Super rich heirs are getting to keep more and more of their late parents’ money.
The share of estates that trigger the estate tax has reached a historic low in America, a new report has found. In 2019, the latest year for which the IRS has released data, only 8 out of every 10,000 people who died left an estate big enough to be subject to the tax.
“Today the estate tax is the weakest it has been in its century-plus history,” said the report, by the liberal nonprofit Institute on Taxation and Economic Policy. For 99.92% of Americans, the report says, the estate tax is “irrelevant.”
The culprits are a series of laws enacted by both parties that have steadily raised the estate tax exemption over several decades, as well as a boom in special trusts that the ultrarich use to avoid taxes altogether.
At the most recent peak, in 1998, almost 2.5% of estates triggered estate taxes, a figure that has dwindled dramatically.
The first significant cuts came under President George W. Bush and were extended by President Barack Obama under pressure from a Republican Congress. The 2017 Republican tax cuts turbocharged this trend by roughly doubling the size of estates that can be passed down tax-free — from $5.49 million in 2017 to $11.4 million for 2019, and twice that for couples.
The average size of estates that owe taxes has ballooned as a result, the report found, and the percentage of estates subject to the tax has correspondingly shrunk. In 2019, more than half of estates paying a penalty were worth more than $50 million.
Ultrawealthy families have also increasingly poured their wealth into special trusts that shield their fortunes from taxation altogether. Even before President Donald Trump signed the 2017 tax law, his director of the National Economic Council, Gary Cohn, reportedly joked that “only morons pay the estate tax.”
Inequality in the U.S. has hit several staggering milestones in recent years; the estate tax scraping bottom is just one.
This year, more people became billionaires by inheriting wealth than became “self-made” billionaires by running a successful enterprise, according to a UBS annual report on billionaires — the first time that trust fund billionaires outnumbered “self-made” ones since UBS began keeping tabs about a decade ago.
Beyond the billionaire realm, the U.S. is undergoing an intergenerational wealth transfer that will dwarf any other in history. In the coming decades, baby boomers, the richest generation in history, are expected to pass on an estimated $70 trillion in wealth to Gen X and millennials. Because much of that money will stay within families, the Great Wealth Transfer is likely to reinforce existing inequality, with the largest fortunes creating new wealth dynasties.
While both parties policies’ have helped enable the ultrawealthy to dodge taxation, some Democrats in recent years have sought ways to rein in runaway inequality.
As a presidential candidate, Joe Biden campaigned on slashing the estate tax exemption, and his administration is probing ways to clamp down on legal loopholes that high-net-worth families use to dodge taxation.
The spring, a group of Democratic senators called on Treasury Secretary Janet Yellen to crack down on the use of trusts by tightening certain Treasury rules.
Other changes would require congressional approval, and are proving impossible without Republican support. And the ITEP report points out that of the current proposals to roll back some estate tax exemptions, none would drive the share of estates owing taxes to any higher than 1%.
The most ambitious proposal, by Sen. Bernie Sanders (I-Vt.), would lower the estate tax exemption to $3.5 million per person and touch an estimated 0.5% of all estates.