Republican Senator Jeff Flake busted several myths about estate tax repeal, a central part of both President Trump’s and the House GOP’s tax plans, in a recent interview with Bloomberg View. He noted that the tax has shrunk significantly over the last few decades, said he was “concerned that we don’t take the deficit into account” in considering repeal, and expressed skepticism over whether repeal would stimulate the economy. He’s right on all three counts:
(1) Policymakers have weakened the tax so much that very few estates face it at all. Senator Flake said that Congress has “done pretty well” in changing the federal estate tax. While we disagree with the policy direction policymakers have taken with the tax, he correctly notes that they’ve weakened it significantly in recent decades.
Legislation enacted in 2001 gradually phased out the tax by raising the exemption level and reducing the rate, leading to the tax’s temporary repeal in 2010. The tax returned in 2011 but in much weaker form. Today, the first $5.49 million of a person’s wealth ($10.98 million per couple) is completely exempt from the tax and passed on tax-free to heirs, up from $650,000 per person in 2001.
As a result, the number of estates that face any estate tax has fallen by more than 90 percent, from over 50,000 in 2001 to fewer than 5,000 in 2015 (the latest year for which we have comparable data). Put another way, the wealthiest 2 out of every 100 estates faced any estate tax in 2001, but only the wealthiest 2 out of every 1,000 do today. (See chart.)