How We Got From Estate Tax To 'Death Tax' : The Two-Way One sticking point in the ongoing debate over taxes in Washington is the question of estate taxes. It's a debate that goes back almost to the inception of the tax in 1916.
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How We Got From Estate Tax To 'Death Tax'

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How We Got From Estate Tax To 'Death Tax'

How We Got From Estate Tax To 'Death Tax'

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Thanks for joining us.

MICHAEL GRAETZ: Thank you for having me.

GONYEA: So remind us first about the history of the estate tax. How long have we had one?

GRAETZ: Well, we've had an estate tax since 1916 in its current form. So it's almost 100 years. Teddy Roosevelt was a great supporter of the estate tax, and he was the one who got it passed by the Congress.

GONYEA: And what was the original intent behind this tax?

GRAETZ: Well, Roosevelt was very much of the view that equality of opportunity was crucial to the American dream, and that the accumulation of large, dynastic wealth was not part of the American system. And so he wanted to break up large inheritances of wealth that would be passed from generation to generation.

GONYEA: And generally speaking, how did the public view that back then?

GRAETZ: Well, the public was accepting of it. It was the beginning of the Progressive Era. The income tax had just come in in 1913. So the public was very interested in progressive taxation and the estate tax was a natural piece of that kind of system.

GONYEA: And when did the idea of an estate tax start to become really controversial in this country?

GRAETZ: Well, it was controversial originally in the 1920s. Andrew Mellon of the Gulf Oil Company and the Mellon fortune was secretary of the Treasury during the Coolidge administration and tried to repeal it. But when the repeal forces began to muster their efforts to repeal the tax back into the '40s at least, they decided that labeling it a death tax instead of an inheritance tax or estate tax would produce a great deal of sympathy among the American people.

GONYEA: What happened in the 1990s, when we saw kind of a renewed push to repeal estate taxes?

GRAETZ: Well, the first thing Congress did was to try and exempt farms and small businesses from the tax in some fundamental way. This was a failed effort. It turns out that farms and small businesses have always accounted for a very small portion of the revenues from the tax but a great portion of the anxiety about the tax. And by the late '90s, the coalition that was pushing for estate tax change decided that repealing the tax was the only thing they could agree on.

GONYEA: So I spent a lot of time out on the campaign trail this year covering congressional races. A lot of candidates signed the No Death Tax Pledge, or the Repeal the Death Tax Pledge. But I would talk to voter after voter who would say they feared the estate tax would cause them to lose the family business, that a family farm might be lost because of it. Are those kinds of fears warranted?

GRAETZ: Well, they're not warranted by the vast majority of people. There are a handful - I think the estimate is about 100 family farms and small businesses - who would be affected by the tax. But mostly the estate tax applies to large holdings of portfolio wealth.

GONYEA: Do you feel like this topic takes up a disproportionate amount of the overall tax debate in this country?

GRAETZ: Well, it's certainly become a very important symbolic debate over an issue that has never produced more than one or two percent of federal revenues in any particular year, at least since the Second World War. It is an issue that generates a lot more heat than the revenue it produces would require. On the other hand, it is the most progressive tax in our tax system, and as a result I think it plays a special role in terms of a number of people's views about a fair distribution of the tax burden.

GONYEA: Thanks for joining us.

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