The U.S. Tax Code in the 21st Century: Does the Estate Tax Fit?

When Ronald D. Aucutt, President of the American College of Trust and Estate Counsel, approached me about delivering the 2004 Joseph Trachtman Lecture, he suggested that I present an economist’s perspective on how the estate tax fits in with the U.S. tax code in the 21st century. As you know, the estate tax has been with us for many centuries, the question is, should it continue as part of the U.S. tax base?

Rules specifying the government’s share of an estate have been a feature of western law for many centuries as it has been in other parts of the world. By way of illustration, while the first clause of the Magna Carta of 1215 focuses on the spiritual side of life by proclaiming the freedom of the English church, the second through seventh clauses pertain to the material side of life — the taxation of inheritances. For example, the second clause specifies the tax rate: 100 pounds on an inheritance received by an adult heir upon the death of an earl, baron or knight. Foreshadowing the spousal deduction in the U.S. tax code, the seventh clause of the Magna Carta specifies that: “after her husband’s death, a widow shall have her marriage portion and her inheritance at once and without hindrance; nor shall she pay anything for her dower, her marriage portion, or her inheritance which she and her husband held on the day of her husband’s death…” Clearly, estate and inheritance taxes have been key issues for at least the last 800 years in the English-speaking world and even with the distractions of modern life interest in the subject remains strong.

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