREDIT

A. Current Law

Current federal tax law encourages charitable giving in several ways. Charitable deductions, available for both income and estate taxes, are among the most important. The income tax permits individuals who itemize to deduct from their gross income contributions to qualified organizations, up to a specified percentage of the taxpayer's income. (101) The estate tax allows a similar deduction from the gross estate, but the deduction is unlimited. (102)

For the most part, both the income and estate tax deductions are available for contributions to the same kind of organizations. (103) Thus, a deduction is available for gifts to governmental agencies, including certain quasi-governmental agencies such as the National Park Foundation, provided that the gift is "for exclusively public purposes," (104) to veterans' organizations, (105) and to entities "organized ... exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art, or ... amateur sports competition, [or for] ... the prevention of cruelty to children or animals." (106) Organizations that meet these deductibility requirements will have qualified for section 501(c)(3) status, which renders them tax-exempt. (107)

For tax purposes, section 501(c)(3) organizations fall into two general categories: public charities and private foundations. As their name implies, public charities "are typically supported by a broad cross section of the public." (108) Some organizations are assumed to enjoy so much public support that Congress has deemed them public charities per se. For example, churches, schools, hospitals, and medical research organizations are classified as public charities by statute. (109) Other section 501(c)(3) organizations earn the classification by garnering at least one-third of their monetary support from the public. (110) In limited situations, a public charity can receive a lower percentage of support from the public (but not less than 10%), so long as the Internal Revenue Service (Service) determines that the organization is operated to attract public support. (111) When most of us think about charity, public charities are what come to mind--the Alzheimer's Foundation, the Salvation Army, our own churches, and so forth.

In contrast to public charities, private foundations are created with one or a few large gifts, typically from a single donor or family. A small percentage of private foundations--like the Isabella Stewart Gardner Museum in Boston or the Barnes Foundation in Philadelphia--provide charitable services. The typical private foundation, however, uses the income from its capital to make gifts to other charitable organizations, usually in ways that comport with the vision of the foundation's founder. These private foundations vary tremendously in size and mission. For instance, the Bill and Melinda Gates Foundation has more than $27 billion in assets and promotes "global health and learning," (112) while the Neisser Fund has assets of approximately $339,000 and promotes the arts and education. (113) Most of us become aware of private foundations because we hear about the support they give to public charities; think, for instance, of the announcements on public television about support from the Kellogg Foundation, or of the Bradley Foundation's support of the Cato Institute.

Deductions are also available for donations to supporting organizations and donor-advised funds, which combine elements of private foundations and public charities. (114) Like private foundations, both are created by one or a few large gifts. Because supporting organizations and donor-advised funds are associated with other charitable entities, however, they are not considered private foundations. A supporting organization has its own board of directors and is established to benefit a public charity, most typically an educational institution. (115) These organizations are supervised or controlled by the public charity they support, although the donor's family may have minority representation on the board and can influence the investment and distribution of assets. (116) Donor-advised funds, in contrast, are wholly controlled by a community foundation or other charitable organization, and donors and their families are only permitted to make nonbinding recommendations about how monies should be distributed. Taxpayers create donor-advised funds or supporting organizations when they desire control over their charitable contributions but wish to avoid the administrative costs associated with private foundations. (117)

B. The Charitable Credit

This Article proposes that estates receive a credit instead of a deduction for bequests to the sort of entities described above. The difference between the two tax treatments, of course, is that a credit is simultaneously more beneficial to the taxpayer and more expensive for the government. A deduction lowers the value of the taxable estate because the amount of the charitable gift is subtracted from the total amount of assets. To illustrate, assume a taxpayer has a marginal tax rate of 48% and that his net estate is valued at $51.5 million. Because of the applicable exclusion amount, $50 million is taxable. If he makes a $10 million gift to charity and takes a deduction, he will owe $19.2 million (48% of $40 million). A credit, in contrast, offsets the amount of tax owed. If the taxpayer makes his $10 million gift and takes a credit, he will owe $14 million ($24 million, or 48% of $50 million, minus $10 million). Because a credit offsets the tax owed dollar for dollar, it has the potential to quickly reduce the tax owed to zero. With a deduction, however, unless the estate gives so much that it falls below the applicable exclusion amount, the charitable gift cannot nullify the tax. In this example, the taxpayer would have to give $50 million before he reduced his tax liability to zero; with a credit, he would have to give $24 million. In sum, a credit provides a complete subsidy for the charitable gift, while the deduction provides a partial subsidy.

There is nothing particularly radical about the notion of a charitable credit, although none that currently exist are as all-encompassing as the one proposed here. George W. Bush has favored federal legislation that encourages states to provide limited income tax credits for donations to charities "addressing poverty and its impact," (118) and Congress has demonstrated interest in similar measures. (119) More than twenty states offer limited income tax credits for donations to specified types of charities, (120) and North Carolina provides a limited income tax credit regardless of the type of charity supported. (121) The state programs and the proposed federal legislation all aim to encourage charitable giving by lowering its cost to the donor. (122)

The primary goal of this proposal, however, is to rally support for the estate tax--although increased charitable giving is likely to occur, at least compared to the levels that are predicted post-repeal. (123) Replacing the federal charitable deduction with a credit is the only change that this Article suggests, although the proposal might eventually make other revisions to the estate tax or to the laws governing charities more politically palatable. (124) The proposal leaves the charitable income tax deduction untouched and does not change the tax treatment of inter vivos giving. But as the next Section explains, this seemingly simple change has the potential to redefine the way most Americans think about the estate tax.

IV. CHARITY'S APPEAL

Mass opposition to the estate tax is irrational. (125) It is easy to understand why an individual with enough assets to trigger the tax would oppose it, as would her beneficiaries. But prior to the passage of EGTRRA, less than 2% of estates were subject to the tax each year. (126) Thus, the vast majority of Americans should favor the tax; in its absence, individual tax burdens will increase, or governmental operations (and the resultant benefits) will be curtailed.

Several commentators have attributed this disregard of rational self-interest to the psychology of the tax, particularly how it invokes excessive optimism, appears to penalize success and erode norms of familial care, fails to offer any easily-identified benefits, and strikes of a strategic game against the government. This Part explains how the charitable credit changes the psychology of estate taxation, so that the tax will appeal to the many Americans who run little risk of triggering it. In particular, this Part discusses how the charitable credit comports with what lower and middle-class Americans anticipate doing in the face of great wealth; capitalizes on widely-held beliefs about the importance of charities and the good they create; and offers greater control and benefits to the decedent herself (relative to paying taxes).

A. The Optimistic Would Give to Charity (Or So They Say)

Excessive optimism is the most common explanation for mass opposition to the estate tax. Cognitive research has demonstrated that people overestimate the likelihood of positive outcomes and tend to have overly-sunny outlooks on a broad range of questions. (127) Such optimism bias may cause many Americans to anticipate that they will eventually accrue enough assets to trigger the tax. Some scholars have described this psychological phenomena as a "lottery mentality," (128) while others have argued that optimism plays out in subtler, smaller ways. (129) For instance, some taxpayers may have a small window of time--say, in early retirement--during which their estates would be taxable. These individuals may optimistically believe that they will retain these assets, while in reality the costs of retirement will deplete them over time. (130) The question worth exploring, then, is how the charitable credit will influence individuals whose opposition to the tax springs from excessive optimism.

One means of pursuing this issue is to ask what people expect to do if they ever hit the proverbial jackpot, or, in other words, to ask what individuals anticipate doing if their excessive optimism is ever realized. While I am unaware of any survey that asks what people will do if they win the lottery, a review of newspaper interviews with actual winners shows that almost all say that they will contribute money to charity. (131) Whether most interviewees actually contribute is unclear, although some apparently do. (132)

We might initially expect that most high-jackpot winners would make good on their promises, because empirical research has shown that "[t]he more financially secure a [person] feels, the more is given to charity, not just in absolute amounts but also as a percentage of income and net worth." (133) A survey of 112 individuals with net worth over $5 million, however, demonstrates that perceived security is highly subjective. Respondents were asked to rank themselves on a scale of zero to ten, with zero indicating that they felt not at all financially secure and a ten indicating that they felt extremely financially secure. Although 98% of respondents placed themselves above the midpoint, only 36% described themselves as completely secure. (134) Respondents who rated themselves at an eight or nine indicated that they would require about an average additional 60% of their current net worth in order to feel completely financially secure; respondents who rated themselves lower than eight indicated that they would require an average increase of 285% in their net worth. (135) As another indicator of perceived security, only respondents at very high levels of income ($10 million a year) and wealth ($50 million or more in net worth) felt that they would be secure with less than what they had. (136) These respondents indicated that they would require about 44% of their current wealth to maintain that security. (137) Presumably, respondents were accustomed to the standard of living their wealth provided and required a high level of resources to maintain their lifestyles. It may be that once the lottery winner became ensconced in the trappings of a multi-millionaire, she too would believe that fewer monies were available for charity.

What those who experience good fortune actually do, however, matters less than what they say they will do. There are three potential reasons why the lottery winner may announce she will contribute to charity. First, she may have actually contemplated her winnings and decided that charity will get a share. Second, she may not have pondered her options but instead simply has the general sense that such behavior is appropriate. Third, she may secretly know that she will not contribute to charity, but nonetheless feels socially pressured to express such an intention.

Now move away from actual jackpot winners to individuals who think that they will experience good fortune. An excessively-optimistic individual who anticipates herself engaging in either the first or second response should respond positively to the charitable credit because it provides an incentive for the wealthy to engage in behavior that the individual generally believes is appropriate or would do herself. Even an individual who anticipates the third response recognizes the obligation of the wealthy to support philanthropic causes; this is why she feels compelled to lie about her intentions. In all cases, the charitable credit comports with what the excessively-optimistic individual believes she would do, or at least with what she believes she should do. As a result, the charitable credit dovetails with excessive optimism to increase support for the estate tax.

B. Supporting Charity and Leaving Legacies, Not Penalizing Success and Harming Families

Even those who are not excessively optimistic may object to the tax on the ground that it is "unfair" to both the decedent and her family. (138) Part of this perceived unfairness is connected to the timing of the tax, because it removes material assets from a family who has just suffered personal loss. (139) In this sense, then, the tax creates a "double whammy," even for those families who still have ample resources after the tax is collected. The tax also may seem unfair to the decedent herself, who, after all, has recently died. Setting aside the thorny question of how the estate tax affected her lifetime inclination to save, (140) we can assume that most decedents would prefer their families--or at least not the government--to take whatever assets remain at death. Even individuals who do not anticipate that they will pay the estate tax can empathize with a family who has lost a loved one, or imagine how the decedent, if alive, would react to paying the tax. In effect, estate taxation may strike many Americans as "a penalty on success--or, worse, on success combined with generosity toward one's children--in which case transfer taxation ... is corrosive of social norms favoring hard work and caring for one's family." (141) These norms and empathy for the family and decedent often combine to form the basis for a broad moral objection to the estate tax.

Compared to the immediate emotion invoked by notions of death and family, concerns about the harms of concentrated wealth may seem abstract and academic. The credit, however, capitalizes on familiar beliefs about the importance of charity. The proposal thus provides a partial counterweight to rhetoric about the "death tax" because it allows proponents to link the estate tax to charity. When the "death tax" is re-framed as a "philanthropy incentive" or as a "charitable give-back" or whatever other moniker might attach, it is likely to strike a different chord with many lower and middle-class Americans who currently oppose it.

As historian Robert Gross has observed, "Americans like to think of themselves as a charitable people." (142) Indeed, the charitable tradition reaches as far back as the founding of the Bay Colonies in the seventeenth century, when every community was obligated to care for its legal inhabitants and administer aid that was personal, direct, and concrete. (143) In those early days, most American charity was akin to alms-giving, with local authorities investigating requests for help and then arranging for as much aid as necessary. (144) In time, however, with the emergence of an increasingly mobile population and a merchant class that "no longer quickened with the piety of the Puritan fathers," (145) alms-giving was gradually replaced with a notion of charity that was more in keeping with modern philanthropy. While aid to the individually needy did not disappear altogether, charity became more abstract and institutional, and thus aimed at solving systemic problems or promoting particular goals or agendas. (146)

Americans' philanthropic commitment continues today, as reflected in our willingness to contribute both time and money. In 2000, for instance, more than 83 million Americans volunteered a total of 15.5 billion hours, at an approximate value of $239 billion. (147) Americans also opened their checkbooks. In 2002, individuals made inter vivos gifts totaling an estimated $175.04 billion, and decedents made bequests totaling an estimated $19.15 billion. (148) The practice of charitable giving reaches across economic and racial divides, (149) with Americans who earn more than $50,000 annually contributing an estimated 6.4% of their discretionary income to charity. (150)

Admittedly, these figures are a very rough measure of the depth of the charitable norm. Fundraisers frequently invoke the 20/80 rule; that is, 20% of givers account for 80% of charitable dollars. (151) Indeed, empirical research has demonstrated that across all income ranges, a relatively small number of individuals or families contribute more than 5% of their gross income to charity. For example, at income levels of less than $100,000, only 7 to 12% contribute more than 5%; at income levels of more than $100,000, only 4 to 18% of families contribute more than 5%. To illustrate the same point from the other side of the generosity spectrum, at income levels of less than $100,000, 52 to 75% contribute less than 1% of gross income; at income levels of more than $100,000, between 36 and 61% contribute less than 1%. (152) Significantly, however, few individuals or families give nothing to charity. Of those who have incomes of at least $150,000, 96% make a contribution to charity. Even at significantly lower income levels, upwards of 80% make a contribution. (153) So, while commitment to charity may vary across individuals, most people are motivated to contribute something each year.

Significantly, the wealthy are often perceived as having the greatest obligation to contribute. This might stem from a belief that economic success is not entirely earned, but rather is "at least in part [due] to luck and good fortune, or [for the] religiously inclined, to God's will or God's blessing." (154) Moreover, even when wealth is "earned," its owner presumably benefited from her association with various institutions (like, for example, her alma mater) and might therefore be considered indebted. We might also expect the wealthy to give more because they have more resources than others do or even simply because they have always given more. Indeed, at every income level the wealthier individuals "tend to make the larger [annual] contributions." (155) Both participation rates and the percentage of income contributed relate positively to wealth. (156) A similar connection exists between wealth and the likelihood that a taxpayer will make a charitable bequest. As net worth rises, so do the percentage of estate tax returns that report a bequest, as well as the amount of the average bequest and the percentage of net worth given away. (157) In sum, because the charitable credit capitalizes on the American penchant for philanthropy and because it encourages behavior in which most Americans--but particularly the wealthy--already engage, the credit helps ring a much more positive note than the present system of taxation.

C. Imagining the Good that Charities Create

Americans may also perceive the charitable credit as offering substantial advantages to society-at-large. Professor Fennell has argued that opposition to estate taxation stems in part from a failure to adequately link it to popular programs. (158) As opponents of the tax emphasize, at present the tax raises a very small percentage of the revenue necessary to fund the government's general operating expenses. (159) Because the income tax also funds daily operations (and is far more crucial to ensuring that they continue), the estate tax may seem superfluous and deserving of the frequently-levied charge of "double taxation." (160) Moreover, even though repeal would result in less government revenue, Americans may optimistically assume that the government would simply trim fat from its activities, not altogether eliminate some of them. (161) In sum, because Americans can readily identify the persons harmed by the tax (i.e., the decedent and her family) but cannot identify anyone who would be harmed by repeal, the tax may simply seem mean-spirited.

The charitable credit offers the oxymoronic advantage of providing an identifiable, yet still sufficiently abstract, beneficiary. With the credit, the simplest answer to the question of who benefits from the tax is charities, which, in the abstract, receive almost universal support. (162) If an individual moves beyond the abstract to contemplate the actual missions of the institutions likely to receive support, what she envisions is likely to vary from person to person. A substantial body of literature has documented what psychologists call the "false consensus effect," that is, a person's tendency to overestimate the number of people who act and think as she does. (163) Due to the false consensus effect, when a person imagines the actual beneficiaries of the charitable credit, she is likely to assign the "face" of the sort of institution she would support if she were availing herself of the credit. While she will undoubtedly realize that some monies will go to institutions she would not support, she is likely to believe that more monies would flow to those she would.

So long as people believe that their preferred kinds of charities will receive support, the range of institutions to which the wealthy could contribute provides further counterweight to the charge that the estate tax is unfair. The more choice, the more control the decedent has over the ultimate disposition of the assets she accrued during her lifetime. Indeed, estate law itself, which presumably embodies notions of what constitutes fair treatment for decedents, is substantially geared toward dead-hand control. For example, decedents enjoy wide latitude when creating trust provisions or attaching conditions to a gift. Unless the provision or condition is "contrary to public policy," a court will enforce it. (164) While donors are not permitted to promote criminal or tortuous conduct, to encourage or disrupt family relationships, (165) or to induce a beneficiary to personally "embrace or reject" particular religious beliefs, (166) they are otherwise permitted to influence beneficiaries and to pursue particular social agendas. The recent repeal in several jurisdictions of the Rule against Perpetuities (167)--which limits the amount of time a trust can endure--further illustrates this commitment to dead-hand control; without the Rule, the predilections of the donor are honored in perpetuity. (168) In sum, because the charitable credit affords decedents more control over the assets they earned during life, it will be perceived as fairer than the current system.

Moreover, the gifts to charity that result from the credit may be perceived as providing at least some degree of return for a decedent's family. The charitable credit would be available for bequests to all section 503(c)(1) organizations, including private foundations, donor-advised funds and supporting organizations. All leave room for the (sometimes substantial) involvement of the decedent's family. A position at one of these organizations can provide a family member with status, influence, and a host of indirect benefits, (169) in addition to the ability to help shape the legacy of a loved one. Indeed, donors who think creatively even may be able to preserve family assets while simultaneously making bequests that would qualify for the charitable credit. For instance, owners of land or family farms may decide to create conservation easements that permit descendants to continue to use the property for its present purposes. (170) The role that can be carved out for the decedent's loved ones is important, because it helps frame the estate tax as a vehicle that offers at least some benefit to families, instead of as a wholly punitive measure that confiscates assets during times of grief.

D. Substituting Charities for Government

Because the estate tax usually is not defended as revenue-raising and because of its numerous loopholes, the "tax is often perceived not only as a no-win proposition, but also as a strategic game against a greedy and unscrupulous opponent, the government." (171) But with a charitable credit, the "unscrupulous opponent" disappears. Unlike the government, charities are often said to benefit from the "halo effect," or "the belief ... that the charitable sector is somehow better, more trustworthy and more likely to provide a higher quality of services or goods." (172)

The rhetoric about the goodness of charity abounds, as just a few examples will illustrate. Alexis de Tocqueville, who thought that the civic sector was indispensable to American democracy, is still oft-cited today. (173) Robert Bremner, whose book on philanthropy has been one of the most influential among the general public, wrote that "the purpose of philanthropy itself is to promote the welfare, happiness, and culture of mankind." (174) Public officials similarly embrace charities, often with language that seems almost hyperbolic:
    Try imagining this country without organizations like Big
    Brothers,... American Red Cross,... Boys and Girls Clubs. The honor
    roll goes on and on. These organizations number in the hundreds,
    thousands, and each day they touch literally millions of lives.
    Metaphorically speaking, these ... organizations ... are sort of
    like the army of ants of civil society, [and] leverage each day
    many times their weight in human and financial good. (175)


Of course, when one considers some recent controversies involving high-profile organizations, (176) the picture may be considerably less rosy than the rhetoric suggests. The central point, however, is that the "halo effect" endures; despite recent controversies, charitable giving remains relatively constant. (177)

A cynic might even view some recent philanthropic gestures as attempts to hide under the halo. Bill Gates, for example, donated substantial amounts to his private foundation as his antitrust defense began to sour, (178) and Michael Milken became a philanthropist in the midst of his legal debacles. (179) To some extent, this Article steals a page from their notebooks, because it seeks to place a much-maligned tax under the shelter of the charitable halo. Because the charitable credit comports with the attitudes of the excessively optimistic, is consonant with the American philanthropic tradition, and offers concrete advantages to worthwhile beneficiaries, the credit is likely to change how many Americans perceive the tax.

V. RESPONDING TO TRADITIONAL ARGUMENTS FOR REPEAL

The preceding Part explained how the charitable credit would transform estate taxation, so that the tax would appeal to individuals who are unlikely ever to pay it. This next Part sets forth the proposal's additional advantage of providing a counterweight to two arguments frequently made by estate tax opponents: that the tax encourages avoidance and discourages savings. As this next Part explains, a charitable credit is less vulnerable to these attacks than the current system of taxation.

A. Lessening Avoidance

At present, taxpayers can avail themselves of a variety of avoidance devices, ranging from the straightforward annual exclusion (which allows tax-free gifts of up to $11,000 per donee) to the much more complex creation of a family limited partnership. (180) While the tax cannot fairly be called "voluntary"--a label frequently used by its opponents--taxpayers can dramatically limit their liability with aggressive planning. Estate planners have estimated that, with good planning, even very large estates can achieve discounts of about one-third and, in some cases, discounts of one-half. (181) For small estates, careful planning--particularly educated use of the $11,000 annual exclusion and the applicable exclusion amount--can lower the estate beneath the value that triggers taxation. Of course, not all, and probably not even most, taxpayers maximize avoidance possibilities. Some taxpayers, particularly those with smaller estates, may be uninformed about the importance of advanced planning. Moreover, even taxpayers with the requisite knowledge may resist avoidance techniques that require them to give away property earlier than they otherwise would or to hold their assets in forms that are inconvenient. (182) But although we have no good measure of how much tax revenue is lost, it is undeniable that some taxpayers (particularly those with larger estates) engage in moderate to aggressive avoidance.

For at least some taxpayers, however, avoidance should decrease in the wake of the charitable credit. Because the credit is available for contributions to any section 501(c)(3) organization, the wealthy have tremendous control when deciding who will benefit from their largesse. Those who establish a private foundation will be able to precisely dictate the nature of their legacy, within the general parameters of section 501(c)(3) status. But even those who prefer to forego the expense and administrative difficulty of establishing a private foundation will have a range of choices. The United Way, your alma matter, your church, the Nature Conservancy, your local hospital, the Cato Institute, the Institute for Policy Studies--the list goes on and on, with an estimated 863,000 public charities from which to choose. (183)

This diversity helps explain why some taxpayers will have lesser incentive to maximize avoidance. Professors Schervish and Havens have recently proffered "identification theory" to explain why people transfer wealth. The central tenet of their theory is that caring behaviors, including monetary contributions to charity, reflect self-identification with others and the recognition that "the needs of others are similar to what oneself or one's family has or could have personally experienced." (184) While identification theory has been criticized for portraying donor preferences as too strictly hierarchal and thus failing to explain why even the poor make charitable contributions, (185) its primary teaching rings true: we tend to give to those organizations with which we can identify.

Professors Schervish and Havens suggest that this "identification with the fate of others is the primary variable that explains transfers to ... charity for individuals across the economic spectrum." (186) They describe a hierarchal ordering of potential beneficiaries, where "personal and family needs generally take priority over the needs of friends and acquaintances, and the needs of organizations with which one has been associated take priority over other organizations." (187) Professors Schervish and Havens might have also invoked the image of concentric circles, with donors first tending to the individuals and organizations on the inner circles and then moving outward as they fulfill the needs of those closest to them. Because my proposal allows taxpayers to choose from an enormous list of potential charitable beneficiaries, they are able to stay within their own identification circles even though they are forced to move away from the inner circles sooner than they would otherwise prefer.

Taxpayers also have less incentive to avoid the estate tax because charitable contributions confer a variety of direct and indirect benefits, all of which are magnified for the very wealthy. Even in the seventeenth-century Bay Colonies, "charity was as important to the giver as to the recipient." (188) Seventeenth-century givers used alms as a means of expressing faith and showing gratitude toward God; today, donors similarly anticipate that they will benefit (although not necessarily religiously) from making contributions. (189) In this sense, then, charitable donations purchase non-tangible goods. For example, a donor might anticipate that her gift will "purchase" admission to a prestigious school for her heirs. Moreover, to the extent that a donor might crave control over a charity's activities, in the typical organization, "[o]nly those people who can make or raise large contributions are allowed access to policy-making positions." (190) So long as a nonprofit organization believes that the promise of a bequest is genuine, it has enormous incentive to be responsive to the donor during her lifetime.

A charitable contribution may also enhance the donor's social status or prestige. (191) Large contributions--the kind that only the very wealthy are able to make--"can also bring with them considerable fanfare and publicity." (192) In addition, substantial involvement with charity is a key component in the social lives of the wealthy. As Francie Ostrower's interviews of ninety-nine New York City donors reveal, "[t]hrough their philanthropy, wealthy donors come together with one another and sustain a series of organizations that contribute to the social and cultural coherence of upper-class life." (193) While paying taxes also produces benefits (such as a functioning government), they are much more abstract and impersonal than those associated with charitable giving. Although giving at death instead of during life dilutes some of the advantages of charitable giving, this point may be altogether lost on the donor; as Freud observed, we are quite unable to imagine the world without our presence. Finally, to the extent that a donor recognizes that life will go on without her, she may gain comfort from knowing that her charitable support is helping shape her memory. If a taxpayer gains utility from these sorts of considerations, she will have less incentive to avoid the estate tax.

Taxpayers also may be less intent on avoidance simply because they perceive contributing to charity as a laudable deed. Put simply, contributing to charity often makes a person feel good. This "warm glow" adds to the donor's utility and provides another incentive to give. (194) In one laboratory experiment that contained powerful incentives to free ride, researchers studied what influenced voluntary contributions to the public good. (195) They discovered that "people enjoy doing a good deed more than they enjoy not doing a bad deed." (196) In the experiment, each subject was asked to allocate tokens between the public and herself. A subject earned one cent when she kept a token and earned each member of her group (including herself) a half-cent when she placed a token in the public good. Researchers explained these rules both positively and negatively. In the positive frame, they emphasized that every token invested in the group exchange would earn money for all participants. (197) In the negative frame, they emphasized that every token kept by the subject would reduce the earnings of other participants, and that when other group members kept their tokens, the individual subject's earnings would be reduced as well. (198) On average, subjects who heard the negative instructions only contributed 48.2% as much as those who heard the positive instructions. (199) Subjects who heard the negative instructions also had a markedly higher rate of free riding. In any given round, on average 63.5% of these subjects free rode, almost twice the rate of those who heard the positive instructions. (200) In sum, the positive frame significantly increased contributions to the public good.

The taxpayer who engages in avoidance is analogous to the experimental subject who withholds a token. While avoidance increases the assets of the taxpayer's heirs, it also reduces the assets of others. Avoidance means that less revenue is available for public projects, or, alternatively, that the burden of paying for those projects shifts to others. Like withholding a token, then, avoidance is a bad deed. In contrast, contributions to charity are good deeds that provide benefits not just to the donor, but to everyone who utilizes the charitable service. Since people seem to prefer doing a good deed over not doing a bad deed, the charitable credit should result in less tax avoidance.

The charitable credit may also lead to less aggressive estate planning simply because taxpayers might believe that fewer of their peers will be inclined to actively avoid paying taxes. Dan Kahan has drawn on social science literature to suggest that, in collective action settings, an individual's willingness to contribute depends on the belief that others are doing their fair share. (201) Professor Kahan uses tax compliance as an example: the stronger the taxpayer's belief that others are cheating, the more likely it is that the taxpayer herself will cheat. (202) For instance, after passage of the 1986 Tax Reform Act, theorists expected that willingness to comply would depend on whether the reforms increased or decreased an individual's relative tax burden. Instead, what mattered most was whether the taxpayer had encountered people who were positive about the reforms and who expressed a willingness to comply. (203) If a taxpayer believes that the charitable credit will entice others to pay the tax, she is likely to follow suit.

Similarly, the behavior of others is an important predictor of an individual's charitable giving, regardless of tax implications. It is common wisdom among development officers that potential donors are significantly influenced by what others contribute; this is one reason why institutions seek large "leadership contributions" to kick off capital campaigns or annual fund-raising drives. (204) Indeed, surveys confirm that people "pay attention" to what their peers have contributed when deciding on their own level of support. (205) Econometric analysis supports these surveys and the instincts of fund-raisers: as the contributions of those in an individual's social reference space increase, so do those of the individual. (206) This suggests that if a person anticipates that the credit will increase the level of charitable giving at death, that individual is likely to increase her charitable bequests as well. This, in turn, could result in less avoidance.

In sum, the availability of a charitable credit will make some wealthy taxpayers more willing to pay the estate tax. There are many explanations for why an individual pays taxes: (207) she might fear legal sanction for failing to do so, she might try to signal that she is a law-abiding type, (208) or she may have internalized a norm of good citizenship and believe that paying taxes is in keeping with this norm. (209) Regardless of motivation, however, at best most people are resigned to paying taxes. Few experience a sense of satisfaction or altruism as they mail checks to the Service. While some taxpayers may contemplate the governmental services they receive in exchange for their tax dollars, few perceive themselves receiving concrete benefits. Furthermore, with both taxes and charitable giving, individuals are sensitive to the behavior of their peers; less avoidance and increased charitable bequests may create a domino effect. For these reasons, the charitable credit provides a partial response to opponents' arguments about avoidance.

B. Encouraging Savings

The ultimate avoidance technique, of course, is for a taxpayer to spend her assets before death, so that nothing is left for the government to tax. Opponents of the tax argue that it decreases both savings and capital investment, or, in a variant of the same theme, that it reduces the incentive to work--all activities that are essential to economic growth. Some scholars dismiss this concern altogether, on the ground that such effects would be on household savings or the unconsumed personal income of individuals. Although household savings may fund some investment, it is neither the predominant means of funding such activity, nor does household savings represent the total savings in the economy. (210) Scholars also argue that some economic recoveries occur largely because of increased consumption and not because of increased saving. (211) In addition, they point out that discouraging the wealthy from accruing assets is consistent with the goal of deconcentrating wealth. (212) As Edward McCaffrey has argued, however, increased savings reduces the cost of capital and increases productivity, which in turn leads to higher wages. (213) As such, an estate tax that substantially discourages savings could harm lower and middle-class Americans. For this reason, one cannot champion the estate tax as a means of reducing economic inequality without simultaneously considering how the tax affects savings.

Unfortunately, whether the estate tax actually encourages increased consumption is an unresolved question. The answer depends, in large part, on why people save. For a long time, economists assumed that individuals saved in order to fund lifetime needs and desires (such as a comfortable retirement, protection against extraordinary medical expenses, or whatever). Under this life-cycle savings model, bequests are "accidental" and occur only because people do not manage to exhaust their assets during their lifetimes. (214) If this model is correct, the existence of an estate tax should have no effect on savings, because individuals save for their own eventual consumption; they do not save to leave anything to their heirs.

Real-world behavior, however, suggests that the life-cycle model is too simplistic. Even individuals without minor children engage in a variety of behaviors that suggest a bequest motive, including the purchase of life insurance and aggressive estate planning. (215) Researchers have offered various theories to explain this apparent desire to make bequests. One explanation is that parents care about both their own consumption and the happiness of their children. Under this altruistic theory of bequests, parents transfer wealth to their children so long as the marginal benefit to the parents (i.e., their children's anticipated consumption) is greater than the marginal cost to the parents (i.e., their own foregone consumption). (216) Other researchers have attributed savings to exchange theory. Under this model, wealth transfers are payment for services provided to the parent by the child. (217) A parent might also exchange wealth for special influence over a child's life choices, like whom to marry or where to live. By utilizing bequests (and hence delaying payment until death), a parent helps ensure that she will receive services or exert influence for the duration of her life. (218) Still other models posit that wealth has a value to its holder that goes beyond purchase power. Wealth confers social status, connections, and power. If individuals perceive bequests as providing something similar, then these benefits might provide another incentive to transfer wealth at death. (219)

While formal models have suggested that the estate tax negatively affects savings, (220) empirical work has generated mixed results. (221) As William Gale and Maria Perozek have pointed out, these disparate results likely indicate that households are influenced by several motives and that the importance of each motive varies across households. (222) To make matters even more complicated, if donees respond to bequests by reducing their own savings or productivity, (223) the tax's net effect on savings can only be fully captured by examining the behavior of both decedents and their beneficiaries. (224) Michael Graetz wrote presciently in 1983 that "detailed investigation ... by professional economists will [not] produce unambiguous results" (225) about the relationship between the estate tax and savings. As the foregoing suggests, more than twenty years later, economists are still describing the effects of the tax as "not yet well understood." (226)

In light of this uncertainty, the economic evidence about the effect of estate taxation on savings is simply not strong enough, standing alone, to justify repeal instead of sensible reform. (227) Indeed, some scholars have suggested that individuals who are concerned about the savings rate should direct their energies to more tested means of improving capital accumulation, such as reducing the federal deficit and eliminating income tax incentives for inefficient investments. (228) In any event, because a taxpayer who decreases savings in response to the tax is seeking to avoid it, my proposal should have less of a negative effect on savings than the current system for the simple reason that the charitable credit offers donors more control and an array of ancillary benefits. (229)

VI. STRENGTHENING CHARITIES, NOT JUST THE TAX

Thus far the Article has focused on how the charitable credit will affect popular perception of the estate tax and spur cooperation among those who are subject to it. In contrast, this next Part examines the effect the credit will have on charities themselves. It discusses the level of funding that charities can expect, how the credit may affect the giving patterns of the wealthy, and the proposal's redistributive effect. The Part concludes by discussing how the charitable credit would likely encourage increased government oversight of the inner-workings of charities.

A. Maintaining (and Possibly Increasing) Aggregate Charitable Giving

The effect of the proposal on aggregate charitable giving depends on how the credit influences charitable bequests, lifetime contributions by the wealthy, and giving by individuals who are not subject to the estate tax. Given this complexity, the overall effect of the proposal is indeterminate, although most likely charitable giving will hold steady or slightly increase. The proposal is thus advantageous for charities, at least as compared to the declines predicted in the wake of permanent estate tax repeal. As a means of predicting how the credit will affect the amounts contributed to charity, this next Section compares the incentives under the present system with those that would exist under a credit.

1. Bequests

Replacing the charitable deduction with a credit will likely increase the charitable bequests of some taxpayers, and lower the charitable bequests of others. Recall that taxpayers are sensitive to the cost of giving; the lower the cost, the more likely that a donor will give. (230) To return to an example from the Introduction, if the marginal tax rate is 48%, the cost of giving is $520--the amount that would be available for heirs after paying the estate tax. If the taxpayer chooses to donate $1000 to charity, then for that taxpayer, the marginal utility of contributing $1000 to charity outweighs the marginal utility of giving $520 to heirs. Different taxpayers, of course, will have different "price points." (231) Some will bequeath to charity only if the cost of the gift is $420; others will be willing even if the cost is $620. But the central point is that with a charitable deduction, the taxpayer pays less than a dollar for every dollar given to charity. (232)

This is not necessarily true, however, with a charitable credit. As such, few taxpayers will contribute more than the amount they owe in estate taxes. To illustrate, return to another example from earlier in the Article. Assume a taxpayer has a marginal tax rate of 48% and that her estate is valued at $51.5 million. Unless the taxpayer is extraordinarily philanthropic, she will leave the applicable exclusion amount ($1.5 million) to heirs. Provided that she prefers nonprofits to the government, she will bequeath $24 million to charity (48% of $50 million). The question is what the taxpayer will do with the other $26 million. While the cost of the $24 million gift is nothing (because whatever does not go to charity will go to the government), every dollar bequeathed to charity in excess of $24 million costs a full dollar. (233) Because taxpayers are sensitive to the cost of giving, we would expect that the taxpayer would contribute "only" $24 million, or the amount owed in estate taxes.

This simple model ignores a number of complexities, particularly that tax considerations are not the sole determinant of giving (234) and that utility functions are unstable and tend to marginal decreases as monies increase. (In other words, the utility from $10 million is less than ten times the utility from $1 million.) But the central point is that if many taxpayers are presently bequeathing to charity more than what they owe in estate taxes, charitable giving may decline in the wake of the charitable credit.

Even if it is true, however, that the amount of most charitable bequests will be dictated by the federal tax table, the aggregate amount of charitable bequests should not decline, and may even increase. Prior to the passage of EGTRRA, the estate tax raised approximately $25 billion each year, (235) compared to an approximate $19 billion in charitable bequests. (236) In 2003, after EGTRRA's lower marginal rates and the higher applicable exclusion amounts had begun to take effect, the tax raised $20 billion. (237) While the calculation is admittedly rough, if all the monies currently paid in estate taxes are redirected toward charities, giving should increase, or at least hold steady. This, of course, is much more advantageous to charities than the decline that is predicted in the wake of estate tax repeal.

The charitable credit is, however, likely to standardize levels of charitable giving. That is, those taxpayers who currently bequeath less than the amount owed in tax will increase their giving, while those who give more than the amount owed in tax are likely to decrease their giving. Therefore, in all but rare cases, the federal tax table will dictate the level of charitable bequests. But nothing is inherently wrong with standardization, particularly since individuals who gain special utility from philanthropy are able to donate as much they choose.

2. Lifetime Contributions by the Wealthy

The effect of the credit on inter vivos charitable giving, however, is considerably more complex. Like most of us, charities would prefer their money now rather than later. But the wealthy may have the general sense that since the estate tax "forces" them to make charitable contributions at death, they might as well wait. And for many of them, this decision will be economically sound.

As previously explained, the charitable deduction makes giving to charity during life cheaper than giving at death, because inter vivos gifts qualify for a charitable income tax deduction and remove assets from the taxable estate. But for most taxpayers, the charitable credit will make bequests less expensive than lifetime gifts. To return to an example from earlier in the Article, assume a marginal income tax rate of 30%, an estate tax rate of 48%, and a taxpayer who wants to give $1000 to charity. If we again describe the "cost" of the charitable gift as what is forgone by either the taxpayer or her heirs, a lifetime contribution will cost $700--the amount the taxpayer would have pocketed after paying the income tax. Provided that the taxpayer's charitable bequests do not exceed the amount owed in estate taxes, the cost of a $1000 gift is nothing, because whatever does not go to the charity will simply go to the government. If, on the other hand, a taxpayer's charitable bequests exceed the amount of tax owed, lifetime giving is still advantageous, because a taxpayer pays in full for any gifts in excess of her estate tax bill. (In other words, the cost of a $1000 charitable bequest is $1000.) Since only rare individuals will give more than the amount of tax owed, the charitable credit is likely to discourage lifetime giving among the wealthy, at least to the extent that donors are concerned about the tax price of gifts.

The preceding, of course, ignores the time value of money. (238) Just as charities prefer their money now rather than later, an individual taxpayer may prefer a deduction now more than a credit later, depending on the specific tax situation. In addition, individuals who are motivated by altruism or by a desire for the personal benefits that accompany charitable giving may favor inter vivos gifts. In sum, the effect of the charitable credit on lifetime giving is extraordinarily difficult to predict. But even if the proposal creates a preference among the wealthy for giving at death, the empirical data suggests that the credit is unlikely to significantly affect the aggregate flow of charitable dollars.

Empirical research shows that individuals across all wealth levels are more likely to give something to charity during life than at death. (239) For instance, in a sample of matched income and estate tax returns filed between 1996 and 1998, 86% of the least-wealthy taxpayers (with estates between $600,000 and $1 million) and 100% of the wealthiest taxpayers (with estates over $100 million) made inter vivos charitable contributions. (240) In contrast, only the very wealthy extensively utilized bequests, with almost 81% of the wealthiest estates making charitable bequests, compared to only about 5% of the least-wealthy estates. (241) Indeed, in any given year, only about one-fifth of estates make charitable bequests. (242) In sum, the incidence of giving during life is presently much higher than the incidence of giving at death.

But despite the higher incidence of lifetime giving, bequests are currently the most important form of giving by the wealthy because they account for the "lion's share" of the amount of monies actually transferred to charities. (243) For instance, in the sample of matched tax returns described above, taxpayers gave a total of approximately $11.5 million to charity--$3.1 million during life, and $8.4 million in charitable bequests. (244) As these figures suggest, the very wealthy--who have the most to give and the largest tax incentive to contribute--are already choosing to make the bulk of their charitable gifts at death, despite the existing tax incentive to contribute during life. (245)

This empirical work suggests that the effect of the charitable credit on inter vivos giving will likely vary with the wealth of the taxpayer. For the very wealthy, the credit simply reinforces the tendency to make substantial gifts at death instead of during life. For the less wealthy, however, the credit may shift the timing of some gifts from during life to at death. As a result, the amount of monies generated by charitable bequests is likely to increase, and the amount of monies raised by inter vivos gifts is likely to decrease. But because of the time value of money, and because the non-tax benefits of lifetime gifts will continue to motivate some donors, it is impossible to quantify the degree of the shift from inter vivos giving to bequests. In any event, charities are already familiar with the predilection among the wealthy for charitable bequests, and a proposal that exacerbates this preference should not unduly harm charities.

Excessive optimism, however, complicates matters further. If an individual overestimates the likely size of her estate, the decrease in her lifetime giving may be greater than the subsequent increase in her charitable bequests. That is, if the taxpayer's will simply states that charitable bequests shall be equal to the amount of estate tax owed, excessive optimism could decrease an individual's aggregate giving. But even if optimism bias decreases the total giving of some individuals, charities are still better off under my proposal than under repeal. The most wealthy individuals give vastly more than the less wealthy, (246) and the most wealthy already prefer charitable bequests to lifetime giving. Because the charitable credit guarantees that these bequests will continue (and probably increase in value), the charitable credit will avert the dramatic decline in giving that is expected in the wake of estate tax repeal.

3. Giving by Those Not Subject to the Tax

Even though lower and middle-class Americans are not subject to the estate tax, the charitable credit may influence their giving as well. Some individuals may be inclined to decrease their charitable giving because they will recognize that, as the government increases its subsidy of charity, so does each taxpayer, albeit indirectly. Others may engage in the sort of excessive optimism discussed above. But the larger concern is that the credit will create a general sense that charities are receiving larger bequests and therefore do not need gifts from the nonwealthy.

Economists have studied an analogous phenomena referred to as "crowding out." With "crowding out," the issue is whether a direct government subsidy replaces private giving. (247) This possibility raises efficiency concerns; if each $10,000 government grant crowds out $10,000 of private funding, it is more efficient to rely solely on private funding than to have the government act as an intermediary between taxpaying individuals and nonprofit institutions. With the charitable credit, the concern is related, but nonetheless a bit different. Because individuals will never have perfect information about how much funding particular charities have received, they may decrease their giving by more than the amount generated by the charitable credit. As a result, nonprofits would face a net funding loss.

Whether crowd-out occurs depends on why people give. If donors contribute solely because they are interested in ensuring the availability of charitable services, then one dollar of direct government support should crowd out one dollar of private funding--at least in a world of perfect information. (248) As previously discussed, however, donors give for many different reasons. (249) Given these diverse motivations, it is unsurprising that most studies have found either no or only partial crowd-out. For example, one study of public radio stations found that for every $10,000 in governmental grants, private donations decreased by $1350; in other words, despite partial crowding-out, each $10,000 government grant resulted in an $8650 net funding increase. (250) Another study that examined 430 nonprofit shelters and similar human service organizations over a period of ten years found only partial crowd-out. (251) While these studies focused on the effects of government grants, researchers have learned that donors are indifferent to whether the funding is supplied by the government or by a private source. (252) In sum, then, these studies suggest that any additional contributions generated by the charitable credit will only partially displace giving from other private sources.

Recall, however, that because of the interplay between inter vivos giving by the wealthy and bequests, (253) and because the incentive of the credit depends on the taxpayer's penchant for philanthropy, (254) the net effect of the charitable credit is indeterminate. If the charitable credit creates the impression that giving will increase, but instead it merely holds steady, then even partial crowding-out could result in net funding losses, relative to current levels.

But James Andreoni and Abigail Payne have argued that partial crowd-out results from the behavior of charities themselves, not from donor disinclination to give. Their review of fourteen years worth of tax returns from 474 social service agencies and 245 arts organizations suggests that the receipt of governmental grants causes nonprofits to significantly reduce fund-raising efforts. (255) If giving from the wealthy held steady under my proposal, and contributions from the nonwealthy declined, presumably nonprofits would counter by increasing development efforts.

Moreover, if the charitable credit does generate increased funding, which in turns partially crowds out gifts from lower and middle-class Americans, decreased fund-raising would be an ancillary advantage of my proposal. If a nonprofit identifies a finite optimum funding level, and reduces solicitations because it is reaching this level at a quicker-than-expected pace, then the organization is probably directing resources towards more efficient uses. Fund-raising can also "generate deadweight loss, much as advertising that does not generate [new] demand but rather displaces it [between] competing brands." (256) While very little research has been done on the social costs and benefits of fund-raising, (257) most charities (and potential donors) would likely regard less fund-raising as an additional benefit of the charitable credit.

In sum, while the proposal's ultimate effect on charitable giving levels is indeterminate, funding will probably increase slightly or remain at current levels. Moreover, no data suggests the sort of decline that is currently predicted post-repeal. The possibility of a credit might thus allow charities to join the ongoing political debate about the estate tax. While the Chronicle of Philanthropy and other industry publications have expressed great concern about repeal, (258) section 501(c)(3) organizations have been largely silent in the political arena. Perhaps charities do not want to pit their own interests against those of their wealthiest donors. But it may be more palatable for section 501(c)(3) organizations to rally behind the credit, since they would be concrete beneficiaries of the proposal, instead of just ancillary losers under repeal. As Nancy Knauer has documented, charities are remarkably skilled at advancing their legislative agendas. (259) Their participation could help make the charitable credit a reality.

B. Recipients of the Charitable Contributions

Because the credit is available for bequests to all section 501(c)(3) organizations, my proposal is unlikely to substantially affect the type of charity that benefits from the wealthy's contributions. Although not much empirical work documents giving preferences among the wealthy, conventional wisdom is that wealthy donors favor organizations that promote higher education, health, and arts and culture, (260) while the very wealthy prefer private foundations. (261) In light of the observation that individuals give to causes with which they identify, (262) these preferences are unsurprising.

But these preferences are likely to be the source of the largest objection to my proposal from individuals who would otherwise support a robust estate tax. By its very nature, the charitable credit redirects monies from the federal fisc to the nonprofit sector. Most agree that redistribution is one of the current goals of the tax system; in other words, taxation should enable people to receive services that they would otherwise be unable to afford. (263) Because estate tax proponents are primarily concerned about economic inequality, they are likely to be particularly interested in redistribution.

One response to concerns that the credit is insufficiently redistributive is that, because the primary purpose of the estate tax is to break up concentrated wealth, the credit is worthwhile so long as it saves the tax and prevents monies from flowing directly to heirs. Another response is that while much scholarly commentary has speculated that charities have little redistributive impact, (264) empirical work has demonstrated "that the distributional impact of the nonprofit sector can be characterized neither by the pro-poor charity of the Salvation Army nor by the affluent-orientation of some arts groups." (265) Instead, redistributional effects differ depending on the category of nonprofit in question and even the specific institution in question. In health care, for instance, public institutions and programs tend to serve poorer populations than nonprofits, but certain kinds of nonprofits serve poorer clientele than their for-profit counterparts. (266) With regard to medical research, many diseases have a higher incidence among the poor than the wealthy. (267) In higher education--another funding category favored by the wealthy--private colleges serve more affluent students than public colleges, but poorer students at private institutions receive significant need-based financial aid. (268) The poor even benefit from contributions to arts and culture institutions, which are often singled out as the least redistributive of all charitable causes. A review of national survey data demonstrates that although the proportion of households that visit museums and attend performances rises with income, there is nonetheless participation by households of all income levels, not just those at the top. (269) In sum, while few of the nonprofit institutions favored by the wealthy primarily serve the poor, (270) "in no [nonprofit] sub-sector is there evidence that benefits are dramatically skewed away from the poor and toward the affluent." (271)

But while the poor will benefit from some of the charitable giving that results from the credit, my proposal is undoubtedly less redistributive than the current system. As such, it is admittedly tempting to use the charitable credit to influence giving preferences among the wealthy. As previously discussed, most states that have adopted charitable income tax credits limit the kinds of gifts that are eligible, and President Bush's proposed federal legislation encourages states to offer credits for gifts to institutions "addressing poverty and its impact." (272) Other countries have also structured their tax law so as to encourage specific kinds of charitable giving. For example, Italy's income tax charitable deduction reflects such an approach, although the country's priorities are different from those of the United States. Italy's tax code provides a specific dollar limit on how much a taxpayer may deduct for donations to organizzazioni di volontariato, the private organizations that address health and social service problems; allows a deduction of up to 2% of income for contributions to organizations that support performing arts or that provide relief in developing countries; and provides an unlimited deduction for gifts to organizations dedicated to exhibiting, restoring, or maintaining prominent art works. (273) The charitable credit could incorporate a similar approach, perhaps by giving full credit for gifts to agencies primarily dedicated to helping the poor and partial credit for contributions to organizations with other missions.

The Article does not recommend this approach, primarily because of concerns about diminished political viability and efficiency. States that have adopted charitable credits have had the relatively straightforward goal of increasing donations to particular categories of nonprofits. (274) These states are putting the tax code to a traditional use; that is, they are using it to encourage certain favored behavior. My proposal, in contrast, has the much more ambitious goal of both saving and strengthening a tax that is under attack.

As such, the proposal's simplicity provides much of its political appeal. The inevitable debate about which charitable missions warrant full credit would provoke political division; think, for instance, of the potential debate over what level of subsidy is appropriate for religious institutions. (275) But if the tax code treats all bequests to charities equally, individuals can unite behind more abstract notions of charity. (276) Moreover, unequal tax treatment is likely to alienate some of the philanthropically-inclined wealthy, who may be willing to support the reform only if gifts to their own preferred charities receive full credit. Finally, as to efficiency, many institutions would vie to ensure that their donors received the credit. This would likely lead to a distortion of charitable missions and tremendous rent-seeking.

A less contentious means of influencing giving preferences might be to distinguish between gifts to public charities and gifts to private foundations, that is, to make the charitable credit available for contributions to public charities but retain the deduction for contributions to private foundations. Because public charities enjoy support from a broad cross section of the public, (277) there is likely to be widespread agreement about the appropriateness of a governmental subsidy. Private foundations, in contrast, can have more idiosyncratic missions, (278) provided that they operate within the parameters of their section 501(c)(3) status. In addition, recall that most private foundations make gifts to public charities. (279) Because private foundations are required to give away only 5% of their assets each year, (280) the gifts that establish these organizations are perhaps better described as commitments to support public charities over time than as outright gifts. Once a private foundation is established, the founder and her family have perpetual control over the assets, provided that they comply with the relevant regulations. For this reason, many donors establish private foundations as a means of keeping assets under familial control, (281) albeit with an earmark for charitable purposes. At least in the short-term, then, a gift to a private foundation is likely to pack much less charitable punch than an equivalent gift to a public charity. Over the long-term, however, private foundations can exercise substantial influence because they often systematically coordinate with the public charities they support. For at least some left-wing readers, this influence will provide another argument against extending the charitable credit to private foundations. To date, the political "voice" of private foundations has been overwhelmingly (although not exclusively) conservative, (282) and "the track record of large centrist American foundations (like Ford and Kellogg) has done little to restore balance between right-wing institutes and agencies for progressive social change." (283) Consequently, those with left-leaning political views may be particularly wary of making the credit available for contributions to private foundations.

Despite the arguments for distinguishing between private foundations and public charities, this Article does not recommend disparate treatment, for reasons that harken back to the earlier discussion about a list of preferred charities. (284) Again, the proposal's political viability may depend on avoiding debate about which charitable causes are the most meritorious. Indeed, the political voice of private foundations may make politicians who have been traditionally opposed to the estate tax more willing to vote in favor of the charitable credit. Moreover, the proposal may win the support of some philanthropists who favor private foundations, and the degree of control these institutions provide may make the proposal more attractive to others whose estates will trigger the tax. Finally, as previously discussed, the role that family members may play in private foundations helps dampen the perception that the estate tax is unfair to families.

Although the proposal does not actively seek to influence giving preferences, it may indirectly have this effect, at least for some donors. Researchers have observed that when testators make more than one charitable bequest, the donees are often in the same general organizational category, such as education, religion, culture, and so forth. (285) David Joulfaian's empirical work suggests that the tax price of charitable bequests is a significant determinant of the number of organizational categories to which a testator contributes. (286) As the cost of the gift goes down, the number of categories, or the diversity of bequests, goes up. (287) Because the cost of giving is lower with a charitable credit than with a charitable deduction, (288) the proposal may lead to increased recipient diversification. Of course, it is unclear how much this diversification will benefit agencies that primarily serve the poor; the lower cost of giving may simply mean that a person gives to education and medical research, instead of education and medical research and social service organizations. Nonetheless, the credit is likely to increase diversification, even though it is unclear whether this in turn will increase the proposal's redistributive effect.

Professor Fennell has suggested that one means of increasing the estate tax's political appeal is to identify specific government programs that enhance equal opportunity, separate them from the slate of programs that are funded by the income tax, and allow testators to designate in their wills which programs they would like to fund. (289) This "earmarking" approach answers concerns about redistribution and the nature of private foundations and, like my proposal, builds on insights from cognitive psychology. It is not clear, however, that this is enough to save, much less strengthen, the tax.

Some opposition to the estate tax is unconnected to psychology or notions of fairness to decedents. Elimination of the tax is consistent with the (generally Republican) vision of a smaller federal government; as revenue disappears the government has to tighten its belt, at least theoretically. The same political leaders who seek smaller government simultaneously embrace a vibrant nonprofit sector, which can shoulder some of the responsibilities traditionally assumed by government. (290) The charitable credit is consonant with this vision, and thus is a genuine compromise between opponents and proponents of the tax. The estate tax survives and curbs concentrated wealth, but substantial monies flow into the coffers of nonprofits, not the federal fisc. In this sense, then, the charitable credit is a middle-of-the-road proposal with advantages for both sides of the debate.

C. Increased Public Oversight

Because the proposal increases government subsidy of charity, it should fuel ongoing scrutiny of the inner-workings of section 501(c)(3) organizations. This increased oversight will benefit all taxpayers, not just those who contribute to charity. Except for the excise tax on the net income of private foundations and the tax on unrelated business income, section 501(c)(3) organizations do not pay income taxes. (291) They are sometimes even entitled to relief from state property and other taxes, including sales and use taxes. (292) In effect, every taxpayer indirectly subsidizes the nonprofit sector. Increased scrutiny will help ensure that section 501(c)(3) organizations warrant both this subsidy and the charitable contributions that are made to them.

Recent investigations by Congress and the media have discovered several areas that warrant further inquiry. For public charities, the primary concern is about how donations are solicited and distributed. Many charities outsource fund-raising to professional companies, whose fees may constitute a more-than-generous share of the monies generated. (293) There are also questions about whether charities heed the intent of their donors. This issue received widespread attention after the September 11 attacks, when the Red Cross established a special fund for victims of the attacks, received a half-billion dollars in donations, and then announced it would direct some of the funds to causes that were only indirectly related to the attacks. (294) Although the Red Cross eventually reversed itself, the controversy raised questions about the sufficiency of current law, under which state attorney generals provide general oversight and have almost exclusive standing to enforce donor intent. (295) Finally, there has been concern about the compensation packages of top executives and endowment managers. (296)

For private foundations, attention has focused on self-dealing and conflicts of interest. Self-dealing is an illegal transaction between a private foundation and any "disqualified person," such as its directors, officers, or trustees, or any substantial contributor. (297) The Code provides that disqualified persons may not receive compensation, except for "personal services which are reasonable and necessary to carrying out the ... purpose of the private foundation ... [so long as] the compensation ... is not excessive." (298) Compensation is considered reasonable "if it reflects amounts that ordinarily would be paid for like services by like enterprises under like circumstances." (299) Journalists have uncovered numerous abuses of this reasonableness standard, (300) as has a small study conducted by the Georgetown Center for Public and Nonprofit Leadership. The study of sixty-two small foundations showed that almost 20% of the foundations spent more than 40% of their administrative fees on trustee compensation. (301) There were even exceptional cases in which a foundation's total administrative costs were substantially greater than the total amount of grants issued. (302) Like self-dealing, conflicts of interest involve the use of foundation assets for personal gain. Reported conflicts include trustees making donations to groups with which they are affiliated, (303) using their own names for funding projects instead of the name of the private foundation, and choosing to fund charities that do not comport with the founder's intent. (304)

To help counter these abuses, Congress is considering legislation that requires more disclosure by charities, increases the funds available for auditing and Service oversight, and restricts the amount that private foundations can allocate for administrative expenses. (305) Because the charitable credit increases government subsidy of section 501(c)(3) organizations, it provides another reason to closely monitor the nonprofit sector, which will help ensure that charities deserve the favorable tax treatment they receive.

VII. CONCLUSION

Because the tax raises such a small percentage of national revenue, we can consider it "with almost exhilarating freedom" (306) and craft compromises that hold promise for both sides of the political spectrum. For proponents of estate taxation, the charitable credit promises to change the psychology of the tax, so that it appeals to far more Americans. This will enable proponents to prevent repeal, and perhaps also reverse the increases in the applicable exclusion amount and the reductions of the top marginal rate. Just as critically, proponents will be able to push for long-identified reforms that close loopholes and ultimately strengthen the tax. (307)

In exchange, proponents will have to accept a system in which monies flow to section 501(c)(3) organizations instead of the government, and in which there is less redistribution than under the current system. But herein lies the appeal for the other side of the political spectrum: the more effectively the tax curbs concentrated wealth, the stronger and more vibrant the nonprofit sector becomes. In the end, the message conveyed by the charitable credit should appeal to everyone: an America with a strong philanthropic tradition, where decedents are afforded considerable control over the assets they accumulate during life, and where government policy reflects the judgment that monetary inheritance alone should not be the sole determinant of success.

(1) See, e.g., I.R.C. [section][section] 163 (setting forth rules for the deduction of home mortgage interest), 167 (setting forth depreciation rules), 219 (setting forth rules for the deduction of qualified retirement contributions).

(2) Edmund L. Andrews, White House Says Budget Deficit Will Rise Again, N.Y. TIMES, Jan. 26, 2005, at A12 (noting that making the Bush tax cuts permanent is "a top priority for the administration").

(3) Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, 115 Stat. 38 (2001).

(4) The Byrd rule requires the votes of sixty senators for any bill that would decrease revenues for fiscal years more than ten years out from the present year. 2 U.S.C. [section] 644 (2004). See The Byrd Rule--Why the 2001 Tax Act Sunsets in 2010 (Dec. 2002), at http://www.taxingsubjects.com/ARCHIVES/ISSUE10%20ARTICLES/artcl13.html.

(5) See, e.g., David Firestone, House Votes to End Federal Estate Tax as Senate Battle Looms, N.Y. TIMES, June 18, 2004, at A18 (reporting on the House of Representatives's vote for permanent repeal).

(6) See, e.g., Edward J. McCaffery & Don R. Weigandt, Congress Can Save Giving if Estate Tax Dies, CHRON, PHILANTHROPY, May 15, 2003, at 41 (suggesting that Congress should consider changes to the income tax to increase charitable giving after estate tax repeal).

(7) CENTER ON PHILANTHROPY AT INDIANA UNIVERSITY, GIVING USA 2004: THE ANNUAL REPORT ON PHILANTHROPY FOR THE YEAR 2003 57, 66 (2004). These figures exclude donations from corporations and private foundations. When these are included, the total level of giving is about $234 billion, with bequests accounting for 8.2% of the total. Id. at 6.

(8) Charles T. Clotfelter & Richard L. Schmalbeck, The Impact of Fundamental Tax Reform on Nonprofit Organizations, in ECONOMIC EFFECTS OF FUNDAMENTAL TAX REFORM 211 (Henry J. Aaron & William G. Gale eds., 1996) (applying a set of estimates from previous cross-sectional studies to a set of individuals representative of those who file estate tax returns).

(9) Jon M. Bakija & William G. Gale, Effects of Estate Tax Reform on Charitable Giving, 6 TAX POLICY ISSUES AND OPTIONS 1, 5 (URBAN-BROOKINGS TAX POLICY CENTER 2003) (noting that their findings are "conservative" because all nontaxable filers were assumed to be unaffected by repeal; if any were nontaxable because of charitable giving, repeal could affect them as well); see also Jon Bakija et al., Charitable Bequests and Taxes on Inheritances and Estates: Aggregate Evidence from Across States and Time (Discussion Paper No. 7), URBAN-BROOKINGS TAX POLICY CENTER (2003) (using an approach similar to Clotfelter and Schmalbeck, see supra note 8, but more detailed). For a lower estimate, see David Joulfaian, Estate Taxes and Charitable Bequests by the Wealthy, 53 NAT'L TAX J. 743 (2000), which estimates a 12% decline. This figure is likely too low because Joulfaian calculates the average estate rate "by (effectively) weighting observations by wealth, but calculates the marginal tax rate as a simple unweighted average." Bakija & Gale, supra, at 7. A wealth-weighted marginal tax rate would "imply that repeal would generate a bigger increase in the price of giving ... and therefore a bigger decline in charitable bequests." Id. See also CONGRESSIONAL BUDGET OFFICE, THE ESTATE TAX AND CHARITABLE GIVING 8 (2004) (estimating a 6 to 12% decline in charitable giving after estate tax repeal).

(10) David Joulfaian, Charitable Giving in Life and at Death, in RETHINKING ESTATE AND GIFT TAXATION 350, 364 (William G. Gale et al. eds., 2001).

(11) See, e.g., Wojciech Kopczuk & Joel Slemrod, Tax Consequences on Wealth Accumulation and Transfers of the Rich, in DEATH AND DOLLARS: THE ROLE OF GIFTS AND BEQUESTS IN AMERICA 213, 230 (Alicia H. Munnell & Annika Sunden eds., 2003); David Joulfaian, Charitable Bequests and Estate Taxes, 44 NAT'L TAX J. 169, 178 (1991). For an overview of general studies, see Pamela Greene & Robert McClelland, The Effects of Federal Estate Tax Policy on Charitable Contributions, CONGRESSIONAL BUDGET OFFICE, Mar. 2001, available at http://www.cbo.gov/ftpdocs/56xx/doc5650/07-15-CharitableGiving.pdf (last visited Feb. 10, 2005), and Patrick M. Rooney & Eugene R. Tempel, Repeal of the Estate Tax: Its Impact on Philanthropy, CENTER ON PHILANTHROPY AT INDIANA UNIVERSITY, Nov. 1, 2000.

(12) Paul Schervish and John Havens disagree with this conventional wisdom. They argue that charitable giving is more sensitive to after-tax wealth than to the cost of giving and that thus repeal will increase charitable bequests because individuals will have greater net wealth to divide between their heirs and charities. Paul G. Schervish & John J. Havens, Gifts and Bequests: Family or Philanthropic Organizations?, in DEATH AND DOLLARS, supra note 11, at 130, 151-52. Their evidence is based on interviews with 112 respondents worth $5 million. On average, these respondents expected that 47% of their estate would go to heirs, 37% to taxes, and 16% to charities. Their desired allocation, however, was 64% to heirs, 26% to charity and 9% to taxes. Id. at 151. On their face, these responses suggest that a 76% reduction in taxes will lead to a 63% increase in charitable bequests. But there are several reasons to be skeptical of this conclusion. First, respondents greatly over-estimated their real-world tax burden, which raises concern about the reliability of their answers. Bakija & Gale, supra note 9, at 6. Second, respondents were referring to intentions rather than actions; most studies of actual behavior, as detailed above, have demonstrated sensitivity to tax rates. Id. The projected decline is also consistent with the grave concern expressed by hospitals, universities, museums, and other charitable institutions that anticipate a decline in contributions. James Poterba, Comment, in DEATH AND DOLLARS, supra note 11, at 258, 262 (commenting on Kopczuk & Slemrod, supra note 11).

(13) See, e.g., CHARLES T. CLOTFELTER, FEDERAL TAX POLICY AND CHARITABLE GIVING (1985) (providing a comprehensive overview); see also Bakija et al., supra note 9, at 8 (finding that the price sensitivity of charitable bequests is close to, and usually greater than, the sensitivity to after-tax wealth); Michael J. Boskin, Estate Taxation and Charitable Bequests, 5 J. PUB. ECON. 27, 27 (1976); Martin Feldstein & Charles Clotfelter, Tax Incentives and Charitable Contributions in the United States: A Microeconometric Analysis, 5 J. PUB. ECON. 1, 24 (1976).

(14) This was the top marginal rate in 2004. Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, [section] 511(c)(2)(B), 115 Stat. 38, 70 (2001).

(15) Gerald E. Auten et al., Taxes and Philanthropy Among the Wealthy, in DOES ATLAS SHRUG?: THE ECONOMIC CONSEQUENCES OF TAXING THE RICH 392, 397 (Joel B. Slemrod ed., 2000).

(16) Whether a person is properly labeled "wealthy" usually depends on context. For the purposes of this Article, an individual is wealthy if at death she owns sufficient assets to trigger imposition of the estate tax.

(17) LIVA BAKER, THE JUSTICE FROM BEACON HILL: THE LIFE AND TIMES OF OLIVER WENDELL HOLMES 642 (1991).

(18) See infra notes 172-79 and accompanying text; infra notes 291-304 and accompanying text.

(19) Edward J. McCaffery, The Uneasy Case for Wealth Transfer Taxation, 104 YALE L.J. 283, 345 (1994).

(20) Joseph M. Dodge, Beyond Estate and Gift Tax Reform: Including Gifts and Bequests in Income, 91 HARV. L. REV. 1177, 1179 (1978).

(21) John E. Donaldson, The Future of Transfer Taxation: Repeal, Restructuring and Refinement, or Replacement, 50 WASH. & LEE L. REV. 539, 557-60 (1993); Edward C. Halbach Jr., An Accessions Tax, 23 REAL PROP. PROB. & TR. J. 211 (1988).

(22) It is widely agreed that an ideal tax system is "fair," in that similarly-situated taxpayers bear the same tax burden, and the rich bear a higher percentage of the tax burden than the poor. Donaldson, supra note 21, at 545. An ideal system is also neutral. That is, it does not alter choices or behavior that would occur in the absence of the system. Id. at 550-51. Finally, an ideal system is efficient, in that the costs of complying with the system are not greater than the benefits that the system confers. Id. at 548. For additional discussion of the ideal tax system, see EDWARD J. MCCAFFERY, FAIR NOT FLAT: HOW TO MAKE THE TAX SYSTEM BETTER AND SIMPLER (2002), as well as Joel Slemrod, 2002 Erwin N. Griswold Lecture Before the American College of Tax Counsel: "The Dynamic Tax Economist," 56 TAX LAW. 611 (2003).

(23) Indeed, commentators who have poked fun at temporary repeal have emphasized the heirs' incentive to pull Grandma's plug during 2010, not Grandma's incentive to pull it herself. See, e.g., Paul Krugman, Reckonings; Bad Heir Day, N.Y. TIMES, May 30, 2001, at A23. Moreover, state inheritance taxes (which are paid by the heirs, not the estate) have long been unpopular. RONALD CHESTER, INHERITANCE, WEALTH, AND SOCIETY 75-76 (1982).

(24) CHESTER, supra note 23, at 70.

(25) See infra notes 97-100 and accompanying text.

(26) KEVIN PHILLIPS, WEALTH AND DEMOCRACY: A POLITICAL HISTORY OF THE AMERICAN RICH 129 (2002).

(27) Id. at 124.

(28) Id. at xiii; see also Edward N. Wolff, The Impact of Gifts and Bequests on the Distribution of Wealth, in DEATH AND DOLLARS, supra note 11, at 345, 348 (estimating that the top 1% of income-earners hold 38% of the nation's wealth).

(29) PHILLIPS, supra note 26, at xiii; see also Wolff, supra note 28, at 351 (estimating that 53% of the national increase in wealth between 1983 and 1998 went to the top 1%).

(30) PHILLIPS, supra note 26, at xviii.

(31) Id. at 123; Wolff, supra note 28, at 352.

(32) See, e.g., James Repetti, Democracy, Taxes, and Wealth, 76 N.Y.U. L. REV. 825, 849 (2001); Jeffrey G. Sherman, Posthumous Meddling: An Instrumentalist Theory of Testamentary Restraints on Conjugal and Religious Choices, 1999 U. ILL. L. REV. 1273 (1999); Robert J. Misey, Jr., Simplifying International Jurisdiction for United States Transfer Taxes: Retain Citizenship and Replace Domicile with the Green Card Test, 76 MARQ. L. REV. 73 (1992). For a copy of the Forbes 400 list itself, see Forbes.com, The Richest People in America: The Forbes 400, available at http://www.forbes.com/richlist2003/rich400land.html (last visited Feb. 4, 2004).

(33) For a particularly good review of the literature, see Wolff, supra note 28, at 356-60.

(34) Daphne T. Greenwood & Edward N. Wolff, Changes in Wealth in the United States, 1962-1983: Savings, Capital Gains, Inheritance, and Lifetime Transfers, 5 J. POPUL. ECON. 261, 283 (1992).

(35) John Laitner, Random Earnings Differences, Lifetime Liquidity Constraints, and Altruistic Intergenerational Transfers, 58 J. ECON. THEORY 135, 156-57 (1992).

(36) William G. Gale & John Karl Scholz, Intergenerational Transfers and the Accumulation of Wealth, 8 J. ECON. PERSPECTIVES 145, 156 (1994) (analyzing data from the 1983 Survey of Consumer Finances). But see Michael D. Hurd & B. Gabriela Mundaca, The Importance of Gifts and Inheritance Among the Affluent, in THE MEASUREMENT OF SAVING, INVESTMENT, AND WEALTH 737, 753 (Robert E. Lipsey & Helen Stone Tice eds., 1989) (also analyzing data from the 1983 Survey of Consumer Finances and concluding that only 9% of high income households have most of their assets from inheritances). The "sizable discrepancy" in estimates stems from the use of different methodologies. Wolff, supra note 28, at 359. For instance, studies often treat the appreciation of bequests differently, with some valuing the asset at the time of the transfer and others including the appreciation of the asset. Id. at 360. As another example, some studies examine both inter vivos gifts and inheritance, while others only consider inheritance. Id.

(37) Robert B. Avery & Michael S. Rendall, Lifetime Inheritances of Three Generations of Whites and Blacks, 107 AM. J. SOC. 1300 (2002) (arguing that inheritance is playing a key role in reversing progress toward economic equality).

(38) Wolff includes all transfers in his analysis, not just those from inheritance. However, bequests accounted for the lion's share of the transfers (80%), while 11% came from inter vivos gifts and 9% came from trusts. Wolff, supra note 28, at 363.

(39) Id. at 367.

(40) Id. at 370.

(41) Of course, poorer households may be more likely to consume transfers, while wealthier households may be more likely to save them. If this is true, wealth transfers would improve the economic well-being of poorer households, but not ultimately increase their net worth. John Karl Scholz, Comment, in DEATH AND DOLLARS, supra note 11, at 381, 387 (commenting on Wolff, supra note 28).

(42) Wolff, supra note 28, at 373.

(43) Id. at 375.

(44) CHESTER, supra note 23, at 60 (quoting Theodore Roosevelt, Speech at the House of Representatives Office Site (Apr. 14, 1906)). Roosevelt did not succeed in establishing the tax until 1916, when the country had an urgent need for war funds. Even in 1916, however, the political dialogue emphasized combating "the danger of an hereditary plutocracy" and making "the 'game of life' fairer." Id. at 60-61.

(45) Particularly good surveys of the relevant literature can be found in Repetti, supra note 32, at 831-40, as well as Erik Thorbecke & Chutatong Charumilind, Economic Inequality and Its Socioeconomic Impact, 30 WORLD DEV. 1477 (2002).

(46) Repetti, supra note 32, at 831; Philippe Aghion et al., Inequality and Economic Growth: The Perspective of the New Growth Theories, 37 J. ECON. LITERATURE 1615, 1620 (1999).

(47) Repetti, supra note 32, at 831-33. But see Hongyi Li & Heng-fu Zou, Income Inequality is Not Harmful for Growth: Theory and Evidence, 2 REV. DEV. ECON. 318 (1998) (suggesting that income inequality may theoretically increase economic growth if public consumption is considered).

(48) See, e.g., Li & Zou, supra note 47, at 327; Andrea Brandolini & Nicola Rossi, Income Distribution and Growth in Industrial Countries, in INCOME DISTRIBUTION AND HIGH-QUALITY GROWTH 69, 87-89 (Vito Tanzi & Ke-young Chu eds., 1988).

(49) See Alberto Alesina & Roberto Perotti, Income Distribution, Political Instability, and Investment, 40 EUR. ECON. REV. 1203, 1225 (1996).

(50) See Jess Benhabib & Aldo Rustichini, SOCIAL CONFLICT, GROWTH, AND ECONOMIC DISTRIBUTION (1991); Philip Keefer & Stephen Knack, Polarization, Politics, and Property Rights: Links Between Inequality and Growth, (The World Bank, Policy Research Working Paper No. 2418 2000). There is some suggestion in the literature that income inequality increases crime, but the empirical results are unclear. Compare Pablo Fajnzylber et al., WORLD BANK LATIN AMERICAN AND CARIBBEAN STUDIES, Determinants of Crimes Rates in Latin American and the World: An Empirical Assessment (Viewpoints 1998) (finding that income inequality has positive effect on homicide and robbery rates) with Joanne M. Doyle et al., The Effects of Labor Markets and Income Inequity on Crime: Evidence from Panel Data, 65 S. ECON. J. 717 (1999) (finding that income inequality has no independent effect on crimes rates).

(51) See Roberto Perrotti, Growth, Income Distribution and Democracy: What the Data Say?, 1 J. ECON. GROWTH 149, 182 (1996). Perrotti's thesis is that an increase in family wealth leads to a lower fertility rate, thereby enabling families to make a higher investment in human capital. In contrast, when wealth is highly concentrated, fertility rates are higher and aggregate investment in human capital is lower. This in turns leads to lesser productivity growth. See Repetti, supra note 32, at 839-40 (discussing Perrotti's work).

(52) See, e.g., Alberto Alesina & Dani Rodrik, Distributive Politics and Economic Growth, 109 Q.J. ECON. 465, 480 (1994); Giuseppe Bertola, Factor Shares and Savings in Endogenous Growth, 83 AM. ECON. REV. 1184, 1198 (1993).

(53) Repetti, supra note 32, at 838-39.

(54) Of course, breaking up concentrated wealth is not the only means of removing money's influence from politics. We could also pass stricter campaign finance laws. Louis Kaplow, A Framework for Assessing Estate and Gift Taxation, in RETHINKING ESTATE AND GIFT TAXATION, supra note 10, at 164, 193. Throughout history, however, remarkably little progress has been made in removing the influence of money from politics. See PHILLIPS, supra note 26, at xiv, ch. 6 (providing extensive historical documentation of the connections between wealth and the results of the political process).

(55) Debra Lyn Bassett, The Politics of the Rural Vote, 35 ARIZ. ST. L.J. 743, 744 (2003).

(56) See Partisan Groups' Attack Ads Dodge Disclosure Rules, USA TODAY, Mar. 16, 2004, at 12A (discussing campaign finance rules after passage of the McCain-Feingold Act); see also Glen Justice, New Pet Cause for the Very Rich: Swaying the Election, N.Y. TIMES, Sept. 24, 2004, at A12 (discussing contributions to 527 advocacy organizations).

(57) Repetti, supra note 32, at 846-47 (summarizing literature).

(58) Id. at 849 (discussing studies).

(59) See Charles Davenport & Jay A. Soled, Enlivening the Death-Tax Death-Talk, 84 TAX NOTES 591, 599 (1999).

(60) Edward B. Foley, Equal-Dollars-Per-Voter: A Constitutional Principle of Campaign Finance, 94 COLUM. L. REV. 1204 (1994).

(61) Kaplow, supra note 54, at 192.

(62) Repetti, supra note 32, at 850.

(63) Id. (attributing quote to ALEXIS DE TOCQUEVILLE, 2 DEMOCRACY IN AMERICA app. 5 (London, Saunders & Otley 1835)).

(64) Scholars have also argued that economic inequality negatively affects health and the environment, although here the consensus is not as strong. See, e.g., James A. Yunker, Capital Wealth Inequality and Public Bads: A Mathematical Analysis, 29 E. ECON. J. 105 (2003) (reviewing the literature).

(65) CHESTER, supra note 23, at 74.

(66) See id. at 60.

(67) Wolff, supra note 28, at 363.

(68) Samuel Bowles & Herbert Gintis, The Inheritance of Inequality, 16 J. ECON. PERSP. 3, 7 (2002). See also Bhashkar Mazumder, Earnings Mobility in the U.S.: A New Look at Intergenerational Inequality, in UNEQUAL CHANCES: FAMILY BACKGROUND AND ECONOMIC SUCCESS (Samuel Bowles et al. eds., 2003); CASEY B. MULLIGAN, PARENTAL PRIORITIES AND ECONOMIC INEQUALITY 187-213 (1997); Gary Solon, Intergenerational Income Mobility in the United States, 82 AM. ECON. REV. 393 (1992); David J. Zimmerman, Regression Toward Mediocrity in Economic Stature, 82 AM. ECON. REV. 409 (1992); JOHN A. BRITTAIN, THE INHERITANCE OF ECONOMIC STATUS (1977).

(69) Bowles & Gintis, supra note 68, at 7 (citing Thomas Hertz, Intergenerational Economic Mobility of Black and White Families in the United States, Presentation at the Society of Labor Economists Annual Meeting (May 2002)).

(70) Id.

(71) Id. at 4. The authors ultimately conclude that the literature overestimates the importance of genetic transmission of cognitive skills, overemphasizes education, and generally fails to study the importance of race, noncognitive behavioral traits, and direct transfers of wealth. Id. at 5.

(72) CHESTER, supra note 23, at 83.

(73) Lee Anne Fennell, Death, Taxes, and Cognition, 81 N.C.L. REV. 567, 605-06 (2003).

(74) Deborah A. Geier, The Death of the "Death Tax"?: An Introduction, 48 CLEV. ST. L. REV. 653, 656 (2000).

(75) Richard Schmalbeck, Does the Death Tax Deserve the Death Penalty? An Overview of the Major Arguments for Repeal of Federal Wealth-Transfer Taxes, 48 CLEV. ST. L. REV. 749, 753 (2000).

(76) See, e.g., Donaldson, supra note 21, at 542.

(77) John Laitner, Inequality and Wealth Accumulation: Eliminating the Federal Gift and Estate Tax, in RETHINKING ESTATE AND GIFT TAXATION, supra note 10, at 258, 279.

(78) Jay A. Soled & Charles Davenport, Cremating transfer Taxes: Is There Hope for a Resurrection?, 34 WAKE FOREST L. REV. 229, 232 n.16 (1999) (noting that "[o]ne can quite easily amend the law" to address the "curious" criticism about insufficient revenue generation).

(79) Mark L. Ascher, Curtailing Inherited Wealth, 89 MICH. L. REV. 69, 121-49 (1990); see also D.W. Haslett, Is Inheritance Justified?, 15 PHIL. & PUB. AFF. 122, 123 (1986) (similarly arguing for the abolition of inheritance).

(80) See, e.g., Estate Tax Repeal for Family-Owned Farms and Businesses Act of 2003, H.R. 2513, 108th Cong. (2003). While preserving family farms is an oft-cited reason for repeal, opponents of the tax cannot point to a single real-world instance of liquidation due to estate taxes. 149 CONG. REC. H5452 (daily ed. June 17, 2003) (statement of Rep. Pascrell).

(81) See, e.g., H.R. 2610, 108th Cong. (2003) (proposing a $5 million exemption amount); H.R. 2477, 108th Cong. (2003) (proposing a $7.5 million exemption amount).

(82) Jim VandeHei & Jonathan Weisman, Kerry Targets Budget Deficit; New Proposals Echo Clinton, WASH. POST, Apr. 8, 2004, at A1.

(83) See, e.g., Joel C. Dobris, Federal Transfer Taxes: The Possibility of Repeal and the Post Repeal World, 48 CLEV. ST. L. REV. 709, 714 (2000) (advocating a higher annual exclusion and stating that "[l]aw changes when the change is good for the middle class and changing the estate tax looks good for the middle class. In other words, the estate tax bites way too soon").

(84) Michael J. Graetz, To Praise the Estate Tax, Not to Bury It, 93 YALE L.J. 259, 271-72 (1983) (examining data from the 1970s to show that the estate tax had a significant progressive effect).

(85) Slemrod, supra note 22, at 617-18; MCCAFFERY, supra note 22, ch. 5.

(86) Graetz, supra note 84, at 272.

(87) Council on Foundations, Information Brief: Estate Tax Repeal (Jan. 2003), available at http://www.cof.org/Content/General/Display.cfm (last visited Feb. 9, 2005).

(88) See, e.g., Donaldson, supra note 21, at 544; Joel C. Dobris, A Brief for the Abolition of All Transfer Taxes, 35 SYRACUSE L. REV. 1215, 1220 (1984) (stating that "[i]t is clear that the transfer tax does not strongly contribute to progressivity").

(89) In 1916, the new estate tax allowed decedents to transfer $50,000 without triggering the tax. The amount that a decedent could transfer tax-free was increased from $50,000 to $175,625 in 1976. In 1981, the amount was increased to $600,000. William G. Gale & Joel Slemrod, Overview, in RETHINKING ESTATE AND GIFT TAXATION, supra note 10, at 1, 14-15. By 2002, the amount had increased to $1 million; by 2006 the amount will be $2 million; and by 2009 (the year before temporary repeal) the amount will be $3.5 million. Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, [section] 521(a), 115 Stat. 38, 71 (2001).

(90) Donaldson, supra note 21, at 544.

(91) In 2003, when the EGTRRA provisions began to kick in, revenue decreased to $20 billion. INTERNAL REVENUE SERVICE, DATA BOOK 2003 (PUBLICATION 55B) 14 (2004), available at http://www.irs.gov/pub/irs-soi/03databk.pdf (last visited Feb. 23, 2005).

(92) See, e.g., Dobris, supra note 88, at 1217 (stating that "the gift and estate tax does not raise a meaningful amount of revenue and never will"); Graetz, supra note 84, at 269-70; McCaffery, supra note 19, at 300-04.

(93) Donaldson, supra note 21, at 545.

(94) Id.

(95) Richard Schmalbeck, Avoiding Federal Wealth Transfer Taxes, in RETHINKING ESTATE AND GIFT TAXATION, supra note 10, at 113 (noting that "avoidance devices exist and are to a considerable degree effective in reducing the size of a taxable estate").

(96) Donaldson, supra note 21, at 545-47; Krisanne M. Schlachter, Repeal of the Federal Estate and Gift Tax: Will It Happen and How Will It Affect Our Progressive Tax System?, 19 VA. TAX REV. 781, 809 (2000). But see Gale & Slemrod, supra note 89, at 40-41 (stating that Internal Revenue Service figures "provide no evidence that evasion or sophisticated avoidance strategies undermine the progressivity of the estate tax").

(97) Soled & Davenport, supra note 78, at 242. Professors Soled and Davenport propose a reduction in rates that would be enacted at the same time as the amount of the exemption is decreased. Id. at 249. They also suggest a reduction in the exemption for the generation-skipping tax (GST). Id. at 242. The GST acts as a backstop to the estate tax. Without the GST, a grandparent who transferred assets to grandchildren (and thereby skipped over the parents) could reduce the number of times the assets were subject to the estate tax, and thus greatly reduce aggregate tax liability. To close this loophole, generation-skipping transfers generate a separate tax, above and beyond any estate or gift tax.

(98) Id. at 245-49.

(99) See Donaldson, supra note 21, at 553-54 (discussing such proposals). For a discussion of the various methods of avoiding transfer taxes, see Schmalbeck, supra note 95, at 120-42.

(100) Larry M. Bartels, Unenlightened Self-Interest: The Strange Appeal of Estate-Tax Repeal, AM. PROSPECT, June 2004, at A17 (citing The National Election Studies (http://www.umich.edu/~nes), The 2002 National Election Study [dataset], Ann Arbor, MI: University of Michigan, Center for Political Studies [producer and distributor]).

(101) I.R.C. [section] 170.

(102) I.R.C. [section] 2055.

(103) BORIS BITTKER & LAWRENCE LOKKEN, 5 FEDERAL TAXATION OF INCOME, ESTATES, AND GIFTS [paragraph] 130.2 (2d ed. 1989) (Supp. 2004) (noting that the lists of "qualified recipients are substantially identical" under sections 170(c) and 2055(a), but that "there are several minor, seemingly inadvertent differences").

(104) I.R.C. [section][section] 170(c), 2055(a)(1), 2055(g).

(105) I.R.C. [section][section] 170(c), 2055(a)(4).

(106) I.R.C. [section][section] 170(c), 2055(a)(2). Provided that the gift is used for one of these purposes, a contribution to a trust or fraternal organization also qualifies for a deduction. I.R.C. [section] 2055(a)(3). An organization is "charitable" if it provides relief for the poor, constructs public buildings and monuments, or otherwise "lessen[s] the burdens of government." Treas. Reg. [section] 1.501(c)(3)-1(d)(2) (1990). For a detailed examination of the "lessening the burdens of government test," see Lars G. Gustafsson, "Lessening the Burdens of Government": Formulating a Test for Uniformity and Rational Federal Income Tax Subsidies, 45 KAN. L. REV. 787 (1997); Lars G. Gustafsson, The Definition of "Charitable" for Federal Income Tax Purposes: Defrocking the Old and Suggesting Some New Fundamental Assumptions, 33 HOUS. L. REV. 587 (1996).

(107) I.R.C. [section] 501(c)(3). The Supreme Court has observed that the language of sections 501(c)(3) and 170 "is in most respects identical" and that many of the same interpretive standards apply to both statutes. Bob Jones Univ. v. United States, 461 U.S. 574, 587 n.10 (1983). "There is a similarly close link between [section][section] 501(c)(3) and 2055." BITTKER & LOKKEN, supra note 103, [paragraph] 130.2 n.5.

(108) BETSY BUCHALTER ADLER, THE RULES OF THE ROAD: A GUIDE TO THE LAW OF CHARITIES IN THE UNITED STATES 17 (Council on Foundations 1999). Note that "having the word 'foundation' in the charity's name does not make it a private foundation;" community foundations, for example, are public charities. Id. at 17 n.45 (emphasis added).

(109) I.R.C. [section] 170(b)(1)(A)(i) through (iii).

(110) The calculation for what percentage of support comes from the public is a complex one. ADLER, supra note 108, at 19-20 (detailing various formulas).

(111) Id. at 20.

(112) Bill Gates's Web Site-Biography of Bill Gates, at http://www.microsoft.com/billgates/bio.asp (last visited Feb. 9, 2005).

(113) THE FOUNDATION CENTER, THE FOUNDATION DIRECTORY 619 (David G. Jacobs ed., 25th ed. 2003).

(114) ADLER, supra note 108, at 23; Auten et al., supra note 15, at 398.

(115) Auten et al, supra note 15, at 398.

(116) Id.

(117) Id.

(118) Under the legislation, states would be allowed to use up to 50% of the federal funds they receive under the Temporary Assistance to Needy Families program to offset the revenue loss from the charitable credit. A single taxpayer would receive a credit of 50% for the first $500 she donated to a poverty-relieving charity, for a maximum credit of $250; married taxpayers would receive a 50% credit for the first $1000, for a maximum credit of $500. If the state does not collect an income tax, the credit can be taken against other taxes. Robert A. Boisture et al., President Bush Presents His Tax Plans for Charitable Giving, 12 J. TAX'N EXEMPT ORG. 235, 241 (2001).

(119) See, e.g., Tax Credit for Charitable Contributions Act of 2003, H.R. 1672, 108th Cong. (2003); Charity to Eliminate Poverty Tax Credit Act of 2001, H.R. 673, 107th Cong. (2001); Charity Empowerment Act of 1999, S. 997, 106th Cong. (1999); Charity Empowerment Act of 1999, H.R. 1607, 106th Cong. (1999); Project for American Renewal Act, S. 1904, 104th Cong. (1996); Project for American Renewal Act, H.R. 3716, 104th Cong. (1996).

(120) For example, Arizona's legislation allows a maximum tax credit of $200 a year. In order to be eligible for the credit, the taxpayer must donate an amount to a qualifying charity that is above a specified baseline. To be a qualifying charity, the charity must first be a section 501(c)(3) organization or a community action agency; second, the charity must spend "at least fifty percent of its budget on services to residents ... who receive temporary assistance for needy families benefits or [are] low income residents of [Arizona]." ARIZ. REV. STAT. [section] 43-1088 (2004). "Umbrella-type charitable organizations," like the United Way, qualify for the credit so long as the taxpayer designates "that the donation be directed to a member charitable organization or member group fund that would qualify on a stand-alone basis." Arizona Department of Revenue, Credit for Contributions to a Qualifying Charity, available at http://www.revenue.state.az.us/welflist.htm (last visited Oct. 30, 2004). A list of charities qualifying under the Arizona statute can be found at http://www.revenue.state.az.us/certifiedcharities0604.pdf. Arizona Department of Revenue, Self-Certified Charitable Organizations, available at http://www.revenue.state.az.us/certifiedcharities0604.pdf (last modified Oct. 28, 2004).

(121) North Carolina provides a tax credit to taxpayers who do not itemize deductions on their federal income tax forms. Taxpayers are permitted to claim up to "seven percent (7%) of [their] excess charitable contributions. The taxpayer's excess charitable contributions are the amount by which the taxpayer's charitable contributions for the taxable year that would have been deductible under section 170 of the Code if the taxpayer had not elected the standard deduction exceed two percent (2%) of the taxpayer's adjusted gross income as calculated under the Code." N.C. GEN. STAT. [section] 105-151.26 (2004).

(122) Margy Waller, Charity Tax Credits: Federal Policy and Three Leading States, (May 2001), available at http://pewforum.org/publications/articles/charitytaxcredits.pdf (last visited Feb. 11, 2005) (presented at The Pew Forum on Religion & Public Life); Boisture et al., supra note 118.

(123) See supra notes 8-12 and accompanying text. The level of charitable giving that is likely to occur with the credit is discussed infra at Part VI.A. The most serious objection to the charitable credit--that it is insufficiently redistributive--is discussed in Part VI.B.

(124) See infra notes 127-79 and accompanying text (explaining why the charitable credit will increase support for the estate tax).

(125) See supra note 100 and accompanying text.

(126) See supra note 87 and accompanying text. Professor Fennell has argued that counting taxable estates underestimates those who are directly affected by the tax. Fennell, supra note 73, at 596. For example, because of the unlimited marital exemption, only second-to-die spouses are actually taxed; however, the first-to-die spouse is likely to feel that her estate planning was affected by the tax as well. Id.

(127) See, e.g., Christine Jolls, Behavioral Economic Analysis of Redistributive Legal Rules, 51 VAND. L. REV. 1653, 1659-61 (1998); Neil D. Weinstein, Unrealistic Optimism About Future Life Events, 39 PERSONALITY & SOC. PSYCHOL. 806, 810 (1980).

(128) See, e.g., CHESTER, supra note 23, at 74-75 (describing the "lottery phenomenon"); Ascher, supra note 79, at 119 (noting dreams of sudden wealth).

(129) Fennell, supra note 73, at 603-04.

(130) Id. at 604.

(131) See, e.g., Nancy Ryan, Lucky Lake Zurich Shop Sells 1 of 2 Winning Tickets, CHI. TRIB., May 10, 2000, at C1; Benjamin Wallace-Wells, $27M in Jackpot Winnings is Retiree's Birthday Gift, BOSTON GLOBE, Mar. 11, 2000, at B3; Roberto Santiago, Shy Guy's Lotto Win is $25M, DAILY NEWS, July 7, 1999, at 8.

(132) See, e.g., Lara Weber and Kris Karnopp, Lottery Winner Makes Good on Promise, CHI. TRIB., Dec. 30, 2002, at 10; Constance Casey, Doing Good with His Lottery Windfall, SEATTLE TIMES, Sept. 16, 1997, at F2; Sheelah Ryan, 69, Who Started Charity with Lottery Winnings, N.Y. TIMES, Sept. 27, 1994, at B14.

(133) Schervish & Havens, supra note 12, at 144.

(134) Id. at 143.

(135) Id. at 144.

(136) Id.

(137) Id.

(138) See Christina Bellantoni, GOP Legislators Eye Repeal of Estate Tax, WASH. TIMES, May 3, 2004, at B1 (reporting on the Republican drive to eliminate the estate tax "because it is unfair"); see also Bartels, supra note 100, at A17 (noting "substantial popular support for President Bush's tax cuts").

(139) Fennell, supra note 73, at 613.

(140) See infra notes 210-26 and accompanying text.

(141) Kaplow, supra note 54, at 193. Such concern is likely magnified by widely-publicized accounts about either illiquid assets or family farms being sold to pay the tax. See, e.g., Paul Barton, Lincoln Pushes to Give Family-Owned Businesses, Farms Estate-Tax Relief, ARK. DEMOCRAT-GAZETTE, Sept. 25, 2002, at A1; Don Hicks, Estate Tax is Unfair to Entrepreneurs, ROCKY MTN. NEWS, Apr. 30, 2004, at 52A.

(142) Robert A. Gross, Giving In America: From Charity to Philanthropy, in CHARITY, PHILANTHROPY, AND CIVILITY IN AMERICAN HISTORY 29, 29 (Lawrence J. Friedman & Mark D. McGarvie eds., 2003).

(143) Id. at 33.

(144) Id.

(145) Id. at 36.

(146) The move away from this alms-giving is consistent with the American notion of self-reliance and self-determination. This view of philanthropy is most famously expressed in Andrew Carnegie's Gospel of Wealth:
    In bestowing charity, the main consideration should be to help those
    who will help themselves; to provide part of the means by which
    those who desire to improve may do so; to give those who desire to
    rise the aids by which they may rise; to assist, but rarely or never
    to do all.... [T]he individual ... is [not] improved by
    almsgiving.... [T]he best means of benefiting the community is to
    place within its reach the ladders upon which the aspiring can
    rise--free libraries, parks, and means of recreation, by which men
    are helped in body and mind; works of art ... and public
    institutions of various kinds, which will improve the general
    condition of the people; in this manner returning their surplus
    wealth to the mass of their fellows in the forms best calculated to
    do them lasting good.


ANDREW CARNEGIE, THE GOSPEL OF WEALTH 27-28 (Edward C. Kirkland ed., Harvard Univ. Press 1962) (1889).

(147) INDEPENDENT SECTOR, GIVING AND VOLUNTEERING IN THE UNITED STATES: KEY FINDINGS, available at http://www.independentsector.org/PDFs/GV01keyfind.pdf (last visited Nov. 4, 2004).

(148) GIVING USA 2004, supra note 7, at 6.

(149) In the only study to examine how cost of living affects the percentage of income donated to charity, researchers estimated that blacks contribute 8.6% of discretionary income to charity; whites 6.4%; Hispanics 5.7%; and Asians 3.9%. Michael Anft & Harvy Lipman, How Americans Give, CHRON. PHILANTHROPY, May 1, 2003, at 6.

(150) Id. Most studies of charitable giving rely on Internal Revenue Service records. Therefore, little reliable data is available for low income filers, who tend not to itemize deductions. According to Giving USA, which does not account for cost of living and other factors that determine discretionary income, Americans gave 1.9% of personal income and 2.2% of disposable personal income to charity in 2003. GIVING USA 2004, supra note 7, at 24. Researchers Paul Schervish and John Havens similarly estimate that families with annual incomes under $100,000 give 1.5 to 2% of their personal income to charity. Paul G. Schervish & John J. Havens, Wealth and Commonwealth: New Findings on Wherewithal and Philanthropy, NONPROFIT & VOLUNTARY SECTOR Q., Mar. 2001, at 5, 6.

(151) See, e.g., Schervish & Havens, supra note 150, at 10 (noting conventional wisdom); Auten et al., supra note 15, at 403 (noting that "[i]t is clear that taxpayers differ markedly in the percentage of income donated").

(152) Schervish & Havens, supra note 150, at 12. These figures are based on monies contributed in 1994.

(153) Id. at 9.

(154) Schervish & Havens, supra note 12, at 148; see also WILLIAM H. GATES SR. & CHUCK COLLINS, WEALTH AND OUR COMMONWEALTH: WHY AMERICA SHOULD TAX ACCUMULATED FORTUNES 111 (2002) (making a similar point about why the wealthy are obligated to contribute to charitable organizations).

(155) Schervish & Havens, supra note 150, at 17. Although the average amount contributed rises as net worth increases, the amount of the increase is not proportional to the increase in wealth. The authors interpret this negative relationship as indicating the following:
    that families tend to make charitable contributions primarily from
    their income (and possibly liquid assets) during their lifetime and
    make charitable contributions from their wealth (net worth) via
    their estate planning.... [I]t is in planning and carrying out of
    estate decisions that there is a strong positive association between
    level of net worth and percentage of wealth given to charity.


Id. at 16.

(156) Id. at 14.

(157) Auten et al. supra note 15, at 411 (reporting on estate tax returns for 1995).

(158) Fennell, supra note 73, at 608.

(159) Id. The tax raises less than 2% of government revenues. See Internal Revenue Service, Summary of Internal Revenue Collections and Refunds, by Type of Tax, Fiscal Years 2001 and 2002, at http://www.irs.gov/pub/irs-soi/02db01co.xls (last visited Feb. 10, 2005); Internal Revenue Service, Summary of Internal Revenue Collections and Refunds, by Type of Tax, Fiscal Years 1999 and 2000, at http://www.irs.gov/pub/irs-soi/00db01co.xls (last visited Feb. 10, 2005); Internal Revenue Service, Summary of Internal Revenue Collections and Refunds, by Type of Tax, Fiscal Years 1998 and 1999, at http://www.irs.gov/pub/irs-soi/99db01co.xls (last visited Feb. 10, 2005); Barry W. Johnson & Jacob M. Mikow, Federal Estate Tax Returns, 1998-2000, at 145, available at http://www.irs.gov/pub/irs-soi/00esart.pdf (last visited Feb. 10, 2005).

(160) See, e.g., Daniel Altman, Doubling Up of Taxation Isn't Limited to Dividends, N.Y. TIMES, Jan. 21, 2003, at C1; Irvin Molotsky, Black Business Leaders Campaign Against Estate Tax, N.Y. TIMES, Apr. 5, 2001, at A16.

(161) Fennell, supra note 73, at 609.

(162) See infra note 172 and accompanying text.

(163) See Lee Ross et al., The "False Consensus Effect": An Egocentric Bias in Social Perception and Attribution Processes, 13 J. EXPERIMENTAL SOC. PSYCHOL. 279, 280 (1977) (describing four studies documenting the effect); see also Gary Marks & Norman Miller, Ten Years of Research on the False-Consensus Effect: An Empirical and Theoretical Review, 102 PSYCHOL. BULL. 72, 72 (1987) (noting that between 1977 and 1987, over forty-five published papers reported data on the false consensus effect and assumed similarity between self and others).

(164) 2 RESTATEMENT (THIRD) OF TRUSTS: TRUST PURPOSES [section] 29(c) (2003).

(165) Id. at [section] 29 cmt. j.

(166) Id. at [section] 29 cmt. k.

(167) For a list of the status of the Rule in particular jurisdictions, see JESSE DUKEMINIER & JAMES E. KRIER, PROPERTY 334 (5th ed. 2002).

(168) To be sure, deference to the dead hand is not absolute. At occasional junctures, decedent control is trumped by larger concerns, usually ones that relate to providing for family. To date, every common law property jurisdiction except Georgia has passed an elective share statute. Id. at 418. In addition, commentators have argued that courts and jurors use a malleable mental capacity standard to reform wills that do not comport with norms of familial care. See Melanie B. Leslie, Enforcing Family Promises: Reliance, Reciprocity, and Relational Contract, 77 N.C.L. REV. 551, 586-608 (1999) (discussing the courts' use of the doctrine of undue influence and the formalities doctrine to enforce norms of reciprocity).

(169) See infra notes 188-93 and accompanying text.

(170) See The Land Trust for Tennessee, Arrington Family Legacy Preserved by Land Trust for Tennessee, (June 13, 2001), available at http://www.landtrusttn.org/arrington (last visited Feb. 9, 2005) (announcing that a donor to the Land Trust for Tennessee has "agreed to protect 112 acres of the original Osburn farm forever.... The farm will remain as open space, allowing the family to continue to live and work the farm.").

(171) Fennell, supra note 73, at 611.

(172) ADLER, supra note 108, at 11.

(173) Alexis de Tocqueville, of course, placed voluntary associations at the heart of his analysis of democracy in America: "Americans of all ages, all conditions, and all dispositions constantly form associations.... Wherever at the head of some new undertaking you see the government in France, or a man of rank in England, in the United States you will be sure to find an association." ALEXIS DE TOCQUEVILLE, 2 DEMOCRACY IN AMERICA 106 (Phillips Bradley ed., Henry Reeve trans., Alfred A. Knopf 1945) (1840).

(174) ROBERT H. BREMNER, AMERICAN PHILANTHROPY 3 (1960). For discussion of the importance of Bremner's work, see Lawrence J. Friedman, Philanthropy in America: Historicism and Its Discontents, in CHARITY, PHILANTHROPY, AND CIVILITY IN AMERICAN HISTORY, supra note 142, at 1, 4-6 (quoting BREMNER, supra).

(175) GATES & COLLINS, supra note 154, at 124-25 (quoting John DiIulio, Jr., the first director of George W. Bush's Office of Faith-Based and Community Initiatives).

(176) See infra notes 293-304 and accompanying text.

(177) In 2001, total giving was $229.00 billion. GIVING USA 2004, supra note 7, at 218. Total giving in 2002 was $234.09 billion, and total giving for 2003 is estimated at $240.72 billion. Id.

(178) See Ken Auletta, Chilly Messiah with a Mission to Blank Out the Competitive World, THE GUARDIAN (England), Jan. 11, 2001, at 28.

(179) See David Warsh, The Unrepentant, BOSTON GLOBE, Mar. 25, 2001, at F2.

(180) See generally Schmalbeck, supra note 95, at 120-42 (reviewing available avoidance devices).

(181) Id. at 142-44.

(182) Id. at 144.

(183) Elizabeth Schwinn, Tax-Exempt Organizations Registered with the IRS, CHRON, PHILANTHROPY, Apr. 29, 2004, at 29.

(184) Schervish & Havens, supra note 12, at 134.

(185) Bakija & Gale, supra note 9, at 6.

(186) Schervish & Havens, supra note 12, at 130-31.

(187) Schervish & Havens, supra note 12, at 138.

(188) Gross, supra note 142, at 36.

(189) Given that religious organizations are the preferred charities of many Americans, this undoubtedly remains a relevant consideration for many donors. GIVING USA 2004, supra note 7, at 94 (reporting that 35.9% of giving in 2003 went to religion, with as much as 97% of this figure coming from households). For a discussion of the giving preferences among the wealthy, see infra notes 260-61.

(190) FRANCIE OSTROWER, WHY THE WEALTHY GIVE: THE CULTURE OF ELITE PHILANTHROPY 37 (1995).

(191) ERIC A. POSNER, LAW AND SOCIAL NORMS 49-67 (2000).

(192) Auten et al., supra note 15, at 402.

(193) OSTROWER, supra note 190, at 36.

(194) James Andreoni, Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving, 100 ECON. J. 464, 473 (1990); James Andreoni, Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence, 97 J. POL. ECON. 1447, 1448-49 (1989).

(195) James Andreoni, Warm-Glow Versus Cold-Prickle: The Effects of Positive and Negative Framing on Cooperation in Experiments, 110 Q.J. ECON. 1, 1-2 (1995). But see Eun-Soo Park, Warm-Glow Versus Cold-Prickle: A Further Experimental Study of Framing Effects on Free-Riding, 43 J. ECON. BEHAV. & ORG. 405, 406 (2000) (suggesting that negative framing is most effective for individuals with an individualistic orientation).

(196) Andreoni, supra note 195, at 11.

(197) Id. at 18-19.

(198) Id. at 14-15.

(199) Id. at 8.

(200) Id. at 8-9.

(201) Dan M. Kahan, The Logic of Reciprocity: Trust, Collective Action, and Law, 102 MICH. L. REV 71, 71 (2003).

(202) Id. at 81.

(203) Id. (citing Marco R. Steenbergen et al., Taxpayer Adaptation to the 1986 Tax Reform Act: Do New Tax Laws Affect the Way Taxpayers Think About Taxes?, in WHY PEOPLE PAY TAXES 9, 29-30 (Joel Slemrod ed., 1992)).

(204) See James Andreoni, Toward a Theory of Charitable Fund-Raising, 106 J. POL. ECON. 1186, 1188-89 (1998) (discussing fundraisers' emphasis on seed or leadership gifts); Peter H. Reingen, Test of a List Procedure for Inducing Compliance with a Request to Donate Money, 67 J. APPLIED PSYCHOL. 110 (1982).

(205) James Andreoni & John Karl Scholz, An Econometric Analysis of Charitable Giving with Interdependent Preferences, 36 ECON. INQUIRY 410, 410 (1998) (discussing the National Survey of Philanthropy).

(206) Id. at 411.

(207) See generally John S. Carroll, Compliance with the Law: A Decision-Making Approach to Taxpaying, 11 L. & HUM. BEHAV. 319 (1987) (describing a behavioral decision theory approach to the issue of tax compliance).

(208) See Eric A. Posner, Law and Social Norms: The Case of Tax Compliance, 86 VA. L. REV. 1781, 1788-89 (2000) (positing an explanation for tax compliance).

(209) See Robert D. Cooter, Structural Adjudication and the New Law Merchant: A Model of Decentralized Law, 14 INT'L REV. L. & ECON. 215, 224 (1994) (discussing deeply-internalized norms).

(210) Davenport & Soled, supra note 59, at 602-03. The authors cite to many other important means of funding investment, including government surpluses, retained earnings, capital consumption allowances and inventory adjustments, as well as international capital flows.

(211) See, e.g., id. at 603; Graetz, supra note 84, at 279. Anyone who remembers the White House's post-September 11 suggestion that Americans demonstrate patriotism by shopping will recognize the role consumer consumption plays in spurring economic growth. Alison Mitchell, A Nation Challenged: The Home Front; After Asking for Volunteers, Government Tries to Determine What They Will Do, N.Y. TIMES, Nov. 10, 2001, at B7 (reporting on the White House's advice to the public).

(212) See, e.g., Schmalbeck, supra note 75, at 754-55.

(213) McCaffery, supra note 19, at 304-06.

(214) See, e.g., Michael D. Hurd, Savings of the Elderly and Desired Bequests, 77 AM. ECON. REV. 298, 307 (1987) (examining data and failing to find evidence of a bequest motive); Andrew B. Abel, Precautionary Savings and Accidental Bequests, 75 AM. ECON. REV. 777, 777 (1985) (using modeling to suggest that accidental bequests play a role in the intergenerational transfers of wealth); James B. Davies, Uncertain Lifetime, Consumption, and Dissaving in Retirement, 89 J. POL. ECON. 561, 562 (1981) (arguing that slow dissaving by the elderly is largely explained by uncertainty about one's own life span).

(215) See generally Schmalbeck, supra note 95; John Laitner & F. Thomas Juster, New Evidence on Altruism: A Study of TIAA-CREF Retirees, 86 AM. ECON. REV. 893, 907 (1996) (reviewing data on TIAA-CREF retirees and finding that about half are interested in leaving estates, but that only 20% of lifetime private net worth is attributable to intentional estate building); B. Douglas Bernheim, How Strong Are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities, 99 J. POL. ECON. 899, 923 (1991) (finding that the empirical evidence of social security annuity benefits, life insurance, and private annuities supports the existence of a bequest motive); Paul L. Menchik & Martin David, Income Distribution, Lifetime Savings, and Bequests, 73 AM. ECON. REV. 672, 688 (1983) (citing the bequest motive as an explanation for the finding that people do not de-accumulate wealth in old age); Laurence J. Kotlikoff & Lawrence H. Summers, The Role of Intergenerational Transfers in Aggregate Capital Accumulation, 89 J. POL. ECON. 706, 730 (1981) (concluding that intergenerational transfers of wealth are the major determinant of wealth accumulation in the United States).

(216) Gary S. Becker, A Theory of Social Interactions, 82 J. POL. ECON. 1063, 1078 (1974). The altruistic model has been criticized for predicting that parents will make lesser transfers to some children and higher transfers to others, depending on the individual child's natural abilities and station in life. In fact, actual giving patterns and laboratory experiments predict that parents are likely to sprinkle their wealth evenly among their children. See, e.g., William G. Gale & Maria G. Perozek, Do Estate Taxes Reduce Saving?, in RETHINKING ESTATE AND GIFT TAXATION, supra note 10, at 216, 219 (reporting that "equal division of estates among children appears to be the norm"); B. DOUGLAS BERNHEIM & SERGEI SEVERINOV, BEQUESTS AS SIGNALS: AN EXPLANATION FOR THE EQUAL DIVISION PUZZLE 2, 4 (Nat'l Bureau of Econ Research, Working Paper No. 7791, 2000) (noting that two-thirds of decedents with multichild families divide their estates equally between their children and suggesting that "bequests serve a signal of parental affection"); KATHLEEN MCGARRY, INTER VIVOS TRANSFERS AND INTENDED BEQUESTS 3, 27 (Nat'l Bureau of Econ. Research, Working Paper No. 6345, 1997) (agreeing that bequests tend to be divided equally between children and attributing unequal bequests to differences in childrens' permanent incomes); DAVID JOULFAIAN, THE DISTRIBUTION AND DIVISION OF BEQUESTS: EVIDENCE FROM THE COLLATION STUDY 9 (Office of Tax Analysis, OTA Paper No. 71, 1994) (noting that 63% of multichild estates have equal division). Moreover, empirical work has provided other reasons to question the altruistic model. See, e.g., Mark O. Wilhelm, Bequest Behavior and the Effect of Heirs' Earnings: Testing the Altruistic Model of Bequests, 86 AM. ECON. REV. 874, 890 (1996) (arguing that empirical evidence suggests that parents do not use bequests to compensate for differences among children); Joseph G. Altonji et al., Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data, 82 AM. ECON. REV. 1177, 1178 (1992) (finding that division of consumption within a family is not independent of the division of income). But the central premise of the altruistic theory--that parents gain utility from their children's happiness--nonetheless rings intuitively true. Moreover, parents might rightly anticipate that the utility of their children depends on more than equal levels of consumption. For instance, at least in the case of healthy adult children, disparate wealth transfers from parents may foster resentment and ill-content.

(217) See, e.g., Donald Cox, Motives for Private Income Transfers, 95 J. POL. ECON. 508, 510 (1987) (using modeling to evaluate altruistic and exchange hypotheses and concluding that the empirical results "conform more closely" to the exchange hypothesis); B. Douglas Bernheim et al., The Strategic Bequest Motive, 93 J. POL. ECON. 1045, 1046 (1985) (setting forth the strategic bequest theory).

(218) Bernheim et al., supra note 217, at 1046.

(219) Gale & Perozek, supra note 216, at 220.

(220) See, e.g., Jordi Caballe, Endogenous Growth, Human Capital, and Bequests in a Life-Cycle Model, 47 OXFORD ECON. PAPERS 156 (1995); SHIGEKI KUNIEDA, DOES THE ESTATE TAX MATTER? (1989).

(221) See, e.g., Wojciech Kopczuk & Joel Slemrod, The Impact of the Estate Tax on Wealth Accumulation and Avoidance Behavior, in RETHINKING ESTATE AND GIFT TAXATION, supra note 10, at 299 (reviewing estate tax return data from 1916 to 1996 to find that increases in estate tax rates tend to reduce the wealth held in the largest estates, but noting that results are fragile); see also David N. Weil, The Saving of the Elderly in Micro and Macro Data, 109 Q.J. ECON. 55, 56 (1994) (finding an increase in consumption among households that expect to receive a bequest).

(222) Gale & Perozek, supra note 216, at 221; see also KATHLEEN MCGARRY, TESTING PARENTAL ALTRUISM: IMPLICATIONS OF A DYNAMIC MODEL 18-19 (Nat'l Bureau of Econ. Research, Working Paper No. 7593, 2000) (noting that dynamic models that study an individual's transfer behavior over time distinguish between altruistic and exchange motives).

(223) Several researchers, for example, have found that donees decrease their participation in the work force in the wake of an inheritance. See e.g., David Joulfaian & Mark O. Wilhelm, Inheritance and Labor Supply, 29 J. HUM. RESOURCES 1205 (1994) (finding small reduction in the labor supply of inheritors); Douglas Holtz-Eakin, The Carnegie Conjecture: Some Empirical Evidence, 108 Q.J. ECON. 413, 432 (1993) (concluding that the likelihood that a person decreases participation in the labor force increases with the amount of inheritance received). But see Douglas Holtz-Eakin et al., Sticking It Out: Entrepreneurial Survival and Liquidity Constraints, 102 J. POL. ECON. 53, 55-56 (1994) (noting that receipt of an inheritance increases the possibility that an entrepreneur's business will survive and flourish).

(224) Gale & Perozek, supra note 216, at 235.

(225) Graetz, supra note 84, at 280.

(226) Gale & Perozek, supra note 216, at 216.

(227) See, e.g., Graetz, supra note 84, at 283 (making the same point).

(228) See, e.g., id.; Ascher, supra note 79, at 111.

(229) See supra notes 189-94 and accompanying text.

(230) See supra notes 13-16 and accompanying text.

(231) Expressed more formally, if [U.sub.h] is the utility derived from giving to heirs and [U.sub.c] is the utility derived from giving to charity, then [U.sub.c] = c * [U.sub.h], where c is a constant between .52 and 1.0.

(232) If, however, the taxpayer gives to charity the $1.5 million that can pass tax-free, the cost of the $1.5 million will be dollar for dollar.

(233) Again expressed more formally, unless c is more than 1, the taxpayer will not give any of the $26 million to charity.

(234) See supra notes 189-94 and accompanying text.

(235) Internal Revenue Service, Internal Revenue Gross Collections, by Type of Tax, Fiscal Years, 1973-2003, at http://www.irs.gov/pub/irs-soi/03db07co.xls (last visited Feb. 23, 2005).

(236) See supra note 7 and accompanying text.

(237) See Internal Revenue Service, supra note 235.

(238) For a discussion of the fundamental premises of the time value of money, see BITTKER & LOKKEN, supra note 103, at [paragraph] 56.2. The central concept is that because of interest, money grows over time. Thus $1000 in year one is worth more to an individual than $1000 in year ten, because the $1000 in year 1 will have earned interest during the intervening years.

(239) Joulfaian, supra note 10, at 361; see also Auten et al., supra note 15, at 411-14 (summarizing importance of bequest giving by the wealthy).

(240) Joulfaian, supra note 10, at 361. The estate tax returns used in Joulfaian's study were filed when decedents could transfer up to $600,000 tax-free.

(241) Id.

(242) Id.

(243) Id.

(244) Id. at 360.

(245) Id. at 360-61 (speculating that the wealthy desire control over their assets until the very end).

(246) See supra note 156-57 and accompanying text.

(247) See generally Bruce Robert Kingman, An Accurate Measurement of the Crowd-Out Effect, Income Effect, and Price Effect for Charitable Contributions, 97 J. POL. ECON. 1197 (1989); Ted Bergstrom et al., On the Private Provision of Public Goods, 29 J. PUB. ECON. 25 (1986); Russell D. Roberts, A Positive Model of Private Charity and Public Transfers, 92 J. POL. ECON. 136 (1984); Peter G. Warr, Pareto Optimal Redistribution and Private Charity, 19 J. PUB. ECON. 131 (1982).

(248) Roberts, supra note 247, at 147.

(249) See supra notes 189-94 and accompanying text.

(250) Kingman, supra note 247, at 1203.

(251) A. Abigail Payne, Does the Government Crowd-Out Private Donations? New Evidence from a Sample of Non-Profit Firms, 69 J. PUB. ECON. 323, 324 (1998); see also Jyoti Khanna et al., Charity Donations in the UK: New Evidence Based on Panel Data, 56 J. PUB. ECON. 257, 258 (1995) (demonstrating that alternative revenue sources do not crowd out voluntary donations).

(252) Kingman, supra note 247, at 1205.

(253) See supra Part VI.A.1 and Part VI.A.2.

(254) See supra notes 232-34 and accompanying text.

(255) James Andreoni & A. Abigail Payne, Government Grants to Private Charities: Do They Crowd Out Giving or Fundraising?, at 1-3, available at http://econwpa.wustl.edu/eps/pe/papers/0111/0111001.pdf (last visited Feb. 10, 2005) (finding that for arts organizations, an additional $1000 in government grants decreases fundraising expenditures by between $242 and $272, for an average maximum decline of nearly 58%).

(256) Id. at 30.

(257) Id. at 30-31.

(258) See, e.g., Council on Foundations, Board Briefing: Estate Tax Repeal (Apr. 2001), available at http://www.cof.org/files/Documents/Governing_Boards/bb3estatetax.pdf (last visited Feb. 10, 2005); Elimination of the Estate Tax Won't Do Charities Any Good, CHRON, PHILANTHROPY, Feb. 8, 2001, at 35.

(259) See Nancy J. Knauer, How Charitable Organizations Influence Federal Tax Policy: "Rent-Seeking" Charities or Virtuous Politicians?, 1996 WIS. L. REV. 971, 1015-19, 1026-28 (1996) (describing reaction of the charitable community to threat of negative tax regulation).

(260) OSTROWER, supra note 190, at 86-99 (finding that the wealthy view giving to education and culture as a way to raise status within the elite community and that they thus prefer these areas of charitable giving); see also Chronicle of Philanthropy, The 2003 Slate 60: Top Donations (Feb. 16, 2004), available at http://slate.msn.com/id/2094848 (last visited Feb. 10, 2005) (listing the year's top sixty charitable contributors, with the top five donors giving primarily to education, healthcare, arts and culture, or their own foundations); Teresa J. Odendahl, Charitable Giving Patterns by Elites in the United States, in THE FUTURE OF THE NONPROFIT SECTOR 427 (Virginia A. Hodgkinson et al. eds., 1989) (concluding that the philanthropic wealthy prefer private to public causes and education and arts and culture over other areas of giving); GIVING USA 2004, supra note 7, at 213-17 (listing gifts in 2003 of $5 million or more and noting that most were made to educational institutions, particularly colleges and universities, and that a large portion of the gifts also went toward health care, primarily hospitals).

(261) OSTROWER, supra note 190, at 42-45; see also Teresa J. Odendahl, Independent Foundations and Wealthy Donors, in PHILANTHROPIC GIVING: STUDIES IN VARIETIES AND GOALS 172 (Richard Magat ed., 1989) (stating that wealthy donors establish foundations when possible, either because of family tradition or because they desire control). Because the very wealthy have more assets at stake, they are more willing (and more able) to absorb the expenses that are associated with establishing a private foundation.

(262) See supra note 184-87 and accompanying text.

(263) Slemrod, supra note 22, at 612-13.

(264) See, e.g., Auten et al., supra note 15, at 406; Theresa Odendahl, The Culture of Elite Philanthropy in the Reagan Years, 18 NONPROFIT & VOLUNTARY SECTOR Q. 237, 240 (1989); Susan A. Ostrander, The Problem of Poverty and Why Philanthropy Neglects It, in THE FUTURE OF THE NONPROFIT SECTOR 219 (Virginia A. Hodgkinson et al. eds., 1989); William Vickery, One Economist's View of Philanthropy, in PHILANTHROPY AND PUBLIC POLICY 31, 42 (Frank G. Dickinson ed., 1962).

(265) Charles T. Clotfelter, The Distributional Consequences of Nonprofit Activities, in WHO BENEFITS FROM THE NONPROFIT SECTOR? 1, 3 (Charles T. Clotfelter ed., 1992).

(266) David S. Salkever & Richard G. Frank, Health Services, in WHO BENEFITS FROM THE NONPROFIT SECTOR, supra note 265, at 24, 45-46. The authors find that the clients of nonprofit and for-profit community hospitals are similar, but that publicly-owned hospitals have a higher proportion of uninsured or poor patients. In regard to nursing homes, nonprofits have the lowest percentage of Medicaid patients, as compared to for-profit and publicly-owned facilities. Among alcohol and drug treatment providers, nonprofits have a greater number of poor clients than for-profit providers, but a lesser number than publicly-owned providers. Id. at 45-47.

(267) Id. at 36.

(268) Saul Schwartz & Sandy Baum, Education, in WHO BENEFITS FROM THE NONPROFIT SECTOR, supra note 265, at 55, 86.

(269) Dick Netzer, Arts and Culture, in WHO BENEFITS FROM THE NONPROFIT SECTOR, supra note 265, 174, 191-95.

(270) There are, however, some notable exceptions. For example, in 2003, Joan Kroc (the widow of McDonald's founder Ray Kroc) gave a $1.5 billion gift to the Salvation Army so that it could establish recreational and educational facilities across the country. Chronicle of Philanthropy. The 2003 Slate 60: Top Donations, supra note 260.

(271) Clotfelter, supra note 265.

(272) Boisture et al., supra note 118, at 241.

(273) Gian Paolo Barbetta, Defining the Nonprofit Sector: Italy, in WORKING PAPERS OF THE JOHNS HOPKINS COMPARATIVE NONPROFIT SECTOR PROJECT, NO. 8 (L.M. Salamon & H.K. Anheier eds., 1993).

(274) Boisture et al., supra note 118, at 242.

(275) Nick Anderson, Senate Approves Bigger Charity Tax Deductions: Bill's Passage Excludes Much of President Bush's "Faith-Based" Initiative, Signaling a Republican Retreat from the High-Profile Issue, L.A. TIMES, Apr. 10, 2003, at A28 (discussing the potential for charitable deductions for donations to religious organizations to upset the "American tradition of separation of church and state"); Michelle P. Ryan, Paved with Good Intentions: The Legal Consequences of the Charitable Choice Provision, 102 DICK. L. REV. 383 (1998) (discussing whether a charitable deduction should be available for gifts to religious organizations).

(276) See supra notes 162-63 and accompanying text.

(277) See supra note 108 and accompanying text.

(278) For example, the mission of The Foundation for Shamanic Study is, as its name suggests, "to study, to teach, and to preserve shamanism." The Foundation for Shamanic Studies: A Non-Profit Incorporated Educational Organization, available at http://www.shamanism.org (last visited Feb. 10, 2005).

(279) See supra notes 111-13 and accompanying text.

(280) I.R.C. [section] 4942.

(281) Auten et al., supra note 15, at 398.

(282) Friedman, supra note 174, at 20 (reporting that between 1992 and 1994, the twelve largest foundations on the right (including Bradley, Scaife, and Olin) provided roughly $200 million for conservative nonprofits like the Cato Institute).

(283) Id.

(284) See supra notes 272-76 and accompanying text.

(285) See Thomas Barthold & Robert Plotnick, Estate Taxation and Other Determinants of Charitable Bequests, 37 NAT'L TAX J. 225 (1984); Joulfaian, supra note 11 (reviewing data from a sampling of decedents who filed between 1986 and 1988).

(286) Joulfaian, supra note 11, at 176.

(287) Id. at 178.

(288) So long as a taxpayer does not contribute more than amount of estate tax owed, the cost of a charitable bequest is nothing, because any dollar that is not given to charity goes instead to the government. If a taxpayer is extremely philanthropic and exceeds this level, the cost of the amount donated in excess of the credit would be dollar for dollar, but the average cost of bequests would still be lower.

(289) Fennell, supra note 73, at 641-42.

(290) See, e.g., Boisture et al., supra note 118, at 243 (discussing George W. Bush's emphasis on strengthening the nonprofit sector); Albert R. Hunt, Charitable Giving: Good but We Can Do Better, WALL ST. J., Dec. 21, 2000, at A19 (noting "[a]n emphasis on private philanthropy is more associated with Republicans"); David E. Rosenbaum, Emotional Issues Are the 1988 Battleground, N.Y. TIMES, Nov. 4, 1988, at A1 (discussing George H. W. Bush's "thousand points of light"); Kathleen Teltsch, Private Sector Aid Sought By Reagan, N.Y TIMES, Sept. 27, 1981, at A35 (reporting on Ronald Reagan encouraging philanthropic leaders to address a variety of community needs). For an overview of the impact of the nonprofit organizational form on performance, see Susan Rose-Ackerman, Altruism, Nonprofits, and Economic Theory, 34 J. ECON. LIT. 701 (1996).

(291) I.R.C. [section] 501(a).

(292) ADLER, supra note 108, at 11.

(293) See Solicitors Keep 62% of Gifts, New California Study Finds, CHRON. PHIL., May 29, 2003, at 23 (discussing a report that in 2001 "only 38 percent of donations raised by commercial solicitors in California ... went to charities ..."). Indeed, the New York Times has reported that in some cases charities receive as little as "10 percent of [the money actually] ... raised." Bernard Stamler, The Gray Area For Nonprofits, Where Legal Is Questionable, N.Y. TIMES, Nov. 17, 2003, at F1; see also Stephanie Strom, Charities Face Increased Reviews by I.R.S. as Senate Considers Strengthening Oversight, N.Y. TIMES, June 23, 2004, at A14 (reporting testimony of those who organize charitable auctions).

(294) Red Cross Diverts Money Raised for Sept. 11 Victims, USA TODAY, Oct. 30, 2001, at 14A.

(295) Kathleen Boozang & Tim Greny, Mission, Margin, and Trust in the Non-Profit Health Enterprise, YALE J. HEALTH, POL, L. & ETHICS (forthcoming).

(296) See Beth Healy, Ex-Officers to Pay $14m in Texas Charity Fraud, BOSTON GLOBE, June 15, 2004, at E3 (reporting on the jury verdict against Carl Yeckel, chief executive of the Carl B. and Florence E. King Foundation, whose case the assistant attorney general of Texas called "one of the worst, most egregious cases of misappropriation of charitable assets in the country"); Beth Healy et al., Some Officers of Charities Steer Assets to Selves, BOSTON GLOBE, Oct. 9, 2003, at A1 (discussing abuses by foundation trustees, including the case against John C. Cabot, Jr., who paid himself over five million dollars in trustee fees between 1998 and 2002).

(297) I.R.C. [section] 4941(d)(1) (2004). A related issue is large pension and benefit packages for trustees and lavish spending on such items as luxury cars, family trips, and even private jets. See Healy et al., Charity Money Funding Perks, BOSTON GLOBE, Nov. 9, 2003, at A1; Beth Healy et al., supra note 296.

(298) I.R.C. [section] 4941(d)(2)(e).

(299) Kermit Fischer Found. v. Commissioner, 59 T.C.M. (CCH) 898 (1990).

(300) See, e.g., Healy et al., supra note 296.

(301) CHRISTINE AHN ET AL., FOUNDATION TRUSTEE FEES: USE AND ABUSE 14 (The Center for Public and Nonprofit Leadership, Georgetown Public Policy Institute 2003).

(302) Id. at 15 (citing specifically the Ira and Doris Kukin Foundation, the Emil Buehler Perpetual Trust, and the Grand Marnier Foundation). See also Healy et al., Charity Money Funding Perks, supra note 297; Healy et al., Some Officers of Charities Steer Assets to Selves, supra note 296.

(303) Stamler, supra note 293.

(304) Francie Latour & Beth Healy, How to Be a Philanthropist--Or Just Look Like One: Some Trustees Take Credit for Donating Other People's Money, BOSTON GLOBE, Dec. 21, 2003, at A31.

(305) CARE Act of 2003, S. 256, 108th Cong. (2003); Charitable Giving Act of 2003, H.R. 7, 108th Cong. (2003).

(306) Dobris, supra note 88, at 1232.

(307) See supra notes 97-99 and accompanying text.

Sarah E. Waldeck*

* Associate Professor, Seton Hall University School of Law. The author wishes to thank John Coverdale, Rachel Godsil, Tracy Kaye, R. Erik Lillquist, Paul Olszowka, and Charles Sullivan, participants in a panel discussion at the 2004 Law and Society Conference and in a faculty colloquium at Hofstra University School of Law, and research assistants Vanessa Bovo, Shera Rosner, and Desiree Dicorcia.
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