The One-Hundredth Anniversary of the Federal Estate Tax: It’s Time to Renew Our Vows

INTRODUCTIONSeptember 8, 2016 will mark the one-hundredth anniversary of the federal estate tax.1 As with many longstanding marriages, America's commitment to the estate tax has waxed and waned through the years. Our ardor built slowly, growing from the honeymoon period (impacting less than 1% of decedents with an inflation-adjusted2 exemption of around $1 million and a 10% top rate on estates over $100 million, raising less than 1% of all federal tax revenues)3 to a mid-marriage peak (impacting more than 7% of decedents with a $350,000 exemption and a 77% top rate on estates over $160 million, raising nearly 10% of all federal tax revenues).4 But our passion has steadily cooled since then, culminating in a one-year trial separa tion in 20105 and today's withered estate tax (impacting less than 0.2% of decedents with a $5.4 million exemption and a 40% top rate on estates over $6.4 million, raising less than 0.6% of all federal tax revenues).6Yet the initial reasons for our commitment to the estate tax-to raise revenue during a time of war, enhance the progressivity of the tax system, and curb concentrations of wealth7-are even more compelling today than they were in 1916. This Article argues that we should rededicate ourselves to the vibrant estate tax of our youth.8Part I traces the war-driven origins of an estate tax that made significant contributions to the nation's fiscal health for generations, until the evisceration of the tax in the twenty-first century despite unprecedented revenue needs and mounting threats posed by radical Islamic terrorism. Part II charts the reduced progressivity of America's tax system and increased income inequality while the estate tax has been largely defanged. Part III documents the nation's growing wealth inequality and proposes reforms to restore the estate tax to its rightful role in helping to curb excessive concentrations of wealth. The Article concludes that a revitalized estate tax provides a surer path to raising revenue, enhancing tax progressivity, and checking wealth concentration than more fundamental tax reform ideas that are unlikely to emerge from the political gridlock in Washington, D.C.I. RAISING REVENUEThree times in its early history, the United States turned to various taxes on transfers of wealth at death when faced with revenue needs from war (or threats of war), and then repealed the taxes when the wars (or threats of war) ended.9 In 1797, the federal government imposed a stamp tax on vari ous aspects of a decedent's estate to help finance a threatened war with France, 10 and repealed the tax in 1802.11 In 1862, the government imposed an inheritance tax to help finance the Civil War,12 and repealed the tax in 1870. 13 In 1898, the government imposed an estate tax to help finance the Spanish-American War,14 and repealed the tax in 1902.15 In 1916, the federal government enacted the current estate tax to help finance World War I.16In its first twenty-five years, the estate tax's contribution to the federal fisc gyrated between 1% and 10% of overall tax revenues, due to a frequently changing top rate (from 10% to 77%). Despite this, a relatively stable exemption (from $40,000 to $100,000) limited the impact of the estate tax to roughly 0.5% to 1.5% of adults who died during this period. The 1940s ushered in a sustained stretch in which the estate tax produced between 1% and 2% of federal tax revenues, due to a relatively stable top bracket (77% to 70%, with each decline accompanied by a corresponding reduction in the amount at which the lowered rate kicked in (from $10 million to $3 million)). But a stagnant exemption ($60,000) for over thirty years was eroded by inflation, resulting in the percentage of adults who died subject to the estate tax nearing 8% in the mid-1970s.The Economic Recovery Tax Act of 198117 and the Economic Growth and Tax Relief Reconciliation Act of 2001 (the "2001 Act") kept estate tax contributions at between 1% and 2% of federal tax revenues through the mid-2000s, despite a reduction in the top bracket (from 70% to 45% in 2007) and an increase in the exemption (from $175,000 to $2 million). …