The Death Tax Repeal Act: Understanding the Proposed Changes and Their Implications

Introduction to the Death Tax Repeal Act

A significant legislative push to repeal the U.S. estate tax, commonly known as the "Death Tax," has regained momentum in early 2025. Representative Randy Feenstra (R-Iowa) reintroduced the "Death Tax Repeal Act" in January 2025, building on a similar bill, House Bill 7035, that originated in 2023. This proposed legislation aims to eliminate both the federal estate tax and the generation-skipping transfer tax. The bill has garnered substantial support, with over 170 House Republicans backing the effort. A companion bill in the Senate, introduced on February 13, 2025, is supported by 44 Senators and led by Majority Leader John Thune (R-S.D.). These legislative moves have sparked renewed debates about the role of estate taxes in shaping wealth distribution, economic growth, and fiscal policy. Proponents argue that the Death Tax unfairly burdens families and small businesses, while critics warn that repealing it would predominantly benefit the ultra-wealthy and reduce government revenue. Regardless of one’s stance, the proposed changes warrant close examination, as they could have far-reaching consequences for both U.S. citizens and foreign investors.

Understanding the Death Tax: What It Is and How It Works

The federal estate tax is imposed on the transfer of an individual’s assets upon death. The tax applies differently to U.S. citizens, residents, and non-citizen non-residents (NCNRs). Currently, the estate tax exemption for U.S. citizens and residents is set at $13.99 million in 2025, a figure that will expire in 2026 and revert to approximately $7 million (adjusted for inflation). This high exemption means that only a small fraction of estates are subject to the tax.

It’s important to distinguish between estate taxes and inheritance taxes. The estate tax is levied on the fair market value of the deceased’s total assets before distribution to beneficiaries, while inheritance taxes are paid by the recipients of the assets. The federal government does not impose an inheritance tax, but some states do. For NCNRs, the rules are different; they are only taxed on their U.S.-situs assets, such as real estate or stock in U.S. corporations, and receive a much smaller exemption of $60,000 before being subject to estate tax rates as high as 40%.

How Repealing the Death Tax Could Boost Foreign Investment in America

One of the most immediate effects of repealing the Death Tax could be an increase in foreign investment in U.S. assets. Under current law, NCNRs face significant estate tax exposure on their U.S.-situs assets, which can discourage foreign investors from investing in the U.S. If the Death Tax is repealed, foreign investors would no longer need to worry about estate tax liability or implement complex structures to avoid the tax. This could make the U.S. a more attractive destination for foreign capital, leading to increased investment in U.S. real estate, stock markets, and business ventures.

By removing this tax barrier, the U.S. could attract more international investors, potentially boosting economic growth. However, it’s important to note that while the repeal could simplify estate planning for foreign investors, other tax considerations, such as gift taxes and income taxes, would still apply. The implications of this policy change could be particularly significant for high-net-worth individuals and global investors looking to expand their U.S. holdings.

The Impact of Death Tax Repeal on Covered Expatriates and Section 2801 Transfer Tax

The repeal of the Death Tax could also have implications for covered expatriates and the Section 2801 transfer tax. Covered expatriates are individuals who have renounced U.S. citizenship or long-term residency and meet certain financial thresholds or fail to certify tax compliance for the five years prior to giving up their U.S. status. Under current law, when a covered expatriate leaves an inheritance or makes a gift to a U.S. citizen or resident, the recipient is required to pay a 40% transfer tax on the amount received.

The House version of the Death Tax Repeal Act includes conforming amendments to the tax code, ensuring that the repeal of the estate tax will not affect the Section 2801 transfer tax. This means that U.S. recipients of gifts or inheritances from covered expatriates will still be subject to taxation, albeit at a slightly reduced rate of 35% (down from 40%) under the proposed legislation. While this reduction may provide some relief, it’s clear that the repeal of the estate tax will not eliminate the tax burden on these transfers. Wealthy individuals considering expatriation will still face limitations on passing wealth to U.S. heirs tax-free.

Conforming Amendments to the Gift Tax: What You Need to Know

Even if the estate tax is repealed, the gift tax will remain in place to prevent high-net-worth individuals from shifting income and assets to family members tax-free. Both the House and Senate versions of the Death Tax Repeal Act include conforming amendments to the tax code that align with the repeal of the estate tax. Since the estate and gift tax have historically been linked, the bills ensure that lifetime transfers remain subject to taxation by retaining the gift tax with some modifications.

Under the proposed changes, the highest gift tax rate would be reduced from 40% to 35%, and the lifetime exemption amount would be set at $10 million. These changes are designed to maintain fairness in the tax system while simplifying the rules for taxpayers. However, the retention of the gift tax highlights the importance of careful estate planning, even in the absence of the estate tax.

Arguments For and Against the Death Tax Repeal

The debate over the Death Tax Repeal Act reflects deeply-held differences in views on taxation, economic policy, and wealth distribution. Supporters of the repeal argue that the estate tax is unfair and burdensome, particularly for family-owned businesses and farms. They contend that the tax often forces heirs to sell assets to cover tax liabilities, which can disrupt the continuity of these enterprises. Rep. Feenstra has emphasized the concerns of farmers and small business owners, a key constituency in Iowa. Proponents also believe that repealing the estate tax could encourage saving, investment, and economic growth, while eliminating what they view as double taxation on previously taxed earnings.

Critics, on the other hand, argue that the estate tax has minimal impact on small businesses and farms, as most estates fall below the exemption threshold. They also warn that repealing the tax would reduce government revenue, increase budget deficits, and exacerbate wealth inequality by allowing vast fortunes to pass untaxed across generations. From their perspective, the estate tax plays a crucial role in ensuring that the wealthiest individuals contribute to the public coffers, while also helping to address the concentration of wealth in the hands of a few.

Conclusion: The Future of the Death Tax and Its Implications

The proposed repeal of the Death Tax represents a significant policy shift with far-reaching consequences. While the legislation could benefit U.S. citizens and residents by simplifying estate planning and reducing tax burdens, it could also encourage foreign investment in U.S. assets. At the same time, the repeal raises important questions about fairness, revenue, and wealth distribution.

The fate of the Death Tax Repeal Act remains uncertain as it works its way through Congress. If passed, the new law would fundamentally reshape estate planning and wealth transfer strategies, with profound effects on both U.S. and international investors. Taxpayers would need to stay informed about developments and review their estate plans with qualified U.S. tax advisors to navigate the changing landscape.

For more insights and updates on U.S. tax policies, including the Death Tax Repeal Act, visit www.us-tax.org or contact vljeker@us-taxes.org.

This summary provides a detailed overview of the Death Tax Repeal Act and its potential implications. For personalized advice or further guidance, consult a qualified U.S. tax professional.