I liked this part.
Consider a $1 million charitable gift made to reduce estate tax liability. If the charity invests the gift and earns 8 percent annually, then it will earn $80,000 annually, tax free. Suppose there were no estate tax, and the donor, who pays income tax at the 36 percent rate, had held onto the asset. He would have paid $28,800 in tax the next year. Suppose all the after-tax income would have been reinvested, and suppose he would have lived for ten years at which time the asset would have passed on to his heirs who pay a 15 percent income tax rate. In the following 20 years, this $1 million would have generated over $650,000 in income tax revenue. This is revenue foregone to the Treasury because the estate tax motivated the donor to make a gift of the asset.
Suppose, instead, the $1 million gift was distributed from the estate to avoid estate tax. If the assets had remained in the family, they would have generated $12,000 in income tax in the first year. If the after-tax income from these assets had been saved, then over 20 years the assets would have produced over a half million dollars in income tax revenue. That’s $500,000 in income tax revenue foregone over 20 years because the estate tax drove the estate to make a charitable contribution instead.