HR601-119

What This Bill Does

The Estate Tax Rate Reduction Act changes federal transfer taxes by replacing the graduated estate-tax rate schedule with a flat 20 percent rate. It applies that rate to estates of decedents dying after December 31, 2024, gifts made after that date, and generation-skipping transfers after that date.

The bill updates related Internal Revenue Code provisions that refer to the highest estate-tax rate or the prior rate schedule, including rules for qualified domestic trusts, nonresident estate tax, credit for tax on prior transfers, generation-skipping transfer tax, expatriate gifts and bequests, and interest on certain installment payments. For generation-skipping transfers, the applicable rate becomes the estate-tax rate under section 2001 multiplied by the inclusion ratio. The bill also provides that the budgetary effects are not entered on PAYGO scorecards under the Statutory Pay-As-You-Go Act or the fiscal year 2018 budget resolution.

Who Benefits and How

Executors of taxable estates benefit because estate-tax liability is reduced to a 20 percent rate. Gift tax return filers benefit because taxable gifts after 2024 face the lower rate. Trustees administering generation-skipping trusts and families using generation-skipping transfers benefit from the lower transfer-tax rate and the updated applicable-rate formula. Estate planning law firms and wealth-management advisers benefit from client demand for planning under the new lower rate.

Who Bears the Burden and How

Federal estate, gift, and generation-skipping transfer tax receipts fall because covered transfers are taxed at 20 percent instead of higher rates under current law. Internal Revenue Service estate and gift tax administrators must update forms, guidance, systems, and enforcement references to reflect the flat rate and related Code changes. Treasury revenue estimators, Joint Committee on Taxation scorekeepers, and federal PAYGO scorekeeping processes bear reduced deficit-control discipline because the bill excludes its budgetary effects from the specified scorecards.

Key Provisions

• Creates a flat 20 percent estate and gift tax rate in place of the existing rate schedule.
• Provides the lower rate for estates, gifts, and generation-skipping transfers after December 31, 2024.
• Amends related Code provisions that reference the highest estate-tax rate or prior rate schedule.
• Defines the generation-skipping transfer applicable rate as the estate-tax rate multiplied by the inclusion ratio.
• Provides PAYGO scorecard exclusions for the bill's budgetary effects.