The death tax, officially known as the estate tax, is once again on the table in Congress. The One Big Beautiful Bill Act, as written, would make permanent the large exemption created by the 2017 Tax Cuts and Jobs Act.
Currently, Uncle Sam takes a slice of every inheritance greater than $13.99 million, an amount adjusted annually for inflation. The OBBBA would bump that up to $15 million and continue to index that threshold to inflation going forward. This would keep the vast majority of family farmers, small businessmen, and wealthy people free from having to pay the tax when passing their assets to their children.
The tax cutters will probably get their way, given Republican control of the House, Senate, and White House. But there is still a lobby to save the death tax — and it’s not merely liberal journalists and lawmakers.
The estate-planning industry, which makes money by helping rich people avoid the estate tax, needs an estate tax in place if it’s going to charge its customers a fee for avoiding it. The industry, including the life insurance lobby, has fought Republicans on this issue for 25 years, bankrolling pro-death-tax campaigns that posed as populist efforts.
It’s a revealing story of how big government benefits special interests, and how special interests sometimes lobby against the interests of their own customers.
The death tax
Congress created the estate tax in 1916, taxing inheritances larger than $50,000 — about $1.5 million in today’s dollars.
The top rate was originally 10%, but President Franklin Roosevelt repeatedly hiked the tax, eventually creating a 77% rate on estates over $10 million. When President George W. Bush came into office in 2001, the exemption was $675,000, and the top rate was 55%. This created a serious tax liability for many small businesses and family farms.
The Bush tax cut in 2001 nominally “repealed” the death tax, but it took 10 years to do so. However, because the law expired after 10 years, it repealed the estate tax only for the year 2010, making that the best year for a business owner or wealthy person to die. In between, the 2001 bill reduced the top rate and steadily raised the exemption, at first to $1 million, eventually hitting $3.5 million in 2009.
Throughout the Bush and Obama years, Congress repeatedly debated permanent repeal of the death tax, cutting the rates, and increasing the exemption. The Democrats’ 2010 tax law set a 35% top rate and a $5 million exemption, indexed to inflation. The Republicans’ 2017 TCJA doubled the exemption to $11.2 million and indexed it for inflation.
The TCJA’s estate tax provisions were temporary, and so if Congress does nothing, the tax would revert to its 2017 levels, basically $7 million, or half the current exemption.
Allowing the exemption to halve would increase federal revenues by about $210 million over the next 10 years, a minuscule fraction of all federal revenues, $4.9 trillion. It would also more than double the number of deaths that result in the estate tax, which is about 2,100 a year.
But it would affect far more than those thousands of families, because much of the cost that the estate tax imposes on business owners, farmers, and families is the cost of avoiding the tax.
The Washington Post’s Jeff Stein, in an article lamenting the steady shrinking of the estate tax over recent decades noted this fact: “Even those estates who do owe the tax often reduce or eliminate their liability, said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, through trusts, valuation discounts and life-insurance strategies.”
This is the key.
These strategies are not cheap, though, and the folks who sell them are the folks who, like liberal journalists and politicians, have fought over the years to keep the death tax alive, its rates high, and the exemption as low as possible.
The big business populists
“Oh, hi, I’m London,” a young blond woman says in the pro-death tax ad from 2005. The knock-off Paris Hilton continues: “I just wanted to personally thank my Republican friends in Congress for trying to get rid of that mean old inheritance tax. I already stand to inherit a fortune, and because of you, I’ll get millions more.”
This was the Democrats’ main line of argument in 2005 as Republicans fought for permanent estate tax repeal, which Democrats called the “Paris Hilton tax cut.”
The “Leave no heiress behind” ad was paid for by a group called the Coalition for America’s Priorities, which spent about $1.5 million in those years fighting to save the death tax. All of that money came from the life insurance lobby.
Democratic lobbyists Steve and Jeff Ricchetti were the masterminds behind the insurance industry’s campaign. They are both Democratic donors and were lobbyists for the Association for Advanced Life Underwriting, itself a lobby group for insurers. The Ricchettis were lifelong intimates of former President Joe Biden, and Steve served as deputy chief of staff in Biden’s White House.
Another prominent lobbying client of theirs in the Bush and Obama years was the American Council of Life Insurers, a leading defender of the death tax.
The ACLI is a $50-million-a-year trade association and industry lobby. In 2002, the ACLI announced it was hiring Oklahoma Gov. Frank Keating as its president, effective upon Keating finishing his second term in January 2003. As a conservative Republican governor, Keating opposed the death tax and supported total abolition.
“I believe death taxes are un-American,” Keating said. “They are rooted in the failed collectivist schemes of the past and have no place in a society that values entrepreneurship, work, saving, and families. I commend President Bush for putting us on course to end the federal death tax.”
Upon taking over the life insurance lobby, though, Keating underwent a conversion.
He led the charge against repeal, casting the death tax as a moral imperative: “I am institutionally and intestinally against huge blocks of inherited wealth. … I don’t think we need the Viscount of Enron or the Duke of Microsoft.”
Today, the pro-death-tax lobby might not have the firepower it did in past decades, but the estate-planning industry is still planting its flag.
Products that could become worthless
Survivorship life insurance, the Life Insurance Marketing and Research Agency explains, is “intended to pay federal estate taxes and other estate-settlement costs owed after both spouses pass away.”
These products, the LIMRA estimated before the TCJA, made up about 4% of the entire life insurance market. “All carriers surveyed felt repealing the estate tax would have some sort of negative impact on survivorship life insurance sales.”
Also, life insurance payouts can be structured, with proper professional planning, of course, to be immune to the estate tax.
These products, combined with the existence of the estate tax, create more incentive for wealthy people and business owners to spend their money on life insurance rather than simply save it.
And that’s why the estate planners want to keep the estate tax in place.
This Spring, Bloomberg News ran a headline, “Estate Tax Repeal Faces Unlikely Foe: Financial Advisers of the Rich.” In the article, the advisers argued that repeal would be destabilizing because they wrote estate plans that assumed an inheritance tax. But there’s an obvious reason for the advisers to worry: A world with no estate tax, or an exemption over $15 million, is a world where the financial advisers of the rich will be in a bit less demand.
Democrats will attack the One Big Beautiful Bill Act as a tax cut for the rich. Surely, the permanent death tax relief only benefits the wealthy and those who own successful businesses. But these populist attacks, we should remember, are often bankrolled by big business whose profit model depends on a more intrusive taxman.