This Thursday the federal estate tax will turn 100. And that brings to mind one of the most familiar set pieces of modern American politics: Republicans call for repealing the estate tax, and Democrats denounce the idea. This year Donald Trump and Hillary Clinton have dutifully assumed their respective roles. And voters have the pleasure of watching this argument unfold. Again.
Of course, it wasn't long ago that Republicans actually won this fight. They just couldn't keep it won. After repealing the estate tax in 2001, GOP lawmakers assumed it was gone. But for technical and strategic reasons, they had made repeal temporary, and when it came up for renewal, a new Congress (and a new president) had different ideas about whether and how to tax inherited wealth.
All of which brought the estate tax lurching out of its grave. These days, restored to the tax system in somewhat attenuated form, the levy continues to serve as a bone of contention between the parties.
The odd thing about all this arguing is that the estate tax used to be pretty uncontroversial. If you don’t believe me, just try looking for polling data. Americans get asked all the time what they think about income, sales, and property taxes. But questions about the estate tax – at least for most of the 20th century – have been rare indeed.
And that’s probably because the estate tax started its life as a compromise measure – a progressive reform designed to appeal to non-progressives.
The federal government has taxed inherited wealth in various ways since the nation was founded. The first time was in 1797, when lawmakers used a tax on wills and other legal documents to help pay for the nation’s “Quasi-War,” a low-grade, undeclared naval conflict with France. The second time came during the Civil War, when a new federal estate tax helped fund the Union war effort. A third time came in 1898, when the estate tax revenues helped pay for the Spanish-American War.
Notice a theme? The estate tax was a war tax, at least through the end of the 19th century. But in 1916, Congress created an estate tax during peacetime. This anomaly, however, was more apparent than real. The estate tax of 1916 was enacted to help pay for military spending, just like all the estate taxes that came before. With World War I threatening to engulf the United States, President Woodrow Wilson embarked on an ambitious rearmament campaign. Lawmakers used the estate tax to help pay for it.
The decision to impose an estate tax, however, was designed to grease the legislative skids for Wilson’s preparedness program. Many of the president’s fellow Democrats were unhappy with the rearmament program. They were also, however, big fans of soak-the-rich taxation. In a bid to win their support, Wilson agreed to pay for his military spending using (mostly) progressive levies, including the income tax and a new estate tax.
That deal shored up Wilson’s support among Democrats. But he still had to deal with Republicans on Capitol Hill. And many GOP lawmakers were less than enthusiastic about progressive taxation. In particular, they were deeply suspicious of the new income tax, first imposed just three years before. With its high exemption and graduated rates, it struck many conservatives as a form of class taxation – a tool by which the majority could relieve the minority of its wealth.
The estate tax, by contrast, was far less controversial among Republicans. That’s partly because estate taxation had already been embraced by some Republican leaders, including Theodore Roosevelt, who proposed an estate tax in 1906. Industrialist Andrew Carnegie and a few other prominent business leaders had also endorsed the levy.
“Of all forms of taxation, this seems the wisest,’’ Carnegie famously declared in 1889. ‘‘By taxing estates heavily at death the state marks its condemnation of the selfish millionaire’s unworthy life.’’
To be sure, Carnegie’s view of inheritance was hardly universal among Republicans. But even among more traditional conservatives, the estate tax seemed like the lesser of progressive evils. Money raised by the estate tax allowed Wilson to rely less heavily on income taxes to pay for his rearmament program. That won him a measure of Republican acquiescence (if not much active support).
And at the same time, the estate tax still pleased the left-leaning, pacifist members of his own party. The levy was, in other words, an especially neat compromise, able to raise needed revenue while also drawing support from both ends of the political spectrum.
Things have certainly changed.
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