Expert Commentary

The estate tax: Understanding the GOP’s repeal proposal


Death and taxes: They’re not only unavoidable; for the very rich, they’re also inseparable. The estate tax — the “death tax” to critics — is a levy on your property when you expire. But the threshold is high and few are required to pay.

Under House Republicans’ November 2017 tax proposal, the Tax Cuts and Jobs Act, the estate tax would be reduced and then scrapped altogether in six years. “This means family-owned farms and small businesses can pass from generation to generation without a grieving child having to worry about coming up with the cash necessary to pay that tax, or without a parent having to engage in costly and complicated estate-planning techniques to minimize the Death Tax,” says the proposal.

Currently, however, the tax only affects people who leave more than $5.49 million to their heirs. “If you’re single and you die with less than $5.49 million to your name, you — or rather, your heirs — don’t have to worry. Couples can shield $10.98 million from the estate tax, and the right planning can shield millions more,” Bloomberg explains. When the size of the estate exceeds these figures, the tax is calculated on the difference at a rate of up to 40 percent. (That may sound high, but after deductions the average is closer to 17 percent according to a Bloomberg analysis.)

Naturally, it’s complicated. Very few people are responsible for the tax and there are lots of deductions and provisions for a surviving spouse.

Estate taxes have been around since ancient Egypt. The United States first introduced one in 1916 in the run-up to World War I. But despite the clamorous public debate in America, the estate tax today accounts for little: In 2015, Uncle Sam collected around $19 billion from the estate tax. In 2014, estate taxes accounted for 0.6 percent of federal revenues, according to Congress’s Joint Committee on Taxation. Since World War II, they have never surpassed 1972’s high of 2.6 percent.

Fewer than 12,000 households filed an estate tax return in 2015. The nonpartisan Tax Policy Center estimates around 5,300 people owed estate taxes that year — about 1 in 550 decedents nationwide.

The House Republican proposal would lower that number to around 2,000 filers, according to an unpublished memo from the Joint Committee on Taxation (JCT) obtained by the Washington Post. Under the Republican proposal, the exemption would double to roughly $11 million and the tax would disappear entirely in 2023.

Academics fall on both sides of the debate. Harvard economist Gregory Mankiw calls the estate tax unfair to hard workers. Emmanuel Saez of the University of California, Berkeley and Thomas Piketty of the Paris School of Economics, however, have called for an increase in the top marginal estate tax rate to 50 or 60 percent, demonstrating in a widely cited 2013 paper that this would help reduce income inequality.

Other resources:

  • The jargon can be puzzling. An “estate tax” — what we’ve been describing — can be either federal or assessed by the state. Fourteen states and the District of Columbia levy an estate tax, according to a count by the Tax Foundation, a think tank advocating for lower taxes. The “inheritance tax” is a different tax and depends on the relationship between the heir and decedent and is levied by six states.
  • A related tax is the gift tax.
  • We have briefings on tax loopholes and corporate tax reform.

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