two per cent. of the value, diminishing to one per cent. on estates of $2,000, rising to nearly one and five-eighths per cent. on $2,020, falling to six-tenths of one per cent. on estates of $5,000, five-tenths of one per cent. on $8,000, and as estates over $10,000 increase in value, the rate decreased. The last acts have none of the features of an inheritance tax, and more nearly resemble a charge to cover costs of adminstration in probate courts. The act of 1889 imposing a charge of one-half of one per cent. on the appraised value of estates up to $500,000 and onetenth of one per cent. in excess of that sum with an exemption of estates of $3,000 or less was crude and illogical and severe on the small estates. If an estate slightly exceeded the amount of the exemption it paid 11⁄2 of one per cent. on the whole value. The tax was upon the appraised value, and not on the clear value after the payment of debts. Another provision of extreme severity and hardship was that the tax must be paid upon the return of the inventory and appraisal to the probate court, and before the bond of the administrator or executor could be approved. In other words payment in advance was mandatory before any steps could legally be taken to convert property into money or use funds on hand if any were left by the decedent to pay the tax. The harsh provisions referred to bring into favorable notice the liberal and humane provisions of inheritance tax laws of the present period which allow ample time for the settlement of estates and payment of the tax. WISCONSIN INHERITANCE TAX LAW. The first law of this character in the state was Ch. 355, laws 1899, for the taxation of direct and collateral heirs, taking effect on July 1, 1899, and remained in force until declared unconstitutional by the Supreme Court in February, 1902. During the time it was in operation the total taxes collected by the state and counties was $71,520.84, and of this sum the state received $59,767.14. The receipts of the state by years were as follows: The year ending December 31, 1900.. The year ending December 31, 1901. $4,208 44 32,088 76 23,469 94 The revenue for the whole period the law was in force to the several counties and to the state is exhibited in the following summary by counties. Inheritance taxes received by the state and counties with discount and appraisers' fees from July 1, 1899, the date chapter 355, laws of 1899, took effect, until said law was held invalid. 1 Includes $160 10 overpaid by county treasurer December 12, 1901. Economic Theories for the Tax. The economic theories for the inheritance tax are several, such as the limitation of inheritance, the diffusion of wealth, co-heirship of the state, cost of administration, the special privileges accruing to the recipient of property, the accidental or fortuitous income, the receipt of property without toil or service, and the back tax theory. The enumeration does not include all the arguments advanced in justification of the tax, nor is it to be understood that agreement exists upon the validity of the theories just stated. The view that the power of taxation should be employed to limit the amount of inheritance or bequest and thus prevent the accumulation of large fortunes, although not necessarily socialistic is generally so regarded, and does not have the approval of conservative men as a sound basis for taxation. This theory rests on the proposal that property above a specified large amount like $500,000, or $1,000,000, or the major part thereof shall escheat to the state or be taken by the way of taxation. The doctrine of escheat or the diffusion of wealth is generally regarded as unsound and fails to satisfy the best writers on economics, although supported by eminent authors with great plausibility. Back Tax Argument. The back tax theory has more popular support than any other, and in some states has been the most potent argument for the enactment of inheritance tax laws. The claim is that as the general property tax is largely evaded during life, it is no more than just that the state should recover the equivalent from the recipient of property by a tax that cannot be evaded. The impossibility of framing a law on a scientific basis to accurately reach the exact amount of the tax evaded during life will be recognized by the most casual ob server. The difficulty of fellowing the changes in the form, character, or value of property, throughout the life of a decedent so as to show the true condition of the estate to the satisfaction of the court administering it is unsurmountable, and such investigation is possible only for a very short period immediately preceding death. The logical application of the back tax argument would demand the enactment of a law for levying an in heritance tax equal to the tax which should have been but was not assessed against the property in the life time of the owner. The burden would be cast on the state of establishing by proof, the assessment of the entire property from year to year with the taxes paid thereon, and the various kinds and value of property during the same periods to ascertain the sum of taxes actually paid, and the amount which ought to have been paid. The difference would be the inheritance tax in each particular case if the validity of the argument is to find expression in the law. In this country taxes on real estate are levied and paid. The instances where land escapes are exceedingly rare, generally due to the inadvertence of assessors and in this state efficient provisions exist for placing all real and personal property on the tax roll whenever omitted in the three prior years.' 1 It is personal property of the intangible kind that escapes taxation. Visible personal property is generally found and taxed with as much certainty as real estate. Therefore to be logical only intangibles such as money, notes, stocks, bonds, mortgages and other credits should be subject to the inheritance tax. The loss of revenue legally due the state by the concealment or omission of this class of property is a strong inducement to the enactment of inheritance tax laws, and the argument is not to be wholly brushed aside when the policy of this legislation is considered. It must, however, be conceded that the theory of exacting from the heir the tax evaded by his ancestor cannot be sustained on equitable principles. It would be a penalty on the heir for the sins of his ancestor, which is not a good basis upon which to rest a just system of taxation. Income without Toil or Service. In the opinion of Dr. Richard T. Ely, an eminent authority on economics, the inheritance tax can best be sustained on the theory that it falls on property which comes to the recipient without effort or labor. "Property," he says, "which comes by inheritance is an income received without toil. It is for the one receiving it, an 1 Secs. 1058, 1059, Wis. Stat. 1398. unearned increment of property, and on this account may properly be taxed. The most, satisfactory basis upon which property can rest is personal toil and exercise of some kind and when property comes otherwise than as a return for social service, a special tax finds a good solid basis in justice."1 Accidental Income. The accidental or fortuitous receipt of property on the occasion of the death of the owner is advocated by Dr. E. R. A. Seligman and Dr. Max West as a sound economic theory for the support of an inheritance tax. Dr. West's view is thus stated: "From the standpoint of the heir, an inheritance is a sudden acquisition of property, without effort on his part; an accidental and perhaps unexpected increase of wealth, which manifestly increases his tax-paying ability. It is conceivable that where there is an income tax, inheritances might be taxed as income; but even if this were done, the accidental or gratuitous nature of such acquisitions would justify an additional tax, and since it is not done, there is a double reason for the inheritance tax. It is not true in every case, however, that the inheritance of property indicates an increase of tax-paying ability. The death of the head of a family may be a positive economic loss to the wife and minor children who enjoyed the use of his property while he was alive, and who were dependent upon his personal exertions for their support. But if his income was from property rather than from personal exertions, his death will make little difference in the economic condition of the family. If the income was wholly from interest, the economic condition of the family will be somewhat improved, for the income will remain the same, and there will be one less person to be supported by it; if it was from profits, the condition of the family may be improved or otherwise, according to the changes in the employment of the capital which may result from the owner's death. But in any case where property goes to collateral relatives, or even to self-supporting adult sons, there is a distinct increase of tax-paying ability." 1153 North American Review 54, July 1891. 2 The Inheritance Tax: Fourth Studies in History, Economics and Public Law, 118. |