Lower the Top Estate Tax Rate to 30 Percent

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 estate tax effectively falls on saving, as it imposes another layer of tax on income earned but not immediately consumed.

One way to reduce the burden of the estate tax is by lowering the top marginal rate. This option reduces the top rate to 30 percent. Reducing the estate tax rate 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, resulting in a slight decline in GNP. These estimates do not account for any changes to the substantial cost of complying with the estate and gift taxes.

On a conventional basis, this option would increase the primary deficit by $114.7 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 177.0 percent by 2056.

On average, taxpayers would see increases in their after-tax incomes of 0.1 percent, concentrated among the top 1 percent of filers.