By Zane Buckminster

The federal estate tax has long stood at the intersection of wealth, fairness, and public policy. When Congress first enacted the tax in 1916, it was rooted in a progressive ideal—ensuring the wealthiest Americans contributed to the public good and curbing the concentration of dynastic wealth that threatened democratic institutions.[1] Over a century later, the law’s structure and effect have drifted far from that purpose. Today, fewer than one in a thousand estates pay any estate tax at all.[2]

The original estate tax, created under the Revenue Act of 1916, imposed a base rate of one percent and a top rate of ten percent on estates over $5 million, with an exemption of $50,000.[3] By 1976, rates ranged from 18 to 77%, and the exemption had fallen to $60,000.[4] This steep progressivity reflected a belief that inherited wealth should serve the public rather than accumulate unbounded.

The trend reversed in the late twentieth century. The Tax Cuts and Jobs Act of 2017 (TCJA) lowered the top rate to 40% and doubled the unified gift and estate tax exemption to roughly $14 million.[5] The One Big Beautiful Bill Act (OBBBA) of 2025 then made both provisions permanent and indexed the exemption for inflation.[6] These changes dramatically shrank the number of taxable estates—from about 50,000 in 2001 to roughly 4,000 in 2023.[7] The Internal Revenue Service notes that the proportion of estates subject to tax is now the smallest in the law’s history.[8]

Although the estate tax was designed to be progressive, its modern structure produces the opposite effect. For 2025, the exclusion is $13.99 million per individual, rising to $15 million in 2026.[9] The top statutory rate remains 40%,[10] but because of the bracket structure, the effective rate declines for ultra-large estates. Analysts at the Brookings Institution describe this as a “regressive inversion,” where billion-dollar estates face a smaller proportional burden than smaller taxable estates.[11]The fiscal consequences are striking. In 2023, total estate tax liability amounted to $24 billion—less in real terms than the $24.6 billion collected in 2007.[12] In short, as wealth inequality has soared, the estate tax has contracted in both reach and revenue.

A central reason for this erosion lies in the step-up in basis rule, first adopted in 1921.[13] When a decedent passes property to heirs, the basis of that property resets to its fair market value at the time of death. This means decades of unrealized capital gains vanish for tax purposes.[14] For the wealthy, this feature effectively eliminates capital gains taxation on inherited assets.

This “angel of death” loophole allows the ultra-wealthy to hold appreciated assets indefinitely, borrow against them tax-free during life, and pass them to heirs who owe neither capital-gains nor income tax upon sale.[15] Both the Congressional Research Service and the Congressional Budget Office (CBO) have found that the step-up in basis results in tens of billions of dollars in forgone annual revenue and deepens intergenerational wealth concentration.[16] Yet repeal is politically difficult. The CBO has cautioned that taxing unrealized gains at death could create liquidity problems for heirs inheriting illiquid assets such as farms or small businesses.[17]

Policy debates generally revolve around two levers: (1) lowering the exclusion or raising the rate, and (2) modifying or eliminating the step-up in basis. Each approach has tradeoffs. Reducing the exemption would raise revenue quickly but could burden family-owned enterprises that are “asset rich but cash poor.”[18] Conversely, taxing unrealized gains at death would target only the wealthiest estates but introduce administrative complexity.[19] Empirical analyses suggest that addressing the step-up rule would yield the most progressive results over time, while rate or exemption adjustments would have more immediate but politically contentious effects.[20]

A pragmatic reform would preserve the step-up in basis for small and middle-class estates—protecting family farms, homes, and closely held businesses—while sharply increasing the top marginal rate for ultra-wealthy households. A 77% rate on estates exceeding hundreds of millions or billions of dollars would affect only the richest 0.01% of taxpayers while restoring fairness and fiscal capacity.[21] Historical precedent supports this approach: during the mid-twentieth century, when the top estate-tax rate reached 77%, the United States experienced both strong economic growth and high social mobility.[22]

The goal is not to punish success but to ensure that inherited wealth contributes proportionally to public needs. As the Brookings Institution notes, a reformed estate tax could “limit the transfer of vast quantities of wealth through generations” and serve as an effective tool for equality and revenue generation.[23] Reform requires both legislative coordination and public framing. Success would depend on coalition-building among legislators, economists, and advocacy groups—including the Brookings Institution, the Tax Policy Center, and labor organizations—to counter predictable opposition from high-net-worth lobbying groups such as the U.S. Chamber of Commerce.[24]

Framing the issue around fairness and fiscal responsibility, rather than partisanship, may offer the best path forward. Restoring a truly progressive estate tax would reaffirm its original purpose: ensuring that wealth serves the republic, not the other way around.

[1] Darien B. Jacobson, Brian G. Raub, & Barry W. Johnson, The Estate Tax: Ninety Years and Counting, 27 Stat. Income Bull. 118 (2007).

[2] How Many People Pay the Estate Tax?, Tax Policy Center, https://taxpolicycenter.org/briefing-book/how-many-people-pay-estate-tax (last updated Oct. 14, 2025).

[3] Jacobson, Raub, & Johnson, supra note 1.

[4] Id.

[5]After the One Big Beautiful Bill: Estate Tax Updates, DAVIS GILBERT (July 22, 2025), https://www.dglaw.com/after-the-one-big-beautiful-bill-estate-tax-updates/.

[6] Id.

[7] Tax Policy Ctr., supra note 2.

[8] IRS, supra note 1.

[9] Jane G. Gravelle, Cong. Rsch. Serv., R481813, The Estate and Gift Tax: An Overview (2025).

[10] Joint Comm. on Tax’n, Present Law and Background on the Income Taxation of High Income and High Wealth Taxpayers (2023).

[11] William G. Gale, Oliver Hall, & John Sabelhaus, Taxing the “Angel of Death”, BROOKINGS (Jan. 23, 2025), https://www.brookings.edu/articles/taxing-the-angel-of-death/.

[12] SOI Tax Stats–Estate Tax statistics, IRS, https://www.irs.gov/statistics/soi-tax-stats-estate-tax-statistics (last updated Aug. 29, 2025).

[13] Gravelle, supra note 9.

[14] Robert McClelland & Lillian Hunter, Taxing Capital Gains of High-Income Taxpayers, TAX POLICY CENTER (Dec. 10, 2024), https://taxpolicycenter.org/briefs/taxing-capital-gains-high-income-taxpayers.

[15] Brookings Institution, supra note 11.

[16] Gravelle, supra note 9; Change the Tax Treatment of Capital Gains from Sales of Inherited Assets, Congressional Budget Office (Dec. 7, 2022), https://www.cbo.gov/budget-options/58691.

[17] Congressional Budget Office supra note 16.

[18] Gravelle, supra note 9.

[19] Brookings Institution, supra note 11.

[20] Gracelle, supra note 9.

[21] Id.

[22] Jacobson, Raub, & Johnson, supra note 1.

[23] Brookings Institution, supra note 11.

[24] J.D. Foster, The Immortal Misinformation Campaign About the Death Tax, U.S. Chamber of Commerce (Feb. 15, 2019), https://www.uschamber.com/taxes/the-immortal-misinformation-campaign-about-the-death-tax.