Do United States Inheritance Tax Rates Favor the Wealthy?

Do United States Inheritance Tax Rates Favor the Wealthy?

Inheritance, or estate, tax rates do not favor the wealthy in the United States. Owing to a high estate tax exemption threshold, only the very wealthy have to pay any estate tax at all, sometimes amounting to less than 1 percent of all estates. As of 2015, only estates worth in excess of $5.43 million are taxable, typically at a rate of 35 to 55 percent.

However, it is common for the wealthy to exploit legal loopholes in order to avoid paying estate tax. This might involve the use of grantor retained annuity trusts, which pay a return plus interest to estate owners or their heirs.

Such legal estate tax evasion by the wealthy was estimated to represent a loss of around $100 billion in federal tax revenue between 2000 and 2013, as reported by the Center on Budget and Policy Priorities.

As a result of the rather lax approach to estate tax in the U.S., the country's estate tax revenue is significantly below average. In fact, according the Organization for Economic Co-Operation and Development, a group of 34 developed nations, estate tax revenue in the U.S. is behind 27 other member nations.

It is speculated by many that the estate tax deficit may fall to the less wealthy in the form of elevated income tax.