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Inheritance Issues

Dec 19, 2011 • Economic Debates, Economic History, Economic Humor, Regulation, Thinking Economically • 244 Views    No Comments

From 1941 to 1976, for $10 million and more, the top federal estate tax rate was 77%.

  • $10 million in 1941 would equal $153,897,959.18 today.
  • $10 million in 1976 would equal $39,759,226.71 today.

Referring to new federal estate tax legislation (1916), Supreme Court Justice Louis Brandeis said, “We can have concentrated wealth in the hands of a few or we can have a democracy.”

Focusing on individual incentive, Calvin Coolidge told us that, “The wise…course to follow in taxation is …to create conditions under which everyone will have a better chance to be successful.”

Our bottom line: Which goal should federal estate tax legislation support?

You might want to read these articles, here and here, for current estate tax issues. This econlife post also looked at inheritance dilemmas. 

    The Economic Lesson

    In the colonial U.S. colonial inheritance laws diverged considerably between North and South. Most northern colonies, except for New York and Rhode Island had multigeniture laws meaning that a family’s sons divided its affluence. By contrast, the South, New York and Rhode Island favored primogeniture whereby the oldest son received the inheritance. What about daughters? A dowry was her source of the family fortune.

    One economist explains (p. 59) that in the South, the planters who controlled the legislatures wanted to retain larger plantations and the efficiencies of scale.

    An Economic Question: Using cost/benefit analysis, explain why you would support a high or low approach to federal estate taxes.

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