Advances in Taxation

Wealth transfer taxes, including the estate tax, have been an integral part of American tax policy since the eighteenth century. The current estate tax has its roots in eighteenth century English political philosophy that provides civil law precedent over any natural rights an individual possesses in property. The purpose of the tax is to limit wealth accumulation and discourage the formation of economic dynasties.

Since the adoption of the Sixteenth Amendment to the Constitution and passage of the Revenue Act of 1916, the estate tax has largely targeted high-wealth individuals. The modern estate tax began with a narrow base and relatively low rates. The tax base has expanded during the past 80 years to include both estate and lifetime transfers and tax rates have ranged from 10 to 77%. During this time, the degree of rate progressivity has remained high but has decreased since 1976. The incidence of the tax has varied over the years due in large part to the size of the estate tax exemption or its equivalent.

The estate tax's contribution to the federal budget has ranged from over five percent to its current level of about one percent. The estate tax's growth, however, has accelerated in recent years as personal wealth has increased and American society has aged.