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Home – Tax Policy & IRS News – The Estate Tax Rewards the Wealthy for Funding Progressive Foundations

The Estate Tax Rewards the Wealthy for Funding Progressive Foundations

America’s private fortunes are the economic engines that built the most prosperous economy in world history, and they are giving themselves away.

Since her 2019 divorce from Jeff Bezos, MacKenzie Scott has handed out $26 billion—much of it to racial-equity, DEI, and “social justice” causes. Warren Buffett has pledged 99% of his roughly $170 billion. Bill Gates has given away more than $100 billion and vows to spend his foundation to zero by 2045. George Soros has poured $32 billion into his Open Society Foundations. Different fortunes, different causes—but the same destination, and the same motivating logic: The tax code has made nongovernmental organizations (NGOs) the most rational place for private fortunes to end up.

This is no accident; it’s inherent to the structure of how the tax code treats capital. The income tax hits the nominal value of a capital gain at rates of up to 23.8%, creating a powerful disincentive against selling. It is easier for founders of companies to borrow against shares rather than sell, incur massive tax bills, and dilute their ownership interest. If the appreciated asset is held until death, it will pass tax-free to the decedent’s heirs. 

The market value of assets held at death goes into the computation of the decedent’s estate. If the decedent is married, assets pass tax-free to the surviving spouse. When the surviving spouse dies, the estate tax kicks in. The estate tax is due almost immediately and payable in cash.

Although technically progressive, practically speaking the modern American estate tax is either 0% or 40%—the latter being a punitive rate that incentivizes endowing a charitable foundation. Charitable giving counts as a deduction against the estate tax. For builders of successful companies with vast appreciated wealth, the rational course is never to sell, but hold until death, and donate appreciated assets to a........

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