Inheritance Tax

in social science, a special tax levied on property at the death of the owner. As in the case of an income tax several terms require explanation. It applies to property inherited by law and to bequests. Direct inheritance rests on the relationship between parent and child. Property going to a grandparent, parent, child, or grandchild of the deceased comes under the designation. Property going to brother, sister, uncle, aunt, nephew, niece, or to their lineal descendants is considered a collateral inheritance. Small estates are, as a rule, exempted from paying an inheritance tax. A progressive tax is one the rate of which increases with the value of the inheritance. It is so graduated as to fall most heavily on the largest inheritances. Legislators look with favor on inheritance tax for several reasons: 1. By making proper exemptions and graduations the tax yields a large revenue without oppressing anybody. 2. Personal property which has been concealed during the life of the owner is brought to light. In such cases the levy may be regarded as back taxes, or a lump sum paid once in a lifetime. 3. The size of the estates transmitted to posterity is diminished. No just authority advocates the upbuilding of a class of those who neither toil nor spin, but who live as social drones on incomes derived from inheritances. The deeper the state cuts into such inheritances, the better it is for society. 4. Workingmen seldom begrudge wealth to one whom they have seen accumulate by honest and able endeavor. The maker of a fortune possesses usually characteristics that make him popular. The bookkeeper who has worked by the side of his employer and taken pride in the up-building of a great business feels bitter when he sees that wealth which he and his fellows have helped to create divided among heirs who have not helped and who are disposed to talk about clubs and ride in automobiles. It is the heir who is out of sympathy with the very people who made his wealth possible that the tax gatherer desires to strip of cumbersome wealth. 5. An inheritance tax reaching the verge of confiscation, in case of large bequests and inheritances, has a tendency to encourage the distribution of fortunes during the lifetime of the accumulator whose judgment is likely to be superior to that of his heirs. 6. The inheritance tax is but a fitting return for the protection which the accumulator of a fortune enjoyed during the period of his business activity. This view regards society and the captains of industry as partners in a fortune to be divided at his death. 7. Still another argument is that which regards an inheritance tax as a tax levied on what is termed by Max West "a particular form of accidental income." 8. The strongest argument of all is that an inheritance tax cannot be shifted to the shoulders of labor. He who pays an income tax may be able to charge it up to the expense of production, and so adjust prices as to require the public to pay; or he may cut wages on the score of decreased profit; but the inheritance tax is like death itself,--it cannot be passed on to another. Property, not labor, must pay it.

Under one name or another an inheritance tax is an ancient form of taxation. The feudal lord exacted a "relief" when a fief passed into the hands of an heir. An inheritance tax is general throughout the civilized world. The period from 1890 to 1910 was marked by the development of modern forms of this tax. In the various states of Australasia the exemption is from $500 to $5,000. The rates are progressive. Direct heirs pay from one to five per cent. Collateral heirs pay usually twice that rate, and bequests to strangers in blood pay somewhat higher rates. In case of direct heirs, the laws of the Canadian provinces exempt from $3,000 in Quebec to $100,000 in Ontario. The rates are progressive and range from one to ten per cent. For collateral heirs the exemption is lower and the rates are higher.

France, a country of many heirs and few large estates, exempts no heir and no legatee. The rates are progressive, rising from one to two and one-half per cent for direct heirs, and ranging from three up to eighteen and one-half per cent on collateral inheritances. The canton of Lucerne, Switzerland, levies a collateral inheritance tax of five to fifteen per cent, with an exemption of ten dollars. The direct inheritance tax is one per cent with $1,000 exemption.

Nearly all states of the American Union have enacted inheritance tax laws. Discrimination in favor of direct heirs, including husband and wife, and progressive rates with total exemption of small estates, are features of general adoption. Exemptions vary from $100 to $10,000; rates run as high as fifteen per cent on $500,000 or over. Probably no tax levied gives rise to less complaint.