Federal Estate Tax History: Temporary to Permanent

April 21, 2011

We often hear of “temporary taxes” so it may be of interest to learn that the federal estate and gift taxes started out as temporary measures. Before 1916, estate and gift taxes were implemented only during wartime on three occasions (1797, 1862, 1898) to increase military funding; the taxes were then repealed once the war effort concluded. In the lead-up to World War I, estate and gift taxes were enacted once again in 1916, but this time they were never repealed.

Writing in the Florida Tax Review, Professor Jeffrey Cooper writes that the 1916 enactment of estate and gift taxes “embodied loftier ambitions…becoming the core element of the nation’s increasingly progressive tax system as well as an element of social change designed to help reverse the inequitable division of wealth.”

Many social progressives saw America’s wealthy as a reservoir for potential tax revenue. Rep. C. William Ramseyer (R-IA) pushed for heavy estate and gift taxation throughout the 1920s, although it wasn’t until 1932 that Congress adopted his ideas. That year, President Herbert Hoover signed into law a series of tax increases, which included an increase in the top estate tax rate to 45% and cut the exemption level in half to $50,000. The new federal tax crowded out state-level estate taxes, a move Cooper describes as “a stunning reversal in the federal government’s attitude toward state tax regimes.”

Check out “The Ghosts of 1932: the Lost History of Estate and Gift Taxation” by Jeffery A. Cooper.

More on estate taxes.

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