this regard is avoided by the AET, which is an excise tax as contrasted to an income tax." Regarding the nature of its proposed tax, the ABA admits: "Some people will say that the AET is nothing more than a capital gains tax at death. They are obviously correct in the sense that the result is the same--the taxation of net unrealized appreciation at death." In view of the foregoing, a layman might wonder why an AET at death should be considered any more or less constitutional than a capital gain tax at death. Would not the courts, in evaluating the constitutionality of the AET, look hard at the acknowledged similarity of the result, and not be unduly swayed by the label "excise tax"?

Summary

The proposals that would purportedly prevent any tax reduction opportunities under the current system are melanges of complexities and inequities bound to cause extreme difficulties for taxpayers and government alike. If there is merit to the positions of both the 1969 Treasury Proposals and the ABA that proof of actual basis over the years would be a hardship, then carryover of basis is impractical and, as a matter of equity, we should then resort to a new start-up basis under any new taxing proposal. If, however, there is--as the AICPA contends--a host of inherent inequities in the new start-up basis, then it should be rejected. It is believed also that the notion that the occasion of death is an appropriate time for the recognition of unrealized gain is unsound and that it should not be acceptable to Congress.

The asserted imperatives for a change of current law are not absolutely compelling. It is at least debatable that a shift of problems from one tax system (for example, the income tax system) to another (for example, the estate tax system) is progress. Estates which pay as much tax as did our illustrative taxpayers B-1 and B-2 on pages XX and XX do not escape the taxing system. Furthermore, there should be no extensive opportunities for transfer tax avoidance if the AICPA's other recommendations--a unified transfer tax; restrictions on generation skipping; and rejection of an increased marital deduction--are adopted. The present rules do not confuse the separate roles of the income and estate taxes. The estate tax complements the income tax. The estate tax is equitably progressive; at least, it has such high rates that Congress should continue to permit the beneficiaries to take basis equal to the full values subject to such heavy tax assessments. The AICPA knows and experienced practitioners will attest that the present system is workable. The ease of reference to finally-determined estate tax values to prove the bases of assets subsequently sold is manifest. If simplicity of administration of the tax law has merit, as is so often asserted by members of Congress and professional groups, the AICPA believes that where the law has this attribute with respect to

taxation at death, it should not be discarded.

A practical and equitable exchange of a tax on appreciation cannot be made for an appreciable rate reduction. A new start-up

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apparent in the AET proposal.

The new start-up date also requires speculation as to the amount of tax which would be derived from appreciation over the years ahead as shown by the previous discussion of the ups and downs of the securities markets. Congress would have to gamble that appreciation during that period would be enough to permit a considerably lower top tax bracket. Moreover, whatever the rate concessions might be, these intended benefits might be more than counterbalanced by the new proposed tax system to which estates would be subject. Reasonable opportunities for

rate reduction exist in the AICPA's several other

recommendations.

Current law imposes an estate tax on certain transfers

at death and a gift tax on certain transfers during life. Each tax has a separate rate schedule with the gift tax rates representing three-quarters of the estate tax rates at comparable levels. The estate tax exemption is $60,000 while the gift tax has a lifetime exemption of $30,000 for each donor and an annual exclusion of $3,000 for gifts of present interests to each of any number of donees. The gift tax is imposed on the value of the gift but the gift tax itself is not treated as an additional transfer subject to tax. Under the estate tax law, the tax itself is subjected to tax because the estate tax is imposed on the gross estate reduced only by deductions and not by the estate tax.

Statistics repeatedly issued by the Treasury indicate that despite the substantial tax incentives for lifetime giving, only a small percentage of individuals for whom estate tax returns are filed make such gifts in amounts exceeding the lifetime gift exemption and the annual gift tax exclusions.

Discussion

General

The primary policy question involved in determining whether there should be a single rate structure applicable to lifetime

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transfers and to transfers at death is the extent to which lifetime giving should be encouraged.

The general consensus

appears to be that such giving should be encouraged because it is socially desirable to have property transferred to or for the benefit of younger generations where there is usually a greater need and a greater willingness to make the property productive. Thus, the issue becomes whether the present dual

rate structure strikes a proper balance between creating incentives for lifetime giving and being fair between and among different taxpayers.

The 1969 Treasury Proposals take the position that current law grants an undue preference to lifetime gifts because it benefits the relatively wealthy individual who can afford to make significant lifetime gifts compared to the less

well-to-do

individual who cannot afford to do so.

Position of other professional groups

The ABA favors a single rate structure for all transfers, whether made during life or at death. The ABA's acceptance of a single rate structure is subject to the qualification that the rates will be lowered to offset the additional transfer taxes that will be payable at death by persons who make taxable transfers during life.

"Grossing up" the amount of lifetime gifts to be included in a single rate structure for all transfers has also been proposed. This concept has been explained to require that the single-rate-schedule transfer tax would be imposed upon the fair