DEATH AND TAXES
LIVING PEOPLE have to pay an income tax on their earnings, year in and year out. They also pay sales taxes and property taxes. When a rich person dies, another cluster of taxes comes into play. The most significant of these “death taxes” has been the estate tax. The federal government imposes this tax on the estate, that is, on everything a person owned or controlled when he or she died—money in the bank, houses, stocks and bonds, as well as interests in “living trusts” and certain other assets.
The present estate tax has been part of federal law since 1916.1 There were two earlier attempts to tax the dead. During the Civil War, the federal government imposed an inheritance tax on bequests. This tax was repealed in 1870. The War Revenue Act of 1898 was the second federal death tax. It applied solely to personal property. Gifts to a surviving spouse were tax-free. Only estates over $10,000 were subject to the tax. The top rate under this law, on estates over $1 million, was 15%. This tax too had a short life. It was repealed in 1902.
The law of 1916 was destined to last much longer. In its original version, the first $50,000 of the estate was exempt from tax, and the top rate was 10% on estates over $5 million. This would probably be equivalent to an estate of about half a billion dollars today. Under this estate tax law, only big estates