Paul L. Caron
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Tuesday, July 15, 2008

Becker & Posner Debate Helmsley's $8 Billion Bequest to Dogs: Limit Charitable Deduction, Sunset Private Charities?

I previously blogged Leona Helmsley's $8 billion bequest to care for dogs.  Gary Becker and Richard Posner debate the social desirability of such bequets:

Posner:  Should Dogs Get $8 Billion from the Helmsley Estate?

The possibility that dogs will receive billions of dollars from a bequest presents three interesting questions: why would a person leave so much money to dogs; should such bequests be permitted by law; and should charitable bequests be subject to estate tax, rather than, as they are now, exempt from it? ...

The size of the Helmsley trust does suggest that it might be sensible to impose a ceiling on the charitable exemption from estate tax. For example, the law might exempt the first $1 billion of a person's charitable gifts (whether made during his or her lifetime or at death), but above that level such gifts would be taxed at the ordinary gift and estate tax rates. It is hard to believe that such a change in law would significantly affect work incentives, and it would therefore be an efficient tax. If it did not reduce people's effort level, it would not reduce aggregate personal income, but (because it would reduce the size of bequests and other charitable gifts), it would merely spread it about somewhat differently. Given that much charitable spending is wasteful because of the weak incentives for efficiency of the staffs of charitable enterprises, economic efficiency might be increased if there were fewer and smaller charitable trusts.

Becker:  Cats and Dogs, and "Sensible" Bequests:

Respect for individual preferences does allow bequests to be taxed. To reduce the importance of bequests that make little sense, Posner proposes to tax large bequests given to charitable organizations. Yet it is not bequests that raise questions about appropriateness, but inheritances. A large bequest divided among many recipients, including many individuals and charities, does not raise anywhere near the same ethical or other problems as the same large bequest given to a few children or charitable organizations. The United States' estate tax and that of many other countries is wrong-headed because they tax bequests rather than inheritances.

The case for making charitable organizations exempt from estate, inheritance, and other taxes that apply to individuals and for-profit businesses is that these charities decentralize giving to hospitals, universities, the poor, and for many other purposes that are not readily made self-financing. Absent private charities, the financial support of these purposes would be concentrated, that is monopolized, in the hands of governments, as it is in countries that do not exempt foundations and charities from estate and other taxes.

The major concern about private charities and foundations is not that they are too large, but that their leaders often perpetuate their organizations beyond any reasonable duration, partly by transforming their goals over time. I believe a case can be made for keeping the tax exemption in place, but changing present laws to require charities and foundations to have limited durations, perhaps 30 years. That is, to introduce a kind of sunset provision for private charities and foundations. If they stayed in business beyond that time period, they would then be subject to significant wealth and income taxes.

https://taxprof.typepad.com/taxprof_blog/2008/07/becker-posner-d.html

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