Estate Tax Rate Slashed to 20% Under New Bill, Starting 2025

The "Estate Tax Rate Reduction Act" does exactly what it says on the tin: it cuts the tax rate on estates, gifts, and generation-skipping transfers down to a flat 20%. This kicks in for anyone who dies, or makes those transfers, after December 31, 2024. The stated goal is to simplify the tax code in these areas, but it comes with some significant real-world implications.

Chopping Down the Taxman

This bill's core is that single rate reduction. Currently, these taxes can go pretty high, depending on the size of the estate or gift. Under this new law, everything gets taxed at 20%. For example, if a farmer leaves a large plot of land and equipment to their kids, the tax owed is calculated at a straight 20% of the assessed value, starting in 2025 (SEC. 2). Or, say a small business owner gifts shares of their company to a family member—same deal, 20% tax.

Real-World Ripple Effects

While a lower tax rate might sound appealing on the surface, who really benefits is worth a closer look. A flat 20% tax rate, while simpler, primarily benefits those with substantial assets. Think large estates, significant property holdings, and sizable gifts. For most folks, the impact is likely to be minimal, but for the wealthiest, it represents a substantial reduction in tax liability. This could lead to more wealth being kept within families across generations.

The Budgetary Balancing Act

Here's a potential sticking point: the bill specifically says the financial impact of this tax cut won't be counted on PAYGO scorecards (SEC. 2). PAYGO, or "pay-as-you-go," is a budget rule designed to encourage fiscal responsibility. By excluding this change, the bill avoids triggering automatic spending cuts or tax increases to offset the lost revenue. This could mean less money coming into government coffers, which could affect funding for various programs down the line, though the exact impact is, of course, hard to predict with certainty.

Stacking Up Against the Current System

This new, flat 20% rate is a big change from the current, graduated system, where rates depend on the value of the estate or transfer. The existing setup is designed to be progressive—meaning those with more pay a higher rate. This bill shifts away from that approach. It also simplifies things, which could make estate planning less of a headache. But that simplification comes with trade-offs, especially when considering the potential for increased wealth concentration and the budget implications of excluding the tax cut from PAYGO rules.