Happy Birthday to the Federal Estate Tax


The always controversial estate tax is now 100 years old. The debate over it has not changed much in those 100 years.

In 1916, as the U.S. began to increase its military capacity in case the country got dragged into World War I, the federal government needed to raise revenue. As Morningstar reports in "The 100th anniversary of the estate tax," one revenue raising measure was the imposition of a federal estate tax for the first time.

Just like today, the tax did not affect the overwhelming majority of Americans nor did it account for a significant amount of total government revenue. In its first year, the estate tax affected 1% of Americans and accounted for 1% of total federal revenue.

The debate over the estate tax has also not changed very much in the last 100 years. At the time, those opposed to its passage, such as the Wall Street Journal, viewed it as "class discrimination." Supporters of the estate tax thought it a good way to raise revenue and that it was fair to make the wealthy pay a greater share of taxes.

Neither side has changed its positions very much although the rhetoric is couched in slightly different ways today.

The future of the estate tax remains uncertain.

If the Democrats win big in the 2016 Presidential and congressional elections, then the estate tax is likely to stay with us and might even be increased. However, if the Republicans win big, then the estate tax is likely to be reduced or even abolished.

Undoubtedly, when the issue is taken up again in congress no matter which side wins the debate will sound a lot like it did in 1916.

Reference: Morningstar (April 30, 2016) "The 100th anniversary of the estate tax"

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