ACTEC Law Journal
Abstract
Modern scholars of American wealth transfer taxation underappreciate the system’s history—characterized at its incipience by a broad patchwork of state inheritance taxes rather than current law’s federal estate tax. Moreover, this history is not only neglected but incompletely recounted; in the last four decades of the twentieth century, a majority of states in all parts of the country suddenly and voluntarily dispensed with their inheritance taxes. This Article seeks for the first time to understand why, and in doing so, offers lessons to those attempting to optimally design a transfer tax system within a federalist system of governance. Through original analysis of legislative history sources, this Article identifies the factors state legislators considered—and ignored—in giving up taxation power over their residents’ inheritances. In particular, it emphasizes the obstacles to state transfer taxation posed by administrative costs, which states were eager to unload onto the federal government, by inflation, which subjected increasing numbers of households to growing tax burdens, and by fears, real or imagined, that residents’ abilities to migrate and escape tax burdens necessitated an inheritance tax race to the bottom. The Article further unmasks state inheritance taxes’ opponents, which included not only the usual lobbyists, who would regroup to repeal the federal estate tax a few decades later, but also legislative leadership accused by membership of prioritizing inheritance tax repeal over more incremental proposals for reform. The forgotten history of inheritance taxation in the United States thus eerily resembles more recent history, marked by the ascendance of a new anti-tax movement.
Recommended Citation
Sayed, Safia
(2025)
"Fiscal Federalism and the Fall of Inheritance Taxes in the United States,"
ACTEC Law Journal: Vol. 51:
No.
1, Article 4.
Available at:
https://scholarlycommons.law.hofstra.edu/acteclj/vol51/iss1/4