The Estate Tax Is Dead, This Expert Says. What Comes Next.

Ray Madoff’s recent book, The Second Estate. (Courtesy the author)

Since Congress created the income and estate taxes, inequality in the U.S. has grown dramatically. The top 0.1% now hold roughly 15% of the country’s wealth—a near doubling of wealth concentration since 1990.

That this growing wealth divide is an issue is a widely shared opinion on both the left and the right. What the root of the problem is, and how best to correct it, famously is not.

Ray Madoff, a tax law professor at Boston College of Law has been studying this problem for decades. In her new book, The Second Estate, she blames the wealth gap largely on a failing estate tax.

Congress created the estate tax in 1916, in part, to correct the fact that the income tax system leaves a lot of potential revenue from wealthy families on the table. Income taxes only reach those with taxable incomes. The ultrawealthy, Madoff points out in her book, don’t make most of their money through wages or salaries.

“But the estate tax is no longer up to the task because Congress hasn’t kept it up,” she tells Barron’s in a recent phone interview. “It is this sort of shell—a completely decomposing, ineffective thing.”

The last time Congress acted to fix what it saw as loopholes in the tax was 1990, Madoff says. Policy changes since then have generally weakened the provision. Legislators from both parties have increased exemption amounts in recent decades.

“What in effect has happened behind the scenes is that the richest Americans who were the intended object of taxation when the system was put in place have been able to remove themselves from the system,” she says.

We shouldn’t try to fix this by tinkering further with the estate tax, but by killing it altogether, she argues.

The following transcript of Barron’s conversation with Madoff has been edited.

Barron’s**: The estate tax was largely successful in moderating wealth inequality for much of the 20th century. But then public opinion shifted against the tax in recent decades. How did that happen?**

Ray Madoff: It didn’t come out of thin air. A group of 18 wealthy families, including the Mars family, the Koch family, the Walton family, initiated a campaign in the 1990s to get rid of the estate tax. But that wasn’t going to be a sell to the American public. Who would listen to wealthy heirs and heiresses?

So they hired Frank Luntz, one of the country’s great public relations experts. (He is also responsible for popularizing the term “climate change” to replace “global warming”).

Luntz said that people have no feelings about repealing the estate tax—it sounds like something that only applies to the rich. The thing to do is to use emotionally charged words, and there are a few more emotionally charged words than “death.” So he invented the term “death tax.” Lots of people care about repealing the death tax because death is universal, and it seems like a particularly cruel time to impose a tax.

How did that message get transposed onto the middle class?

Those pushing for the repeal found they could use small-business owners as a cover, as a front for the wealthy. They recruited the middle class to argue the death tax is an immoral double tax that hurts families, farms, and businesses. One of the great spokespeople was Chester Thigpen, who was the grandchild of slaves and owned a Christmas tree farm. He testified in Congress many times saying he was afraid that, with the death tax, his family was going to have to sell the Christmas tree farm. Could there be a more compelling story? But, of course, when Thigpen died, he wasn’t even subject to the tax because there is a large exemption amount that covers most families, farms, and businesses.

That campaign was so successful that President George W. Bush significantly reduced the estate tax, and President Barack Obama later increased the exemption amount. What effect has that had?

Well, if that was all that happened, that wouldn’t make such a difference because these exemption amounts [currently just under $14 million] are still pretty small relative to the wealth of the richest Americans. But a more significant thing has occurred: Since 1990, Congress hasn’t enacted a single provision to close loopholes in the estate tax. That is why we no longer see the richest Americans even advocating for repeal of it any more. It is better for the wealthy with it being in place, because it provides cover—making it seem like they are subject to some big tax without actually imposing any burden.

You write that the narrative around taxing the rich is distorted, in part, because statistics are used in misleading ways. What statistics do you wish people knew?

In 2024, the government took in $5 trillion through taxes. It spent roughly $7 trillion. But at the end of 2024, the amount of wealth owned by the country’s richest 1% was $50 trillion. So government revenue was tiny compared to the wealth of the top 1%. This definitely matters: Taxing the wealthy could make a difference in the government deficit.

There is little momentum to do that in Washington right now. The estate tax exemption doubled permanently, to $15 million, in the One Big, Beautiful Bill. Does that discourage you?

I am honestly encouraged by what is going on politically because I think we are reaching a tipping point. Our rules are so unfair in favor of the wealthy that I think the public is going to recognize it. I don’t think it will ultimately be tolerated. We have seen pendulum swings like this before in other policy areas—and I just have to believe that it will swing in this area as well.

Toward Mamdani?

Zohran Mamdani is a great example of this. I differ from him over his proposed solutions, but I completely agree with his description of the problem.

But I don’t think it is just Mamdani; it is also Trump. They both recognize that large portions of the American public have been left behind. There is something very real going on when everybody across the political spectrum is seeing the same problem. From my perspective, taxes play a critical role in both creating and addressing this problem. The issue is I don’t think that the current proposals receiving the most oxygen are ones that will address the problem.

What would you propose?

We must recognize that the estate tax is dead and it is not coming back. So we should outright repeal it and then reform the income tax to bring back in investments and inheritances. Inheritances should be taxed as income, the same as found money or lottery winnings. You could have exemptions—everybody can inherit one million dollars tax-free, for instance.

Investments are trickier. Some propose taxing gains on investments even if the property hasn’t been sold. But that type of tax would be difficult to administer and would have serious unintended consequences: If you’re a rich person, the first thing you’re going to do is move your assets out of the easy to value public stock market to private interests. But that doesn’t mean that we say that these gains are never subject to tax. Gains should be taxed when the property is transferred, either during life or death. This was a proposal put forth by both President Richard Nixon and Obama.

Those steps would be important first steps that would do a lot to bring the wealthy back into our income tax system.

Write to editors@barrons.com.