House Republicans have once again brought forth legislation aimed at permanently repealing the federal estate tax, often referred to as the “death tax.” Led by Rep. Randy Feenstra, R-Iowa, and supported by 162 lawmakers, the Death Tax Repeal Act aligns with past Republican efforts to eliminate estate taxes. Although a Senate bill introduced in early 2023 had similar intentions, the lack of bipartisan support and the current divided Congress make it unlikely for such legislation to be enacted.
While the Death Tax Repeal Act signifies Republicans’ commitment to addressing estate taxes, it is more of a messaging play than a realistic expectation for immediate change. Garrett Watson, a senior policy analyst, and modeling manager at the Tax Foundation views this as an opportunity to keep the idea of estate tax repeal in public discourse, particularly as the 2025 discussion approaches.
The federal estate tax exemption, adjusted annually for inflation, reached $13.61 million per individual and $27.22 million for spouses in 2024. Estates with values beyond these limits can incur up to 40% in levies. However, after 2025, when the provisions from former President Donald Trump’s 2017 tax overhaul expire, these limits will decrease by approximately half. Although this reduction is significant, the impact on the majority of Americans is minimal.
According to Robert McClelland, a senior fellow at the Urban-Brookings Tax Policy Center, the federal estate tax does not pose a significant concern for the average American, including the average wealthy American. In 2019, the Internal Revenue Service (IRS) reported that only 2,100 tax returns, accounting for just 0.08% of adult deaths in the United States, were subject to federal estate taxes. McClelland asserts that family farms and small businesses, which some Republicans argue are negatively affected by the estate tax, are not heavily impacted. The U.S. Department of Agriculture’s Economic Research Service estimated that in 2022, only 0.22% of the 39,534 farms with principal operator deaths would owe estate taxes. Additionally, the need for estate tax returns largely depends on the size of the farm, as highlighted by the USDA.
Watson suggests that if the Republicans had full control and the revenue effects of eliminating the estate tax were deemed relatively small, there might be more leeway for complete repeal. He views the current situation as tantamount to the estate tax already being repealed due to its minimal impact on the general population. However, it is essential to acknowledge that the Republican push for permanent repeal stems from their belief in the principles of rewarding families who have spent generations building successful farms, ranches, or small businesses.
Tax Identity Theft: A Larger Issue
While the Republicans focus on repealing the estate tax, it is crucial to recognize other pressing matters in the realm of personal finance. Tax identity theft is a growing concern, as experts highlight its significant impact. Safeguarding oneself against such fraudulent activities is of utmost importance to protect personal and financial information.
Quiet luxury is making way for “loud budgeting,” as individuals seek ways to make the most of their financial resources. In a period marked by economic uncertainty, being more deliberate and strategic with budgeting can lead to greater financial well-being. Embracing the concept of “loud budgeting” enables individuals to take control of their financial future and make informed decisions about their expenses and investments.
The Conclusion: A Reminder of Estate Tax Uncertainty
While the reintroduction of the Death Tax Repeal Act by House Republicans serves as a symbolic gesture reinforcing their commitment to eliminating estate taxes, the likelihood of immediate change remains slim in the current political landscape. The federal estate tax, although often criticized, only affects a small percentage of Americans and has limited consequences for the average citizen. However, as discussions surrounding tax policy continue to shape future legislation, the estate tax remains a topic that warrants attention and ongoing evaluation.
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