Killing the estate tax has long been the holy grail of Republicans. (They even succeeded in one year, 2010, but then it came back.) So there is little surprise that the tax bill would include an estate-tax repeal.

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But what is surprising is that the tax bill also allows the beneficiaries of estates to not pay capital gains taxes on the increase in value of assets held by the estates. That has not been a feature of most previous estate-tax bills. In fact, President Trump’s campaign plan would have repealed the estate tax but taxed capital gains accumulated at death.

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Now, not even death is considered taxable. Bear with us, this is wonky but important. There’s tens of billions of revenue that the government is giving up because of a difference in two words.

The Facts

Estate taxes in some form have existed for centuries, even among the Romans, and the version today in the United States was enacted in 1916 to help fund World War I. Part of the rationale for the estate tax is to help capture revenue from huge gains in stock and bond investments that otherwise are never taxed unless they are sold. Over time, the estate tax has never raised a significant portion of federal tax revenue, generally less than 1 or 2 percent of the overall pie.

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As Congress has nibbled away at the estate tax over the years, by raising the amount exempt from taxation and lowering the tax rate, its impact has frittered away. In 1977, 139,000 estates had to pay the tax. In 2000, it was 52,000. Now in 2017, according to the nonpartisan Tax Policy Center, only about 5,500 estates — out of nearly 3 million estates — would have to pay any taxes. About half of estates subject to the tax would pay an average tax of about 9 percent.

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Currently, the first $5.49 million of an estate, or nearly $11 million for a couple, is exempt from taxation. So anything below those levels is not subject to any tax. Once the size of the estate passes that level, any additional value is subject to a 40 percent tax.

In other words, a $15 million estate of a husband and wife would have to pay a 40 percent tax on the amount above $10.98 million, or $1.6 million. That means the effective tax rate on that estate would be 10.7 percent, which is relatively small.

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Moreover, the value of the assets given to heirs would be set at the value at the time of death. Imagine a home that had been purchased for $250,000 but was now worth $1 million. The “stepped-up basis” would be $1 million. If the heirs sold the house for $1.1 million, they would only owe capital-gains tax on the $100,000 difference, not the $850,000 difference from the original purchase price. (That is known as “carryover basis” in the tax trade.)

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This was the implicit bargain of the estate tax. A lot of capital gains would remain untaxed, but at least for the superwealthy, some of their gains would be taxed.

President Trump’s campaign tax plan issued in 2016 would have kept this arrangement. The first $10 million of an estate would be exempt from taxation, but then the capital gains tax would be levied on the rest. The maximum capital-gains tax rate is currently 23.8 percent, and it would have applied to the original price — the basis — of the asset.

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“We always said we’d get rid of stepped-up basis. It’s better for the economy and better for tax policy,” said Stephen Moore of the Heritage Foundation, who helped craft the Trump campaign plan. “Otherwise you will have a massive tax shelter. You are going to have people with an incentive not to sell.”

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When the estate tax was eliminated in 2010 for one year — under a George W. Bush tax bill — carryover basis also would have applied. Many heirs found the estate tax actually less costly, so Congress allowed estates in that year to make a choice of which tax system they preferred.

But the House GOP tax plan, by contrast, kills the estate tax (starting in 2024) and continues to value assets passed to heirs at a stepped-up basis. (The only exception is certain interest in foreign entities, such as a passive foreign investment company.)

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Given the rise in the stock market since 2009, that means many heirs could have a bonanza.

Assume a parent was shrewd enough to buy Amazon at $10 a share in 1998 and died on Nov. 6, when it closed above $1,120.

Under the House GOP plan, if an heir sold the stock for $1,125 a share, the capital gains tax would have been a little over $1 a share.

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By contrast, Trump’s campaign tax plan would have required paying a capital gains tax of about $264 per share (assuming the estate had already passed the $10 million threshold).

The amount of revenue involved is difficult to estimate, but we have some clues. The Joint Committee on Taxation, in its report on “tax expenditures,” estimates that the revenue loss of not taxing capital gains at death is $179.4 billion over a five-year period, or about $36 billion a year. That estimate does not include the behavioral effects of actually eliminating the estate tax while keeping stepped-up basis, but it is a rough approximation before any possible exemption.

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The net effect actually could be even higher because people would be encouraged to never sell an asset during their lifetime so their heirs would essentially receive it tax free.

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“The estate tax functions as a toll that must be paid to shield capital gains from income taxation,” noted the CJT in a 2012 report. “As this toll falls (i.e., the estate tax rate is reduced and/or the estate tax exemption amount increases), it is relatively more attractive to pay the estate tax to avoid the income tax on capital gains realizations. Similarly, as capital gains taxes rise (fall), paying the estate tax toll becomes more (less) attractive because the step-up in gains at death is more (less) valuable. High estate tax rates make the transmission of wealth to heirs less efficient and so encourage the realization of capital gains.”

A spokeswoman for the House Ways and Means Committee defended the provision. “The repeal of the estate tax ensures that death is not a taxable event,” she said. “Providing for step-up in basis continues the historic policy applicable to assets transferred through an estate regardless of whether or not they are subject to tax.”

The Bottom Line

The Fact Checker of course takes no position on the House tax bill. (Full disclosure: The author did a rough calculation and determined the tax bill would make only a marginal difference in his household’s tax situation. In particular, the elimination of the state and local tax deduction is mitigated by repeal of the alternative minimum tax.)

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But it’s interesting that House tax-writers would press forward with an elimination of the estate tax that goes far beyond previous efforts — or even Trump’s campaign tax plan — to allow tens of billions of untapped capital gains to remain beyond the reach of the U.S. government. The money left on the table because of a difference between two words — “stepped-up” and “carryover” — is certainly staggering.

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