Estate and gift taxes are a linked set of federal taxes that apply to transfers of wealth. In 2021, estates face a 40 percent tax rate on their value above $11.7 million, although various deductions reduce the value subject to the tax. The same threshold and tax rate apply to gift taxes.
In 2020, revenues from federal estate and gift taxes totaled $17.6 billion (equal to 0.1 percent of gross domestic product, or GDP). In recent years, changes to estate and gift tax laws have reduced the revenues raised by the taxes and the number of taxpayers who incur that liability.
In this report, the Congressional Budget Office describes estate and gift taxes, the people who pay them, the types of assets that make up taxable estates, and the model the agency uses to project estate and gift tax revenues in its baseline. Here are the report’s main findings:
Relatively few people pay estate and gift taxes. Of the 2.7 million people who died in 2016 (the most recent year for which complete data were available when this analysis was done), only about 5,500 had estates that were taxable. That is about 0.2 percent of all estates in that year. In 2018, about 2,000 taxpayers paid the gift tax. The estate tax also affects people who do not directly owe the tax, including heirs and people who engage in estate planning to avoid or lessen the tax.
The estate tax may act as a tax on saving by making it more expensive for people to leave money to their heirs. The empirical evidence on the effect of the estate tax on saving is inconclusive, though.
The composition of taxable estates has remained stable over the past decade even as the exemption amount has risen substantially. Financial and real estate assets have accounted for more than 80 percent of the value of taxable estates.
Wealth is concentrated in a small number of the largest estates. Estates valued at $50 million or more accounted for 6 percent of all taxable estates in 2018 and held 42 percent of assets reported by taxable estates in that year.
To project estate and gift tax liability for a representative sample of households under current law, CBO uses information from estate tax returns, the Survey of Consumer Finances, and its own economic and demographic projections.