Out of every 1,000 Americans who die, only two pay the federal estate tax, which in 2018 brought in $23 billion, or less than 1 percent of U.S. tax revenue. It’s remarkable, then, that such a minor tax has continued to be a major partisan battleground. Democrats decry the tax’s erosion over recent decades as a giveaway to the richest Americans at a time of surging wealth inequality. Republicans haven’t quite succeeded in the outright repeal of what they call the “death tax,” which they say it amounts to double taxation that places an unfair burden on family-owned businesses and farms. They have whittled it down considerably, but perhaps only temporarily.
The tax overhaul that President Donald Trump signed into law in December 2017 doubled the amount of wealth that escapes the 40 percent estate tax. In 2020, the now inflation-adjusted law exempts $11.58 million for individuals and $23.16 million for couples, but only until 2026, when the legislation says thresholds will revert back (a measure included to help reduce the law’s cost as scored by the Congressional Budget Office). Even before the new law and its doubling of the exemption, so much wealth could be sheltered that the actual rate estates paid in 2016 was only about 17 percent, Internal Revenue Service data show. Rich Americans can use numerous strategies to make their estates look smaller before they die, with the help of an industry of estate planners who specialize in siphoning money out of estates and into trusts for future generations. Perhaps the easiest way to avoid the estate tax is to give to charity, causing many nonprofits to worry about the effect of estate-tax changes on their fundraising. Among major candidates for the 2020 Democratic presidential nomination, Senator Bernie Sanders of Vermont has made the most ambitious proposal for expanding the tax: his plan would set a 45 percent tax on the value of estates between $3.5 million and $10 million, increasing gradually to 77 percent for amounts more than $1 billion.