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Foundations and the Estate Tax

This is the VOA Special English Economics Report.

Now, our third and final report on foundations, what they are and what they do.

In the United States, education gets the most foundation dollars -- about twenty-five percent. Next is health, then programs known as human services. Money also goes to the arts and many other causes.

In the past, wealthy Americans who started foundations often did not want much control over how gifts to charity were spent. Times have changed.

Steven Lawrence at the Foundation Center says donor-advised funds have grown quickly since the early nineteen nineties. These funds are large gifts from individuals, usually to community foundations.

The foundation agrees to spend the money as directed by the donor. Donor-advised funds have fewer restrictions than independent foundations, cost less to operate and can mean greater tax savings.

One big reason wealthy people form foundations is the estate tax. This is a tax on large gifts of wealth to family members after a person dies. Opponents call it the "death tax." Right now the top rate is forty-six percent on estates worth more than two million dollars. It will rise in five years to fifty-five percent on estates worth more than one million dollars, unless Congress changes the law.

The House last Saturday agreed to reduce the estate tax. At the same time, the bill would raise the federal minimum wage for people in low-paying jobs. Republican leaders want to keep these two actions combined. But on Thursday Democrats blocked a Senate version of the bill. Congress is now away for a month.

Supporters of the estate tax include Bill Gates and Warren Buffett. Recently Mister Buffett announced he is giving most of his wealth to the Bill and Melinda Gates Foundation.

Some people noted that by giving his money to charity, he will avoid the tax he supports for others. But supporters of charitable giving hope other rich people will follow his example.

Supporters of the estate tax say it increases charitable giving and helps pay for needed services.

Opponents say the tax is unfair. They also point out that it can drive wealth to foundations that are set up mainly as tax shelters. Foundations do not have to pay many kinds of taxes. And they can choose to give away only the smallest amounts required by law.

And that's the VOA Special English Economics Report, written by Mario Ritter. For our earlier reports on foundations, go to I'm Faith Lapidus.