By Taehun Kim
Death taxes often refer to taxes paid following a person’s demise, including estate taxes paid by the deceased’s estate, or succession taxes paid by the heirs. Recently, the legislature of the United States has been moving towards increasing the exemption amount for federal estate taxes, first through the Tax Cuts and Jobs Act (TCJA) of 2017, and most recently through the One, Big, Beautiful Bill Act (OBBBA) of 2025, raising the exemption amount permanently to $14.5 million per individual. However, this move is highly controversial. Some suggest that the provision favors the rich and causes a void in tax revenue. They are concerned it will be replaced by a tax on the general public. Is this a valid concern? What does the evidence suggest?
Concern I: Tax revenue insufficiency?
One of the primary concerns about the exemption is that it creates revenue insufficiency due to the reduced number of estates subject to taxation. Indeed, the percentage of revenue derived from estate and gift taxes in proportion to the GDP has decreased. Congressional Research Service indicates that before death tax revisions were made in the year 2000, such taxes accounted for 0.3% of GDP. Now, it accounts for about 0.1% of GDP. However, although the number of taxable estates fell by more than half, from 5,467 in 2016 to 2,129 in 2019, estate tax revenues did not decline at the same rate. The Congressional Research Service report indicates that for the financial year 2024, death taxes still accounted for $32 billion in revenue. This suggests that raising the exemption is unlikely to generate a fiscal shortfall significant enough to increase tax burdens on ordinary taxpayers.
Concern II: Does it favor the rich?
One other concern raised by increasing the exemption amount for death taxes is that the policy favors the rich, and henceforth is a bad tax policy. However, estate taxes are vertically equitable. The policy enforces a 40% estate tax on the top 0.07% of the wealth distribution, 59% of whom hold $50 million or more in gross estates. Additionally, if the deceased’s estate includes family businesses or farms, additional special rules are in place to protect them from high estate taxes. For example, provisions allow family businesses to pay the estate taxes in installments over 14 years (IRC §6166). Small businesses use the special use valuation method, where they are allowed to value their estates on current use rather than the fair market value for estate taxes. This method can reduce the estate value by up to $1.42 million under IRC §2032A (Evans Legal, 2025). Combined, while reducing the applicable estates through increasing exemption amounts, estate tax policies are concentrated on the very top of the income distribution. With protections for special circumstances, they are highly progressive, rather than regressive.
Pro I: Small businesses can benefit from estate tax removal
Research in economies that have reduced or eliminated estate tax suggests that doing so creates a positive economic effect, especially for small businesses. For example, Tsoutsoura (2015) examines the succession tax policy change of 2002 in Greece and finds that the existing succession tax led to a 40% decrease in investment in family succession cases. Her evidence suggests that succession taxes are associated with lower cash reserves, a decline in profitability, and slower sales growth. Additionally, she discovered that the reduction in succession taxes led to more than 60% increase in family transitions, allowing the ownership of small, family-owned businesses to remain with the family. In 2021, in the U.S., family businesses accounted for 62% of the U.S. workforce and 64% of the GDP, suggesting that estate taxes can have a meaningful impact on our economy.
Pro II. Recaptured tax base/ Reduction of capital flight
High tax rates trigger taxpayers to consider relocating themselves or their assets. As assets and personnel move overseas, the taxable base and the expected future revenue collections decrease. However, reducing the amount of estate taxes paid can alleviate such tendencies. Empirical analysis conducted by Jakobsen et al. (2026) estimates that the repeal of Swedish wealth taxes in 2006 reduced the propensity of wealthy individuals to leave Sweden by 30%. Additionally, they found that a one percent increase in net of tax wealth reduces the out-migration rate by 0.17 percentage points, further suggesting that estates and their assets that otherwise could have escaped the tax base can be recaptured and contribute to internal revenue for a longer term.
What does this all suggest?
Like any policy, raising the exemption amount of estate taxes, and hence reducing the number of estates subject to taxation, cannot simply be called a ‘bad policy’ or a ‘regressive policy that
favors the rich’. Evidence against common concerns exists, and some even demonstrate that such policy adjustments can bring positive outcomes. It is important to carefully consider the pros and cons and examine future data to determine the full effect of this policy.
Sources
https://www.congress.gov/crs-product/IF12846
resources.evans-legal.com/?p=10928
https://www.nber.org/system/files/working_papers/w32153/w32153.pdf
https://doi.org/10.1111/jofi.12224
https://www.uschamber.com/small-business/small-business-data-center
https://familybusiness.org/content/measuring-the-financial impact-of-family-businesses-on-the-US-ec