The estate and gift tax has a long history in the United States. The current version celebrated its 100th birthday on September 8, but there were legacy tax experiments throughout the 19th century. The tax was relatively stable for most of its first 80 years, until Republicans made its repeal one of their central tenets and succeeded in labeling it the death tax. The battle seemed to climax in late 2012, when the American Taxpayer Relief Act (ATRA) permanently extended a compromise version. However, both 2016 presidential candidates would revisit the ATRA solution, albeit in radically different ways.
President George W. Bush thought he had killed the estate tax in 2001. And in fact, the tax did disappear for one year (2010) before reappearing as a result of Senate compromise in 2011. The 2010 bill created a rate of 35 percent and an individual exemption amount of $5 million ($10 million for couples). It was the tax's lowest rate since 1932. President Obama accepted the 2010 compromise, but then campaigned on strengthening the tax in 2012. When he defeated Mitt Romney, his hand was strong enough to force Republicans in Congress to accept the ATRA compromise, which restored the rate to 40 percent while keeping the $5 million threshold. ATRA discarded the silly sunset dates of the 2001 and 2010 laws and purported to be a permanent solution to more than a decade of estate tax uncertainty.
It failed. Republicans remain just as determined to repeal the tax today as they were in 2001. Donald Trump, who doesn't exactly embrace all points of GOP orthodoxy, has estate tax repeal as a part of his platform. According to the Republican nominee, "The estate tax has been a disaster; it's double taxation." Those words could have been said by virtually any conservative nominee.
Democratic nominee Hillary Clinton has a different idea. She isn't satisfied with Obama's compromise either and, taking a page out of Bernie Sanders's playbook, wants to raise the tax. This fits very well with her general tax position of seeking more revenue from the wealthy. Clinton would raise the rate to 45 percent and set the threshold at $3.5 million for individuals ($7 million for couples). This isn't all that daring of a proposal. It's basically what the tax was in 2009, the year before it disappeared. Sanders's plan would have created a series of rates ranging between 45 and 65 percent, while using the same threshold amounts as Clinton's.
So Republicans want to repeal the tax while Democrats would like to roll it back to essentially 2009 levels. While these positions seem diametrically opposed, it's important to note how modest the Democrats' plans (even Sanders's) are. In 2001 the exclusion amount was a mere $675,000, while the top rate was 55 percent. In 1977 the tax was 77 percent of estates over $10 million. So Democrats have shifted quite a bit to the right on this issue since the Carter administration. The Republicans have been very successful in driving the estate tax agenda in the United States, and have sharply scaled the levy back while at the same time attracting significant Democratic support for less taxes on inherited wealth.
Uncertainty in estate tax planning was a hallmark of the period from 2009 to 2012, when the tax was scheduled to expire, did expire, and then was brought back with another sunset provision. ATRA was designed to eliminate that uncertainty, but it has not decided the issue. While it remains to be seen how committed either Trump or Clinton are to actual estate tax reform, it is clear that both parties will continue to campaign as though the estate tax issue is far from settled.