Our present inheritance taxes are very low, averaging less than 3 per cent. throughout the United States. Probably the highest rate is to be found in Wisconsin, where bequests to non relatives in excess of half a million dollars are subject to a tax of fifteen per cent. It is clear that all the existing rates could be raised very considerably without causing a violation of justice. Some years ago Andrew Carnegie recommended a tax of fifty per cent. on estates amounting to more than one million dollars.[199] No country has yet reached this high level of inheritance taxes. Nevertheless we cannot certainly stigmatise it as unjust either to the testator or his heirs, nor can we prove that it is in any other manner injurious to human welfare. All that can be said with confidence concerning the just rates of inheritance taxation must take the form of generalisations. The increments of the tax should correspond as closely as possible to the diminishing intensity of the wants which the tax deprives of satisfaction; in the case of each heir a certain fairly high minimum of property should be entirely exempt; on all the highest estates the rate should be uniform, and it should fall a long way short of confiscation; and the tax should at no point be such as to discourage socially useful activity and enterprise.
Effectiveness of Such Taxation
The essential justice of the measures is not the only consideration affecting high income and inheritance taxes. There remain the questions of expediency and feasibility. Under the first head the objection is sometimes raised that taxes which appropriated a considerable portion of the larger incomes and inheritances would diminish very materially the social supply of capital. Immense sums of money would go into the public treasury which otherwise would have been invested in commerce and industry. Two questions are raised by this situation: first, whether it might not be better for society to have these sums devoted, through public works of various kinds, to consumptive uses instead of to an increase in the supply of capital; second, whether the reduction in the savings and capital provided by the persons paying the taxes could be offset by increases in saving among other classes. Even if it be assumed that the first question should receive a negative answer, it is not improbable that the second should be answered in the affirmative. In other words, the increased saving which the poorer and middle classes would be enabled to make as a result of the shifting of some of their burden of taxation to the large incomes and inheritances, might very well counterbalance the curtailment in the investments of the wealthy classes. Even if this possibility were not fully realised, even if the net volume of capital in the community were somewhat diminished, this disadvantage might be more than neutralised by the wider social benefits of the taxation policy.
With regard to the feasibility of very heavy income and inheritance taxes, it is sometimes contended that neither of these measures can be made effective toward the reduction of abnormal fortunes.[200] It is held that the successful collection of these taxes requires the co-operation of the persons affected by them; that if the rate should go above ten or twelve per cent., the income receiver would evade the tax in a great variety of ways, while the owner of a large estate would transfer his property outright to a trust company, which would after his death make the desired distribution. The man who urges these objections is a very high authority on taxation, especially on its administrative side; nevertheless his contentions are not absolutely conclusive. In particular, it does not seem probable that high inheritance taxes could be evaded by the simple devices that he mentions. It ought not to be beyond the power of administrative ingenuity to find methods of defeating such subterfuges. However, it is altogether likely that the possibilities of evasion would be sufficient to prevent the imposition of tax rates that approached within measurable distance of the borderland of confiscation.
The sum of the matter seems to be that the reduction and prevention of great fortunes cannot prudently be accomplished by the method of direct limitation; that these ends may wisely and justly be attained indirectly, through the imposition of progressive income and inheritance taxes; but that the extent to which these measures would be genuinely effective cannot be estimated until they have been given a thorough trial.
CHAPTER XXI
THE DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH
The correctives of the present distribution that were proposed before the beginning of the last chapter related mainly to the apportionment of the product among the agents of production. They would affect that distribution which takes place as an integral element of the productive process, not any disposition which the productive agents might desire or be required to make of the shares that they had acquired from the productive process. Such were many of the proposals regarding land tenure, and all of those concerning co-operative enterprises and monopoly. In the last chapter we considered the possibility of neutralising to some extent the abuses of the primary distribution by the action of government through the taxation of large fortunes. These were proposals directly affecting the secondary distribution. And they involved the method of compulsion. In the present chapter we shall inquire whether desirable changes in the secondary distribution may not be effected by voluntary action. The specific questions confronting us here are, whether and how far proprietors are morally bound to distribute their superfluous wealth among their less fortunate fellows.