|To Mr. Magill
FROM Mr. Haas
Subject: TAX REVISION STUDIES, 1937 -- UNDISTRIBUTED PROFITS TAX
The primary purpose of the undistributed profits tax is to make effective the rates of the individual income tax. To accomplish this, the tax should be sufficient over the major portion of its range to induce the distribution of corporate earnings to the equitable owner thereof, and over the remaining portion of its range should at least compensate the Treasury in part for the individual income taxes lost by the non-distribution of corporate earnings. While the theoretical need for a tax of this character has existed ever since the rated of the individual income tax diverged substantially on the upside from those of the corporation normal tax, this need became acute for the first time in a decade with the high rates of the individual, income tax imposed by the Revenue Act of 1932 and subsequent Acts. These rates -- at present amounting to as high as 79 Percent on segments of income in excess of $5,000,000 and 62 percent, or higher, upon all segments of income in excess: of $100,000 -- could not be made really effective as long as corporate profits could be retained and reinvested without the payment of the individual income tax. The undistributed profits tax, as at present upon the statute books, takes a long step toward making such rates effective. We believe that its efficacy in this direction can be further increased and that certain elements of harshness can be greatly diminished by the changes suggested in this memorandum. A careful canvass of the situation, on the other hand, has failed to reveal any practicable alternative device by which this could be accomplished.
Aside from its primary objective of reducing the inequity and increasing the revenue productivity of the income tax system, the undistributed profits tax has certain social and economic effects. The most important of these, are (i) that the tax, tends, on balance, to reduce somewhat the proportion of the national income which is saved and to increase somewhat the proportion which is currently consumed, and (2) that it tends to "democratize" the process of capital formation by returning to stockholders the function of deciding whether or not they are willing to reinvest in a particular corporate enterprise their pro rata share of its annual earnings. These effects are inseparable from the tax as such, except to the extent that corporate earnings may be distributed through the declaration of taxable dividends in the form of securities of the corporation itself, or are reinvested by the stockholders through the exercise of coercive rights. bile we advocate the undistributed profits tax primarily as a revenue and equitable measure, we believe that these incidental and largely inseparable social and economic effects are, in themselves, desirable and tend to reinforce rather than detract from its revenue and equitable objectives.
In order to make the tax more equitable in its application, to remove certain hardships, and to increase its effectiveness in certain respects, the following changes are suggested:
(1) Coordination with the Privilege Tax. It is recommended that adjusted net income should consist of privilege-tax net income -- that is, net income before the deduction of interest, rents and royalties -- less the privilege tax paid, and that undistributed net income should consist of adjusted net income less dividends, interest, rents and royalties.
(2) Rate Schedule. The following rate schedule is recommended:
Percent of adjusted Tax net income undistributed (Percent) 0 - 5 3 5 - 15 15 15 - 50 40 50 - 100 60
The rate in the initial bracket has been lowered as compared with the present law, principally in order to make allowance for the margin of error of estimate in net income, while the rates in the last two brackets have been made sufficiently high to induce distribution of earnings in the vast majority of cases, including even those of closely held corporations. The narrowing of the first bracket is necessary to prevent a substantial loss in revenue in view of the change in the base for adjusted net income. It will have an effective width substantially greater than that of the present initial 10 percent bracket for corporations with large amounts of prior charges. These corporations cause little revenue loss, and are the most needful of and the most clamorous in demanding relief in any event, while some relief for them seems especially timely in view of the transitional burden to which they will be subjected by the new privilege tax.
(3) Small Corporations. It is not believed that the contention frequently made that the undistributed profits tax places small corporations at a disadvantage has merit, but the contrary is rather believed to be true. Nevertheless, in line with our consistent policy of granting preferential treatment to shall corporations in any event, it is recommended that the specific credit provided in Section 14(c) of the Act be continued at $5,000, that the rate of tax thereon be lowered from 7 percent to 3 percent to conform with the lower rate suggested for the first bracket of the regular tax, and that it be extended in its application to corporations with adjusted net incomes of up to $100,000 (rather than $50,000) in view of the proposed change in tee base of adjusted net income. It is further recommended, however, that whatever income remains undistributed beyond the amount included in the specific credit be taxed at the rates applicable if the specific credit had not been granted.
(4) Allowance of Net Capital Losses. It is recommended that an unlimited offset of capital losses be permitted, for the purpose of the undistributed profits tax by, against other income.
(5) Net Loss Carry-Over. It is recommended that a two-year carry-over should be allowed for all losses (including capital losses as merged with other losses by the preceding recommendation) for the purpose of the undistributed profits tax only.
It is believed that recommendations 4 and 5 taken in conjunction will meet the legitimate complaint that it is often necessary for a corporation incurring substantial capital losses, or engaged in a fluctuating business, to pay an undistributed profits tax, in order to RETAIN its capital intact; whereas, in the contemplation of the law, such a tax should be paid only when it is desired to INCREASE the capital employed in a business by the reinvestment of earnings free from the individual income tax.
(6) Optional Settlement of Subsequently Found Deficiencies. It is recommended that if audit of a corporation return reveals that net income from a previous year should have been reported at a higher figure than that appearing upon the face of the return, and no question of bad faith is involved, the taxpayer should have the option of paying the undistributed profits tax liability thereby created, with interest, or of paying a special tab of 5 percent of the undistributed profits newly determined by the Commissioner, and adding the remainder of such newly determined profits to adjusted net income in the current year. It is felt that this recommendation will restore to the taxpaying corporation, as far as it is possible to do so, its original option either of paying the undistributed profits tax, in whole or in part, or of distributing its earnings, in whole or in cart.
(7) Special Tax on Earnings Exempted from the Undistributed Profits Tax by Reason of Contracts Prohibiting the Payment of Dividends, etc. It is recommended that a tax of 10 percent be levied upon earnings exempted from the undistributed profits tax under Section 26(c) of the Act, because of contracts prohibiting the payment of dividends, etc., and that such tax be levied in lieu of the lowest brackets of the undistributed profits tax in which the amounts so exerted would other se have fallen. This tax will take cognizance of the fact that income which remains undistributed as a result of prior contractual obligations both increases the equity of the stockholders and results in revenue loss to the Government in the same measure as though it had remained undistributed as the result of a currently made decision of the Board of Directors of the corporation.
TO Mr. Loll FROM Mr. Haas Subject: TAX REVISION STUDIES, 1937 -- ESTATE AND GIFT TAXES
SUMMARY OF FINDINGS AND RECOMMENDATIONS
Part I: Structural Revision of the Federal Estate Tax
The accompanying memorandum examines in some detail those features the Federal estate tax which may be deemed worthy of revision in the interest of maximum equity and greater productivity. The more significant of the conclusions are as follows:
1. The specific exemption of $40,000 may well be reduced to $20,000. While no particular case can be developed for precisely that figure as opposed to one slightly higher or lower, evidence is abundant that the present figure is too high. A reduction of the specific exemption to $20,000 would make the estate tax more effective on smaller estates and thus increase revenue. It would, in addition, bring Federal exemption into better conformity with the exemptions provided by State laws, thus eliminating one potent field of interstate variation, yet leaving it at a level above that generally recognized as adequate to provide a tax-free subsistence fund to the decedent's dependents.
2. The suggestion that the specific exemption provided by the estate tax recognize the number of beneficiaries and their relationship to the decedent, is not considered desirable for immediate adoption. That either an inheritance tax or an estate tax which recognizes the number of beneficiaries and their relationship to the decedent would make for greater equity, can be readily conceded. However, the accompanying administrative difficulties are believed to outweigh the net addition to equity which could thus be obtained.
3. With respect to the three types of specific exemptions (constant, conditional, and vanishing) now in use in various countries, the vanishing type of exemption is singled out as the one most desirable. The constant exemption ignores the very argument to which it presumably owes its existence, namely, the discrimination in favor of the relatively small estates by granting the privilege of bequeathing a tax-free fund for the maintenance of the decedent's dependents. On one contrary, it bestows a tax advantage which grows larger rather than smaller with the increase in the size of the estate. The conditional exemption, on the other hand, is too arbitrary for it fails to provide a gradual transition from non-taxability to taxability. The vanishing exemption is considered most desirable. It recognizes the necessity of granting tax-free bequests for the support of dependents in the case of small estates, and does not, like the constant exemption, perpetuate the same advantage in the case of large estates, and hence does not impair the productivity of the tax.
4. In connection with the manner of taking exemptions, it is observed that if the vanishing exemption is adopted, the necessity for specifying that the exemption be taken from the lowest bracket will be eliminated, in the event, however, that the constant exemption is retained, it will be desirable either to specify that the exemption be deducted from the lowest bracket or to replace the present exemption -- expressed as a deduction from the otherwise taxable base -- by an exemption expressed in terms of a constant tax credit. While it is recognized that an exemption in terms of tax credit is psychologically undesirable because it seems smaller to the taxpayer than a corresponding exemption deductible from a tax base, considerations in the interests of equity and productivity are judged to be more significant. The elimination of the tax advantage inuring to large as opposed to small estates from a constant exemption deductible from the top bracket and the consequent, destructive effects upon estate tax revenues, are vital considerations.
5. An examination of the treatment of insurance leads to the conclusion that the present exclusion from the taxable base of $40,000 of insurance payable to named beneficiaries should be eliminated. While the practice of providing a liquid fund for one's family is socially desirable, no valid reason can be presented why that form of asset should be singled out for especially favored treatment. Such exclusion of insurance from the taxable base serves to double the size of the specific exemption and thus affords a greater tax advantage to the larger as opposed to the smaller estates, and in addition, of course, results in an impairment of the productivity of the tax.
6. The proposal that insurance for the payment of estate taxes be rendered tax free is not recommended. one contention that estate taxes may subject an estate to forced liquidation is recognized; the Government's obligation to prevent such liquidation, however, is not conceded. The facts that the exclusion of such insurance would defeat progression, impair revenues and deprive the Government of one of its relatively few opportunities to employ the principle of ability to pay as a criterion of taxation, are sufficient justification for including all insurance in the taxable estate.
7. The present treatment of property previously taxed (excluding such property from taxation when the two successive deaths occur within five years) strives for the elimination of multiple taxation, one of the existing inequities in the estate tax. However, the present provision limiting the period of grace to precisely five years is conducive to inequity and should be replaced by a graduated scale ranging from a complete exemption of property previously taxed in cases where the two deaths occurred within one year, to exemptions of 20 percent in those cases where the interval between the two deaths is more than four but not more than five years.
8. With respect to the present policy of granting full exemption to charitable bequests, stress is laid upon the inequity resulting from the fact that the tax reduction inuring to estates of different size from a given bequest is widely different, ranging frog zero to as much as two-thirds of the entire bequest. While the entire elimination of this form of exemption is deemed undesirable, it is proposed that the present full exemption of charitable bequests be eliminated and in its place a tax credit substituted, such tax credit to bear that ratio to the total tax liability which 50 percent of the charitable bequest bears to the net estate. This procedure would not unduly discourage charitable bequests and would, in a moderate manner, equalize the tax benefits accruing from the exemption to estates of various size, increasing at the same time tax revenue.
9. It is suggested that the present bracketed rate structure be replaced by one on a totality basis. The contentions that the federal Government has never employed a totality rate schedule and that the bracket rate structure hermits a smoother degree of progression are significant, to be sure. They are secondary, however, in light of the considerations that a totality rate structure allows for an increase in the effective rate of taxation without any apparent increase in the statutory rate schedule and reflects the weight of the tax burden more correctly. Top bracket rates, which under the bracket system appear confiscatory may, when considered in relation to the tax burden on the total estate, be moderate and can be ex-pressed as such in a totality rate schedule. It is considered good public policy to recognize the general public's lack of understanding of bracket rates through the use of totality rates with adequate equalizing provisions at the break-over points.
10. With reference to the level of estate tax rates, it is suggested that the 1935 rate schedule be replaced with a net rate schedule on the totality basis ranging from 1 percent on net estates above a $20,000 vanishing exemption, to 75 percent on net estates of $l0o,000,000 and over. It is readily defended on the ground that an upward revision of the rate structure, with a view to enhancing the effectiveness of the tax on small and medium size estates, is imperative in the interests of productivity and essential in the interests of equity. The rate structure proposed would produce a substantial increase in revenue with a minimum of administrative difficulty and public opposition. It would add a justifiable addition to the tax burden falling upon middle size estates without interfering with the desire of the individual to provide his heirs with the necessities of subsistence.
11. It has been urged that the tax burden imposed on transfers of property at death recognize the prior wealth of the beneficiary. Although such procedure would be theoretically desirable in the interest of equity, the innovation involves a refinement of a finer order than that commensurate with other features of the present tax system and threatens to involve legal and administrative difficulties, some arising in connection with the determination of prior wealth and others from the necessity of taking due cognizance of the ultimate beneficiaries. It is concluded that present efforts at revision could more profitably be directed in other channels.
12. It is suggested that the practice of affording the executor of an estate an option between valuation for tax purposes as of date of death or one year hence be eliminated. Since the estate tax is a tax on transfer of property at death, no logical justification grounded in economic reasoning can be found for the recognition of property values as of any subsequent date. While in periods of rapidly declining values it may be deemed expedient to temporarily alleviate injustice by shifting the date of valuation one year hence, the practice on the whole is undesirable. At all events, now that the downs ward trend of security values has reversed itself, the plea of expediency has lost its force and the option can produce only administrative difficulty.
13. With respect to community property, it is urged that the Federal Government take a definite position. It is recognized that in the interest of greater productivity it may be desirable to sterilize the community property principle, in which case a utilization of the "right of management and control" concept may prove fruitful.
14. At present when property which has enhanced in value is "transferred by inheritance, the capital gains escape income taxation. The constitutional concept of income precludes the taxing of such capital gains under the income tax. To eliminate this inequity, it is proposed to impose a compensatory tax in the form of an additional estate tax on capital gains that have accrued to real estate, stocks and bonds, in the following manner: A tentative tax is to be computed at the regular estate tax rates on the entire amount of the gross estate without the allowance of any deductions whatsoever. Against this tentative tax there is to be permitted a tax credit, computed at the regular estate tax rates on an amount which will be the sum of the adjusted bases for real estate, stocks, and bonds, and the current market of all other gross estate assets. The difference between the tentative tax and the tax credit thus determined will be the capital gains transfer tax or the "initial estate tax" liability which is to be allowed as a deduction for the purpose of computing the basic estate tax.
15. In view of the corollary relationship of the estate and the gift tax it follows that the adoption of any of the above proposals with respect to tile estate tax should be accompanied by parallel revisions of the gift tax.
Part II: Coordination of the Federal Estate and the Federal Gift Tax
In this section there is examined the lack of coordination between the existing Federal estate and the Federal gift tax and there is outlined the procedure whereby the two taxes can properly be integrated. The more significant of the conclusions are as follows:
1. The gift and the estate taxes are complementary constituents of the tax system. As such, they should be properly coordinated. Coordination, however, does not require that the tax burdens imposed upon two complementary tax bases be identical. All that it requires is that the differential in the tax burdens imposed upon either of the two complementary tax bases express the preferential treatment the Government desires to accord the one as compared with tile other and that the extent of that preferential treatment available to different individuals bear a rational relationship to the amount of their property transfers.
2. The Federal estate and gift taxes are in pressing need of coordination because: (a) The gift tax has greatly reduced the effectiveness of the estate tax by affording substantial opportunity for reducing tax liability incident to property transfers; (b) the opportunity for reducing tax liability in this manner is not uniformly available to all individuals but accelerates more than in proportion to their transferable wealth: (c) the reduction in the tax liability incident to property transfers available through inter vivos gifts is greater than that required by public policy; and the distribution of estates through inter vivos gifts encouraged by the preferential treatment accorded it for tax purposes and the consequent reduction of property transfers subject to the estate tax has reduced the amount of inheritance and estate tax revenue available to the States.
3. Partly as a result of the lack of coordination between the estate tax and the gift tax, transfer taxes occupy a relatively minor role in the American revenue structure, notwithstanding the fact that they comprise one of the two main constituents of the tax structure capable of the application of the ability to pay principle.
4. The advantages accruing from the use of inter vivos gifts are no doubt greater than those contemplated by Congress. The legislature did desire to encourage the distribution of estates during the lifetime of their owners, but not to the extent and in the disproportionate manner actually provided by the present law.
5. A coordination of the estate and the gift tax can be achieved by viewing inter vivos gifts as installments of property transfers and viewing the taxes on such gifts as payments on account of transfer taxes. The two taxes are mutually interdependent. They derive from identical origins and fall upon interchangeable transactions and, therefore, barring legal consideration to the contrary, should be combined.
6. Such coordination can be achieved by the following administratively relatively sidle device: (a) Retain the 25 percent differential inherent in the existing gift tax and the estate tax rate structure; (b) change the existing net gift tax base to a gross base, comparable to that used in the taxation of estates; (c) consider the taxes paid on inter vivos gifts as installment payments on account of final estate taxes; (d) include in the taxable base at the time of death not only the residual estate remaining after gifts, but also the value of property previously reported for gift tax purposes; (e) compute a tentative estate tax liability upon all of the property disposed of by the decedent both during his lifetime and at his death; (f) credit against this tentative tax liability (1) gift taxes paid and (2) such a premium upon such gift taxes as suffices to express the tax advantage it is desired to afford inter vivos gifts.
7. The device herein propose,d for the coordination of, the Federal estate and the gift tax may possibly be subject to the following objections: (a) That it is impractical for it implies a stationary estate tax and gift tax rate structure and that in the event of future rate changes, tax liability would have to be recalculated retroactively to the $first, gift; and (b) that the accumulation of gifts for ultimate inclusion in the residual estate for gift tax purposes may be unlawful because title to the property distributed through inter vivos gifts is not held by the decedent at the time of his death. The first of these criticisms is considered to have little force; the appraisal of the second must await judicial review.
8. The proposed coordinating device has numerous advantages: (a) It would present no additional administrative problems" for a record of inter vivos gifts is already being maintained currently for gift tax purposes; (b) it will increase revenue from, the estate and the gift tax by increasing the effective transfer tax rate, without an alteration of the existing rate structure; (c) the Federal Government will be enabled to accord precisely that encouragement to inter vivos gifts which is required by public policy, and which at the same time will be uniformly available to all individuals, and not vary more than in proportion to their wealth; (d) the pro posed treatment of property transfers will be a logical corollary of the cumulative tax base and cumulative tax credit concept already employed in connection with gift taxes; (e) it will make the bases of the estate tax and gift tax identical; (f) it will eliminate the double use of exemptions arid the double use of lower brackets in connection with property transfer taxes; (g) it will provide the machinery for eliminating the inequitable effect of gift taxes upon the estate and inheritance tax revenues of State governments without any reduction of Federal revenues; (h) it will forestall the present movement toward independent State gift taxes and thus will stifle a new and potent conflict which is arising between the Federal Government and the States.
9. The present practice of exempting $5,000 gifts made in any one year to any number of individuals is considered excessive. Its replacement by a maximum donor's annual exemption of $5,000, irrespective of the number of donees, is recommended.
Part III: Coordination of Federal and State Taxes on Property Transfers
In this section there is examined the lack of coordination between the existing Federal and State taxes on property transfers and there is outlined a procedure whereby the transfer taxes of these two Jurisdictions can be properly coordinated. The more significant of the conclusions are as follows:
1. The taxation of identical tax bases by two separate and sovereign jurisdictions requires coordinate action. The absence of coordination is certain to produce undesirable economic and social consequences. That coordination is lacking in the field of property transfer taxation and has of necessity produced undesirable consequences requires no demonstration.
2. While the problem of eliminating conflicting Federal and State taxation is of more vital significance to the States than to the Federal Government, the latter cannot continue ignoring the problem, partly because the States themselves are unable to solve it but primarily because the Federal Government itself is earnestly interested in sound fiscal practice by all governmental units.
3. The adoption of the crediting device in 1924 and its expansion in 1926 signified a willingness on the part of the Federal Government to share its transfer tax revenue with the States, first in the ratio of 3 to 1 and later in the ratio of 1 to 4. Immediately following 1924 and 1926 the States attempted to conform their transfer tax systems to this Federally dictated pattern by imposing tax burdens approximately equal to 80 percent of the 1926 Federal estate tax rate schedule; the Federal Government, however, gradually annihilated the effectiveness of its own program by reducing the relative quantitative importance of the State tax credit.
4. The 1932, 1934 and 1935 Federal Revenue revisions served to dwarf the role of the States in the transfer tax field. In their efforts to counteract Federal action, the States resorted to the enactment of additional death taxes and the imposition of gift taxes, thereby adding to Federal-State conflict.
5. The failure of the Federal Government to attempt an elimination of the conflict before now is probably due to the fact that the extent of existing conflict is generally under- estimated and the remedial effects of the crediting device are exaggerated.
6. The extent to which the crediting provision has failed to eliminate interstate variation in property transfer taxation is remarkable. Not only does the need for dual administration and, dual taxpayers' compliance remain but in many respects there is probably as wide a diversity in State death duties as prior to the adoption of the crediting provision of 1924. Information obtained through a questionnaire submitted by the Division of Research and Statistics of the Treasury Department to the death tax administrators of the several States and an analysis of the several death tax laws reveals that variations with respect to (a) the type of taxes employed, (b) definition of gross estate, (c) valuation practice, (d) definition of net estate, (e) treatment of insurance, (f) size of specific exemption, (g) manner of taking the exemption, (h) rate structures, and (i) the tax burden imposed, collectively produce a heterogeneous State-by-State property transfer tax pattern.
7. As a result of these variations (a) the ratio of credits claimed for taxes paid to States against Federal estate tax liability to State inheritance and estate tax collections ranges from a to 92 percent; (b) the differential estate taxes passed by the various States in order to take advantage of the available Federal credit are limited in effectiveness because the taxes imposed by the States are in many cases in excess of the maximum Federal credit; and (c) the significance of the death taxes in the revenue structures of the various States ranges from O in one State to more than a fifth in another. In other words, interstate variations permeate all aspects of State death taxes leading to the unmistakable conclusion that the crediting provision in itself is not adequate for the elimination of interstate competition and Federal-State conflict in death taxation.
8. The proposals which have been advanced for the elimination of conflict in Federal-State taxation of property transfers fall into three general categories: (a) Separation of revenue sources, (b) modification of the crediting device and (c) Federal-State integration.
9. The relative merits of these proposals must be appraised in light of the following objectives: (a) That any change in Federal-State relations does not unduly reduce Federal revenues, (b) that it increases substantially or at least moderately State revenues, (c) that it not be coercive upon the States, (d) that it be of a type which can go into effect gradually and not be conditional upon the enactment of specific kind of legislation in all of the States, (e) that it disturb as little as possible the death tax legislation now on the books of the States, inspired in p art by the Federal Government's crediting device, and (f) that it minimize as far as possible the need for dual administration and dual tax compliance.
10. In the light of the above enumerated criteria, none of the three general categories of proposals hitherto advanced for the elimination of Federal-State conflict in death taxation is acceptable.
11. Existing Federal-State conflict, in the field of death taxation can be eliminated by combination of two previously proposed methods. Specifically, it is recommended that the Federal Government provide the States with an option as follows: Those States which continue to levy their own death taxes may continue to take advantage of the 80 percent credit allowed against Federal estate taxes under the 1926 Act. chose States, on the other hand, which will abolish their own death taxes will receive in lieu of this State tax credit a fixed proportion of Federal estate and gift tax collections in their respective States.
12. This option arrangement has numerous advantages: (a) It provides a gradual transition from the existing situation and can, therefore, go into operation immediately and need not be postponed until such a time as appropriate legislative action has been taken by all of the States; (b) the arrangement is in no sense coercive upon the States but will obviously be attractive to then; (c) it will eliminate the necessity for separate State administration band dual estate tax compliance; (d) it will not necessitate new State legislation either in the estate or gift taxation, but rather, will, produce the gradual repeal of existing legislation; (e) it will contribute to the solution of the problem of State jurisdiction with respect to death taxation; (f) it will provide for a gradual simplification of the Federal estate tax structure itself by gradually eliminating the use or the 1926 rate schedule; and finally, (g) it will enhance general acceptability of the structural revisions of the estate and gift taxes themselves by providing for the gradual elimination of State taxes upon the same tax bases.
13. From point of view of the Federal Government, the disadvantage of the proposal lies in the fact that it will serve to transfer some revenue to the States which otherwise could be retained for Federal purposes. This, however, is no real disadvantage because the proposed structural revisions of the estate and gift tax will more than provide sufficient revenue to bridge the difference between the amounts which would have to be diverted to the States and the amount of the credits now allowed for taxes paid to States.
14. The proposed device will be acceptable to the States because it will obviate the necessity for dual administration and dual taxpayers' compliance at the same time that it eliminates interstate competition and increases State transfer tax revenues.
15. Finally, too much emphasis cannot be placed upon the necessity of making a start in the direction of Federal-State tax coordination. Death taxes offer a good starting point, particularly because of their wide use as sources of state revenue but primarily because they present an opportunity for adding substantially to State revenues without corresponding loss of Federal revenue. The resulting good will is certain, to contribute immeasurably to the solution of Federal State conflict in other fields of taxation.