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America Has An Estate Tax, But It’s Practically Invisible — Here’s How Less Are Paying (And What Could Happen Next)

America has had a federal estate tax on the books for more than 110 years, but you might not even know it exists — and in many ways, it has become practically invisible. It’s not just because you’re unlikely to pay it (and unlikely to know anyone who will), either.

Due to favored treatment for wealthy people in the US tax code, the estate tax has become a shell of its former self — and with the US debt now above $40T, it might be time to turn back the clock on this modest source of income.

An “estate tax” in name only: Since the US created the federal estate tax in 1916, the US population has more than tripled, but the number of estates paying tax is among the lowest we’ve ever seen. The Tax Policy Center estimates just 3.9K estates (opens in a new tab) will owe tax in 2026, compared with ~3M annual deaths. And while that might be a testament to how much wealth just a handful of Americans have, it really shows how high the bar has gotten for an estate to be subject to this tax, limiting it to only the most well-off American families.

• The US has raised the exemption for the estate tax at a rate far outstripping inflation — it was just $675K in 2001; it’s now $15M per person.
• At the same time, the top estate-tax rate is nearly half what it was at its peak in 1972, falling from 77% then to 40% today, so the few who are paying are paying less, too.

Something has to change

Taken together, these two changes have hollowed out the estate tax base and given wealthy folks a massive tax break in the process. And in a time that every percentage point counts (opens in a new tab), reforming the estate tax should be the first stop — otherwise, the cost will fall on everyday Americans.

• During the Great Depression, estate and gift taxes represented a record 9.7% of federal receipts — the post-war high in 1972 funded about 2.6% of federal revenues.

• These days, estate and gift tax represents just 0.55% of receipts or $29B, despite a higher exemption and a lower top tax rate — a testament to their potential as a tax base.

Requiem for revenue: The US has long afforded preferential treatment to capital over wage workers, who the tax code is increasingly dependent on to fund government spending (opens in a new tab). As we’ve covered in recent weeks, this is not sustainable. And even more dire now that US Treasury yields are at their highest levels since 2007 (opens in a new tab) and interest on the country's ~$40T debt is the government's second-largest line item. Returning to the 2009 threshold (about $5.17M (opens in a new tab)) would generate billions in additional, necessary revenue to bridge the deficit and reduce borrowing.