Andrew Mellon's Unsuccessful Attempt to Repeal Estate Taxes

Date: Aug. 22, 2005

Full Text Published by Tax AnalystsTM

Andrew Mellon's Unsuccessful Attempt to Repeal Estate Taxes

M. Susan Murnane is a Ph.D. candidate in history at Case Western Reserve University, Cleveland.

Copyright 2005 M. Susan Murnane. All rights reserved.

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On June 7, 2001, President George W. Bush signed into law the Economic Growth and Tax Reconciliation Act of 2001, a $1.35 trillion tax cut spread out over 10 years. The act gradually reduced federal estate tax rates and increased the estate tax exemption until 2010, when it repealed the federal estate tax for one year only. The temporary repeal of the estate tax culminated a long campaign on the part of dedicated activists, who viewed it as a first step toward permanent repeal of the federal estate tax.1

The last time anyone seriously attempted to repeal the federal estate tax occurred toward the end of the series of tax cuts in the 1920s spearheaded by Treasury Secretary Andrew W. Mellon. Between 1925 and 1928, Mellon attempted unsuccessfully to secure repeal of federal estate taxes. In proposing repeal, Mellon changed Treasury Department policy on estate taxes more than a year into the income tax reform program to reduce marginal taxes on high incomes, popularly known as the Mellon plan for scientific taxation. This article tells the story of the old fight over the federal estate tax, in the hope of illuminating the current one.

The current movement to repeal estate taxes evolved from the supply-side attack on progressive taxation that emerged in the late 1970s. Supply-side economic theory advocates shifting taxes from capital and income on capital to wages and consumption, and supply- side tax cutters self-consciously adopted Mellon as their model.2 The 1976 tax act began whittling away at the estate tax by phasing in an increase in the estate tax exemption from $60,000 to $175,000, and President Ronald Regan's 1981 tax cuts included an additional phase-in of the estate tax exemption to $600,000.3 But the movement to repeal estate taxes achieved its first success with the 1994 Republican takeover of the House of Representatives. In 1998 the Joint Economic Committee issued a study of the economics of the estate tax recommending repeal.4 Like Mellon, the study claimed that the estate tax depleted capital, inhibited entrepreneurial risk-taking, and impaired the continuity of family businesses. Like Mellon, the study argued that social mobility in America made estate taxation unnecessary; energetic Americans could rise from rags to riches in one generation and their descendants could return to rags again a few generations later.5

Mellon didn't develop the Mellon plan to reform income taxes after World War I. Treasury officials from the Wilson administration developed the tax reform program that became known as the Mellon plan as a multiyear, multidimensional campaign to overhaul the recently enacted income tax and make it an effective, permanent, peacetime revenue system. Supported by the leading economists of the day, Mellon adopted the plan as his policy when he became Treasury secretary in 1921.6 The plan did not seek to abolish progressive taxation but to make it permanent by making it work, and it included federal estate taxes. The Mellon plan's authors considered estate taxation a necessary part of a progressive tax system for a modern industrial democracy. However, in the process of successfully shepherding the Treasury Department's comprehensive income tax reform program through Congress, Mellon decided that the federal estate tax should be repealed, and he supervised a vigorous but unsuccessful effort to that effect. It was the only unsuccessful tax reform initiative of the 1920s.

The first permanent income tax enacted in 1913 imposed low tax rates on the highest-income taxpayers, principally to finance tariff reform.7 World War I made the income tax the federal government's principal revenue source. Marginal income tax rates rose as high as 77 percent by the end of the war, while the public debt increased from approximately $1 billion to approximately $24 billion. The search for additional revenue sources to finance the military build-up before the United States entered World War I included a federal estate tax in the Revenue Act of September 1916. By the end of the war, the largest estates paid a maximum marginal rate of 25 percent.

The rapid transformation of the income tax from a supplementary tax to a comprehensive, high-rate income and profits tax created many practical and administrative problems. Tax reform was inevitable after the war's end, but Treasury experts did not seek to return to the prewar tax regime of tariffs and excise taxes. Rather, the architects of the postwar tax reforms deliberately fashioned a progressive income tax regime, which they consciously intended to serve as a "permanent peace-time" tax system suitable for a modern industrial democracy. From within the Treasury Department, a team led by holdover lawyers from the Wilson administration and Yale economist Thomas S. Adams prepared draft legislation that partially replaced the unwieldy "excess-profits" tax with an increase in the flat corporate income tax, radically reduced marginal tax rates on the highest individual incomes, and improved tax enforcement and dispute resolution administrative procedures. Under the leadership of Mellon, that program was adopted piecemeal in three revenue acts between 1921 and 1926.

The Treasury Department reformers did not seek to reduce or repeal the federal estate tax as part of their postwar tax reforms. With top marginal rates of 25 percent on taxable estates greater than $10 million, they considered an estate or inheritance tax necessary to an efficient and equitable tax system. The tax reform proposals prepared inside the Treasury Department for presentation to Congress in 1921 and 1924 proposed only technical and administrative changes to the estate tax.

The principal architect of the Treasury's program for postwar tax reform, Undersecretary S. Parker Gilbert, left the Treasury Department to return to the private practice of law in the autumn of 1923. With tax reform legislation already drafted, Gilbert left his successor, Undersecretary Garrard B. Winston, and Mellon a road map for securing public support and congressional enactment. When the opposition to income tax rate reduction succeeded in significantly raising estate tax rates in 1924, however, Mellon decided to mount an effort to repeal estate taxes.

Superficially, Mellon's campaign to repeal federal estate taxes resembled the campaign to reduce marginal income tax rates. Business leaders and business organizations overwhelmingly supported both proposals. Just as numerous academic, civic, and reform organizations staged conferences in support of the Mellon plan, the National Tax Association, the first national organization of tax professionals committed to the study and reform of state and national tax systems, held a widely publicized convention and loudly endorsed federal estate tax repeal. Mellon's grassroots ally, J.A. Arnold, enthusiastically converted his organization to agitate for federal estate tax repeal. But unlike the earlier campaign for lower marginal income tax rates, Mellon's attempt to repeal federal estate taxes failed. Only the proposal to reduce marginal income tax rates received the open, reasoned support of respected economists, and the dissemination of their ideas to a broad audience through popular magazines.

Superficially, Mellon's attempt to repeal federal estate taxes also resembles the current campaign to repeal estate taxes. Just as Mellon used freelance lobbyist J. A. Arnold to generate grassroots support for his tax reform program, especially in rural southern and western states, the current antitax movement originated with independent activists in rural southern and western states. After President Bush's election, those organizations received disciplined political direction from leadership closely connected to the White House. A coordinated propaganda effort led by business organizations like the Chamber of Commerce and the National Association of Manufacturers supported both movements. But the Mellon plan occurred at the beginning of the American experiment with progressive income and estate taxation. Because Mellon failed to repeal the estate tax, the fundamental characteristics of the progressive tax system that emerged at the end of the 1920s continued without serious challenge until the late 1970s. In contrast, the current attempt to repeal the estate tax is part of a broad challenge to the very idea of progressive taxation, and it is too soon to tell how it will end.

This article begins with an investigation into the origins of inheritance taxation in the progressive movement to reform the general property tax and describes some of the problems that developed from inconsistencies among the different state inheritance tax schemes. Federal estate taxation emerged as a solution to those problems, and survived a sophisticated public relations campaign to repeal it. Many of the same arguments offered in favor of repealing the estate tax in the 1920s are heard in the current debate. Similarly, the problems inherent in taxing inheritances or estates at the state level in a federal system remain as intractable. In recent years, the distribution of income and wealth has achieved levels of inequality not seen since the 1920s, and the current debate reopens old fairness questions about relative levels of taxes on wages, capital, and consumption by ordinary people.8

The Evolution of State Inheritance Taxes

The terms "estate tax" and "inheritance tax" are often used interchangeably. Although closely related terms, they tax different concepts and represent different policy choices. Both inheritance taxes and estate taxes are imposed on the transfer of property at death, and both are collected from estates at the time of probate. States generally taxed inheritances, determining the amount of the tax by the size and recipient of each inheritance. Many states taxed different inheritances from the same estate at different rates and with different exemptions depending on the heir's relationship to the deceased. On the other hand, the federal government taxed estates, imposing one rate schedule on all estates without regard to the size of any individual inheritance or the heir's relationship to the deceased. Some states imposed both estate and inheritance taxes.

Congress passed a permanent federal estate tax in September 1916 without significant debate, in part because it represented only a small part of a "war preparedness" tax act that also increased income taxes significantly, imposed an "excess- profits" tax on businesses, and heavily taxed luxuries, amusements, transportation, and communication facilities. The federal government had previously taxed inheritances in wartime, most recently during the Spanish American War and the Civil War, and the distribution of the total tax burden appeared fairly spread among the social classes. But mostly, enactment of a federal estate tax generated no significant controversy because the important economists interested in taxation considered estate or inheritance taxation integral to modern democracy. The Revenue Act of 1916 succeeded in introducing starkly progressive income and profits taxes as well as moderately progressive national estate taxes, and the widely respected expert on taxation, Columbia University economics professor Edwin R.A. Seligman pronounced the act "evidence of the progress that has been made in the conceptions of fiscal justice as a result of the democratic development of the last generation."9

Progressive income and inheritance taxes entered the American revenue system as supplements for the failed taxes of the 19th century, the tariff and state general property taxes. Income taxes financed tariff reform and eventually eclipsed tariffs as a revenue source. States adopted inheritance taxes in an attempt to tax the corporate wealth that escaped the general property tax.

The general property tax worked well enough in an agricultural society in which visible taxable property seemed to approximate real economic power. By the middle of the 19th century, however, that economic model was already a myth in much of the northeastern United States. By the end of the 19th century, the agrarian economic model lost credibility everywhere throughout the United States, and state governments increasingly adopted inheritance taxes to relieve or reduce state reliance on general property taxes.

Between 1880 and 1890, the American economy shifted from predominantly agricultural to overwhelmingly manufacturing.10 Industrial capital generated new forms of financial wealth, such as corporate stocks and bonds. Although technically taxable under general property tax codes, that kind of intangible property was invisible and its owner paid almost no general property tax. Evasion of general property tax on personal property had always occurred, but the tremendous increase in untaxed financial wealth created an intolerable situation. Simultaneously with the creation of vast funds of untaxed wealth, corporations created many new high-paying jobs for professionals and white-collar workers, further weakening the link between tangible property and economic power. The new prosperous classes spawned by industrial capital earned income and held wealth independent of tangible property values, and did not pay significant general property taxes.

By 1900 the general property tax received universal condemnation for its practical failings. In addition to the problem of personal property tax evasion, the tax was applied inequitably between localities and between individuals and was regressive. No good solution existed for taxing debt-burdened property. Taxing property without regard to debt burdens overtaxed debtors, undertaxed creditors, or taxed the debt twice. On the other hand, offsetting outstanding debts against taxable property values opened an irresistible avenue for tax evasion. Debt obligations represented one kind of easily concealed intangible personal property readily susceptible to general property tax evasion. Consequently, the general property tax effectively taxed only land and nonexempt tangible business property like farm equipment.11 While ordinary farmers found themselves paying for an increasing share of the burdens of an urbanizing industrializing society, their economic and political power diminished.

The modern economics profession emerged from the effort to reconcile political economy to industrial reality and specifically attempted to devise appropriate new governmental institutions based on sound economic principles.12 The fundamental questions of the day centered on the distribution of wealth in an industrial society. Related questions asked whether the wealthy were carrying their share of the costs of government. Several important economists concentrated on the problem of public finance. The most important of these, Seligman, pioneered the investigation into who really bore the burden of different kinds of taxes and championed progressive taxation, the idea that the wealthy should pay a greater than proportional share of taxes. The tariff, excises, and general property tax were regressive taxes; in other words, wealthy people paid a smaller proportion of their income in these taxes than poorer people did.13 Progressive income and inheritance taxes promised to reach the new forms of industrial wealth and to ensure that the beneficiaries of the new industrial economy paid a "fair" share of taxes.

General property tax reform was a linchpin of the progressive reform agenda. Theoretically taxing all property of whatever kind at the same rate, the general property tax embodied 19th century ideas of democracy and equality. Almost from the beginning, however, the administration of the general property tax encountered serious difficulties. The tax on personal property depended largely on voluntary disclosure to the tax collector, and the incidence of personal property tax evasion increased steadily throughout the 19th century. The increasing importance of intangible personal property like stocks and bonds as the real source of wealth and power in an industrial economy aggravated the situation.

The ratio of the total assessed value of property throughout the state to the assessed value of property in any given locality determined the dollar amount of local property tax assessments. In other words, lower local tax assessments produced a smaller local share of total state tax payments. Consequently, political pressure on locally elected property assessors to undervalue property produced assessments of similar properties in different communities with wildly disparate values, further undermining the perceived equity of the general property tax. Beginning in the last quarter of the 19th century, many states and municipalities formed tax commissions to study the administrative failures and injustices of the general property tax and to consider possible alternatives.14

As dissatisfaction with the general property tax increased, state and local tax commissions proliferated. Because they were state and local tax systems, the particular tax schemes varied greatly and the scope of the commissions and quality of the reports also varied greatly. In the aggregate, however, the number and geographic diversity of the tax commissions signified profound dissatisfaction on a national scale. Some of the most important economists working in taxation and public finance were involved with some of the tax commissions, and interested economists and other tax professionals learned from each other. Reporting on tax commissions in 1893 for Political Science Quarterly, Seligman wrote:

Taxing corporations directly addressed the problem of how to tax the sources of intangible wealth underpinning the new industrial economy. Another obvious source of revenue for states was inheritance taxation. State law regulated inheritance, and probate fees were a long-standing source of state revenue. Pennsylvania, Louisiana, Virginia, and North Carolina imposed primitive inheritance taxes discriminating against collateral heirs before the Civil War, although only Pennsylvania's tax continued up to 1890. After the Civil War, a trickle of other states enacted inheritance taxes on collateral heirs. In 1890 only 6 states imposed an inheritance tax. However, between 1890 and 1900, 18 additional states enacted inheritance taxes. In 1892 New York passed the first modern statute, taxing direct heirs as well as collateral heirs and unrelated persons with progressive rates. Soon, Illinois (1895), Michigan (1899), and Wisconsin (1899) also taxed direct heirs at progressive rates. By 1901 inheritance taxation was an established source of state revenue, and the trend in state legislatures was toward raising rates and increasing the categories of property subject to taxation. By 1910 all but three states had an inheritance tax.16

Economists and social reformers debated the merits of several different theoretical foundations for an inheritance tax. Some considered the inheritance tax desirable as a leveler, part of an inevitable trend of modern industrial society towards socialism. Others viewed it less controversially as a modern variation on traditional Jeffersonian hostility to an inherited aristocracy.17 Progressive historians and academics compared inheritance taxation to the abolition of entail and primogeniture. The generation that participated in the American Revolution often declared abolition of entail and primogeniture one of their most important accomplishments, crucial to the success of the republican experiment because it guaranteed the broad diffusion of wealth and political power, and early 20th century progressives concurred in their assessment of its importance.18

More pragmatic economists focused on the practical advantages of an inheritance tax. Because title to most inherited property descended through probate or was otherwise documented in the public record, an inheritance tax was easy to collect and difficult to evade. Moreover, it corresponded nicely with Seligman's new theory of modern taxation based on ability to pay. Heirs were recipients of windfalls, obtained through no effort of their own, clearly capable of parting with a fraction of their inheritance without hardship. Mostly, however, inheritance taxation supplemented or replaced the general property tax. Progressive taxation of inheritances reached the property missed by the general property tax and corrected for other regressive taxes, bringing the total tax system closer to a proportional system.

In May 1902 a National Conference on Taxation met in Buffalo, N.Y., to investigate the problem of state and municipal taxation. Delegates from almost every state attended, including state tax officials, academics, and representatives of special interests like farmers and bank trust departments. In 1906 the National Tax Association organized as a permanent organization and provided a national forum for discussion of the failure of the general property tax and the development of suitable alternatives. The First National Conference under the auspices of the NTA met in Columbus, Ohio, in November 1907, and appointed a committee to study inheritance tax issues.19 In 1910 the NTA drafted a Model Inheritance Tax Law for use by states with the intention of standardizing inheritance taxation and preventing double taxation. The model law proposed taxing tangible property only in the state in which it was situated, and intangible property only in the decedent's state of residence.20 Most states ignored the model law.

State inheritance taxation was a relatively recent phenomenon in 1907, but the system already evidenced significant tensions. The potential for evading the inheritance tax on intangible property like stocks and bonds stimulated legislative efforts to make enforcement more certain and effective, significantly increasing the expense and inconvenience of estate administration in the process. Also, state legislators and tax officials sought additional revenue by extending the application of the inheritance tax beyond resident decedents to include the property of nonresident decedents located within the state, and large estates suffered taxation by multiple jurisdictions. Inevitably, lawyers and accountants pioneered professional inheritance tax planning for large estates to mitigate the effects of aggressive state inheritance tax laws, adding further layers of complications to the system.21

In general, most state inheritance tax statutes reached all real property of a decedent located within the state, and all of a resident decedent's personal property, both tangible and intangible, wherever situated, including stocks and bonds. Typically, state inheritance taxes also reached all real property and personal property belonging to nonresident decedents situated within the state, including money on deposit and corporate securities in safe deposit boxes. Often states held depositories (like banks and trust companies) liable for payment of the tax. Most states also taxed corporations chartered in that state owned by a nonresident decedent and held the corporation liable for payment of the tax. Other states taxed nonresident decedents for stock in foreign corporations in an estate if the corporation owned property in the state, had a corporate transfer agent in the state (New York), or did business in the state (Colorado). Minnesota, Iowa, and South Dakota taxed nonresident estates on residents' debts, such as mortgages, owed the decedent.22

States attempted to tax inheritances on whatever theory yielded the most revenue under the economic circumstances prevailing in a particular state and consequently imposed administrative expense and delay, judicial uncertainty, and wildly differing tax burdens on seemingly similar estates. Federal preemption was an obvious, if politically unpalatable, solution to the problem. As early as March 1916, during congressional consideration of the first permanent federal estate tax, Seligman suggested in The New Republic that a national inheritance tax could restore order to the chaos of inconsistent and overlapping state inheritance taxation by imposing a uniform, moderate progressive inheritance tax and returning a significant portion of the revenues to the states.23 Treasury adviser T.S. Adams reached similar conclusions, and, in a November 1919 internal Treasury Department memorandum recommending postwar tax reforms, included the suggestion that a conference be called to consider joint state and federal action for the assessment, collection, and division of inheritance tax receipts. Adams argued that the ease with which wealthy individuals could change residence to low-tax or no-tax states made a national inheritance tax necessary.24

The Frick Estate

In December 1919 the infamous Pittsburgh industrialist Henry Clay Frick died in New York City, leaving an immense estate. The administration of the Frick estate was well publicized, and graphically illustrated the problems large estates incurred with inheritance taxation in general and with congruent taxation by different states in particular. Although the U.S. Supreme Court eventually resolved some of the problems raised by the administration of this estate, the course of this litigation shaped Mellon's attitudes toward inheritance taxation.25 Mellon knew Frick personally and identified with Frick's estate.

Frick made his first fortune in the coke fields with money borrowed from Judge Thomas Mellon, Andrew W. Mellon's father, in the early days of the Mellon family banking business. Later, Frick led Andrew Carnegie's steel operations through the Homestead strike and continued as chair of the board of directors until shortly before the formation of the United States Steel Corporation in 1901. Frick made his first million by age 30, and celebrated by touring Europe with Andrew W. Mellon and two other friends. Like Mellon, Frick was a serious collector of important art. Frick constructed his New York City residence specifically to display his art collection.26

Frick's death in December 1919, at age 70, was front-page news. The New York Times carried bold headlines December 7, 1919, proclaiming his total estate to be worth $150 million, and the accompanying article claimed Frick's will left all but $25 million for the public benefit. The Times covered the Frick estate's taxes, the legal disputes concerning the taxes, the decline in the value of the estate's securities, and the ultimate reduction in the residuary charitable bequests from approximately $50 million to approximately $20 million.

The administration of the estate was complicated. Frick owned residences in Pittsburgh, Massachusetts, and New York City, but he claimed legal residence in Pittsburgh, Pa. Pennsylvania imposed inheritance taxes on all real estate located within the state, and all personal property wherever located, including property left for charitable purposes (unless the charity was located in Pennsylvania). Frick's will left the real estate and furnishings in Massachusetts to his wife. Massachusetts, not Pennsylvania, taxed the Massachusetts real estate. Both Massachusetts and Pennsylvania taxed the furnishings of the Massachusetts residence. Eventually, the Supreme Court held that tangible personal property, like real property, could be taxed only by the jurisdiction in which it was situated; only Massachusetts could tax the furnishings in the Massachusetts residence.

Pennsylvania also taxed all intangible personal property belonging to a resident decedent, and the greatest portion of Frick's estate consisted of corporate securities like stocks and bonds. New York also taxed all tangible and intangible personal property of resident decedents, but only taxed property located within the state belonging to non resident decedents. Frick kept his stocks and bonds in Pittsburgh. Frick's New York residence and his art collection, officially valued at more than $13 million but unofficially valued at $50 million, were left to a charitable corporation to be formed and endowed with another $15 million for the purpose of creating a public art museum known as the Frick Collection. Only the furnishings with no particular value as art objects were left to Frick's widow. New York did not tax charitable bequests, and consequently anticipated receiving very little tax money from Frick's estate unless Frick was really a legal resident of New York.

New York contested the estate's claim of Pennsylvania residence on the grounds that Frick had spent the majority of his time in New York since building his residence there. Nevertheless, the N.Y. Surrogate's Court found that Frick indicated his clear intent to continue as a resident of Pennsylvania.27 Pennsylvania claimed the right to include the value of the personal property situated in New York in Frick's taxable estate even though it was left for charitable purposes. Pennsylvania's statutory exemption for charitable bequests applied only to property in Pennsylvania and did not include cash endowments for the support of that property.28 Frick also left Pittsburgh 151 acres for a public park and a $2 million endowment to pay for the park's maintenance. The land was exempt from Pennsylvania's inheritance tax but the endowment was not. Eventually, the Supreme Court ruled that Pennsylvania could not tax personal property situated out of state, so no state inheritance tax was levied on the art included in the New York City Frick Collection. But the securities physically located in Pittsburgh that funded the Frick Collection's $15 million endowment was part of Pennsylvania's taxable estate.

In all, the Frick estate paid $6,338,899 in federal estate tax, $1,978,950 to Pennsylvania, $131,000 to New York, and $953,459 to 16 other states and Quebec.29

Andrew Mellon and the Federal Estate Tax

The federal estate tax took the biggest tax share out of the Frick estate and Mellon had been Frick's friend and banker. Mellon was old-fashioned in his political economy and did not approve of estate taxation. He voiced his disapproval almost as soon as he took office, but he did not publicly advocate repealing or reducing the federal estate tax. Highly respected professional subordinates inside the Treasury Department prepared the tax reform proposals he presented to Congress in 1921 and 1923, and Mellon did not interfere in their judgment. All of the official pronouncements coming from the Treasury Department calling for tax reform ignored estate taxation through the enactment of the 1924 act.30 Even though Treasury recommended no change in federal estate taxes, Mellon included a section critical of the tax in his annual report for 1921. Mellon cited two chief objections to estate taxes and he repeated those same arguments on numerous occasions over the next several years.31

First, Mellon complained that an estate tax was a tax on capital used to finance the ordinary expenses of government. In other words, it was eating your seed. That was David Ricardo's principal objection to inheritance taxation, but few economists, including Ricardo, accepted the argument unproblematically. Even John Stuart Mill approved of inheritance taxation.32 Most importantly, the economists who had been so instrumental in promoting acceptance of the Mellon plan to reduce income surtaxes, Seligman and Adams, flatly rejected that argument against estate or inheritance taxation. Tax revenues derived from any source could be used for capital purposes as well as operating expenses, the most obvious capital purposes being redeeming government debt or building roads and bridges. More profoundly, where taxes were nominally laid and what kind of funds actually paid them did not necessarily coincide. Most economists, including Ricardo, recognized that most people attempted to preserve their principal and paid taxes out of income whenever possible, whether a tax was nominally laid on income, consumption, or property. On the other hand, income provided the fund from which new capital accumulated. Burdening income unreasonably, by overtaxing consumption for example, also depleted capital.33

Mellon's second objection derived from his perception of the practical effect of high estate or inheritance taxes. Mellon argued that the necessity to pay large taxes out of an estate's assets caused the market value of those assets to decline significantly. As a result, the estate lost much value with no corresponding gain to the government, and others holding the same assets as the estate also suffered lost wealth. The Frick estate's experience confirmed Mellon's belief that high estate or inheritance taxes wastefully destroyed wealth.

Mellon argued that the diminution in the value of property in an estate was a simple function of supply and demand. The kinds of estates liable to pay large estate taxes typically held large positions in whatever business created the wealth in the first place and only a small proportion of readily marketable securities like government bonds. The financial community usually knew the business interests of wealthy men with large estates, and newspapers reported their death. Typically, only a few people were interested in the possibility of acquiring a large position in any particular business at any particular time, and they knew that a wealthy man's estate must liquidate a large amount of stock on short notice to raise cash to pay taxes.

Mellon argued that interested investors would wait and demand a significant price reduction for purchasing a large position in a venture they believed would be forced to sell soon. Because estates filed an inventory immediately after death valuing all assets, a significant reduction in the price received for the principal assets of the estate at the time of sale meant that an estate paid tax on 100 percent of the value of an asset but realized cash from the sale of that asset at a fraction of its full value. In Mellon's opinion, the inheritance tax planner's remedy, buying life insurance or maintaining a sufficient proportion of the estate's value in government bonds or other readily marketable securities to pay taxes, also damaged the national economy because it tied up funds in passive investments that otherwise would be used in active business.

In his testimony before the Senate Finance Committee on tax revision in 1924, Mellon elaborated his belief that estate and inheritance taxes undermined the nation's economy.34 Mellon said that forced sales of securities for payment of estate and inheritance taxes permanently depleted capital not only because the government claimed a portion, but also because the value of the capital in the purchaser's hands was determined by his purchase price at depressed rates. Thus, with each transfer, the value of particular capital assets declined. Because a significant portion of the capital of the country changed hands by death every decade, Mellon feared that eventually the capital of the country would be worthless and disappear altogether. During his testimony, Mellon illustrated his argument with specific examples from the administration of Frick's estate (pp. 239-247).

Mellon's argument was flawed for a number of reasons. First, he conflated the cash purchase price of property with the theoretical concept of capital. For example, a railroad does not earn less or produce less value simply because blocks of its stock are sold at a discount to pay estate taxes. Sales of corporate assets at discounted prices changed the distribution of wealth between people without impairing the intrinsic value of the capital in any meaningful way. After all, Frick made his initial fortune buying coke properties at discounted prices from firms threatened with bankruptcy during a national depression. Second, Treasury Department statistics indicated that actual inheritance tax burdens were low enough that, in general, inheritance taxes could be paid out of the income of an estate and would not force securities sales large enough to disrupt the capital markets. In fact, the Frick estate earned more income during its first year of administration, $9,873,442, than it paid out in inheritance and estate taxes. Furthermore, in the few situations in which very large holdings were at stake, the law could and eventually did make reasonable accommodations by, for example, extending the period provided for tax payment with low interest rates on unpaid taxes.

Finally, Frick's estate was administered under unusual circumstances. Frick died in 1919, while the country suffered from war-related asset price inflation and, consequently, the inventory of his estate was valued at unsustainably high prices. In 1921 a short but severe depression wracked the economy and devalued all assets. Nonetheless, the Frick estate, anecdotally valued at approximately $150 million with charitable gifts of $117.3 million at his death, was reduced to $77 million in the 1922 executor's accounting. The New York Times reported that the residual charitable bequests declined in value from $50 million to $20 million, attributing the decline primarily to depressed asset prices.35 Although Mellon clearly believed that forced sales to pay estate taxes caused the market price of the assets in the Frick estate to decline, it is more likely that depressed economic conditions depressed prices. Frick funded the residual bequests with coke properties in which the market was very small and specialized. More than any other factor, the executor's need to reduce those holdings to cash to fund the residual charitable bequests, not to pay estate taxes, probably depressed prices.36

The Treasury Department did not recommend any significant changes in the estate tax in the autumn of 1923 when it began its campaign for congressional enactment of the Mellon plan for reducing income tax marginal rates. In January 1924 the insurgent Republicans announced their intention to seek an increase in the federal estate tax as part of their alternative tax program. A cohesive group of western and midwestern legislators, led by Wisconsin Senator Robert M. La Follette, the insurgent Republicans held the balance of power between Democrats and regular Republicans.

In February 1924 the Ways and Means Committee reported a bill that adopted the Mellon plan recommendations and included no substantive changes in the federal estate tax. The House of Representatives convened as the Committee of the Whole, and a coalition of Democrats and insurgent Republicans amended the bill. In addition to raising the maximum marginal income tax rate higher than the Treasury Department proposed in the Mellon plan, they increased estate tax rates on estates larger than $100,000 to a maximum marginal rate of 40 percent on estates greater than $10 million, offered a tax credit up to 25 percent of the federal estate tax due for inheritance or estate taxes paid to the states, and initiated a gift tax to combat estate tax avoidance.

In the Senate, the Finance Committee stripped the estate tax rate increases from the revenue bill. Once again, however, the Democrats and insurgent Republicans formed a coalition on the floor of the Senate and restored the estate tax rate increases with the credit for state taxes. As finally enacted into law, the revenue act of 1924 increased estate tax rates to a maximum of 40 percent on estates in excess of $10 million.

Mellon publicly expressed his personal opinion that the federal estate tax ought to be abolished for the first time in his testimony before the Senate Finance Committee in April 1924, in the attempt to restore estate tax rates to their former level. In addition to the objections he previously voiced against high estate tax rates, Mellon argued that estate and inheritance taxes properly belonged to the states, not the federal government, but recommended eliminating only the House of Representatives' estate tax rate increases.37 Mellon incorporated his views on the estate tax into his book Taxation: The People's Business, released the next month. There, he directly attacked the redistributionist rationale for estate taxation, stating: "The social necessity for breaking up large fortunes in this country does not exist."38 Although "our forefathers wisely abolished primogeniture and entail in order to prevent the perpetuation of large estates," Mellon urged no further limitation on large estates, invoking the maxim "shirtsleeves to shirtsleeves in three generations" to prove his point. Despite Mellon's personal opinion, the Treasury Department's official position merely opposed any change in estate tax rates.

The federal estate tax increases enacted in the 1924 revenue act hardened Mellon's opposition to estate and inheritance taxes. After that policy setback, Mellon slowly changed the Treasury Department's official position from disapproving tolerance of federal estate taxation, to tax reduction, to tax repeal. That policy change originated with Mellon. President Calvin Coolidge later claimed personal indifference to the question, admitting that he relied completely on Mellon's advice for fiscal policy.39

Popular Magazines and the Estate Tax

The 1924 increase in the estate tax received little attention in the public press; the Treasury Department's failure to reduce marginal income tax rates as much as the Mellon plan proposed dominated the public debate. The federal estate tax received very little comment at all in the popular press before 1924. However, numerous states amended their inheritance tax statutes increasing rates, and in October 1921 the NTA called for repeal of the federal estate tax so that the revenues could be reserved to the states. For more than 20 years, progressive tax reformers had advocated separating sources of revenue and reserving them to different levels of government, and the NTA had consistently advocated reserving estate and inheritance taxes to the states as a replacement for the despised general property tax since its first conference in 1907.40 But few articles on inheritance or estate taxation appeared in newspapers or in the popular magazines, with two exceptions.

First, Collier's carried numerous articles in support of inheritance taxation over the course of the year beginning in December 1922. Collier's made a reputation before World War I as the national news magazine famous for its editorial crusades on issues of public interest. Under new corporate ownership after the war, no longer muckraking and not even considered particularly liberal, Collier's had paid circulation of about one million readers throughout the 1920s.41

Second, Treasury Department ally Albert Atwood wrote two articles on the inheritance tax that appeared in The Saturday Evening Post early in 1924, during congressional consideration of the Mellon plan for income tax reform.42 Atwood's articles, subsequently published as a book, fairly stated the main contours of the federal estate tax question without taking a policy position. The Saturday Evening Post was the most popular magazine in America, with paid circulation of about 2-1/2 million readers, and a staunch supporter of the Mellon plan for reducing marginal income tax rates.43

In December 1922 Collier's published the first in a series of five articles by William G. Shepherd on the inheritance tax. Shepherd's first article asked specifically whether the federal estate tax should be abolished after World War I, as similar taxes had been abolished after the end of other wars, but Shepherd's series also raised serious questions about state inheritance taxation.44 Informing his Collier's readers that former President Theodore Roosevelt and all the state attorneys general he consulted agreed that government had the inherent authority to control the size of inheritances, Shepherd challenged his readers to think about whose inheritances should be taxed, how much, and why. Shepherd proposed that inheritance taxation should be used principally for social engineering, not for revenue purposes only. Inheritance taxation should seek to disperse wealth, create equal opportunity for young people starting in life, protect small estates and dependents from the adverse consequences of premature death of a provider, and "to save our nation from dynasties of nontaxpaying supermillionaires [sic]."45 Shepherd claimed success in engaging the public's attention on these issues, stating in the fourth article of the series:

Shepherd argued that states taxed small estates too much, taxing small sums necessary for survivors' decent subsistence and threatening the American ideal of leaving your children better off than you were. Shepherd approved of the federal estate tax exemption, $50,000, which, conservatively invested, would pay an income of about $3,000, or roughly the 85th income percentile, before imposing any estate tax. He credited former President Roosevelt with the proposition that every American child deserved the opportunity to start from the same "scratch line," and suggested that the federal estate tax exemption represented a fair "scratch line." He argued that exempting inheritances below the "scratch line" while taxing inheritances above the line promoted equal opportunity. On the other hand, when taxing for revenue only, states taxed the small inheritances heavily, because they were numerous and easy to collect from.

Shepherd also considered inherited fortunes dangerous to American democracy and asked: How much should a person be allowed to inherit? A million dollars was a lot of money. Invested conservatively, it yielded an income without effort of about $60,000, more than almost anyone received except for a very small fraction of the top income percentile. Shepherd asked: Was it good for an individual or for society when an individual inherited a million dollars with no obligations?

Interspersed with Shepherd's articles, Collier's carried an interview with Albert D. Lasker, the millionaire philanthropist who pioneered modern commercial advertising.47 Lasker advocated making an inheritance tax with high rates on inheritances exceeding $2 million the bulwark of federal government revenue to stimulate business initiative. Lasker proposed reducing income taxes because they punished present achievement and replacing them with inheritance taxes because inheritance rewarded heirs without requiring anything from them in return. Collier's ended Lasker's interview:

One of Shepherd's articles expanded on the many letters he received from his readers. Shepherd found most people admired those who earned great wealth but greatly resented those who came into great wealth through inheritance. One source of resentment came from the belief that an heir was not competent to run the business he inherited, or that his control over resources impeded business initiative on the part of others who could put the resources to better use.49 On the other hand, in another article Shepherd published a letter from John Lawrence of Massachusetts in defense of inherited wealth. Lawrence listed many highly competent, accomplished people he knew who inherited money. Lawrence also made what Shepherd called the best defense of inheritance he received. Listing several western railroads built by Boston inherited money, Lawrence added:
Shepherd replied to Lawrence that dispersing wealth did not destroy wealth, and that many small fortunes might have built the railroads instead of a few large ones.

In September and October 1923, Collier's published a series of articles by James H. Collins proposing a tax plan that purportedly originated with an unnamed well-known business leader.51 That tax plan paralleled Shepherd's ideas and proposed a very low, flat-rate income tax that exempted small gifts and inheritances, and a steeply progressive tax on large gifts and inheritances, with the rate of tax determined by the amount bequeathed to individual beneficiaries to encourage widely dispersing wealth. Collins also proposed an extended payment period to mitigate any hardship occasioned by leaving a valuable business in the hands of a few heirs.

The unnamed well-known businessman advocated taxation primarily for its effect on the nation's progress, by which he meant economic growth and development. Collins distinguished productive and virtuous new entrepreneurs such as Edison, Ford, and Woolworth from earlier, dishonest, and undesirable robber barons such as Astor, Gould, and Vanderbilt. Collins and Collier's argued that heavy inheritance taxes were necessary to clear the way for the new, virtuous entrepreneurs of the future and for a better future for everybody.52 Collier's raised the specter of wealthy decedents dictating to the living from beyond the grave.53 Collier's simultaneously celebrated earned business success and feared the power of the very wealthy over the lives of ordinary people. Collins illustrated the necessity for breaking up great estates with the observation that, just as Highland Scots were banished from moors and mountains in the early 19th century to make private hunting preserves, Carnegie and Astor could have purchased all of New England's farmland at market price in 1910 if they had so desired.54

Collier's editorial stance unproblematically supported both a vigorous federal estate tax and the Mellon plan to radically reduce marginal income tax rates, believing both positions favored active business promotion and expansion. To the extent that inheritance taxation could be used to fund surtax rate reduction, the unnamed businessman's tax program also consciously paired both positions. On the eve of congressional consideration of the Mellon plan to reduce marginal income tax rates, Collier's claimed that few still opposed the plan and advised:

In February 1924 Albert Atwood published the first of two articles on inheritance taxation in The Saturday Evening Post. Atwood was a member of the pro-Mellon plan Citizen's National Committee, an organization of high-profile public intellectuals committed to advocacy on the economic principles in support of radically reducing marginal income tax rates.56 He wrote at the beginning of Congress's consideration of the Mellon plan, deliberately choosing inheritance taxation as his topic because it was not part of the ongoing public debate over income tax reform. Atwood argued that whether or not taxes should seek to reduce great wealth "forms much of the background, much of the very foundation of the whole theory and practice of taxation, which affects us all."57 Inheritance taxes lay at the core of the question but at the periphery of the debate over the Mellon plan; the Treasury Department did not advocate making any changes to federal estate tax rates. Atwood hoped that distance from the center of the debate would allow for more dispassionate consideration of the questions involved.

Atwood was no leveler. Later that year he wrote many articles supporting the Mellon plan for reducing marginal income tax rates that defended wealthy people as providers of valuable services to the greater society through business innovation, leadership, and philanthropy. But in those articles, Atwood did not oppose taxing estates or inheritances. His first article discussed state revenue needs and the unjust, inconsistent chaos of the different state inheritance schemes. Acknowledging state governments' reluctance to share inheritance tax revenue with the federal government, Atwood revealed that some experts believed the federal estate tax necessary to the development of a rational or effective state inheritance system. In his second article, Atwood repeated Mellon's complaint that an estate or inheritance tax was a tax on capital that destroyed the value of assets in large estates. Nonetheless, he dismissed the problems of the great estates like the Frick estate as anomalous, and described how active businessmen with smaller estates used life insurance to provide for inheritance taxes. In his articles on inheritance taxation, Atwood openly relied on the opinions and authority of economist T.S. Adams, the former Treasury adviser who also strongly supported the Mellon plan for reducing marginal income tax rates and simultaneously favored retaining the federal estate tax.

Estate Tax Repeal

The Coolidge administration publicly announced its change in tax policy in February 1925 by endorsing federal estate tax repeal at the National Conference on Inheritance and Estate Taxation called by the NTA. The "intolerable state of inheritance taxation" dominated the NTA's 17th national convention, held in St. Louis in November 1924. Galvanized by the increased federal tax rates, the NTA called for a national conference on estate and inheritance taxation. Formally assisted by economists Seligman, Adams, Charles Bullock of Harvard, and William Belknap of the University of Louisville, the conference on inheritance taxation met in Washington the week of February 16 through February 20, 1925. President Coolidge opened the conference with a speech calling for the repeal of the federal estate tax because the government should not enact social legislation disguised as taxation.58

Over the course of the week, numerous speakers debated whether the federal estate tax should be abolished and how state inheritance tax laws could be made consistent with each other to eliminate multiple taxation of estates. Those who favored repealing the federal estate tax included the conference's chair, NTA President Thomas W. Page, Russell L. Bradford on behalf of the New York Bar Association, Republican Rep. Ogden Mills of New York, Assistant Secretary of the Treasury Charles Dewey, former Rep. Frank Mondell of Wyoming, and Bullock. They argued that the states needed the money more than the federal government, and, unlike the federal government, the states had a rationale for collecting an inheritance tax other than simple coercion. Some tax repeal advocates also explicitly argued that any estate or inheritance tax was wrong because it was a tax on capital and, rather than merely seeking revenue, also served the impermissible social purpose of breaking up great estates.

Belknap, who was also a Kentucky state legislator and chair of the NTA Inheritance Tax Committee, advocated federal estate tax repeal combined with the adoption of uniform state inheritance tax statutes.59

Economists Adams, Seligman, and Seligman's student Robert Murray Haig defended the federal estate tax, aided by dedicated congressional estate tax supporters like Republican Rep. William Green of Iowa and Democratic Rep. Cordell Hull of Tennessee. Democratic Rep. John Garner of Texas was also invited to speak in defense of the federal estate tax but could not attend. Those estate tax supporters argued that federal repeal did nothing to alleviate multiple taxation by different states under different theories, but federal tax statutes could be devised that coerced states into relative uniformity in inheritance taxation. Further, federal abstention would undermine state inheritance taxation. As long as there were states that chose to compete for wealthy residents by permanently and publicly forswearing inheritance taxation, other states could not effectively impose the tax. Adams and Seligman reiterated their solution to the problem of inconsistent overlapping state inheritance tax schemes: Federal preemption of the tax accompanied by sharing the tax proceeds with the states.

Adams and Seligman formed a strong united front against the estate tax repeal advocates, specifically alleging that those who argued for federal estate tax repeal really advocated repeal of all estate and inheritance taxes. In separate speeches, Adams and Seligman countered the claim that estate and inheritance taxes unwisely burdened capital with the argument that many taxes burdened capital, especially property taxes and taxes on the income from property. Further, estate tax rates were higher in England than in the United States, but no diminution of capital had occurred there. For Seligman, "the real question [was] not whether a tax [was] imposed on capital, but whether the proceeds [were] well employed or wasted. And in this respect the inheritance tax [did] not differ from other taxes."60

Adams confronted the claim that estate and inheritance taxation improperly embodied a social purpose with the observation that many taxes had social purposes as well as revenue purposes. For example, the tariff protected the home market for domestic manufacturers as well as raised revenue. Adams proposed that the social purpose of the inheritance tax was "to tax the special ability represented by a large inheritance of unearned wealth in order, in some degree, to untax [sic] earned wealth."61

Finally, Seligman disputed the estate tax repeal advocates' claim that the states needed the revenue more than the federal government:

In an impassioned final argument, Seligman warned the estate tax repeal advocates that neither fear of socialism nor opposition to centralized national government would produce lasting federal estate tax repeal for political reasons. The tax was constitutional and estate and inheritance taxes formed an increasingly important part of the revenue systems of every industrial democracy in the world.63

The conference adopted resolutions simultaneously recognizing state dependence on inheritance tax revenues and the necessity for rationalizing the inheritance tax systems of the various states. It authorized the chair to appoint a committee to investigate and make recommendations for state and federal inheritance and estate tax reform, draft model laws, and call a second conference. The conference also directed the NTA to place consideration of inheritance and estate taxes on the agenda of the next national meeting.

Neither Seligman nor Adams served on the National Committee on Inheritance Taxation. Commonly known as the Delano Committee after its chair, Frederick A. Delano, the committee adopted recommendations that inheritance and estate taxes should be moderate and substantially uniform throughout the United States, but the only means suggested for enforcing those recommendations was moral persuasion. The committee promulgated draft model state inheritance tax statutes and recommended that the federal government immediately repeal the federal estate tax to take effect six years in the future to allow the states time to enact the draft statutes. In the meantime, the committee recommended that the federal government enact a credit against federal estate taxes of 80 percent of state inheritance taxes paid. The committee based its recommendation to repeal the federal estate tax on essentially legalistic grounds: The states imposed inheritance taxes on the right to transmit property after death, matters of state, not federal, law.64 The committee's recommendations were presented and adopted at the national meeting of the NTA held November 10, 1925, in New Orleans.

The NTA meeting in New Orleans took place immediately after the extraordinary hearings before the presumptive Ways and Means Committee held between October 19 and November 3, 1925. The chair of the Ways and Means Committee, Rep. William Green of Iowa, called those hearings before Congress officially convened, to facilitate enactment of the Mellon plan for reducing marginal income tax rates as the first order of business in the new Congress. However, by the time the hearings occurred, the combination of 1924 election results and a steamroller of grass-roots political agitation stirred up by Arnold made enactment of reduced marginal income tax rates, the core of the Mellon plan, inevitable.65 But support for federal estate tax repeal did not enjoy the same momentum.

Mellon opened the hearings October 19 with a prepared statement urging the reduction of marginal income tax rates. In his opening statement Mellon also specifically affirmed that "it is the opinion of the Treasury that the federal estate tax should be repealed."66 Mellon's reasons for repeal echoed the National Conference on Inheritance and Estate Taxation: The states had a legal justification for the tax that the federal government lacked. Besides, the states needed the money and the federal government did not.

Testimony continued before the committee for two weeks and all kinds of witnesses testified representing many different viewpoints. Officials from several states testified in favor of federal estate tax repeal. On cross-examination, some of those officials, including Lieutenant Gov. W.I. Nolan of Minnesota, Gov. Angus McLean of North Carolina, Gov. Thomas G. McLeod of South Carolina, and Gov. Austin Peay of Tennessee, changed their minds. They supported estate tax repeal because they wanted the tax money for their own states, especially to relieve farmers of heavy general property taxation. But they preferred a federal estate tax with a high credit for state inheritance taxes if it would protect their states from competition from low-tax or no-tax states but still let their states keep most of the tax money.67

Tax club members from Texas and Iowa testified in favor of estate tax repeal as well as marginal income tax rate reduction. In January 1924 Arnold organized the American Bankers League to foment grass-roots support for the Mellon plan, especially in southern and western states. By the end of the year, he regularly corresponded with Mellon and Winston, coordinating his message and activities with the Treasury Department. Suspiciously funded, Arnold organized state tax clubs to generate popular pressure on congressmen and senators to support the Mellon plan, and he organized state legislators and governors against the estate tax. Arnold was among the first to know when the Treasury Department changed its policy to support for federal estate tax repeal. In January 1925 Arnold told his membership, in the inaugural bulletin of the American Bankers League, that a "new feature of the Mellon recommendations is the repeal of the Inheritance Tax, and an abandonment of this source of revenue to the states."68

The Revenue Act of 1926 radically reduced marginal income tax rates on upper-income taxpayers, and it reduced estate taxes but did not repeal them. Green later said that there were enough votes in Congress to repeal the estate tax, but Arnold's strong-arm tactics during the Ways and Means hearings alienated a sufficient number of congressmen to enable Green and Garner, the ranking Democratic member of the Ways and Means Committee, to mount a successful counterattack to retain the tax. As enacted, the Revenue Act of 1926 reduced the estate tax rate to a maximum of 20 percent on estates over $10 million and increased the credit for state inheritance taxes paid to 80 percent.69 No other changes were made to estate tax rates until 1932.70 Congress enacted the Revenue Act of 1926 with overwhelming support. On February 23, 1926, the House voted for it 355 to 28. The next day, the Senate voted for it 61 to 10.

Mellon launched one more attempt to repeal the federal estate tax in 1927. Once again, Congress adjourned with the expectation that the House Ways and Means Committee would schedule hearings on revenue revision in the fall, immediately before the formal opening of the new Congress. On October 31, 1927, Mellon appeared at the hearings on revenue revision and presented his tax program for the new Congress, calling for reduction of the corporate income tax rate, additional reduction of marginal income tax rates, repeal of some nuisance taxes, and repeal of the federal estate tax. As in 1925, a parade of witnesses testified at the hearings representing all viewpoints. The argument for repeal of the estate tax changed as a consequence of the Revenue Act of 1926, and repeal advocates then argued that the estate tax unconstitutionally impinged on the fiscal independence of the states; the 80 percent federal credit for state inheritance taxes coerced states into enacting high inheritance taxes.71

Arnold continued to agitate in favor of federal estate tax repeal. Under pressure from the American Bankers Association, Arnold changed the name of his principal organization from the American Bankers League to the American Taxpayers League, but the American Taxpayers League did not testify before the Ways and Means Committee. Garner and other estate tax supporters remembered Arnold, the American Bankers League, and the tax clubs disapprovingly and anticipated their return. On September 27, 1927, Arnold formed another organization, the American Council of State Legislatures, for the purpose of testifying at the hearings on revenue revision. Arnold pretended no official connection to the American Council of State Legislatures, but used old associates, many of whom testified for the tax clubs in 1925, to found and run the organization. The American Taxpayers League performed all clerical tasks and paid all expenses of the American Council of State Legislatures.72

Lee Satterwhite was a member of the Texas Legislature and testified on behalf of the Texas Tax Clubs in 1925. Working with Arnold, Satterwhite sent a letter May 10, 1927, claiming authority from the Texas Legislature to call for a conference in Washington of authorized state representatives "to perfect an organization to resist the invasion of the rights of States by Congress and to formulate and adopt plans for presenting to Congress the resolution passed by State legislatures asking Congress to repeal the joint estate (inheritance) tax and such other subjects as the wisdom of the conference may determine." Satterwhite personally called governors, presidents pro tempore, or speakers of the legislatures of 42 states to secure some sort of resolution memorializing opposition to federal estate taxation.73

At least 150 delegates convened at the Raleigh Hotel on November 6, 1927, in anticipation of scheduled testimony by representatives from the American Council of State Legislatures. Arnold arranged lavish banquets for the delegates and limousines for travel around Washington. Many testifying delegates attempted to conceal or deny that the American Taxpayers League paid their expenses.

During the hearings, some congressmen expressed outrage at the delegates' attempts to conceal Arnold's involvement and at the highhanded tactics employed by the council, especially the threat to mount home district challenges to those politicians who opposed estate tax repeal. Democratic repeal opponents Garner and Illinois Rep. Rainey resolved to initiate an investigation into the relationship between the National Council of State Legislatures and the American Taxpayers League. The New York Times speculated that antilobby legislation was imminent.74 In October 1929 a special subcommittee of the Senate Judiciary Committee convened an investigation into lobby activities and included Arnold and his organizations among the principal subjects of investigation.75

Several of the delegates also testified with the tax clubs in 1925 and were instrumental in railroading resolutions supporting estate tax repeal through state legislatures in 1927. Sometimes, delegates offered ambiguous resolutions to evidence state sentiment. For example, Iowa state senator W.S. Baird offered the committee a Senate resolution advocating estate tax repeal passed by a tiebreaking vote from the lieutenant governor, even though the same resolution failed in the Iowa House by a vote of 92 to 8. Baird testified with the Iowa Tax Clubs in 1925.76

No resolution passed in New Hampshire, but numerous postcard petitions signed by New Hampshire legislators were presented to the committee as evidence of sentiment in favor of repeal. Maynard Morse of New Hampshire testified that many New Hampshire legislators who opposed federal estate tax repeal signed because they misunderstood the petition; they thought they would get more for New Hampshire than they could get with the 80 percent credit. Morse said that after the resolution calling for repeal failed in the New Hampshire legislature, postcards and letters from Washington designed to change minds on repealing the estate tax flooded New Hampshire. Morse came to Washington to participate in the National Council of State Legislatures because he thought the state legislatures would collaborate on many issues. He was withdrawing from the organization because it was interested only in repealing the estate tax and Morse did not favor its repeal.77

Gov. A.G. Sorlie of North Dakota favored repeal of the federal estate tax on federalism grounds even though he strongly supported both income and inheritance taxation, stating: "We would rather do our own taxing; that is, we feel that we are fully capable of extracting all of the money that is floating around ourselves."78 On cross-examination, Gov. Sorlie admitted that there wasn't much risk of millionaires fleeing North Dakota for low-tax states; he doubted there was even one millionaire resident in North Dakota.

Only one economist testified at the hearing. Economics Prof. D.D. Carroll of the University of North Carolina at Chapel Hill advocated continuing the federal estate tax. Dr. Carroll testified that his expenses were paid by the American Taxpayers League by mistake; they thought he was opposed to the estate tax.79

The revenue bill reported out of the Ways and Means Committee repealed the federal estate tax. But on December 14, 1927, the House met as the Committee of the Whole and voted 191 to 55 to restore the estate tax. Green resigned from Congress on March 31, 1928, to take a seat on the U.S. Court of Claims. University of Minnesota economics Prof. Roy G. Blakey reported on tax legislation for the American Economics Association and repeated the rumor that Green's appointment was a ploy to secure estate tax repeal in a future session of Congress.80 Mellon made no further attempt to secure estate tax repeal before the Great Depression mooted the issue.

The Senate deferred consideration of the revenue bill until the March 1928 tax receipts provided an updated measure of maximum permissible tax reduction. Mellon again asked for repeal of the federal estate tax, but the Senate Finance Committee voted to retain the tax. After the 1926 election, regular Republican losses enabled seven insurgent Republicans to regain the balance of power between the Democrats and the Republican majority in the Senate: George W. Norris of Nebraska, Smith W. Brookhart of Iowa, Lynn J. Frazier of North Dakota, Gerald P. Nye of North Dakota, Henrik Shipstead of Minnesota, and Robert M. La Follette Jr. of Wisconsin, appointed to fill the seat of his father, Robert M. La Follette, after his death in 1925. Roy Blakey reported that unnamed reliable sources alleged a deal between the Republican majority in the Senate Finance Committee and the insurgents to retain the estate tax in exchange for the rest of the tax package.81


Why did Mellon fail in his effort to secure repeal of the federal estate tax when he was so spectacularly successful in promoting marginal income tax rate reduction? The political climate was as favorable to estate rate repeal as it was to surtax rate reduction, perhaps even more so. Insurgent strength declined after the election of 1924, and the stock market boom made the acquisition of private wealth through speculation more respectable than it had ever been. Most of the same allies supporting estate tax repeal also supported marginal income tax rate reduction. The additional support of state legislatures should have advanced the cause of estate tax repeal, even if the support made little sense economically because most states needed the protection from low-tax state competition that the federal estate tax afforded.

Mellon lost only two sources of support for his campaign to repeal estate taxes, but they were crucial. First, respected tax experts, especially Seligman and Adams, supported the Mellon plan for surtax rate reduction but did not support estate tax repeal. Second, no national media with wide readership championed estate tax repeal. On the contrary, while the economists provided an explanation for why reducing marginal income tax rates for rich people was good for everybody because it made the whole society richer and more dynamic, they argued that inheritance and estate taxes were good for everybody because they used tax dollars obtained from people who had not earned the money to reduce taxes on people who had. The most compelling of the few articles to appear in the mass media on inheritance and estate taxation also supported continued federal estate taxation.

In Death by a Thousand Cuts, Michael Graetz and Ian Shapiro compared the current movement to repeal the estate tax to the 1920s effort and asked: Why did estate tax repeal fail in 1926 and succeed in 2001? Graetz and Shapiro underappreciated how close Mellon came to securing repeal in 1928 and overappreciated the significance of the temporary repeal in 2001. Mellon might have succeeded in repealing the estate tax if only tax receipts had been higher in 1928 or the stock market had not crashed in 1929. Similarly, the outcome of the current effort to repeal the estate tax probably depends on the state of the economy and the size of the deficit as the sunset year approaches.

Graetz and Shapiro compared the two attempts at estate tax repeal primarily to challenge the conventional approach to tax politics, and not all of their comparisons are well taken. For example, Graetz and Shapiro argue that both the 1920s estate tax opponents and the current estate tax supporters made the same mistake of relying on science while their opposition advocated policy through storytelling.82 They erroneously argue that the 1920s estate tax opposition relied on progressive ideas about reserving sources of revenue to different levels of government. Those arguments never carried much weight, especially after enactment of the 80 percent credit for state inheritance taxes in 1926. In fact, the 1920s estate tax supporters relied on science much more than did the estate tax opponents, and estate tax supporters also effectively used stories to teach their science. The more interesting question is: Did the 1920s estate tax supporters succeed in selling their policy only because they were more competent at public advocacy than the current estate tax supporters, or is there a bigger issue?

Graetz and Shapiro contrasted the influence Adams and Seligman had on retaining the estate tax in the 1920s with the absence of serious economic debate in the current movement to repeal the estate tax. Graetz and Shapiro correctly argued that economic opinions mattered in the 1920s; people believed that social science could provide answers to social and political problems. In the current intellectual climate, economic argument is irrelevant to the political debate; economic opinion is a mere proxy for political ideology.83 But economic opinion was not unanimous in the 1920s as Graetz and Shapiro suggest; Mellon had economic arguments on his side too, the same economic arguments that the supply-siders rely upon. Ricardo argued that inheritance taxation was, of all taxes, particularly objectionable because it consumed capital, and Bullock agreed with Ricardo.84 Adams and Seligman effectively rebutted those arguments and legislators listened. In the current policy debate, tax economists William Gale and Joel Slemrod effectively rebutted the same basic arguments in the hands of the supply-siders, but no congressman claims to have read their book.85

Graetz and Shapiro argue that economics is hard for ordinary people to understand and only gives ambiguous answers under the best of circumstances anyway, but stories sell policy. In the 1920s, estate tax supporters told the better stories and got them before the public more effectively. Currently, the movement to repeal the estate tax tells the better stories. Good stories require heroes and villains. They also require satisfying endings.

In the 1920s, magazines like Collier's and The Saturday Evening Post made successful, hard-working entrepreneurs the heroes of the effort to retain the estate tax and made their unproductive heirs the villains. The estate tax allowed lower income and property taxes on deserving entrepreneurs, enabling them to achieve their destiny and improve America at the same time. It also preserved their heirs from the debilitating consequences of undeserved wealth without effort or responsibility. In the current debate over the estate tax, the same entrepreneurs are the victims of the estate tax, punished for their success by double taxation, their businesses destroyed and their children deprived of their birthrights.

A good story also requires a satisfying ending, and the endings of stories sell the ideology underlying a particular policy. For example, the current estate tax opponents envision an egalitarian future from estate tax repeal. Gays, immigrants, women, and minorities who have only begun to participate fully in the American economy will be able to accumulate wealth and keep it within their communities without the threat of estate taxes, dispersing the privileges of wealth among a more diverse population, increasing democracy, and enriching the cultural resources of the republic. Estate tax opponents argue that retaining wealth in the hands of those who accumulated it benefits everybody through good jobs and community philanthropy.

In the 1920s, estate taxes promised progress and increasing economic growth by liberating capital from stagnant dynasties and incompetent heirs for the benefit of the next generation of innovators. Carnegie and Shepherd argued that the children of the rich were not likely to make the best possible use of the capital at their disposal. Shepherd claimed that most of Collier's readers who wrote to him greatly admired people who made fortunes, but despised those who merely inherited fortunes. American public opinion in the mid-1920s did not support estate and inheritance taxation to punish the successful. Many people believed that reducing marginal income tax rates on those who earned high incomes was not only fair, but left capital in the hands of those who would make more wealth for everybody. On the other hand, taxing estates took wealth from those who had not earned it and freed it for others to use, maybe by reducing taxes on more deserving producers, maybe by paying down government debt or funding government services, or maybe, like Carnegie, by inducing the productive fortune earner to dispose of his property philanthropically before death. Estate taxes helped create a more level playing field for a democratic society in which merit determined social status.

In the 1920s, people listened to economists like Adams and Seligman for answers to questions about how to maintain American ideals of democracy and equality in a new social and economic system based on industrial capital. In the transition from a rural small- producer economy to a corporate capital economy, old economic solutions based on laissez-faire policies lost credibility. By the 1920s, new answers emerged, including progressive income and estate taxation, and slowly consolidated into a new governing system. Since the 1970s, all of the elements of that system have been challenged, from the premises underlying business regulation and progressive taxation to the legitimate boundaries of individual autonomy.

Once again, our economy is undergoing profound change. The transition from a factory-based industrial economy to a global information economy has eroded the premises underpinning the 20th century governing system, and the old answers seem inadequate. But the question remains the same as it was at the beginning of the industrial age: How do we maintain "an improving popular economic condition, guaranteed by democratic political institutions, and resulting in moral and social amelioration" despite changed circumstances?86

In the 1920s, the public debate over the Mellon plan generated serious consideration of the role tax policy played in a just and efficient economy. The answers reached then endured into the present. We are now engaged in a similar debate, and everyone with a stake in the American future should take it seriously. As Collier's observed in 1923: "When we try to answer the question: 'What kind of taxes do we want?' we must first face the question: 'What kind of life do we want?'"87


1 For the history of the current movement to repeal the estate tax, see Michael J. Graetz and Ian Shapiro, Death by a Thousand Cuts: The Fight Over Taxing Inherited Wealth (Princeton: Princeton University Press, 2005). Reinstatement of the estate tax after the one year repeal kept the total tax cut within the budget resolution and the Byrd Rule, and violation of either required 60 votes to pass. The Byrd Rule allows senators to object to tax reductions that occur more than 10 years in the future.

2 On supply-side economics and Mellon, see Jude Wanniski, The Way the World Works (New York: Simon and Schuster, 1978); Daniel J. Mitchell, "The Historical Lessons of Lower Tax Rates," Heritage Foundation (online) found at (1996). For a critical assessment of the association, see Robert R. Keller, "Supply-Side Economic Policies During the Coolidge-Mellon Era," 126 Journal of Economic Issues 773-790 (2001). See also Veronique de Rugy, "1920s Income Tax Cuts Sparked Economic Growth and Raised Federal Revenues" (online) found at (2003); Veronique de Rugy, "Lower Taxes, Greater Growth" (online) found at (2003); and Joseph J. Thorndike, "Was Andrew Mellon Really the Supply Sider That Conservatives Like to Believe?" in Tax History Project at Tax Analysts (online) found at (2002), who argues that de Rugy overstates her case.

3 For a brief history of the estate tax during the 1970s and early 1980s, and the traditional liberal defense of the estate tax, see Michael J. Graetz, "To Praise the Estate Tax, Not to Bury It," 93 Yale Law Journal 259-286 (1983).

4 Dan Miller, The Economics of the Estate Tax; A Study Prepared for the Use of the Joint Economic Committee of the Congress of the United States, One Hundred Fifth Congress, 2d. sess., Dec. 1988 (Washington: GPO, 1989).

5 For rhetorical analysis of these and other estate tax arguments, see William G. Gale and Joel Slemrod, "Rhetoric and Economics in the Estate Tax Debate," 54 National Tax Journal 613-617 (2001).

6 Leo Lawrence Murray, "Bureaucracy and Bi- Partisanship in Taxation: The Mellon Plan Revisited," 52 Business History Review 201-225 (1978); M. Susan Murnane, "Selling Scientific Taxation: The Treasury Department's Campaign for Tax Reform in the 1920s," 29 Law and Social Inquiry 819-856 (2004).

7 The modern income tax was introduced as part of the Wilson-Gorman tariff of 1894 to finance federal tariff reform. After the Supreme Court found the income tax an unconstitutional direct tax in Pollock v. Farmers Loan and Trust Co., 157 U.S. 429, 158 U.S. 601 (1895), Congress proposed a constitutional amendment to overrule Pollock as part of the tariff fight of 1909. The income tax followed the ratification of the Sixteenth Amendment in 1913 as part of the Underwood-Simmons Tariff Act to fund reduced tariffs.

8 David Cay Johnson, "Richest Are Leaving Even the Rich Far Behind," The New York Times, June 5, 2005, 1 (online) found at, graphic "Not Since the 20s Roared."

9 Edwin R.A. Seligman, "The War Revenue Act," 33 Political Science Quarterly 16 (1918).

10 Jeremy Atack and Peter Passell, A New Economic View of American History, 2d ed. (New York: W.W. Norton & Co., 1994), p. 457. Atack and Passell estimate that by 1890 the value of the manufacturing product of the United States grew to three times the value of the agricultural product.

11 Seligman, "The General Property Tax," 19-32, in Essays in Taxation, 10th ed. revised (New York: The Macmillian Co., 1928).

12 Herbert Hovenkamp, "The First Law and Economics Movement," 42 Stanford Law Review 993-1058 (1990). On the early development of the economics profession, see also Mary O. Furner, Advocacy & Objectivity: A Crisis in the Professionalization of American Social Science, 1865-1905 (Lexington: University of Kentucky Press, 1975); and Dorothy Ross, The Origins of American Social Science (New York: Cambridge University Press, 1991).

13 Hovenkamp, supra note 12, at 1004-1010.

14 Fisher, Glenn W. The Worst Tax? A History of the Property Tax in America (Lawrence: University of Kansas, 1996), 44-62, 122-125. For Seligman's criticism, see "The General Property Tax," supra note 11, at 19-65. For commentary on the state tax commissions, see Edwin R.A. Seligman, "Report of the Undersigned Members of the Delaware Tax Commission to the General Assembly, et. seq.," 8 Political Science Quarterly 549-553 (1893); Edwin R.A. Seligman, "Recent Discussion of Tax Reform," 15 Political Science Quarterly 629-646 (1900); Edwin R.A. Seligman, "National Conference on Taxation, et. seq.," 17 Political Science Quarterly 177-180 (1902); Edwin R.A. Seligman, "Special Report of the General Assembly of Vermont, 1902, Relating to the Taxation of Corporations and Individuals, et. seq.," 19 Political Science Quarterly 710-713 (1904); Edwin R.A. Seligman, "Recent Reports on State and Local Taxation," 22 Political Science Quarterly 297-314 (1907); Edwin R.A. Seligman, "Recent Reports on State and Local Taxation," 1 The American Economic Review 272-295 (1911).

15 Seligman, "Report of the Undersigned Members of the Delaware Tax Commission," supra note 14, at 553.

16 William J. Schultz, The Taxation of Inheritance (Cambridge, Mass.: The Riverside Press, 1926), p. 98; Edwin R.A. Seligman Jr., "The Inheritance Tax," in Essays in Taxation, supra note 14, at 137.

17 Compare Ely, Taxation in American States and Cities (New York: C.T. Crowell, 1888); Ely, "The Inheritance of Property," The North American Review, July 1891, 54-96; Andrew Carnegie, "The Gospel of Wealth," first published in The Gospel of Wealth, and Other Timely Essays (New York: Century, c. 1900), and Seligman, "The Inheritance Tax," supra note 16.

18 Huston, James L. Securing the Fruits of Labor; The American Concept of Wealth Distribution, 1765-1900 (Baton Rouge: Louisiana State University Press, 1998), pp. 46-50. See also Holly Brewer, "Entailing Aristocracy in Colonial Virginia; Ancient Feudal Restraints and Revolutionary Reform," 54 The William and Mary Quarterly, Third Service 307-346 (1997). Brewer argues that subsequent historical treatments erred in underestimating the importance of primogeniture based on a single piece of flawed research.

19 Fisher, "The Worst Tax? supra note 14, at 122-125. On the NTA's struggle with the general property tax, see Ferdinand P. Schoettle, "The National Tax Association Tries and Abandons Tax Reform -- 1907-1930," 32 National Tax Journal 429-444 (1979).

20 William J. Schultz, The Taxation of Inheritance (Cambridge, Mass.: The Riverside Press, 1926), appendix A.

21 An example of an early tax-planning guide is Hugh Bancroft, Inheritance Tax for Investors (Boston: Houghton Mifflin Company, 1917).

22 For summaries of the individual states' inheritance tax schemes, see id.

23 Edwin R.A. Seligman, "A National Inheritance Tax," The New Republic, Mar. 25, 1916, p. 212.

24 T.S. Adams, "Memorandum," Nov. 2, 1919, Tax- General, correspondence of the office of the secretary of the Treasury, 1917-1932, RG 56, National Archives at College Park, Md., hereinafter NARA.

25 Frick et al. v. Pennsylvania, 288 U. S. 473 (1925), rev'g In re Frick's Estate, 277 Pa. 242 (1923).

26 Dictionary of American Biography, s. v. Henry Clay Frick.

27 Matter of the Estate of Henry C. Frick, Deceased, Surrogate's Court of New York, New York County, 116 Misc. 488; 190 N.Y.S. 262; 1921 N.Y. Misc. (1921).

28 In re Frick's Estate, 277 Pa. 242, 265-266 (1923).

29 "Frick's Fortune Put at $77,230,392," The New York Times, Feb. 3, 1922, p. 16.

30 See, e.g., letter from the Secretary of the Treasury to the Chair of the Committee on Ways and Means, Apr. 30, 1921, found in United States Senate, 68th Cong., 1st sess., Revenue Act of 1924, Hearings Before the Committee on Finance, 189. See also letter to Chairman Green, Nov. 11, 1923, Tax- General, NARA.

31 For example, Mellon used these arguments in Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ending June 30, 1921 (Washington: GPO, 1922), pp. 22-24; Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ending June 30 1923 (Washington: GPO, 1924), p. 12; Taxation: The People's Business (New York: Macmillan and Company, 1924), pp. 111-124; and his April 1, 1924, testimony before the Senate Finance Committee, Revenue Act of 1924, Hearings Before the Committee on Finance, pp. 219-226.

32 John Stuart Mill, Principles of Political Economy With the Applications to Social Philosophy (London: George Routeledge & Sons, 1900), 519-520.

33 Statements by Adams and Seligman are found in A.E. Holcomb ed., Proceedings of the National Conference on Inheritance and Estate Taxation Held at the New Willard Hotel, Washington, D.C. Feb. 19-20, 1925 (New York: National Tax Association, 1925), pp. 58-59; United States House of Representatives, Revenue Revision 1925, Hearing Before the Committee on Ways and Means, House of Representatives, Oct. 19 to Nov. 3, 1923, pp. 460-470, 477-496. See also Josiah Stamp, The Fundamental Principles of Taxation in the Light of Modern Developments: The Newmarch Lectures for 1919 (London: Macmillan and Company, 1929), p. 148; Glenn E. Hoover, "The Economic Effects of Inheritance Taxes," 17 American Economic Review 39-49 (1927).

34 U.S. Senate, Committee on Finance, 68th Cong., 1st sess., 1924, Revenue Act of 1924, Hearings Before the Committee on Finance . . . on H.R. 6715, an Act to Reduce and Equalize Taxation, to Provide Revenue, and for Other Purposes, March 7-April 8, 1924, pp. 219-306.

35 "Frick Will Leaves $117,300,000 in Gifts for Public Benefit," The New York Times, Dec. 7, 1919, p. 1; "Frick's Fortune Put at $77,230,392," New York Times, Feb. 3, 1922, p. 16; "Bequests of Frick Shrink $30,000,000," The New York Times, Feb. 23, 1921, p. 1.

36 Senate Finance Committee, Revenue Act of 1924, Hearings Before the Committee on Finance, pp. 245-26. For a broader view of the Frick estate, see Albert W. Atwood, "An Elusive Panacea, in the Great Old Game of Hide and Seek," The Saturday Evening Post, Mar. 8, 1924, p. 14.

37 Senate Finance Committee, Revenue Act of 1924, Hearings Before the Committee on Finance, p. 61.

38 Mellon, Taxation: The People's Business, supra note 31, at 123.

39 "Clashes Electrify Estate Tax Hearing," The New York Times, Nov. 9, 1927, p. 18.

40 Schoettle, supra note 19. Reformers also believed that a locally administered and assessed real property tax should be reserved to local governments, and income taxes properly belonged to the federal government.

41 Frank L.A. Mott, A History of American Magazines (Cambridge, Mass.: Harvard University Press, 1938), vol. 5, pp. 455-473.

42 Albert W. Atwood, "An Elusive Panacea; Caught in the Quagmire of Taxation," The Saturday Evening Post, Feb. 16, 1924, p. 14; Albert W. Atwood, "An Elusive Panacea, in the Great Old Game of Hide and Seek," supra note 36.

43 Mott, supra note 41, at 574, 696.

44 The articles in the series include William G. Shepherd, "How Much Money Should a Man Leave to His Son?" Collier's, Dec. 9, 1922, p. 13; William G. Shepherd, "The Dollars You Leave Behind You," Collier's, Jan. 13, 1923, p. 15; William G. Shepherd, "How Much Money Is Too Much?" Collier's, Jan. 27, 1923, p. 13; William G. Shepherd, "Is a Million Enough for Anyone?" Collier's, Apr. 7, 1923, 13; William G. Shepherd, "Waiting for Someone to Die," Collier's, Feb. 17, 1923, p. 11.

45 Shepherd, "Is a Million Enough for Anyone?" supra note 44, at 14.

46 Shepherd, "Waiting for Someone to Die," supra note 44, at 12.

47 "A.D. Lasker Dies; Philanthropist, 72," The New York Times, May 31, 1952, p. 1.

48 William Hard, "Who Wants to Be a Rich Man's Son? An Interview With Albert D. Lasker," Collier's, Mar. 10, 1923, p. 13.

49 Shepherd, "Waiting for Someone to Die," supra note 44, at 12. Shepherd used only the masculine gender pronoun, and therefore, in this context, so do I.

50 Shepherd, "Is a Million Enough for Anyone?" supra note 44, at 14.

51 James H. Collins, "How to Make Taxes Pay Everybody," Collier's, Sept. 29, 1923, p. 20; James H. Collins, "If We Break Up the Big Fortunes What Will It Do to Business?" Oct. 13, 1923, p. 20; James H. Collins, "You Work a Month for Uncle Sam," Collier's, Sept. 15, 1923, p. 6.

52 Compare Collins, "How to Make Taxes Pay Everybody," supra note 51 with "Born Wealth Stops the Progress by Which Earned Wealth Is Made," Collier's, Sept. 29, 1923, p. 19.

53 Fred C. Kelly, "Are We Bossed by the Dead?" Collier's, Dec. 22, 1923, p. 12.

54 Compare "Born Wealth Stops the Progress by Which Earned Wealth Is Made," supra note 52, with Collins, "If We Break Up the Big Fortunes What Will It Do to Business?" supra note 51.

55 "Saving Money for You," Collier's, Dec. 15, 1923, p. 8.

56 "Committee Named to Push Tax Cut," The New York Times, Jan. 19, 1924, p. 15.

57 Atwood, "An Elusive Panacea, Caught in the Quagmire of Taxation," supra note 42, at 14.

58 Holcomb, supra note 33, at 9-10.

59 William B. Belknap, "State and Federal Policies of Inheritance or Death Taxation," 11 Proceedings of the Academy of Political Science in the City of New York 85-89 (1924).

60 Holcomb, supra note 33, at 58.

61 Id. at 115.

62 Id. at 65.

63 Id. at 156-162.

64 The Report of the National Committee on Inheritance Taxation to the National Conference on Estate and Inheritance Taxation Held at New Orleans, Louisiana, November 10, 1925 (Washington: 1925, reprint).

65 For background on Arnold, see Murnane, "Selling Scientific Taxation," supra note 6, at 843-851.

66 Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ending June 30, 1925 (Washington: GPO, 1926), p. 351.

67 U.S. House Committee on Ways and Means (elect), Revenue Revision: Hearings Before the Committee on Ways and Means, 69th Cong., Oct. 19-Nov. 10, 1925, pp. 361-373.

68 J.A. Arnold, letter to Garrard B. Winston, Jan. 13, 1925, enclosing American Bankers League, Bulletin No, 1-1925, Tax- General, NARA.

69 William R. Green, The Theory and Practice of Modern Taxation, 2d. ed. (New York, Chicago, Washington: Commerce Clearing House, 1938), pp. 206-209; Walter E. and Carroll W. Browning Barton, Federal Income and Estate Tax Laws Correlated and Annotated (Washington: John Byrne & Company, 1934).

70 To balance the budget in 1932, Mellon proposed significant tax increases. As enacted, the 1932 revenue act raised income taxes to a maximum marginal rate of 63 percent on incomes exceeding $1 million. The maximum federal estate tax rate rose to 45 percent, with the additional provision that the 80 percent credit for state inheritance taxes did not apply to the increased federal estate taxes. For more on the 1932 revenue act, see Roy C. Blakey, "The Revenue Act of 1932," 22 American Economic Review 620-640 (1932).

71 U.S. House Committee on Ways and Means, Revenue Revision 1927-28: Hearings Before the Committee on Ways and Means, Interim 69th/70th Cong., Oct. 19 to Nov. 10, 1927, pp. 13- 110, 580-826. Charles P. White, "The Effect of the 80 Per Cent Credit Clause of the Federal Estate Tax Law on State Inheritance Tax Laws," 36 The Journal of Political Economy 625-633 (1928), found that few states had inheritance taxes that did not already absorb the credit without any change in law, except for the treatment of near relations in the very largest estates. Changes in state law to absorb the credit mostly superimposed a state estate tax on preexisting inheritance taxes up to the amount of any credit available.

72 U.S. House, Revenue Revision 1927-28: Hearings Before the Committee on Ways and Means, Interim 69th/70th Cong., Oct. 19 to Nov. 10, 1927, pp. 801-819.

73 Id. at 616-621.

74 "Anti-Lobby Bill Likely," The New York Times, Nov. 11, 1927, p. 3.

75 U.S. Senate, Lobby Investigation: Hearings Before a Subcommittee of the Committee on the Judiciary, United States Senate, 71st Congress, 1st sess., Pursuant to S. Res. 20, A Resolution to Investigate the Activities of Lobbying Around Washington, District of Columbia, Part 2, Oct. 24, 29, 30, and 31; Nov. 1, 3, 5, 6, 8, 12, 13, 14, and 15, 1929, pp. 595-1121; U.S. Senate, Lobby Investigation: Hearings Before a Subcommittee of the Committee on the Judiciary, United States Senate, 71st Congress, 1st sess., Pursuant to S. Res. 20, A Resolution to Investigate the Activities of Lobbying Around Washington, District of Columbia, Part 3, Nov. 19, 20, 21, and 22, 1929, p. 1423.

76 U.S. House, Revenue Revision 1927-28: Hearings Before the Committee on Ways and Means, Interim 69th/70th Cong., Oct. 19 to Nov. 10, 1927, p. 634.

77 Id. at 621-625.

78 Id. at 642.

79 Id. at 782.

80 Roy G. Blakey, "The Revenue Act of 1928," 18 The American Economic Review 439-440 (1928).

81 Id. at 440.

82 Graetz and Shapiro, Death by a Thousand Cuts, supra note 1, at 228-238.

83 Id.

84 Charles J. Bullock, "The Future of Estate and Inheritance Taxes," in Proceedings of the National Conference on Inheritance and Estate Taxation Held at the New Willard, 1925, supra note 33, beginning at p. 128.

85 Graetz and Shapiro, supra note 1, at 226, referring to William G. Gale, James R. Hines Jr., and Joel Slemrod eds., Rethinking Estate and Gift Taxation (Washington: Brookings Institution Press, 2001).

86 Herbert Croly, The Promise of American Life (Cambridge, Mass.: Belknap Press of Harvard University, 1965, reprint), p. 22.

87 Supra note 48.