Under the deal struck by President Obama and Congress to avert the "fiscal cliff," the estate tax - long targeted for elimination by Republicans - survived, but in a substantially diminished form.
In 2001, the year George W. Bush became president, individual estates over $675,000 were taxed and the top rate was 55 percent. Now, the maximum tax is 40 percent and only individual estates worth more than $5.25 million are taxed (a figure that will now be automatically adjusted for inflation).
The estate tax has a history as long and controversial as the income tax. Its first modern version appeared in the federal tax code in 1916, three years after the ratification of the 16th Amendment, which authorized the federal income tax. Advocates of the estate tax see it as a crucial tool for raising revenue and a buffer against the sharp, nearly inexorable rise in inequality over the past four decades. Opponents, who call the levy "the death tax," say it penalizes savers, harms growth and interferes with parents' ability to pass on their wealth to their children.
With income inequality at levels not seen since the 1920s, and low economic mobility, some liberals hope that in the coming years our lawmakers will face intense political pressures to maintain, and even raise, taxes on inherited wealth. In this view, economic realities are building a compelling case for a more progressive tax system.
But judging from the experience of other wealthy countries, the opposite may be true. As inequality has risen in the developed world, many governments have been dismantling - not increasing - estate taxes. Countries from Austria to Canada to Sweden have abolished estate taxes outright.
There is nothing inevitable about high estate taxation in a democracy - even in an era of fiscal inequality, and even if a country is in fiscal crisis. Estate taxes have survived when their proponents have demonstrated that they are needed to ensure shared sacrifice in a collective effort. Over the past two centuries this has most often happened during the most extreme instance of national purpose: mass warfare. In an article published last year in the American Political Science Review, we presented evidence covering estate or inheritance tax rates in 19 industrialized countries over two centuries. This analysis allowed us to see the forces that have shaped estate taxation over the long run.
In many ways, our discoveries flout the conventional wisdom on estate taxation. Consider first that across the 19 countries, estate taxes are often very old. England has had such a tax since the probate duty of 1694. As early as 1791, France adopted a universal estate tax. In most cases, estate taxes were established more than a century before an income tax. The United States federal government is an exception to this pattern, but at the state level, estate taxes commonly predated income taxes by many years. Why? For much of history, it was...