Eliminate the Estate and Gift Tax

In 2026, the estate tax applies to estates above a $15 million exemption threshold ($30 million for joint filers) according to a rate schedule that quickly rises to 40 percent. The gift tax, meanwhile, applies to transfers made during an individual’s lifetime, subject to an annual exclusion of $19,000 per recipient as of 2026. The estate and gift taxes effectively fall on saving, as they impose another layer of tax on income earned but not immediately consumed.

This option repeals the estate and gift taxes. Eliminating these taxes would increase the after-tax returns to saving. Domestic saving would rise, and more of the returns to American investment would flow to Americans. However, the larger budget deficit would increase federal government borrowing, and more interest payments would flow to foreigners. These two offsetting effects lead to a slight decline in GNP in the long run. These estimates do not account for the substantial reduction in compliance costs that would come from eliminating the estate and gift taxes.

On a conventional basis, this option would increase the primary deficit by $407.2 billion over the budget window. Long-run GDP would be unchanged, while long-run GNP would fall by less than 0.05 percent. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be higher than baseline, reaching 179.6 percent by 2056.

On average, taxpayers would see increases in their after-tax incomes of 0.2 percent, with the changes all concentrated within the top quintile.