Estate tax repeal pending in Congress raises debate over charity, wealth gap

Yahoo

4 days ago

Jun. 3—A proposed repeal of the federal estate tax has advocates arguing about whether it would be a long-overdue fix for small business owners and farmers, or an unnecessary move widening the gap between the haves and have nots even further.
Both U.S. Senators from Ohio are sponsors of the Death Tax Repeal Act of 2025, introduced by Republicans in the U.S. House and Senate, to eliminate the so-called death tax that is part of the federal gift and estate tax system.
"Ohio's family small business owners and farmers spend a lifetime feeding and fueling our nation, and they often hope to pass down their businesses to the next generation. I'm supporting this bill to give hardworking families and farmers relief from the costly tax burden that makes it hard — or even impossible — for them to provide for our communities for generations," said U.S. Sen. Jon Husted, R-Ohio, in a prepared statement.
Opponents say a proposed repeal of the federal estate tax would create broader wealth disparity, discourage charitable bequests and would not benefit the vast majority of Americans.
As of Monday, versions of the bill were in the House Ways and Means committee and the Senate Finance Committee.
The rhetoric around the legislation talks about farmers and small businesses, but a lot of the provisions touted have such high caps that they also help quite large estates, said Blaine Saito, an associate professor at Ohio State University's Moritz College of Law whose focus is on how tax law shapes social policy, the management of the tax system and tax law's interaction with democratic ideals.
2025 individual exemption is $13.99M
Most Americans never pay any gift or estate tax. In 2025, the exemption is $13.99 million for individuals and $27.98 million for married couples. The higher exemption of the 2017 Tax Cuts and Jobs Act ends this year and will return to the base of $5 million plus an inflation adjustment for individuals. The One Big Beautiful Bill Act proposes increasing the federal estate tax exemption to $15 million a year for an individual, adjusted for inflation, and to make it permanent beginning in 2026.
"A full repeal, or even a very high exemption amount would benefit those with a lot of wealth that they can pass on to their heirs, generally the very wealthy people in society," Saito said.
Even the lower exemption rate is not likely to reach most family-owned small businesses and farms that fall below that threshold, he said.
The estate and gift tax dates to 1916 after President Theodore Roosevelt sought to break up large family trusts and end the excesses of the Gilded Age.
"Repealing the estate and gift tax would be one way of getting back toward large transfers of inherited wealth and further wealth disparities," Saito said.
Tariffs more pressing concern to business owner
Bill Castro, partner and general manager for El Meson, his family's Hispanic-fusion restaurant featuring dishes inspired by cuisine across Spain, the Caribbean and Americas, said he doesn't know what to think about a possible permanent repeal of the so-called death tax.
Three generations of the Castro family work at El Meson at 960 E. Dixie Drive in West Carrollton, founded by Castro's parents.
"I worry every day to pay my payroll, I worry every day to keep my staff working," he said, as many patrons are cash-strapped and dining out less often or only for special occasions.
For Mother's Day, El Meson had more reservations than usual, but it was offset by food prices that doubled.
"My level of reservations have increased but my level of profitability has decreased," he said.
If they want to help small businesses, Castro said lawmakers should consider not taxing server tips and doing something about the economy, particularly the tariffs that have led to escalating prices and financial concerns.
"These other issues are current, affecting us every day," he said.
Estate taxes can harm farmers
Harlan Twp. Trustee Ed Porginski, who owns Sugar Run Farms near Morrow in Warren County, said he supports a repeal of the federal estate tax. Similarly, he supported state lawmakers who permanently repealed Ohio's state-level version of the estate tax about a dozen years ago.
He raises cattle, pigs and grows crops, but mostly his business is selling beef for the freezer. He said it's unlikely any of his three children will want to take over the family farm. One of his sons raises cattle on his own property, another son is a paramedic and he doesn't think his daughter is interested, though she runs the farm's website and social media for her parents.
His support for the estate tax repeal comes from watching people he knew destroyed after losing their livelihood and farm near Mason where their family lived for generations when their parents, at about age 70, were both killed in a plane crash.
"They lost that farm, they couldn't pay their tax," Porginski said. "That was the first time I was introduced to that. That hit really close to home."
Tax exemption affects charitable giving
In 2024, the U.S. Treasury collected approximately $33 billion in estate and gift tax revenues from only about 0.1% of estates that had to pay the tax, according to the Tax Policy Center of the Urban Institute and Brookings Institution, a nonprofit, nonpartisan think tank.
Tax law change has led U.S. charitable giving to drop by billions a year since 2018.
Bequests fell by about $20 billion in 2018, the first year the higher estate and giving tax exemption took effect, according to a study by researchers at Indiana University and the University of Notre Dame.
The federal estate and gift tax, which imposes a tax rate up to 40% outside the exclusion, encourages charitable contributions by allowing dollar-for-dollar deductions for bequests.
"Despite repeated claims to the contrary, there is little evidence that wealth transfer taxes reduce capital accumulation or efficiency, and they certainly can be structured in ways that take account of the special considerations raised by small businesses or family farms," Brookings said.
Saito agreed, and said that measures that help small businesses and family farms include allowing deductions for the full cost of capital.
Brookings advocates an inheritance tax instead of an estate tax. An inheritance tax would correct the unfairness of taxing income from work, saving, or even a lottery win, but leaving inheritances untaxed.
"Our estimates show that inheritance taxes not only can raise more revenue and be more progressive than the existing estate tax, they can also broaden the income tax base, improve equity and raise economic mobility," the institution said.