Amy M. Beiersdorfer

March 27, 2001

Having George W. Bush in the White House has many environmentalists concerned.  By now, the nation is well aware of President Bush's controversial proposal to develop the Arctic National Wildlife Refuge for oil and natural gas.  Not so well known is his recent prohibition on the enforcement of several environmental regulations released during the end of the Clinton Administration by precluding their publication in the Federal Register.[1]  In fact, he has stretched his executive power even further by imposing an "across-the-board suspension"of certain environmental regulations that have already been published in the Federal Register.[2]  Actions like this have prompted at least one author to suspect the administration of "planning several lower-profile maneuvers to undermine many of the nation's environmental laws and regulations."[3]  Yet, even this author has failed to recognize one very well known Bush proposal that could have indirect but harmful environmental consequences - his $1.6 trillion tax-cut proposal.[4]

While a tax-cut would be welcome by many Americans, people often forget that a consequence of lower government revenue is decreased spending capacity.  Because environmental protection is a significant source of government spending, environmental programs seem to be a likely target for a spending cut.  Even several of the nations' wealthiest individuals--who arguably could benefit the most from Bush's tax plan--are disturbed by the damaging potential of such a large tax cut.  A petition signed by approximately 120 wealthy Americans in opposition to the proposed repeal of estate and gift taxes asserts that "[t]he billions of dollars in government revenue lost 'will inevitably be on those less able to pay or by cutting Social Security, Medicare, environmental protection and many other government programs so important to our nation's continued well-being."[5]  Revenue loss is not the only consequence of the tax plan that could prove damaging to the environment.

A major portion of the President's tax reduction plan involves repealing the federal estate tax,[6] which could potentially reduce charitable donations, including those to environmental organizations.  One goal of the estate tax is to break up large concentrations of wealth by encouraging charitable bequests.[7]  There are no specific statistics available on how much money is donated to environmental organizations as a result of estate tax planning; however, it seems probable that they will be affected if the estate tax is repealed.  In general, it is likely that donations and bequests to charitable organizations will decrease as a result of an estate tax repeal.  "Although all predictions are perilous, given the dearth of sound information about potential donors' motives, all of the available economic evidence suggests that substantially easing the estate tax burden will leave charitable organizations poorer."[8]  Thus, repeal could hinder the ability of organizations dependent on charitable contributions to further their goals.  Because many environmental organizations are dependant on donations, they may be susceptible to negative impacts from an estate tax repeal.

More specifically, land conservation interest groups are likely to be affected by estate tax repeal.[9]  The Internal Revenue Code (IRC) provides certain incentives that benefit both taxpayers and land conservation interest groups.  For example, section 2031 of the IRC allows an estate tax exclusion of up to 40 percent of the value of land subject to a conservation easement,[10] provided that the easement is qualified by meeting certain criteria.[11]  One such requirement is that the land be donated to a qualified organization.[12]  But the 40 percent exclusion from the estate tax is not the only incentive to encourage individuals to bequeath property to a land conservation group.

Because a conservation easement limits the property owner's right to use and enjoy his or her property, it can reduce the value of the land subject to the easement.[13]  When the property owner dies, the value of that land is included in his gross estate when calculating the estate tax.[14]  The lower the value of the gross estate, the lower the estate tax.  In other words, by reducing the value of his property through a conservation easement and consequently the value of the gross estate, the amount of estate tax paid is also reduced.  Thus, in addition to the exclusion provided in section 2031, a decedent who had donated a qualified conservation easement gains a second benefit.

Such benefits are powerful estate planning incentives that, if removed, could be detrimental to the organizations qualified under the IRC, and therefore to the land that they work so hard to protect.  "Since the land must be donated to a qualified organization to meet the deductibility requirements of [IRC] section 170, repeal of the estate and gift tax would presumably have a chilling effect on the donation of easements to these conservation groups."[15]  It should be noted, however, that there remains a possibility that repealing the estate tax would not significantly affect environmental organizations.

Without the estate tax incentive, donors could receive a similar benefit from the IRC income tax provisions.  Like the estate tax provisions, section 170 of the IRC provides an income tax deduction for conservation easements donated to qualified organizations.[16]  In other words, a tax reduction incentive would still exist without the estate tax.  "Thus, in some cases, a repeal of the estate tax would merely shift charitable giving from bequests at death to contributions during life."[17]  Again, given the inability to accurately account for donor motives, it seems virtually impossible to predict the outcome of estate tax repeal.  Yet it also seems that the best way to determine donor motives is by going to the donors themselves.

The petition mentioned above demonstrates that many who should know why wealthy Americans make donations--the wealthy themselves--strongly believe that the estate tax plays an important role in encouraging charitable donations.  Those signing the petition include William H. Gates Sr., who is helping to organize the petition drive; billionaire financier George Soros; David Rockefeller Jr.; and Ben & Jerry's cofounder Ben Cohen.[18]  These people and many like them donate to organizations.  They work and socialize with others in the same financial situations.  They know what motivates wealthy people to donate.  They believe what the petition states, that the estate tax "exerts a powerful and positive effect on charitable giving.  Repeal would have a devastating impact on public charities."[19]  Congress should take these experts' advice and keep the estate tax.

_______________

[1] Todd Wilkinson, Bushwacked, THE AMICUS JOURNAL, Spring 2001, at 12.

[2] Adam Krantz, EPA Legal Office Charges Bush Rule Suspension May Violate Law, INSIDE E.P.A WEEKLY REPORT (Inside Washington Publishers, Washington, DC), Feb. 26, 2001 at 1.

[3] Wilkinson, supra note 1, at 11-12.

[4] Defending the Estate Tax, N.Y.TIMES, Feb. 16, 2001, at A20.

[5]David Cay Johnston, Dozens of Rich Americans Join In Fight to Retain the Estate Tax, N.Y. TIMES, Feb. 14, 2001, at A1

[6]See Defending the Estate Tax, supra note 4.

[7]See Edward J. McCaffery, Grave Robbers: The Moral Case Against the Death Tax, 85 TAX NOTES 1429 (1999). Although another goal of the estate tax is obviously to raise revenue, it is not a large contributor in the government's overall tax policy. "Only 1 to 2 percent of Americans who die each year leave enough wealth behind to generate any estate tax at allÖit contributes only about $24 billion a year, or just a little more than 1 percent of all federal revenues." Id.

[8]Eric Rakowski, Estate Tax Reform And Charitable Giving, 97 TAX NOTES TODAY 207 (1997).

[9]"A repeal of the estate and gift taxÖwill presumably affect at least five special interest groups: (1) tax practitioners; (2) insurance companies; (3) land conservation groups; (4) small businesses; and (5) farmers." 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, 802.

[10]"A conservation easement is a legal agreement a property owner makes to restrict the type and amount of development that may take place on his or her property." JANET DIEHL ET AL, THE CONSERVATION EASEMENT HANDBOOK; MANAGING LAND CONSERVATION AND HISTORIC PRESERVATION EASEMENT PROGRAMS 5 (1988).

[11]See I.R.C. § 2031(c)(8)(B) (1994).

[12]See I.R.C. § 170 (h)(1) (1994).

[13]See DIEHL, supra note 10, at 8-9.

[14]"The value of the gross estate of the decedent shall be determined by including to the extent provided for in this part, the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated." I.R.C. § 2031(a) (1994).

[15] Schlachter, supra note 9, at 803-04.

[16] I.R.C. § 170(h) (1994).

[17] Schlachter, supra note 9, at 801-02.

[18] See Johnston, supra note 5.

[19] Id.