2

The past, present and future of the estate tax

You know the phrase, "you can't take it with you?" If you're wealthy and the the fiscal cliff negotiations play out the way the White House wants them to, the government's going to take a bigger chunk when you pass on. Raising the estate tax is just one of the many ideas being bandied about as a way to raise revenue in the future.

The estate tax began in 1916 as a way to help raise money for World War I by taxing what the super rich leave to their heirs.

"What you find is that the big changes in the tax system almost always come in the middle of a war," says Joe Thorndike, director of the Tax History Project at Tax Analysts and author of Their Fair Share: Taxing the Rich in the Age of FDR. He says there were two questions being asked during World War I which ultimately led to the creation of the estate tax:

How do we limit the concentration of wealth to maintain a robust democracy? And how much of the tax burden is it fair for the wealthy to bear?

"People who like the estate tax have decided, I think wisely, that they'll get more advantage out of arguing about how the tax burden is shared by people rather than how wealth might be shared by people," says Thorndike.

Nearly a century later estate tax backers are making that argument. This week, Mike Lapham, the director of the Responsible Wealth Project at United for a Fair Economy, brought a proposal to Congress that calls for an increase in the estate tax rate to help raise federal revenue. "My great great grandfather started a paper mill in 1865 and my family has paid an estate tax on several occassions," says Lapham adding that he thinks it's only fair that his family pay the government back for the use of paved roads and literate workers educated in public schools. The proposal is backed by other wealthy Americans: Warren Buffett, President Jimmy Carter, Bill Gates Sr., and George Soros.

Republicans say if we don't reach a fiscal compromise by January, individuals with estates worth over a million could take a tax hit and that's not necessarily the Bill Gates-level wealthy. In some regions of the country, the people who get hit would be considered upper-middle class. Southern California-based certified financial planner, Louis Barajas, has clients in that category and says the estate tax definitely comes up in conversation. "I have yet to meet anyone who will tell me, Louis, I can't wait to die and leave 35% or 55% of my estate, everything I worked hard for, to the government. Not one person has ever said that," says Barajas.

So you may not be able to take it with you, but it's still so hard to let it go.

About the author

Shereen Marisol Meraji is a reporter for Marketplace’s Wealth & Poverty Desk.
Log in to post2 Comments

There have been a lot of debates regarding the increase in the estate tax rate and Mike Lapham`s proposal will surely help raise federal revenue. I plan to buy a house after I saw interesting offers on http://www.olesouth.com/ and knowing such information regarding the increase of estate tax rate is a must, I can plan better my next move and be ready for any surprises.

"Lapham adding thathe thinks it's only fair that his family pay the government back for the use of paved roads and literate workers educated in public schools."
So Mr. Lapham's business has not been paying school property taxes to educate workers? His business has only bought tax exempt gas, electricy, diesel resulting in no tax funds for roads? His business has paid nothing into the general fund of his state (to pay for roads and schools) Paid no income tax, capital gains, or any taxes to the Fed Gov? (To pay for roads, military, education, social programs, etc)?

He has confused the idea that estate taxes are to pay for education and roads, they are not. Your property and income and sales taxes pay for those things. Estate taxes are only there to punish success by letting the government take away from you even more value in large amounts than it could with other taxes.

Really, how does the hard work of Mr. Lapham's family grant others the right to 55% or more of that value when others did nothing to add to that value that has not already been paid for?

With Generous Support From...