residuary legatees, with the payment of this tax while exempting from such payment collateral relatives who are the recipients of substantial testamentary gifts from the testator. It seems, therefore, that the tax should be deducted proportionately from each legacy, and that the amount to be deducted is that proportion of the entire tax assessed against the estate which the individual legacy bears to the entire net estate. By way of illustration, if the entire net estate were $100,000 there would be an exemption. of $50,000, the tax under the act of 1916 would be $500, and the proportion of such tax which should be deducted by the executor from a legacy of $10,000 would be obtained by multiplying 500 by 10,000 and dividing the result by 100,000.

"The 'net' estate to be used in computing the proportion of the tax to be paid by a legatee is not the net estate as defined in the revenue act, but the net estate as ascertained under the laws of this State by deducting funeral expenses, administration expenses, and debts from the gross value of the estate.

"As the tax is imposed upon the estate, and not upon the interest of the individual legatee, the executors should adopt the same rule in ascertaining the amount of tax to be deducted from the corpus of the trust fund directed to be held for the life beneficiaries."

Matter of Douglass, 171 Supp. 950.

(2) Where the residuary estate goes to charity.

Where the residuary estate is devised to charitable institutions which are exempt under the Federal statute problems arise which brought the whole question before the United States Supreme Court. In a case where the decedent devised specific bequests to several legatees and gave his residuary estate to exempt charitable corporations, the executor paid the tax and then brought action to be instructed whether it was to be deducted from the residuary estate or proportionally from the legacies. The State court held that the tax should be taken out of the residuary estate even though the share of the exempt corporations was thereby reduced. This decision was affirmed by the United States Supreme Court. In the course of his opinion Presiding Justice Taft said:

"The argument of the petitioners is that as the tax is expressly made equal to a percentage of the value of the net estate and is imposed on the transfer of that net estate Congress could not

have intended that the tax should be paid out of the very gifts which, under subd. 3 are excluded from the net estate. It is further urged that the manifest intention of Congress to exempt. the beneficiaries under subd. 3 from the tax, and the result of the construction by the Ohio State courts in this case is that they are the only ones to pay it. These arguments are persuasive, but they derive much of their strength from the special circumstances of the present case. They are pressed from a different standpoint from that of Congress. What was being imposed here was an excise upon the transfer of an estate upon the death of the owner. It was not a tax upon succession or receipt of benefits under the law or under the will. It was death duties as distinguished from a legacy or succession tax. What this law taxes is not the interest to which the legatees and devisees succeed on death, but the interest which ceased by reason of the death. Congress was thus looking at the subject from the standpoint of the testator and not from the immediate point of view of the beneficiaries. It was intending to favor gifts for altruistic objects, not by specific exemption of these gifts, but by encouraging testators to make such gifts. Congress was in reality dealing with the testator before his death. It said to him: 'If you will make such gifts we'll reduce your death duties and measure them not by your whole estate but by that amount less what you give.' In sec. 408 it is declared to be the intent and purpose of Congress that as far as it is practicable and unless otherwise directed by the testator, the tax is to be paid out of the estate before distribution.

*

"It was wholly within the power of the testatrix to exempt her altruistic gifts from payment of the tax by specific direction to her executors, if she chose. It must be presumed, when she failed to exercise the power, that she intended the incidence of the tax to be where otherwise by law it must be and therefore it was her purpose that her residuary legatees were to receive all that was left after paying all charges, including this tax, out of her estate." Y. M. C. A. v. Davis, 264 U. S. 47 (affirming 106 Ohio St. 366).

A somewhat similar question arose in the assessment of the Federal tax upon the estate of Mrs. Sage. Justice Holmes, writing for the United States Supreme Court, solved the problem as follows:

"Mrs. Sage left an estate of $49,129,256.99. She bequeathed specific sums amounting to $1,285,000 for charitable purposes,

$8,618,079.55 for purposes other than charitable and the residue to charitable and educational institutions named. It is admitted that in estimating the tax now in question there is to be deducted from the gross estate the sum of $3,789,321.74 for debts and expenses and the charitable gifts of $1,285,000. These, with the gifts to individuals above stated, would leave a residue of $35,436,855.70 which the executors contend is exempt by the statute. Adding to the sums admitted to be exempt the residue thus arrived at and the statutory exemption of $50,000 the amount for which exemption is claimed will be $40,561,177.44, leaving a taxable remainder of $8,568,079.55. The government required the payment of an additional sum reached by deducting from the exempt estate the amount of the tax to be paid, or, in other words, adding the amount of the tax to the taxable estate. The suit is to recover this additional sum. The government's argument turns largely upon the consideration that a residue is only what is left. after the payment of paramount claims. But this is not a tax upon a residue. It is a tax upon a transfer of his net estate by a decedent. It levies a sum equal to a certain percentage of the value of the net estate and provides the criteria by which the net estate shall be ascertained. It thus manifestly assumes that the net estate will be ascertained before the tax is computed. The government offers an algebraic formula by which it would solve the problems raised by two mutually dependent indeterminates. It might fairly be answered, as said by the Circuit Court of Appeals: 'Algebraic formulæ are not lightly to be attributed to legislators' but it appears to us that the structure of the statute. is sufficient to exclude the imputation."

*

Edwards v. Slocum (affirming 287 Fed. 654), 264 U. S. 61.

4. Ultimate repeal probable.

2. ATTITUDE OF THE PRESIDENT.

From the outset it has been believed that the Federal Estate Tax, being essentially a war measure, would sooner or later be repealed with other war measures, but year after year has elapsed and with each successive amendment the tax has been made more drastic and has continued, under the guise of an excise or death duty, to impose stupendous burdens on the estates of wealthy decedents.

Perhaps the most ardent and outspoken advocate of a repeal of this tax is the President of the United States. His address before

L

the convention of the National Tax Association at Washington, February 19th, 1925, is very much to the point and is worthy of perusal by every student of this subject. It is therefore given in full as follows:

ADDRESS OF PRESIDENT COOLIDGE BEFORE THE NATIONAL TAX AssoCIATION, WASHINGTON, D. C., FEBRUARY 19, 1925.

"Acknowledgment is due to the National Tax Association for a real public service in bringing this conference together. The subject of taxation is at all times and in all its phases difficult and complex. It may be doubted if any of its aspects present more difficulty, or more sharply challenge our practical experience or economic judgments, than that which concerns taxation of estates of decedents.

"When, on June 2, last, I signed the revenue act of 1924, I adverted briefly to this subject of inheritance taxes. By that act, the highest bracket of Federal estate tax was raised from 25 to 40 per cent. I pointed out then that when the inheritance taxes levied by the States be added to this, a substantial confiscation of capital may result; and I suggested the danger of having the States and the Federal Government thus combining to get the utmost possible revenue from inheritance taxes. To take an excessive proportion of estates in this way for the costs of Government can only mean that Government will be living off the capital of the community. This we should seek to avoid. Therefore, I suggested that it might be better if the field of inheritance taxation could be left to the States. Realizing, however, the great practical difficulties, I suggested that a conference of State and Federal taxing authorities be held to consider the whole subject.

Extravagance in Collection.

"Taxation is the means employed by a State to obtain the revenue with which to conduct its necessary operations. A State may be extravagant in the way it spends its revenue. So, too, extravagance may exist in the way it collects its revenue. I have often urged economy in outgo of revenue; it is equally necessary that we establish economy in income of revenue. The burden of taxation is not what the State takes, but what the taxpayer gives.

"The first field for the practice of economy in inheritance tax collection lies in State co-operation. There is competition between States to reach in inheritance taxes not only the property of its

own citizens, but the property of the citizens of other States which by any construction can be brought within the grasp of the tax gatherer. A share of stock represents a most conspicuous example of multpile inheritance taxation. It is possible that the same share of stock, upon the death of its owner, may be subject to taxation, first, by the Federal Government; then by the State where its owner was domiciled; then by some other State which may also claim him as a citizen; again in the State where the certificate of stock was kept; in the State where the certificate must be transferred on the corporation's books; in the State or States where is organized the corporation whose capital stock is involved; and, finally, in the State or States where this corporation owns property. All this means not only an actual amount of tax which may under particular circumstances exceed 100 per cent of the value of the stock, but the expense, delay and inconvenience of getting clearances of the States who claim a right to tax the property is a serious burden to the heir who is to receive the stock. Particularly is this expense disproportionate to a tax paid by a small estate which has but a few shares of stock. In many cases the expense alone must exceed the total value of the shares which it is sought to transfer. Looking at it from the standpoint of State revenue, I am told it is probable that the full cost of executors of ascertaining the tax and obtaining the necessary transfers is in the aggregate nearly as much as the tax received by the States upon this property of non-resident decedents. Here, indeed, is extravagance in taxation.

Getting State Co-operation.

"A solution of this problem presents the difficulty of obtaining reciprocal action on the part of the States. I feel, however, that, in fairness to each other and to their taxpayers, some way will be found of obviating this extravagance by giving up entirely the collection of taxes upon personal property of non-resident decedents, or by the imposition upon the transfer of such property of a tax extremely simple in administration and low in amount.

"The second field of extravagance in the collection of taxes—a wrong system-rests, not with the States alone, but there must be included also the Federal Government. It matters not in this particular who levies the tax, but the sole question is whether the total of all taxes collected is so excessively high as to be economically unsound. There are, as I have said, circumstances where