Federal Death Tax Is on House Hit List

Published November 7, 2017

Speaker of the House Paul Ryan (R-WI), Rep. Kevin Brady (R-TX), and other members of Congress announced the planned phase-out of the federal death tax in the proposed Tax Cuts and Jobs Act.

The bill would reduce the number of personal income tax brackets from seven to four and cut taxes by approximately $1.51 trillion over the next ten years. The bill would also double the amount of money exempt from the federal estate tax, commonly referred to as the “death tax,” and eliminate the tax by 2024.

Middle Class Hit

Antony Davies, an associate professor of economics at Duquesne University, says the death tax has a disproportionate impact on middle-class households and owners of small businesses.

“The people who are in the most danger of being hit with the estate tax are not the ultra-wealthy, they are the frugal middle class and small-business owners,” Davies said. “A very wealthy person can afford to hire lawyers and accountants who will find plenty of ways around the tax. On the other hand, a frugal middle-class wage earner or a small business owner can accumulate enough wealth to trigger the estate tax but not enough wealth to afford the bidding of lawyers and accountants to get around it.”

Discouraging Saving, Investment

Gordon Gray, director of fiscal policy at American Action Forum, says the death tax is an anchor on prosperity.

“The estate tax harms savings and investment, suppressing the overall rate of growth in the economy,” Gray said. “Tepid economic growth disproportionately harms low-income Americans struggling to find work or steady incomes. Repealing this tax would be consistent with pro-growth tax reform, which would spur economic growth and materially improve the standard of living for all Americans.”

Foresees Difficulties

The death tax keeps hanging on despite efforts to kill it, Gray says.

“Tax reform is always a difficult legislative effort, making repeal of the estate tax difficult in kind,” Gray said. “Moreover, congressional budget rules have made the challenge more difficult, leading to a temporary repeal in 2010 that lapsed soon after. These challenges will need to be successfully navigated by policymakers on Capitol Hill and the administration to eliminate this poorly designed tax policy.”