If Vice President Kamala Harris wins the presidency this November, the financial legacy millions of older Americans hope to leave to their children and grandchildren could be in jeopardy.
Late last month, Harris endorsed S. 4824, the American Housing and Economic Mobility Act. The bill, introduced by far-left Senator Elizabeth Warren, is ostensibly aimed at “tackling the U.S. housing crisis.” It promises to provide funding for building three million new housing units while “bringing down rents for lower-income and middle-class families by 10 percent.”
And just how do Warren and Harris propose to pay for all this new housing? By dramatically increasing the amount of estate tax, commonly known as the “death tax,” that Americans are forced to pay.
As part of the 2017 Tax Cuts and Jobs Act, one of former President Donald Trump’s signature legislative achievements, the federal estate tax exemption was boosted from $5.49 million per individual to $11.18 million in 2018. That amount, which is adjusted for inflation, has risen to $13.61 million in 2024.
In other words, only estates valued at more than $13.61 million are subject to the federal estate tax rate of 40 percent for the value of assets that exceed the exemption. In 2019, the last year for which IRS data is available, 0.08 percent of estate transfers were large enough to be subject to this federal tax.
As opponents of estate taxes argue, Americans already pay taxes on their income and other investments to build their wealth. The federal government should not then be able to tax that wealth when it is passed on to heirs.
However, the Trump tax cuts will sunset, or expire, at the end of 2025. This means that without action from Congress, the exemption will revert to pre-2018 levels, likely around $5.5 to $6 million depending on inflation adjustments.
S. 4824 would lower the exemption even further, to $3.5 million. The bill would also increase the tax rate from 40 percent to 55 percent for estates valued up to $13 million, 60 percent on any amount above $13 million to $93 million, and 65 percent on any remaining value above $93 million.
Notably, some states also levy their own estate taxes, as well as inheritance taxes paid by heirs. In Washington and Hawaii, the estate tax rate can be as high as 20 percent, while it can go up to 16 percent in Illinois and New York.
Exact figures on how many Americans the Harris-Warren proposal would affect are difficult to estimate because typically only estates valued at above the exemption are reported to the IRS. However, it is safe to say that cutting the exemption by nearly 75 percent would dramatically increase the number of estates subject to the tax.
Many older Americans may not even be aware that their estate could be taxed upon their death because their wealth is spread out across a number of investments. For example, if someone has a small business valued at $1 million, real estate holdings valued at $2 million, and $1 million in stocks, their estate would be subject to the tax.
Harris’s plan to end the step-up basis for estates would further increase the amount of taxes heirs are forced to pay by treating death as a taxable event for capital gains purposes. As Job Creators Network CEO Alfredo Ortiz put it, this proposal is “a massive attack on baby boomers planning their wills and dramatically reduces what they will be able to pass down to their heirs.”
Small business owners and farmers, who were some of the biggest beneficiaries of the Trump tax law, would be particularly hard hit by these changes.
The American Farm Bureau Federation reports that illiquid assets such as land, buildings, and equipment account for 82 percent of all farm assets. As a result, surviving family members often don’t have the cash to pay steep estate tax rates. If the exemption were lowered to $3.5 million and the step-up basis were eliminated, many family farms that already struggle to stay afloat would be forced to sell their land just to pay the taxes on it.
Entrepreneurs hoping to pass on their businesses to their children would also be hard hit. Someone hoping to take over a small business valued at $5 million from a parent who passed away could be forced to instead sell the business just to pay the taxes on it.
Additionally, the Harris-Warren bill would significantly reduce the annual gift tax exclusion and institute a new “generation skipping transfer tax” – bad news for grandparents looking to help their grandchildren through college or leave them money in a will.
Under current law, individuals can gift up to $18,000 per year to an unlimited number of people without that gift being subject to a tax. Under the Harris-Warren plan, that amount would drop to $10,000 per recipient with a total annual limit of $20,000.
Estate planners can also currently set up trusts with grandchildren and great grandchildren as beneficiaries which are not subject to federal estate taxes. Under the Harris-Warren plan, these exemptions would be eliminated.
All of these changes are just a few of the many headaches American families would face from Harris’s tax proposals. According to the Tax Foundation, Harris’s tax plan and overall economic agenda would result in an added tax burden of about $4.1 trillion from 2025 to 2034, reduce GDP by two percent, and cost the country 786,000 jobs.
Trump, meanwhile, has backed a far simpler proposal – extend all the provisions of the 2017 Tax Cuts and Jobs Act while expanding tax cuts for working- and middle-class families.
For Americans who have worked hard to build a nest egg to leave to their loved ones – and Americans still working to build a financial legacy of their own – a Harris victory this November would be a major threat.
Shane Harris is a writer and political consultant from Southwest Ohio. You can follow him on X @shaneharris513.
