by James Garton

Created on: April 16, 2009

The Estate Tax first came about in 1797, when our young country struggled to pay for a brief sea battle with France called the Quasi-War. Basically the tax was a stamp that had to be purchased and placed on a will that was in probate. The war ended in 1800 and the estate stamp tax was repealed two years later.

The first real direct tax on inheritance did not occur until 1862 to help fund the Civil War. It should be noted that this was also a period when the first income tax was imposed on the American Taxpayer, until it was later declared unconstitutional by the Supreme Court. The income tax first started out as a 3% flat tax on all income over $800, and then changed one year later to a progressive tax with those making over $10,000 paying 5%.

The direct tax on inheritance was .75 percent on all estate transfers over $1,000 and the rate finally rose up to 6 percent in 1864. Two years after the war ended, the estate tax was repealed, until it was needed again to fund the Spanish-American War, and again repealed shortly after the war ended.

It was not until the United States had a very progressive, president like Woodrow Wilson, that the country was hit with an estate tax for the fourth and final time in 1916. Along with the estate tax, the Wilson administration gave us the income tax, the Federal Reserve, and a tax on business profits.

Economic central planner like Wilson see tax not as a means to raise revenue, but more of a way to control the economy. It was from this point at the Wilson administration until today that all taxes have been used as a political issue. Taxes help grow the size of government, the power of government and to issue favors and win votes.

We think of the estate tax as a tax on the rich, but it's the family of a small business owner that truly feels the sting of the tax. A profitable small business, with real estate, inventory, and equipment along with personal assets can easily cause the family heirs to pay massive taxes. Why should anyone have to pay the federal government to transfer a family business from a parent to their son or daughter? Why should we pay a tax when we die when all our life, government was our silent partner, taking it's share of our wealth with all forms of income, sales, real estate, and excise taxes?

The truly wealthy of the country will always have a loophole to protect their assets, such as using foundations or irrevocable trust, and will never feel the sting of estate taxes. The small business owner that worked a lifetime to build a business from the ground up and wants the business transfered to the children upon the death of the founder will be the only ones that will pay the death taxes. Now a family could be facing a 55 percent tax for estates over one million dollars in 2011, unless our leaders in Washington take action to eliminate the tax or keep the cuts.

What is actually needed in the nation is to abolish all taxes, and the source of revenue for national government should come from a simple flat tax, or fair-tax. However, a new tax system like this will take the power of economic planning and politics from the federal government. The current cast of characters we have in congress will never yield this power and political tool that easily. We will probably need to have a massive change in leadership before we see real tax reform.

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