The abolition of inheritance / by Harlan Eugene Read

Front matter

HE ABOLITION OF INHERITANCE

HARLAN EUGENE READ

BsBSBHI

Preface

The Need of Great Funds for War. The Present Status of the

Inheritance Tax. The Inheritance Privilege Must be

Entirely Abolished.

Marshall Field died in 1906. His immense fortune, estimated at one hundred and twenty -five million, passed into the hands of trustees for his grandsons, then twelve and ten years old respectively, to be held for them, on account of their incapacity, until they should become fifty years old. The public was suddenly shaken from what Milton calls " the secure falsity of an old opinion " ; viz., that great fortunes are quickly dissolved in the hands of heirs, and therefore not dangerous. The certainty that our law of inheritance can and does create a money aristocracy as dangerous as monarchy itself, was vigorously discussed in press, pulpit and platform. The Chicago Tribune and nearly every other big paper in the country printed the Marshall Field will in full. Theodore Roosevelt, then President of the United States, always quick to understand and respond to the current of popular thought, injected into his annual message l the

i President's Message to the 60th Congress, Dec. 1907 : " The

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principle of a special and graduated tax upon swollen inheritances. 1 We of the United States suddenly discovered that we were not as far advanced as other nations in this respect, 2 Switzerland, for instance, Italy, Belgium, Australia, New Zealand, Tasmania! Such discoveries are humiliating.

Handicapped by our' state constitutions, as to methods of taxation, the people of the United States began to take up the theory of inheritance taxes seriously — intending to make inheritance

Government has the absolute right to decide as to the terms upon which a man shall receive a bequest or devise from another. — A heavy progressive tax upon a very large fortune is in no way such a tax upon thrift and industry as a like tax would be on a small fortune. No advantage comes either to the country as a whole or to the individuals inheriting the money, by permitting the transmission in their entirety of the enormous fortunes that would be affected by such a tax. — Our aim is to recognize what Lincoln pointed out — to insist that there should be an equality of right before the law, and at least an approximate equality in the conditions under which each man obtains the chance to show the stuff that is in him when compared to his fellows."

i There are two ways of restricting inheritance, taxation and escheat. The method of taxation most in favour is a graduated tax, that is a tax increasing in percentage as the fortune grows larger. The method of escheat most frequently referred to is the establishment of a maximum amount allowed to be inherited by any one heir. Some early writers, notably John Stuart Mill, recommended the plan of escheat; but the overwhelming preponderance of choice as to method is today in favour of a gradually increasing tax.

2 See Blakemore & Bancroft Inheritance Taxes, pp. 13 et seq.

PREFACE xi

taxes a substantial part of the revenues of states. 1 The subject became an important one in nearly every state in the Union, not so much with reference to the making of laws ( for inheritance laws then existed in all but nine of our states ) , but rather with reference to the spiritual values that belong to public discussion and moral awakening.

Even before the beginning of the European War in August, 1914, the people as a body were sufficiently roused to produce a considerable result in concrete action. Up to January 1, 1917, forty-three states 2 had inheritance tax laws ranging from a minimum of 1 per cent on direct inheritance in seven states, to a maximum in California where direct inheritances are now being taxed from 1 to 15 per cent and collateral inheritances from 3 to 30 per cent, which is designated by Mr. Bancroft

i In Illinois the method of escheat was proposed but defeated in 1887, the state adopting the progressive inheritance tax instead, eight years later. The defeated bill was introduced to the legislature on recommendation of the State Bar Association, and proposed a limit of $500,000 on direct and $100,000 on collateral inheritances.

2 The five states without inheritance tax laws on January 1, 1917, were: Alabama, Florida, New Mexico, Mississippi and South Carolina — all southern states. Prof. E. R. A. Seligman in Essays on Taxation (Macmillan), p. 133, says: "The inheritance tax today scarcely needs defence. It is found in nearly every country ; and the more democratic the country, the more developed is the tax."

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as " a near approach to confiscation." In most of the states on January 1, 1917, the minimum direct tax was 1 per cent, the maximum 3 to 5 per cent. 1

With our entrance into the Great War, however, the impetus given to the subject of the taxation of inheritances has become greater than before.

From January 1, 1917, to the present date, April 1, 1918, twenty-three states have amended their inheritance tax laws, the object in every case being to make them more rigid. In nine of these states taxes were considerably increased. These nine states were Arkansas, Connecticut, Missouri, Oregon, Pennsylvania, Vermont, Washington, Wisconsin, and Virginia. In Mississippi about April 1, 1918, an inheritance law was passed for the first time. This reduced the number of states without inheritance laws to four, namely, Alabama, Florida, New Mexico and South Carolina.

The Federal Government increased its rates twice during 1917. The Federal law of September 8, 1916, established a scale of rates from 1 to 10 per cent; on March 3, 1917, the rates were raised to 1% to 15 per cent and on October 3, 1917, a special war tax raised them to a scale running from 2 to 25 per cent, the 25 per cent applying to fortunes over $10,000,000.

i See Appendix I.

PKEFACE xiii

There are now twenty-one states in which the state tax runs as high as 10 per cent or more on collateral inheritances of the most remote degree and of the largest amount. There are fifteen states where these state rates reach a maximum of 15 per cent or more, and four states where the maximum rate is 25 per cent or over, namely, Arkansas 32 per cent, California 30 per cent, Missouri 30 per cent, and Nevada 25 per cent. Thus a fortune of 110,000,000 or more, left by inheritance in Arkansas to a collateral of the most remote degree or a stranger in blood, will pay a tax of 32 per cent to the state and 25 per cent to the nation ; in Missouri and California 30 per cent to the state and 25 per cent to the nation; in Nevada 25 per cent to the state and 25 per cent to the nation.

It must be remembered, however, that these extreme rates just mentioned apply only to large amounts and remote degrees of relationship. In California, for instance, the widow or a minor child has an exemption under the state law of $24,000 and an exemption under the federal law of $50,000. The California rate starts at 1 per cent, the federal rate at 2 per cent. These rates do not become really confiscatory, even when combined, except in the case of a collateral who inherits a vast sum.

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A comparison of the table of rates on January 1, 1918/ with the similar table of rates on January 1, 1917, presented in the appendix will show what tremendous strides were made in inheritance taxes throughout the United States during 1917. The increases in rates during 1917 furnish ample evidence of the importance attached to inheritance taxation as a fiscal measure by our legislators. They do more than this. They furnish evidence of the change that has been gradually taking place in civilized minds toward the institution of inheritance itself; and the present attitude toward inheritance reform, as toward many other reforms, has been crystallized in the minds of men by the imperative financial demands of the great war.

Necessarily the first question in regard to the support of the war is " How much will it cost? " Be it said to the everlasting credit of the American people — there has been no weakness, no hesitancy, no delay, on account of the amount involved. Uncle Sam has proved himself as prodigal as he can be prudent, as bold as he can be conservative. Congress voted the first appropriation of two billion dollars " with eyes shut," to paraphrase the now famous expression of Congressman Kitchin, and thus indicated its willingness to vote money

i See Appendix II.

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without stint for the support of the war. Seventeen billion was appropriated for the first year of the war, — a sum equal to two-thirds of the entire expenditure of the United States Government from 1789 to 1916. 1

The second question is, " Where will the money come from?" The extraordinary burden of such a tremendously expensive war cannot be borne either in Europe or America, by the poor. It cannot be borne by industry. It must come from unearned wealthy — and the form of unearned wealth that is the most easy to understand, the nature of which any child can comprehend, is inherited wealth.

Students who are interested in the history of the movement in favour of increased inheritance taxes will find valuable data in Blakemore and Bancroft, 2 Max West, 3 and Hugh Bancroft. 4 The early work of Blakemore and Bancroft and the later work of Bancroft alone are especially complete as to legal data ; 5 but the most interesting fact connected with

iThe total expenditures of the United States Government for the first 127 years (1789-1916) were $26,150,991,471.00.

2 Blakemore and Bancroft. Inheritance Taxes.

3 Max West, Monograph on the Inheritance Tax, Columbia University Studies, Vol. 4, p. 180 et seq., Columbia College, N. Y.

* Hugh Bancroft. Inheritance Taxes for Investors. s See Appendix III.

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this historical and legal data is that courts have upheld the constitutionality of the inheritance tax with almost absolute unanimity. 1 These court decisions cover many vital points with regard to inheritance taxes. 2

That these decisions are based upon a fundamental principle of English and American Law may be easily appreciated when it is realized that they find their original sanction in law in Blackstone. 3

They have an equally strong justification from the standpoint of political economy as expressed in the profound sentiments of John Stuart Mill. 4

From the standpoint of practical politics the inheritance tax meets every requirement of wisdom, simplicity and effectiveness ; 5 and the principle of cradle equality as to economic opportunity has been repeatedly emphasized by philosophers and moralists from Pascal 6 to Emerson 7 and is being voiced by hundreds of sincere writers, speakers and preachers today. 8

Among thinkers everywhere there is a constantly

i See Appendix IV.

2 See Appendix V.

3 See Appendix VI. * See Appendix VII.

s See Appendix VIII.

« Harvard Classics, XL VIII, 383.

7 Harvard Classics, V, 51.

s See Appendix IX.

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broadening view as to the wisdom and justice of increasing inheritance tax rates, especially as applied to large fortunes ; but the present inheritance tax rates 1 do not even yet justify the conclusion that it is the intention of the United States Government 2 to secure as large a portion of its revenue as it should from the estates of deceased persons.

The plan proposed in The Abolition of Inheritance is that inheritance taxes shall be increased until they absorb all of the wealth that passes by descent, with exceptions in favour of widows' rights of dower and reasonable sums for the care and education of invalids and minor children.

Because of the tremendous drain the present war will make upon our national resources, the discussion of inheritances, the rights of heirs, the rights of non-heirs, and all the long train of topics which the subject naturally calls forth, is more than appropriate at this time. It is vital. Whether this war shall be paid for mainly by workers or mainly by beneficiaries of privilege is the great economic question of the period.

The cost of the present war, at the end of the second year, was $75,950,000,000, a sum nearly four times as great as the total income of the United

i See Appendix II. 2 See Appendix X.

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States from 1789 to 1909/ only half of which was expended for wars and pensions. If the United States pays to the War-God a sum equal to only one-eighth of the cost of the war for the first two years (which would be less than her fair proportion ) , the amount will be as great as all her expenditures on war for the first one hundred and twenty years of her history. The only possible conclusion is that the workers will refuse to pay it. They will place the burden upon non-workers, who receive the surplus values of the world.

Who are these non-workers, who receive the surplus values of industry? That is the question all the workers of the world are now asking, — the question they are forced to ask. And there is little doubt that in the search for them, the heir will first be found, because his lack of title through labour is undebatable, 2 and also because the amount of inherited wealth is sufficient to pay the entire cost of the war unless that cost far exceeds 3 even the wildest prophecies.

i See Booklet on War Loans and War Finances published by the Mechanics and Metals National Bank of New York.

2 See Blackstone's Commentaries. (Vol. 2, Comm. 10 supra.)

3 In 1862 the United States Special Revenue Commission reported that 2 per cent of the entire wealth of the nation changed hands each year. Today, Max West points out (Inheritance

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Reference has been made to the unwillingness of workers to pay for the present war through taxation. It might be more to the point to state that workers cannot pay for the present war. There is a limit to the burden that can be placed upon the back of labour. The theory that wages tend to the margin of subsistence (i. e., to as low a point as the labourer can maintain life upon ) is an accepted doctrine of political economy. 1 When that point is reached, the wages of labour can go no lower. Resort is then had to bonding issues, requiring industry in the future to pay what industry cannot pay today. But there comes a limit even to that, and in the present war that limit has been nearly reached already. Our Civil War bills are not entirely paid, after fifty-six years, yet we have Si- Tax, pp. 228 et seq.) that one thirty-third to one thirty-sixth of the private wealth of the country changes hands annually by inheritance, and that if an exemption is made of $10,000.00 to each heir, one-fiftieth of our wealth, or 2 per cent, will still change hands annually, these figures being based upon a careful analysis of estates in New York and Massachusetts. The country's wealth was estimated in 1913 by the United States Department of Commerce as 187 billion ; and on July 25, 1917, W. S. Kies, Vice-President of the National City Bank of New York, estimated it at 240 billion — two per cent of which is four billion eight hundred million dollars.

i See Adam Smith, Wealth of Nations, Book I, Chap. VIII, p. 75. John Stuart Mill, Political Economy, Bk. II, Ch. XI, p. 333. Henry George, Progress and Poverty, Bk. Ill, Ch. VI.

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ready appropriated for the first year of our participation in the World War more than the entire cost of the Civil War, including pensions. 1 If our industries cannot pay the bill, either immediately or in the future, we must turn for funds to those who receive without labour. 2 There is no other solution.

Of course, no one knows exactly how much added burden can be shifted upon our business men and labourers. That a certain amount can be and will be, goes without saying, but there seems to be a common agreement of minds upon the fact that the war has already produced burdens that cannot be deducted from either profits or wages in the form of ordinary taxation of property.

The high taxes that Congress placed upon inheritances on October 3, 1917 (2 to 25 per cent), added to the already existing state taxes (see appendix I) naturally raised the question as to the justice of inheritance of money; and this book has been written for the purpose of examining the basis

i The Civil War cost in round numbers five billion dollars or three and a half million per day. Civil War pensions up to 1916 have amounted to four and three-fourths billion. In 1915 there was disbursed for pensions the sum of $164,387,942.00.

2 " It is not fortunes that are earned, but those that are unearned, that it is for the public good to put under limitation," John Stuart Mill, Book V, Ch. II, Sec. 3.

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upon which the privilege of inheritance exists.

" The power to tax," said Chief Justice Marshall, " is the power to destroy." If it be shown that there can exist no right in reason or justice by which a child can inherit a million dollars, or a hundred million, will it not follow that, with taxation as the means, the wrong can easily and quickly be adjusted? Many of the arguments that are used in defence of an inheritance tax law are in reality basic arguments against the privilege of inheritance itself. 1 It is against the privilege of inheritance itself that this book has been written; and it may be appropriate to say here, therefore, that The Abolition of Inheritance is by no means an argument for the inheritance tax merely as a revenue measure, nor a discussion of the various phases in the development and growth of that tax. It is an argument for the complete destruction of the inheritance principle.

That our system of inherited wealth was once necessary to the world's progress or useful to its political organizations, it is not the purpose of the author to deny. The family was the first natural political group, and until larger groups were formed, the self-protection of each family group demanded the inheritance of property within that

i See Appendix XI.

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group. In feudal ages, the dominance of ruling families made the same law of inheritance necessary, even to the extent of primo-geniture (or inheritance by the eldest son only) in order that the family power might be maintained. But when democracy came into the world, it became necessary to exterminate the idea of " family power." This has slowly been accomplished so far as the right to rule by virtue of birth is concerned. Beginning with the United States Revolutionary War in 1776 and the French Revolution a few years later, the world has progressed toward democracy until its principles now seem to be approaching universal recognition, as to forms of government. " Family power " in government has served its day as a principle of progress and development. That it served the world well in feudal days may be admitted without modifying the fact that the time of its final extermination has now come.

But while " family power " as a factor of visible government is about to make its final exit from the stage of national life, the rules it evolved for its own protection have not yet been radically changed. Civilized nations 1 have long recognized that inherit -

i Augustus Caesar 6 a. d. imposed a 5 per cent, inheritance tax. Nerva, Trajan, Hadrian, Marcus Aurelius and Caracalla modified it, and it continued in force until the time of Gordian IV.

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ances ought to be subjects of special taxation; 1 many economists have declared against the principle of collateral inheritance altogether; and some have boldly attacked all inheritance privileges, especially in cases of intestacy; but notwithstanding the general recognition of the fact that an inheritance tax is essentially democratic, it has been and is still a comparatively small tax in the United States. As Max West, perhaps the greatest modern authority upon the subject, has aptly said, 2 " The inheritance tax seems to be pre-eminently an institution of democracy. It is found in nearly every civilized country on the globe, but it is only in the most democratic countries — Great Britain, France, Switzerland, Canada, the Australasian colonies — that it reaches its fullest development. The United States seems thus far to be an exception to this rule."

While recognizing to its fullest extent the part that inheritance has played, in former ages, in holding together the resources and power of feudal families during periods of history when " family power " was important ; and while recognizing also that the conservatism of democratic peoples in ap-

i See Pollock and Maitland, History of English Law, Chap. VI, also, Blakemore and Bancroft, Inheritance Taxes, p. 13. 2 Monograph on the Inheritance Tax, Max West, 1912.

XXIV

PKEFACE proaching the present problem of swollen inheritances has been natural and perhaps excusable heretofore, I believe that the time for a sweeping reform along this line has now come. It was apparent a generation ago that the great danger of America was the rapid pyramiding of great fortunes, many of the beneficiaries themselves realizing it fully ; 1 but each year has seen an alarming increase of that danger, until today, with the world's greatest war forcing us to devise new means of raising national revenue, it becomes a part of the leading question of the hour.

In the discussion of the subject that is presented in this book, I have purposely refrained from commenting in the text upon many legal and statistical aspects of the question to which reference has been made in the foot-notes and preface. This plan has been followed not only because citations and statistics are tiresome to the reader, and therefore best handled through foot-notes, but for other reasons as follows:

First : Former laws are of interest only historically. While reforms should always proceed with due regard to existing constitutional obligations, the laws of the past do not and cannot affect the fundamental rights of man. My argument is for

i See Appendix XII.

PKEFACE xxv

the destruction of the inheritance privilege no matter how much or how little may have been done previously along this line by law-makers; and no matter whether heirs are receiving without labour one-half of the world's wealth or two-thirds of it. As an historian I am interested to know how many states in the Union and how many countries in the world have a form of inheritance tax — but as a reformer I am only interested in showing why in all states and all countries the privilege of inheritance should be utterly abolished. As a statistician I am interested to know what amount of revenue was brought into the treasury of New York by the Inheritance Tax in 1916, but as a friend of mankind I am only interested in showing you that the privilege of securing money without earning it is morally wrong and must be destroyed. As an admirer of Blackstone I am interested in knowing that the great jurist declared inheritance to be a civil convenience only, and not a natural right — but as a logician I am only interested in showing you that the principle of inheritance is morally wrong and unjust, whether Blackstone said it or not. This book is intended to be a logical proof of the worker's right to what he produces and of the violation done to that right by our system of inheritances.

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Second: The presentation of side comments of an historical, judicial or statistical nature is confusing to the average mind, interrupting the logical sequence of the argument and detracting from its power.

Third : The quoting of statistics, dates or opinions is unnecessary when the truth sought to be made clear is that the practice attacked is entirely wrong. For example, burglary is wrong regardless of the amount of booty secured. The common observations of the average man have taught him the importance of the subject of inheritance to his own welfare. He need not know the exact value of Vincent Astor's inherited fortune. He merely needs to know that, whether it is one hundred million or eight hundred million, it was unearned by Vincent Astor. He does not need to know the exact number of children in South Carolina who are working in sweatshops, nor the exact number dead of tuberculosis in New York City, nor the official count of unemployed men in Pennsylvania. All these items are of interest and value to some people, but I have not stopped to present them because I have had something more vital on hand than the counting of the wounded or the numbering of the dead; and I am willing to risk the carping and faultfinding of those small souls who refuse to

PREFACE xxvii

shoot a coyote until they have ascertained how many sheep it has killed and whether or not it has been led by precedent to believe it has the right to kill sheep.

After one becomes convinced of the right or wrong of any proposed reform, his interest in its progress becomes quite a different thing from the quibblings of those reactionaries who attempt to throw statistics, dates and precedents as stumbling blocks in the path of the honest investigator. For the benefit and instruction of those who are interested, I have endeavoured, through foot-notes, to refer the student to the chief sources of legal and statistical information ; but as the argument against the principle of inheritance is fundamental, and based upon natural rights, my endeavour has been to keep the text itself simple, plain and directly argumentative, appealing solely to those who have the courage to think for themselves, freed from the awe of precedent and unhindered by the thought of those political sanctities claimed now, as they have always been, by the beneficiaries of governmental privilege.

Harlan Eugene Read.

BIBLIOGRAPHY

Blakemore and Bancroft, Inheritance Taxes.

Max West, The Inheritance Tax, Columbia University Studies, Vol. 4, p. 180.

" Theory of the Inheritance Tax," Pol. Sc. Quar., Vol. VIII, No. 3.

John Stuart Mill, Principles of Political Economy, Bk. V, Ch. XI, Sec. 3, Bk. V, Ch. II, Sec. 7, Bk. V, Ch. IV, Sec. 1, Bk. II, Ch. II, Sec. 3 and 4.

Robt. H. Whitten, Address at National Tax Conference, 1901.

J. S. Nicholson, Encyclopedia Brittanica, " Taxation."

Sir Wm. Blackstone, Commentaries, Vol. I, Bk. II.

Pollock and Maitland, History of English Law; Vol. 2, Ch. VI.

J. B. Say, Cours complet d'economic politique, Bk. 3, Ch. 9.

R. T. Ely, Taxation in American States and Cities, Ch. VIII, pp. 515-523.

"The Inheritance of Property," N. Am. Rev., Vol. 153,

p. 54.

Outlines of Economics, pp. 637-640.

Augustus Jacobson, Higher Ground, pp. 194-202.

C. F. Bastable, Public Finance, Book IV, Ch. IX.

Hugh Bancroft, Inheritance Taxes for Investors.

Henry George, Progress and Poverty, Ch. Ill and IV. Social Problems, Ch. X.

Chas. J. Bullock, " Position of the Inheritance Tax in American Taxation," National Tax Association.

George A. Richardson, King Mammon.

Solomon Huebner, " Inheritance Tax in the American Commonwealth," Quar. Jour, of Econ., 18 : 529-50.

United States Government, Inheritance Tax Laws, Senate Document No. 114, 61st Congress, 1st Session. Inheritance Tax Laws, Same, House Doc. No. 34.

BIBLIOGRAPHY

W. T. Bell, " Should Death Duties Be Increased? " Westminster Rev. 165 : 380-86.

E. R. A. Seligman, Essays in Taxation, pp. 121-135.

President Roosevelt, Message to 60th Congress, 1st Session, December, 1907.

Walter Logan, Limitation of Inheritances.

James A. Roberts, " Progressive Inheritance Tax," Forum, Vol. 23, pp. 257-270, May, 1897.

P. S. Post, Jr., " The Problem of Enormous Fortunes," Outlook, Vol. 85, pp. 21-25, Jan. 5, 1907.

Arthur B. Hayes, " Inheritance Taxes," Arena, Vol. 38, pp. 26-33, January, 1908.

Andrew Carnegie, The Gospel of Wealth, Chap. I.

Gustavus Myers, History of the Great American Fortunes.

Report of Minnesota Tax Commission, 1910.

Digest of Inheritance Tax Laws, Dept. of Commerce and Labor, 1907.

Proceedings of N. Y. State Bar Assn., Vol 23, pp. 21-42.

Part I.— Important Preliminary Consid- Erations Chapter

PAGE

I The Subject Stated 3

II Ignorance Concerning Human Rights ... 6

III The Courage to Think 8

IV The Right of Producers to All Property . . 12 V Inheritance Violates the Producer's Right . 17

VI Heirs are Supported by Their Own Generation 21

VII Inheritance a Privilege, Not a Right ... 28

PART II.— INHERITANCE EXAMINED FROM THE STANDPOINT OF HUMAN RIGHTS VIII The Right of the Dead to Give 35

IX The Right of Heirs to Receive 46

X Basis of Natural Right to Property ... 54

XI The Last Will and Testament 65

XII " Divine Right of Kings," — and of Heirs . . 72

XIII Arguments for Monarchy and Inheritance

Identical. The Inheritance Principle A Root Evil 80

PART III.-- INHERITANCE EXAMINED FROM THE STANDPOINT OF ECONOMIC RESULTS XIV Concentration of Wealth in the United

States 93

XV Concentrated Wealth the Ruin of Former

Nations 103

XVI Historic Attempts to Check the Concentration of Wealth 105

Contents

CHAPTER PAGE

XVII How Inherited Wealth Causes Inherited Poverty 109

XVIII Inheritance System the Centre of Corruption 123

Part Iv.— Inheritance Examined From The Standpoint Of Modern Ideals

OF SOCIAL JUSTICE

XIX Not a Product of Civilization but an Accompanying Evil 135

XX Antiquity Not a Defence of Wrong .... 144 XXI Precedent a Legal, not a Moral or Economic