By John Gladden
Here is a true story.
Once upon a time, there was a new country founded on ideals of freedom and democracy.
Ideals require defending, so the nation decided to build a navy. It faced an undeclared “cold war” that strained the young country’s resources.
So in 1797, it enacted the Stamp Tax. This was levied on the recording of legal documents, such as wills. The revenue was used to build ships to guard the country’s commerce and shorelines. When the crisis ended in 1802, the tax was repealed.
There are different ways of taxing property transfers at the owner’s death, but the idea is not new. It can be traced back at least 2,000 years to Roman Emperor Caesar Augustus. Such taxes were common in feudal Europe. It’s no surprise the new country, born in 1776, would draw upon this model, since its founders were of European heritage.
By 1862, a new threat to the nation had emerged — a civil war. At that time, the federal government got most of its operating funds from tariffs and land sales. With a massive war effort and so much at stake, the country again needed resources to save itself.
The Revenue Act of 1862 included not only a stamp tax, but an inheritance tax. This is a tax levied on the privilege of receiving property from someone who has died. Again, due to the mounting cost of the war, the act was renewed and expanded in 1864 to include a gift tax. The war won, the taxes were repealed by 1872.
This period in the nation’s history saw a major economic transition. Industry supplanted agriculture as the primary source of wealth and political power. The burden of tariffs and real estate taxes — which then generated most federal income — fell disproportionately on farmers, leaving wealthy industrialists largely untouched.
Many believed a new tax structure was needed to ensure those making the most money paid their share. Opponents argued doing so would eliminate incentives to build wealth and would stifle capital investment.
Again, the nation’s defense came into the picture. The country created the War Revenue Act of 1898 — a new legacy tax — to fund the military. By 1902, the conflict was over and the tax repealed.
Yet, concern remained over the increasing concentration of wealth in the hands of fewer individuals, sparking fears that those with the most money would have the most control over the country.
The nation’s president, who enjoyed the privileges of family money and power, said in 1906: “The man of great wealth owes a peculiar obligation to the State, because he derives special advantages from the mere existence of government. Not only should he recognize this obligation in the way he leads his daily life and in the way he earns and spends his money, but it should also be recognized by the way in which he pays for the protection the States gives him.”
One of the country’s wealthy industrialists and philanthropists said: “The man who dies rich, dies disgraced.”
Against this backdrop, the federal income tax was created by the passage of the 16th Amendment to the country’s Constitution. The Revenue Act of 1916 levied a tax on estates — again to help fund the country’s military in a conflict known as The War to End all Wars. Needless to say, it didn’t end all wars.
Many changes have occurred in these taxes since then. One almost has to be a specialized attorney or accountant to understand them. Attempts have been made to give exemptions to those who need them and to catch others who avoid taxes through loopholes.
But, the estate tax still elicits the same arguments, pro and con. To some, it is a guarantor of freedom, democracy and equality. To others, a contradiction to those things.
The country in this story is, of course, the United States. The president was Theodore Roosevelt, the industrialist was Andrew Carnegie. The source of the historical information above is a research paper available via the Internal Revenue Service’s website.
Much has changed in America over all that time, including positions of political parties. At almost every turn, it was Republican presidents and governors — the likes of Abraham Lincoln, TR and William McKinley — who supported such taxes.
On the whole, most Republicans now oppose the estate tax and most Democrats support it — but not all.
“Although reasonable minds can differ on this issue, I believe that the ‘death tax’ is politically misguided, morally unjustifiable, and downright un-American,” U.S. Rep. Sanford Bishop, D-Ga., has said on the House floor.
The roots of Ohio’s estate tax go back to 1893, when McKinley was governor. The future Republican president led efforts to broaden the tax system, instituting an inheritance tax as well as excise taxes on businesses. It was a reaction to the growing dominance of powerful interests in the lives of Ohioans. It also helped reduce the state’s debt. (Sources: Ohio Historical Society and the Ohio Department of Taxation.)
Ironic how parties can effectively exchange positions and how the estate tax can be called everything from a civic duty to “downright un-American.” Critics today call it immoral and irrational. Clearly, those who instituted estate taxes thought them moral and rational.
Yet, other things seem to remain constant. By almost any measure, wealth and power continue to be created and concentrated in the hands of fewer individuals. Corporate influence grows.
The tax often was employed to finance national defense. It was used to pay the costs of government when other revenues fell short. America is fighting in two to three wars, depending on how you count them. Men and women of all political stripes regularly use the word “crisis” to describe the financial state of the country today.
The estate tax is the subject of fierce debate. Its history, as well as our changed attitudes toward it today, deserve as much consideration as its future.
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