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Tax the rich heirs - and charities gain

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It's known in some circles as the "death tax." But for many charities and other nonprofit groups it has proved a lifeline.

By taxing estates of wealthy people who plan to leave assets to their heirs, the United States encourages them to instead give their money away, tax free, to foundations, churches, museums, and a host of other nonprofit organizations.

Now, the estate tax is slated to disappear for a single year - in 2010 - and some legislators and economists are pushing for permanent repeal. They say taxing estates of the richest Americans takes away funds likely to create new businesses and wealth.

But the federal budget's burgeoning deficit makes permanent repeal less likely. Philanthropies are breathing a sigh of relief. They are disappointed, however, at the failure of Congress to pass proposed new incentives for charitable giving.

"We are very discouraged," says Diana Aviv, president of the Independent Sector, a group representing more than 700 national organizations, foundations, and corporate philanthropy programs.

Repealing the estate tax beyond 2010 would leave two giant legacies. It would cut some $80 billion a year from Uncle Sam's tax collections. And because the wealthy give away money to avoid estate taxes, it would sharply diminish charitable giving, says John Irons, an economist with OMB Watch, a Washington, D.C., group pushing fiscal responsibility.

The decline in charitable bequests and giving during life would be about $10 billion a year, reckon economists Jon Bakija and William Gale. That's equivalent to the total annual grants currently made by the largest 110 foundations in the US, according to their study for the Tax Policy Center of the Brookings Institution and the Urban Institute.

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