1906 Theodore Roosevelt - Progressive Inheritance Tax (protecting thrift and ambition)

In 1906, President Theodore Roosevelt the quintessential self-made man (at least in his own mind) first proposed his idea for a progressive inheritance tax.  Roosevelt made no bones about it, he was asking for an inheritance tax that would be so heavy that it would encourage "thrift and ambition".  Roosevelt's inheritance tax would not only increase rapidly as the amount of wealth transferred increased, but also as the individual was "remote of kin".    In order to encourage "thrift and ambition" without discouraging a "breadwinner" from leaving his children well off, the tax on moderate amounts of inheritance would be very small but would constantly increase on those "swollen fortunes which it is certainly of no benefit to this country to perpetuate".  While it is true that concentrated wealth in the early 1900’s was bringing with it political power, here Teddy Roosevelt is warning that inherited wealth was making America weak, not strong. 

Through this tax, Roosevelt, the "most self-made man of America", wanted America to follow in his footsteps.   From a sickly child, through sheer will and muscular effort plus the great outdoors, Theodore Roosevelt in his own mind and in legends became the quintessential self-made man.  As a child, Roosevelt was tutored at home because of his weak and delicate condition but made up his mind that if ever he was to amount to anything, he would have to obtain physical vigor and strength.   As a young man, he submitted himself to the severest discipline and regiment of swimming and running.   The American magazine in 1908, explained that through this discipline, Roosevelt gathered power that remained within throughout his life.  The author of the 1908 article declared, “No man today in this country works harder week in and week out than the President". 

Probably, the best example of Roosevelt's 'manliness' is the decisive battle of San Juan.   As a volunteer commander, Roosevelt organized a Calvary unit known as the Rough Riders, made up of Ivy League gentlemen, western cowboys, sheriffs, prospectors, police officers, and Native Americans.  By foot, Roosevelt led this group of rough riders up San Juan Hill suffering heavy casualties and declared a decisive victory.  Roosevelt and his rough riders returned home as colorful war heroes.   Roosevelt brought this bravery, discipline and ambition to the presidency, and now he wanted to America to follow in his footsteps.  Inheriting great wealth made a man weak, while ambition and hard work made a man strong.   Many argued at the time, that with great wealth came great power including political power, but here Roosevelt was arguing that inherited wealth was making the men of America weak.

Here is Roosevelt's words in 1906 on his proposal to create a progressive inheritance tax or what we today might call a "death tax".

"I am well aware that such a subject as this needs long and careful study in order that the people may become familiar with what is proposed to be done, may clearly see the necessity of proceeding with wisdom and self-restraint, and may make up their minds just how far they are willing to go in the matter; while only trained legislators can work out the project in necessary detail. But I feel that in the near future our national legislators should enact a law providing for a graduated inheritance tax by which a steadily increasing rate of duty should be put upon all moneys or other valuables coming by gift, bequest, or devise to any individual or corporation. It may be well to make the tax heavy in proportion as the individual benefited is remote of kin. In any event, in my judgment the pro rata of the tax should increase very heavily with the increase of the amount left to any one individual after a certain point has been reached. It is most desirable to encourage thrift and ambition, and a potent source of thrift and ambition is the desire on the part of the breadwinner to leave his children well off. This object can be attained by making the tax very small on moderate amounts of property left; because the prime object should be to put a constantly increasing burden on the inheritance of those swollen fortunes which it is certainly of no benefit to this country to perpetuate.
 There can be no question of the ethical propriety of the Government thus determining the conditions upon which any gift or inheritance should be received. Exactly how far the inheritance tax would, as an incident, have the effect of limiting the transmission by devise or gift of the enormous fortunes in question it is not necessary at present to discuss. It is wise that progress in this direction should be gradual. At first a permanent national inheritance tax, while it might be more substantial than any such tax has hitherto been, need not approximate, either in amount or in the extent of the increase by graduation, to what such a tax should ultimately be."

Prior to 1906, there were several taxes on gifts, inheritances and estates, but none were permanent.  In 1898, there was a "Federal legacy tax" imposed to pay for the Spanish American War, but it was repealed shortly after the end of the war in 1902.  The early 1900's saw a concentration of wealth among a small number of powerful men and companies.   Along with great wealth, came great political power and support for both a progressive inheritance tax and a graduated income tax grew.  In 1916, Congress passed the Revenue Act of 1916 that created a tax on the transfer of wealth from an estate to its beneficiaries.   Tax rates graduated from 1% on the first 50% to 10% on the portions over $5 million.  When Roosevelt first introduce his progressive inheritance tax, he wanted it introduced gradually, but in the years that followed, the top rates continued to grow.  By 1934 it reached 60% and then peaked in 1942 at 77%.   Today, the top estate tax rate is 40%.    Please note, that while Roosevelt called for an inheritance tax, Congress in 1916 instituted an estate tax.  An estate tax is on the transfer of wealth from an estate to its beneficiaries, and thus was levied on the estate, as opposed to an inheritance tax that is levied directly on beneficiaries.

In 1908, Roosevelt came back to his inheritance tax.  In 1906, he called it a "graduated" tax, but by 1908 he was calling it a "progressive" tax.  Roosevelt said there "should be a progressive inheritance tax on large fortunes" and reiterated his point that large fortunes " rarely do good and they often do harm to those who inherit them in their entirety."

References

Presidency.ucsb.edu. (2019). Sixth Annual Message | The American Presidency Project. [online] Available at: https://www.presidency.ucsb.edu/documents/sixth-annual-message-4 [Accessed 7 Mar. 2019].

Presidency.ucsb.edu. (2019). Eighth Annual Message | The American Presidency Project. [online] Available at: https://www.presidency.ucsb.edu/documents/eighth-annual-message-4 [Accessed 7 Mar. 2019].

Irs.gov. (2019). [online] Available at: https://www.irs.gov/pub/irs-soi/ninetyestate.pdf [Accessed 7 Mar. 2019].

McKay, B. (2019). The Secret of Teddy Roosevelt's Greatness | The Art of Manliness. [online] The Art of Manliness. Available at: https://www.artofmanliness.com/articles/manvotional-secret-theodore-roosevelts-greatness/ [Accessed 7 Mar. 2019].

Miller Center. (2019). Theodore Roosevelt: Life Before the Presidency | Miller Center. [online] Available at: https://millercenter.org/president/roosevelt/life-before-the-presidency [Accessed 7 Mar. 2019].