Teddy Roosevelt on Estate Taxes : Old School
100 years ago there was a concern that America had created an Industrial Aristocracy and Roosevelt’s populist instincts opposed it.
Here is what he proposed for Estate Taxes:
We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have been gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community … The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.
Graduated: Neither Republicans nor Democrats are debating this. They each propose a single tripwire and a rate past that wire. The tripwire is based on the asset value and not productive capacity of assets. So someone inheriting a car dealership with an easily liquidated inventory of cars (often representing the accumulated working capital of the business) will hit that threshold at the same time that a farmer with land, buildings and equipment will. Which business will be harmed more with having to borrow against those assets? Which is more liquid? At the moment, the tax laws dictate that this is of no concern to the IRS.
Safeguarded against evasion: Roosevelt probably could not have foreseen the stepped up basis rule, trust structuring and insurance arbitrage schemes that tax and estate attorneys could advance and exploit, but they now exist. Neither Republicans nor Democrats have the courage, frankly, to take these tools of Estate Tax Avoidance away.