vant only if a dual tax system is retained and in others only if a change is made to a unified tax. Whenever changes of the dimensions of those proposed are suggested, a determination must be made as to whether the proposed substantive changes will improve present law sufficiently to justify the period of uncertainty that necessarily accompanies change. Some will conclude that the retention of the present substantive law, possibly with a few clarifying technical changes, is to be preferred. In the discussions that have led to the formulation of the proposed substantive changes, only a small number have argued strenuously for only clarifying technical changes. The principal issue at all times has been whether the proposed substantive changes should be made in the context of a dual tax system or in the framework of a unified tax. Those who have contended strongly for the retention of a dual tax system as the structure within which the changes should be made have stressed the desirability of a transfer tax system that offers a positive encouragement to lifetime giving. It is clear that a dual tax system offers this encouragement. The proponents of the unified tax as the framework within which the proposed substantive changes should be made have been influenced largely by the fact that the rate schedule applicable to deathtime transfers must necessarily be higher under a dual tax system to raise any specified amount of revenue than the rate schedule needed to raise the same amount of revenue under a unified tax. Consequently, the cost of making up tax revenue lost on lifetime transfers under a dual tax system is thought by some to be borne by those who do not or cannot afford to make lifetime gifts. In the work of the Reporter, the Consultants and the Tax Advisory Group, the underlying question of the desirability or undesirability of shifting from the present dual tax system of estate and gift taxation to a unified tax was extensively considered. The issue also was considered by the Council 27 "The matter of choosing between a continuation of the dual tax system and a shift to a unified tax was put to a vote at the meeting of the Tax Advisory Group in May 1967. The choice was put on a variety of different assumptions about how other questions, such as the availability of an unlimited marital deduction, would be resolved; and the result was the unified tax was preferred on each which was almost evenly divided, favoring retention of a dual system by a majority of but one vote. Given the complexity and difficulty of the problem, the time required for its thorough exploration and the improbability of reaching any clear consensus, the Reporter, with the approval of the Council, did not propose a resolution on the issue. The Institute supported this abstention. There is, therefore, no ALI recommendation on the choice between a dual tax system and a unified tax. It may be said, however, that there would be little or no support for a change to a unified tax if it were to be used to produce more revenue from transfer taxation than would be collectible under a dual tax system. Some people, indeed, base their opposition to unification on the conviction that the greater revenue raising potential of the unified tax would inevitably be exploited in the long run. It is therefore appropriate to make explicit that those who would support unification proceed on the assumption that the amount of revenue collected from this source would be approximately the same whether we retain a dual tax system or shift to a unified tax. Their support would vanish quickly if that assumption were unfounded. This position was articulated by the Institute by the adoption of a resolution embodying the following recommendation: 45. Inasmuch as the primary justification for changing to a unified tax system is to keep the rates on deathtime transfers by those who do not or cannot make lifetime transfers at a lower rate than would be possible under a dual tax system, it should be understood by those charged with determining the rate structure, if a unified tax is adopted, that the purpose of the shift to a unified tax would be undermined if the rate structure evolved under it were designed to produce more revenue than would be produced under a dual tax system. of the assumptions by a margin which varied from 40 to 21 to 32 to 29. These votes are analyzed in Appendix I to the Reporter's Study at page 436. Of the 9 consultants who voted at the May 1967 meeting of the Tax Advisory Group, 7 would prefer the unified tax on any of the assumptions offered, and the other 2 voted in favor of a unified tax on one or more of those sets of assumptions. |