The tax bill that passed the House last night and headed to the president’s desk (he’ll sign it this afternoon, apparently) raises the estate tax to 35 percent on estates over $5 million ($10 million for couples), from zero percent this year. Had nothing been done, however, it would have reverted to what it had been in 2000: 55 percent on estates over $1 million.
The estate tax goes all the way back to 1797, when Congress passed a stamp tax on wills to help finance the new American Navy. It was repealed in 1801. The Civil War and Spanish American War also saw estate taxes that were soon repealed when the wars were over. But the modern estate tax was not enacted as a revenue-raising measure so much as a social engineering one. Theodore Roosevelt was the first major politician to call for an estate tax to prevent the accumulation of great fortunes from one generation to the next. In 1906, he wrote:
As a matter of personal conviction, and without pretending to discuss the details or formulate the system, I feel that we shall ultimately have to consider the adoption of some such scheme as that of a progressive tax on all fortunes, beyond a certain amount, either given in life or devised or bequeathed upon death to any individual — a tax so framed as to put it out of the power of the owner of one of these enormous fortunes to hand on more than a certain amount to any one individual; the tax of course, to be imposed by the national and not the state government.
The colossal fortunes created by the industrialization of the country in the post–Civil War era caused many to worry about the development of a plutocracy, a few families with so much money, and thus power, that they could dictate policy. In 1916, the modern estate tax was passed. It called for a 1 percent tax on estates over $50,000 and going up to 10 percent on estates over $5 million (a very large fortune indeed in 1916). The tax was raised the next year, lowered but not eliminated in the 1920s, and then raised sky-high by Franklin Roosevelt, peaking at 71 percent for estates over $50 million in 1941. FDR made no bones about his reasons: “The transmission from generation to generation of vast fortunes by will, inheritance or gift is not consistent with the ideals and sentiments of the American people.” FDR, it turns out, was wrong. Read More