Estate Tax

The federal estate tax is an essential source of revenue for the federal government and serves as an incentive for wealthier individuals to give back to their communities through nonprofit organizations. The National Council of Nonprofits supports President Obama’s FY 2012 Budget proposal to permanently extend the 2009 federal estate tax levels of $3.5 million exemption for individuals ($7 million for couples) and a tax rate of 45 percent.

Why It Matters to Nonprofits

• The loss of revenues to the U.S. Treasury could seriously impact federal support of services – many of which are provided by nonprofits through government funding.
• States stand to lose considerable revenues from the estate tax repeal. Many states have taxes that piggyback on the federal estate tax and will lose significant revenue. With state budget deficits so severe, now is not the time to take revenues away from state governments. Repeal of the estate tax has another ripple effect: states will have even less to pass to local governments through revenue share requirements.
• Many nonprofits and foundations are concerned that failure to extend the estate tax will result in a serious shortfall in charitable donations. The Giving USA Foundation estimates that in 2008, Americans donated $22.7 billion through charitable bequests.

UPDATED: Status

Representative Jim McDermott (D-WA) introduced the Sensible Estate Tax Act of 2011 on November 17. The proposal would return estate taxes to pre-2001 levels of 55 percent for the maximum marginal rate and a $1 million exemption for individuals ($2 million for married couples.) 

Under current law, which was enacted on January 1, 2011 under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 that reinstated 2001 and 2003 estate tax levels, the tax rate is 35 percent, and individuals are eligible for a $5 million exemption ($10 million for couples) until the end of 2012. In his FY 2012 Budget, President Obama proposed returning the estate tax to the 2009 levels of $3.5 million individual exemptions ($7 million for couples) and a 45 percent tax rate.

What Nonprofits Can Do

Contact your Senators and Representatives and urge them to take action to restore the estate tax to 2009 levels after current levels expire at the end of 2012.

Additional Resources

• The Congressional Budget Office has found that the estate tax leads affluent individuals to donate far more than they otherwise would because such donations sharply reduce estate tax liabilities.
• Center for Budget and Policy Priorities
• Sensible Estate Tax Act of 2011
• Independent Sector