Estate and Inheritance Taxes


The federal estate tax was enacted in 1916 in an effort to raise revenues. Its intent was also to reduce the concentration of wealth, thus increasing economic equality. In the absence of the estate tax, large amounts of capital income would escape taxation entirely. Inheritance taxes play a similar role. Estate taxes are based on the net value of the assets held by someone who dies. The tax is paid by the estate. In contrast, an inheritance tax is paid by the people who inherit some or all of the assets.

The estate tax is one of the most progressive elements of the federal tax system. It applies only to the very largest estates. In 2020, it pertained to those totaling $11 million for individuals and $22 million for couples.

This leaves most estates exempt from taxation. Policymakers could instead tax all inheritances as capital gains. (A capital gain occurs when an investor sells an asset for more than its purchase price.) Heirs would owe taxes on the amount by which the asset appreciated over time.




Retention of estate and inheritance taxes

Policymakers should retain estate and inheritance taxes as important components of our tax structure.

In the absence of an estate tax, capital gains should be indexed to inflation and taxed at death.


Federal and state estate and inheritance taxes should affect only the largest transfers.

Surviving spouses, domestic partners, and family farms and businesses should be protected from excessive burdens from estate and inheritance taxes.

Heirs should have some protection against the need to liquidate assets to pay taxes.