The Burden of Estate and Inheritance Taxes: A Call for Reform

Estate and inheritance taxes present significant challenges for high-net-worth individuals and families. These taxes can deter investment within states, incentivize wealthy individuals to relocate, and spawn complex and inefficient estate planning strategies. As a result, state policymakers need to reassess the necessity of these taxes, with many considering gradual elimination or alignment with federal exemption levels.

Understanding the Current Tax Landscape

Federal Changes Affecting Estate Taxes

The Tax Cuts and Jobs Act (TCJA) of 2017 saw the federal estate tax exemption rise dramatically from $5.49 million to $11.18 million per individual. This adjustment was indexed for inflation, with projections indicating that the federal exemption could reach $13.99 million by tax year 2025. However, the anticipated expiration of the TCJA provisions could potentially halve the exemption value later unless the One Big Beautiful Bill Act (OBBBA) successfully raises it to $15 million starting in 2026.

State Conformity and Variations

As of 2025, only Connecticut aligns its estate tax exemption with federal levels. New York follows with a relatively high exemption of $7.16 million, while Oregon and Rhode Island maintain the lowest exemptions at $1 million and $1.8 million, respectively. This disparity in exemptions can significantly influence individuals’ decisions on residency and investment.

Historical Context of State Estate Taxes

Following substantial federal tax reforms in the 2000s, many states eliminated their estate taxes to remain competitive. Some states are currently engaging in discussions about necessary reforms. For instance, during the 2025 legislative sessions in Nebraska and Oregon, discussions took place on estate and inheritance tax reforms. However, meaningful changes were not enacted. In Maryland, a proposal from Governor Wes Moore aimed to eliminate the inheritance tax while reducing the estate tax exemption from $5 million to $2 million, but this plan did not pass.

Recent Legislative Changes to State Estate Taxes in 2025

• Iowa: Eliminated its inheritance tax as of January 1, 2025.
• Washington: Increased its estate tax rates while raising the exemption from $2.193 million to $3 million effective July 1, 2025.
• Connecticut: Adjusted its exemption for inflation, moving from $13.61 million to $13.99 million.
• Maine: Increased its exemption by $200,000 to $7 million.
• New York: Its exemption rose by $220,000 to $7.16 million due to inflation.
• District of Columbia: The exemption increased to $4,873,200.

The Economic and Social Impacts of Estate Taxes

The current framework of estate and inheritance taxes disproportionately affects wealthy individuals and families, particularly those with illiquid assets such as land or business interests. These taxes can result in familial hardships, forcing heirs to sell off inherited properties or businesses to cover tax liabilities. Additionally, the economic implications extend beyond just affected families; the excessive burden from these taxes stifles entrepreneurial activities and generates deadweight loss in the economy.

In the 16 states and the District of Columbia that levy estate or inheritance taxes, it is crucial for policymakers to prioritize reforms that phase out these taxes. Such measures would help strengthen family businesses, reduce economic distortion, and limit government overreach in the already challenging circumstances surrounding the loss of loved ones.

A Call for Responsible Tax Reform

The ongoing landscape of estate and inheritance taxes calls for immediate attention. Policymakers should recognize the inefficiencies and negative impacts of these taxes on families and the broader economy. By considering gradual elimination or increments to exemption levels, states can foster a more conducive environment for economic growth and stability in family wealth transfer.

Conclusion

As the discussions surrounding estate and inheritance taxes evolve, it is essential for stakeholders to engage in a comprehensive dialogue. Reassessing these taxes can drive beneficial changes, ultimately leading to a more prosperous future for families and the economy alike.

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