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Philanthropic powerbrokers like George Soros have railed against President George W. Bush’s plan to repeal the estate tax, the “death tax” that may divert as much as $5 to $6 billion a year away from inheritance and into charitable giving. Major nonprofits breathed a sigh of relief that some of the country’s most recognizable mega-millionaires vocally oppose the repeal, which could devastate the coffers of the major foundations, universities, museums and other high-caliber nonprofits that rely on bequests as a major source of cash.
But what would the repeal mean for little grassroots groups–nonprofits that are much too small to attract their own personal Warren Buffett, and get most of their cash from foundations and the government? Philanthropic experts say it’s hard to tell. In general, though, the prognosis wouldn’t look good.
For one thing, although perhaps only 15 to 25 percent of grassroots nonprofits get money directly from individual donors, it’s an important source of cash: It comes with relatively few strings attached and can be used for special projects that are hard to fund any other way.
For another, family foundations, which are often launched as part of a bequest, have become extremely important funders for nonprofits. According to the Foundation Center, the number of private and community foundations has nearly doubled since 1984. Total giving from these types of foundations topped $17 billion in 1999. Although a change to the tax rules would not affect the endowments that these funds already have, it would remove the most powerful incentive for rich people to start new funds.
“I think the impact would be enormous,” said Amy Wagner, director of the Rose and Sherle Wagner Foundation, a family foundation. “Because the economy has been so strong, people found themselves with substantially more money than they would have expected, and now they’re getting old enough to worry about that sort of thing.”
Grantmakers point out that many wealthy donors who now fund progressive nonprofits and foundations will probably continue to give money despite a change to the tax code. But repealing the estate tax could mean that many newly rich people would never “discover the joys of philanthropy,” as the New York Association of Regional Grantmaker president Barbara Bryan puts it.
While an estate tax law change might not have a powerful immediate effect on fundraising for neighborhood nonprofits, the long term impact could be substantial. “I’ve heard wild projections and modest projections, and I don’t know what to believe,” said Fran Barrett of the Community Resource Exchange, which advises nonprofits on management and funding. “The growth we’ve seen as of late in individual donors would be constrained, at least, and it’s a real loss to think that they [could be] changing the way money will flow forever, permanently cutting off one revenue stream.
It’s just one more layer, one more hurdle, and tightens the competition for community based nonprofits to survive.”