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| STATEMENT OF RANDOLPH E. PAUL, GENERAL
COUNSEL OF THE TREASURY DEPARTMENT, BEFORE THE
SENATE FINANCE COMMITTEE IN EXECUTIVE SESSION IN
SUPPORT OF THE RECOMMENDATIONS OF THE SECRETARY OF
THE TREASURY FOR AN ADDITIONAL WAR-TIME REVENUE
PROGRAM [1] In his statement Secretary Morgenthau emphasized the need for additional taxes to increase Treasury receipts out of current income by an amount far in excess of his previous recommendations and to exercise a strong restraining influence on consumer spending in order to furnish an effective weapon for combatting inflationary increases in prices. [2] The Secretary has indicated the broad outlines of the Treasury's recommendations. It is my purpose to discuss these recommendations in detail. The proposed spendings tax is in two parts -- a flat rate tax to be refunded after the war, and a progressive surtax. THE REFUNDABLE PART OF THE SPENDINGS TAX [3] The refundable part of the spendings tax would be imposed at a flat rate of 10 percent on the total spendings of individuals for consumer goods and services. In general, it would apply to all individuals who had income subject to the individual income tax, and also to individuals subject to the spendings surtax whether or not they had income subject to the income tax. [4] It is suggested that single persons be entirely outside the scope of the tax only if their income is less than $500, and married couples only if their income is less than $1,000. The exclusion would be increased by an additional $250 for each dependent. The test for determining liability to file a refundable spendings tax return would therefore be stated in terms of income, even though the tax itself would be assessed on the basis of spendings. The reason for using the income test is to facilitate the administration of the refundable spendings tax by collecting it in conjunction with the individual income tax. TAX BASE [5] The tax would be levied on total spendings of persons filing returns and reporting total spendings in excess of $500 for a single person, $1,000 for a married couple, and an additional $250 for each dependent. The tax would be imposed on the taxpayer's total spendings, not merely on that part of his spendings above these amounts. [6] The amount of spendings would be computed indirectly. From the total amount of funds at the disposal of the taxpayer, derived either from current income or by drawing on capital, there would be subtracted the amount of savings. "Savings" would be defined to include, chiefly, repayment of debt, premiums paid on life insurance, expenditures for the purchase of bonds or other capital assets, gifts and contributions, payment of taxes and increases in bank balances. The items needed to determine the tax base are shown in the attached schedule (Exhibit 1). METHOD OF COLLECTION [7] The refundable part of the spendings tax would be collected in the same manner and at the same time as the individual income tax. A tentative tax would be collected at source on wages, salaries, and dividends in the same manner as it is proposed to collect part of the regular income tax. A spendings tax return would be made part of the annual income tax return. The amount of spendings and the tax thereon would also be computed on the same return. The total of the income tax and the spendings tax payable would be ascertained by deducting the income tax and the spendings tax already collected at source. If the amount collected at source exceeded the combined tax liability, the excess would be promptly repaid to the taxpayer. SHORT INCOME AND SPENDINGS TAX FORM [8] The great majority of taxpayers would be eligible to file a simplified refundable spendings tax return which would be a supplementary part of their simplified income tax return. TAX RATE AND AMOUNT OF TAX [9] The refundable part of the spendings tax could be levied at a rate of 10 percent on the taxpayer's total spendings. An individual with an income of $5,000, for example, who spent $3,200, would pay a tax of $320. If he increased his savings and spent only $2,400, the tax liability would be reduced to $240. [10] Special provision would be required to avoid large differences between the tax on persons just below and just above the exclusion limits -- that is, the limits at which the tax becomes applicable. For a single person without dependents, for instance, the exclusion amount is $500. Those with spendings in excess of $500 would be liable to a tax of 10 percent on all their spendings. In some cases, in the absence of a special provision, the tax would be greater than the excess of their spendings over the exclusion limits. An individual spending $510, for example, would be subject to a tax of $51, whereas if he spent only $500, he would not be subject to tax. To provide for a gradual transition between non-taxable and taxable individuals, it is proposed that the tax on persons just above the exclusion limits shall not exceed the excess of their spendings over the exclusion limits. In the illustration cited, the tax on the single individual spending $510 would be $10. REFUNDING OF SPENDINGS TAX [11] It is suggested that this flat-rate spendings tax be made refundable without interest after the war. The amount collected in the first year of operation of the tax might be refunded in the first year following the close of the war; the amount collected in the second year might be refunded in the second year following the close of the war; and so on. It might also be desirable to provide for earlier refunding after the close of the war at the discretion of the Secretary of the Treasury. Provision should in any event be made for the earlier refunding of the tax even prior to the close of the war in cases of proven distress. [12] The Treasury proposes that the entire amount of the flat- rate tax be refunded. However, if the Committee should desire to do so, it is technically feasible to refund the entire tax only to the lower income groups. THE INDIVIDUAL SPENDINGS SURTAX [13] I turn now to a discussion of the second part of the spendings tax, the spendings surtax. This tax would be imposed at progressive rates on expenditures in excess of an exemption of $1,000 for a single person, $2,000 for a married couple, and an additional $500 for each dependent. In contrast to the exclusions under the flat rate tax, these exemptions provide a minimum of spendings that is free from surtax for everyone, regardless of the total amount spent. [14] The spendings would be calculated in the same manner as in the case of the refundable spendings tax -- that is, they would not include such items as debt repayment, insurance premiums and bond purchases -- except that you may want to consider allowing some extraordinary expenditures also to be deducted. METHOD OF COLLECTION [15] The tax would be collected currently by requiring individuals to report the approximate amount of spending at short intervals, say quarterly, with a final adjustment after the close of the year. The quarterly report might contain no more than a single item -- the approximate amount of spending during the preceding quarter. TAX RATES [16] The tax rates would be progressive. The following surtax rate schedule is suggested:
Spendings : Tax rate
(Brackets) : (Brackets)
_______________ __________
$ 0 - $1,000 10%
1,000 - 2,000 20
2,000 - 3,000 30
3,000 - 5,000 40
5,000 - 10,000 50
Over $10,000 75
[17] This schedule would apply to a single person in the usual manner. However, direct application of this progressive spendings tax schedule to a family as a unit would be unduly harsh on large families and would favor single persons. This follows from the fact that the larger the family, the greater is the necessary amount of spendings and the higher the rate at which the spendings would be taxed. This difficulty can be overcome by putting the family's tax on a per capita basis. The family's total spendings would be divided by the number of persons in the family. The progressive rate schedule would then be applied to the resulting per capital spendings. The per capita tax computed in this way would be multiplied by the number of persons in the family to get the total family tax. For this purpose, a dependent child would be counted as equivalent to one-half a person. [18] For example, a married couple with one dependent would comprise 2.5 taxable persons. If this family spent $5,000, spendings in excess of the exemption of $2,500 would be $2,500 or $1,000 per taxable person. According to the above rate schedule, the surtax would be $100 per person, or $250 for the family (2.5 times $100). Married couples would be permitted to file either joint returns or separate returns, since discrimination would be avoided by the method of computing spendings per taxable person. The amounts and effective rates of tax under the above rate schedules are shown in Exhibits 2, 2a, 2b and 2c. EFFECTIVE DATE OF SURTAX [19] The spendings surtax should be made effective as of September 1, 1942. It is essential that this be done in order to prevent large scale buying and hoarding of consumers' goods in anticipation of the enactment of the spendings tax. In addition, unless the spendings tax is made effective as of the date on which it is announced, individuals would be given an opportunity to convert their bank deposits into currency, hoping thereby to set aside spendable funds upon which an adequate check could not be made. These and similar dangers can be prevented only by making the spendings surtax effective as of September 1, 1942. The corresponding difficulties are not of great importance with respect to the refundable part of the spendings tax and this could go into effect January 1, 1943. REDUCTION OF EXEMPTIONS FOR THE REGULAR INCOME TAX [20] In addition to the spendings tax, the Treasury recommends a reduction in the personal exemptions under the individual income tax. [21] The exclusions of $500, $1,000, and $250 for the refundable spendings tax are believed to be desirable in order that a very large volume of consumer spendings may be brought into the tax base. For purposes of simplicity the income tax exemptions and the refundable spendings tax exclusions should be the same amounts of income. Accordingly, it is suggested that the personal income tax exemptions be lowered to $500 for single persons, $1,000 for married couples, and $250 for each dependent. This step will need to be taken in any event as the impact of the war increases. It represents a $200 reduction in a married couple's exemption and a $50 reduction in the amount of the dependent credit, from the exemptions tentatively adopted by your Committee. [22] The proposal would increase the number of taxpayers to some five million above the estimated number under the exemptions tentatively adopted by the Committee. Under the rates of H.R. 7378, the lowering of exemptions would increase the tax liability of a married person without dependents having an income of $2,000 from $140 to $178; for one with an income of $10,000 from $2,152 to $2,200. A married person with two dependents having an income of $2,000 would pay a tax of $83, whereas with the exemptions under H.R. 7378, he would pay no tax. For a $10,000 income, the tax liability would be increased from $1,880 to $2,050. The amounts of tax and the effective rates for taxpayers with selected net incomes under present law, under the rates H.R. 7378, with the proposed lowered exemptions, are shown in Tables 3, 3a, 3b, and 3c. [23] The proposed reductions in personal exemptions and credit for dependents will increase substantially the tax load of those in the lowest taxable income groups and you may want to consider revising the surtax rate schedule to reduce the impact on these groups. We should be glad to submit such schedules for your consideration. EFFECT OF THE TREASURY PROGRAM [24] The total yield of the proposed program at 1942 levels of income is estimated to be $6.5 billion. Of this amount, $4.5 billion would be refundable to taxpayers after the war. [25] Examples illustrating the combined effects of the refundable part of the spendings tax, the spendings surtax and the reduced individual income tax exemptions for individuals with selected amounts of income are shown in Exhibits 4 through 4d. For example, a married couple with two dependents having an income of $5,000 would have an income tax liability of $680. If their spendings amount to $3,800 the spendings surtax would be $80 and the refundable spendings tax, $380. If their spendings were only $3,100 the spendings surtax would be reduced to $10 and the refundable spendings tax to $310. Their combined tax would be $1,140 in the first case and $1,000 in the second case. Of these amounts, however, $380 or $310, respectively, would be refunded after the war. EFFECT OF THE TREASURY PROPOSALS ON THE ANTI-INFLATION PROGRAM [26] The spendings tax will raise very substantial amounts of revenue and will accordingly be valuable in financing the war. More important, it will be particularly helpful as an anti-inflation measure in two ways: (1) by withdrawing consumer purchasing power and thus reducing the demand for goods, and (2) by creating an obstacle to spending, thus checking spending and encouraging saving. Because it will apply only to individual spendings and not to business spendings, it will greatly facilitate the exercise of direct price controls, rationing, and other methods of combating inflation. [27] The refundable part of the spendings tax and the spendings surtax differ in the emphasis placed on these two methods of reducing spending. The refundable tax, applying to the bulk of total individual spending at a 10 percent rate, will be effective primarily by withdrawing purchasing power. The spendings surtax, on the other hand, is intended primarily to discourage spending directly, rather than to absorb large amounts of purchasing power. For this reason it is imposed only on spending above a fairly adequate living level, but at increasingly heavy rates. Insofar as spendings are not checked, the tax will bring substantial payments into the Treasury; insofar as they are checked, inflationary pressure on the price level will be reduced. [28] For these reasons, these taxes should provide a powerful instrument for combating inflation. Moreover, they provide an adjustable instrument which, once put in operation, can be increased or decreased as the current economic situation requires. [29] Like any new tax, and perhaps more than some taxes, a spendings tax necessarily involves administrative and compliance problems. These problems are reduced by the fact that a spendings tax can be administered in conjunction with the individual income tax. As a consequence, the refundable tax will require no additional returns, and the collection of the refundable tax at source will impose no additional burden on either withholding agents or the Bureau of Internal Revenue. Nevertheless, the spendings tax will create an administrative problem in checking on information not now required on income tax returns, in familiarizing the public with a new type of tax, and in helping the public to fill out the forms that they will be required to submit. Compared with other measures of like importance in meeting the inflation and revenue problems, the administrative difficulties should not prove disproportionately large. In time of war, administrative difficulties cannot be allowed to stand in the way of measures vital to the Nation's welfare.
THE INDIVIDUAL SPENDINGS TAX SCHEDULE EXHIBIT 2. INDIVIDUAL SPENDINGS SURTAX: RATES AND AMOUNT OF SURTAX
Expenditure Cumulative surtax
per taxable Surtax rate per taxable person
person (Bracket) at upper limit
(Bracket) of bracket
_______________ ____________ __________________
$ 0 - $1,000 10% $ 100
1,000 - 2,000 20 300
2,000 - 3,000 30 600
3,000 - 5,000 40 1,400
5,000 - 10,000 50 3,900
Over 10,000 75 --
_______________________________________________________________
EXHIBIT 2A
REFUNDABLE SPENDINGS TAX AND SPENDINGS SURTAX:
AMOUNT OF TAX AND TAX AS PER CENT OF SPENDINGS
Single person - No dependents
Exclusion for refundable tax -$ 500
Exemption for surtax - 1,000
_____________________________________________________________________
Total Amount of tax
spendings ______________________________ Surtax as Total tax
before Refundable Surtax Total percent of as percent of
exemption tax tax spendings spendings
_________ ____________ ______ _____ __________ _____________
500 [$0 [$0 [$0 0% 0%
800 80 0 80 0 10.0
1,000 100 0 100 0 10.0
1,200 120 20 140 1.7 11.7
1,500 150 50 200 3.3 13.3
2,000 200 100 300 5.0 15.0
2,500 250 200 450 8.0 18.0
3,000 300 300 600 10.0 20.0
3,500 350 450 800 12.9 22.9
4,000 400 600 1,000 15.0 25.0
5,000 500 1,000 1,500 20.0 30.0
6,000 600 1,400 2,000 23.3 33.3
8,000 800 2,400 3,200 30.0 40.0
10,000 1,000 3,400 4,400 34.0 44.0
15,000 1,500 6,900 8,400 46.0 56.0
20,000 2,000 10,650 12,650 53.3 63.3
25,000 2,500 14,400 16,900 57.6 67.6
50,000 5,000 33,150 38,150 66.3 76.3
_____________________________________________________________________
EXHIBIT 2B
REFUNDABLE SPENDINGS TAX AND SPENDINGS SURTAX:
AMOUNT OF TAX AND TAX AS PER CENT OF SPENDINGS
Married person - No dependents
Exclusion for refundable tax - $1,000
Exemption for surtax - 2,000
_____________________________________________________________________
Total Amount of tax
spendings ______________________________ Surtax as Total tax
before Refundable Surtax Total percent of as percent of
exemption tax tax spendings spendings
_________ ____________ ______ _____ __________ _____________
[$1,000 [$0 [$0 [$0 0% 0%
1,500 150 0 150 0 10.0
2,000 200 0 200 0 10.0
2,500 250 50 300 2.0 12.0
3,000 300 100 400 3.3 13.3
3,500 350 150 500 4.3 14.3
4,000 400 200 600 5.0 15.0
5,000 500 400 900 8.0 18.0
6,000 600 600 1,200 10.0 20.0
8,000 800 1,200 2,000 15.0 25.0
10,000 1,000 2,000 3,000 20.0 30.0
15,000 1,500 4,300 5,800 28.7 38.7
20,000 2,000 6,800 8,800 34.0 44.0
25,000 2,500 10,050 12,550 40.2 50.2
50,000 5,000 28,800 33,800 57.6 67.6
____________________________________________________________________
EXHIBIT 2C
REFUNDABLE SPENDINGS TAX AND SPENDINGS SURTAX:
AMOUNT OF TAX AND TAX AS PERCENT OF SPENDINGS
Married person - Two dependents
Exclusion for refundable tax - $1,500
Exemption for surtax - 3,000
_____________________________________________________________________
Total Amount of tax
spendings ______________________________ Surtax as Total tax
before Refundable Surtax Total percent of as percent of
exemption tax tax spendings spendings
_________ ____________ ______ _____ __________ _____________
$1,500 $ 0 0 [$0 0% 0%
2,000 200 0 200 0 10.0
2,500 250 0 250 0 10.0
3,000 300 0 300 0 10.0
3,500 350 50 400 1.4 11.4
4,000 400 100 500 2.5 12.5
5,000 500 200 700 4.0 14.0
6,000 600 300 900 5.0 15.0
8,000 800 700 1,500 8.8 18.8
10,000 1,000 1,200 2,200 12.0 22.0
15,000 1,500 3,000 4,500 20.0 30.0
20,000 2,000 5,200 7,200 26.0 36.0
25,000 2,500 7,700 10,200 30.8 40.8
50,000 5,000 24,450 29,450 48.9 58.9
_____________________________________________________________________
EXHIBIT 3
COMPARISON OF INDIVIDUAL SURTAX RATE SCHEDULE UNDER
PRESENT LAW AND H.R. 7378
___________________________________________________________________
Bracket rate Total surtax cumulative
Surtax net _____________________ ________________________
income Present Present
(000) law H.R. 7378 law H.R. 7378
___________________________________________________________________
- 2 6 13 120 260
$2 - 4 9 16 300 580
4 - 6 13 20 560 980
6 - 8 17 24 900 1,460
8 - 10 21 28 1,320 2,020
10 - 12 25 32 1,820 2,660
12 - 14 29 36 2,400 3,380
14 - 16 32 40 3,040 4,180
16 - 18 35 43 3,740 5,040
18 - 20 38 46 4,500 5,960
20 - 22 41 49 5,320 6,940
22 - 26 44 52 7,080 9,020
26 - 32 47 55 9,900 12,320
32 - 38 50 58 12,900 15,800
38 - 44 53 61 16,080 19,460
44 - 50 55 63 19,380 23,240
50 - 60 57 66 25,080 29,840
60 - 70 59 69 30,980 36,740
70 - 80 61 72 37,080 43,940
80 - 90 63 75 43,380 51,440
90 - 100 64 77 49,780 59,140
100 - 150 65 79 82,280 98,640
150 - 200 66 81 115,280 139,140
200 - 250 67 82 148,780 180,140
250 - 300 69 82 183,280 221,140
300 - 400 71 82 254,280 303,140
400 - 500 72 82 326,280 385,140
500 - 750 73 82 508,780 590,140
750 - 1,000 74 82 693,780 795,140
1,000 - 2,000 75 82 1,443,780 1,615,140
2,000 - 5,000 76 82 3,723,780 4,075,140
5,000 and over 77 82 -- --
___________________________________________________________________
EXHIBIT 3A. AMOUNT OF INDIVIDUAL INCOME TAX AND
EFFECTIVE RATES UNDER PRESENT LAW, H.R. 7378,
AND H.R. 7378 WITH LOWERED EXEMPTIONS.
Single person -- No dependents
Personal exemption: Present law - $750
H.R. 7378 - 500
Treasury proposal - 500
_____________________________________________________________________
Amount of tax Effective rates
_____________________________________________________
Net income H.R. 7378 H.R. 7378
before with with
personal Present H.R. lowered Present H.R. lowered
exemption /1/ law 7378 exemptions law 7378 exemptions
_____________________________________________________________________
Percent Percent Percent
_______ _______ _______
$ 500 $-- $-- $-- -- -- --
600 -- 15 15 -- 2.5 2.5
700 -- 34 34 -- 4.9 4.9
800 3 52 52 .4 6.5 6.5
900 11 71 71 1.2 7.8 7.8
1,000 21 89 89 2.1 8.9 8.9
1,200 40 126 126 3.3 10.5 10.5
1,500 69 181 181 4.6 12.1 12.1
2,000 117 273 273 5.9 13.7 13.7
2,500 165 365 365 6.6 14.6 14.6
3,000 221 472 472 7.4 15.7 15.7
4,000 347 686 686 8.7 17.2 17.2
5,000 483 920 920 9.7 18.4 18.4
6,000 649 1,174 1,174 10.8 19.6 19.6
8,000 1,031 1,742 1,742 12.9 21.8 21.8
10,000 1,493 2,390 2,390 14.9 23.9 23.9
15,000 2,994 4,366 4,366 20.0 29.1 29.1
20,000 4,929 6,816 6,816 24.6 34.1 34.1
25,000 7,224 9,626 9,626 28.9 38.5 38.5
50,000 20,882 25,811 25,811 41.8 51.6 51.6
100,000 53,214 64,641 64,641 53.2 64.6 64.6
500,000 345,654 414,616 414,616 69.1 82.9 82.9
1,000,000 733,139 854,616 854,616 73.3 85.5 85.5
5,000,000 3,923,124 4,374,616 4,374,616 78.5 87.5 87.5
_____________________________________________________________________
Normal tax
rate (percent) 4 6 6 4 6 6
FOOTNOTE TO TABLE
/1/ Maximum earned income assumed.
END OF FOOTNOTE TO TABLE
EXHIBIT 3B
AMOUNT OF INDIVIDUAL INCOME TAX AND EFFECTIVE
RATES UNDER PRESENT LAW, H.R. 7378, AND
H.R. 7378 WITH LOWERED EXEMPTIONS
Single person -- No dependents
Personal exemption: Present law - $1,500
H.R. 7378 - 1,200
Treasury proposal - 1,000
_____________________________________________________________________
Amount of tax Effective rates
_____________________________________________________
Net income H.R. 7378 H.R. 7378
before with with
personal Present H.R. lowered Present H.R. lowered
exemption /1/ law 7378 exemptions law 7378 exemptions
_____________________________________________________________________
Percent Percent Percent
_______ _______ _______
$1,000 $-- $-- $-- -- -- --
1,100 -- -- 13 -- -- 1.2
1,200 -- -- 31 -- -- 2.6
1,300 -- 13 49 -- 1.0 3.8
1,400 -- 30 68 -- 2.1 4.9
1,500 -- 48 86 -- 3.2 5.7
1,600 6 66 104 0.4 4.1 6.5
1,800 23 103 141 1.3 5.7 7.8
2,000 42 140 178 2.1 7.0 8.9
2,500 90 232 270 3.6 9.3 10.8
3,000 138 324 362 4.6 10.8 12.1
4,000 249 532 576 6.2 13.3 14.4
5,000 375 746 790 7.5 14.9 15.8
6,000 521 992 1,044 8.7 16.5 17.4
8,000 873 1,532 1,592 10.9 19.2 19.9
10,000 1,305 2,152 2,220 13.1 21.5 22.2
15,000 2,739 4,052 4,136 18.3 27.0 27.6
20,000 4,614 6,452 6,556 23.1 32.3 32.8
25,000 6,864 9,220 9,336 27.5 36.9 37.3
50,000 20,439 25,328 25,466 40.9 50.7 50.9
100,000 52,704 64,060 64,226 52.7 64.1 64.2
500,000 345,084 414,000 414,176 69.0 82.8 82.8
1,000,000 732,554 854,000 854,176 73.3 85.4 85.4
5,000,000 3,922,524 4,374,000 4,374,176 78.5 87.5 87.5
_____________________________________________________________________
Normal tax
rate (percent) 4 6 6 4 6 6
FOOTNOTE TO TABLE
/1/ Maximum earned income assumed.
END OF FOOTNOTE TO TABLE
EXHIBIT 3C. AMOUNT OF INDIVIDUAL INCOME TAX AND EFFECTIVE RATES
UNDER PRESENT LAW, H.R. 7378, AND H.R. 7378 WITH LOWERED EXEMPTIONS
Married person -- two dependents
Personal exemption: Present law -- $1,500
H.R. 7378 -- 1,200
Treasury proposal -- 1,000
Dependent credit: Present law -- $400
H.R. 7378 -- 400
Treasury proposal -- 250
_____________________________________________________________________
Amount of Tax Effective rate
________________________________________________________
Net income H.R. 7378 H.R. 7378
before with with
personal Present H.R. lowered Present H.R. lowered
exemption /1/ law 7378 exemptions law 7378 exemptions
_____________________________________________________________________
Percent Percent Percent
_______ _______ _______
$1,500 -- -- -- -- -- --
1,600 -- -- $13 -- -- 0.8
1,700 -- -- 28 -- -- 1.6
1,800 -- -- 46 -- -- 2.6
1,900 -- -- 65 -- -- 3.4
2,000 -- -- 83 -- -- 4.2
2,100 -- $13 101 -- 0.6 4.8
2,200 -- 26 120 -- 1.2 5.5
2,300 -- 43 138 -- 1.9 6.0
2,400 $6 62 157 0.3 2.6 6.5
2,500 12 80 175 0.5 3.2 7.0
3,000 58 172 267 1.9 5.7 8.9
4,000 154 356 466 3.9 8.9 11.7
5,000 271 570 680 5.4 11.4 13.6
6,000 397 784 914 6.6 13.1 15.2
8,000 717 1,292 1,442 9.0 16.2 18.0
10,000 1,117 1,880 2,050 11.2 18.8 20.5
15,000 2,475 3,716 3,926 16.5 24.8 26.2
20,000 4,287 6,036 6,296 21.4 30.2 31.5
25,000 6,480 8,756 9,046 25.9 35.0 36.2
50,000 19,967 24,776 25,121 39.9 49.6 50.2
100,000 52,160 63,396 63,811 52.2 63.4 63.8
500,000 344,476 413,296 413,296 68.9 82.7 82.7
1,000,000 731,930 853,296 853,736 73.2 85.3 85.4
5,000,000 3,921,884 4,373,296 4,373,736 78.4 87.5 87.5
_____________________________________________________________________
Normal tax
rate (percent) 4 6 6 4 6 6
FOOTNOTE TO TABLE
/1/ Maximum earned income assumed.
END OF FOOTNOTE TO TABLE
EXHIBIT 4. ILLUSTRATION OF THE COMBINED EFFECT OF THE INCOME TAX,
SPENDINGS SURTAX, AND REFUNDABLE SPENDINGS TAX
Income $2,500
_____________________________________________________________________
Single person: Married couple: Married couple
No dependents: No dependents: Two dependents
_____________________________________________________________________
Assumed spending on
consumer goods and
services $1,700 $1,300 $1,900 $1,500 $2,100 $1,700
Income tax (H.R. 7378
with lowered
exemptions) /1/ 365 365 270 270 175 175
Spendings surtax 70 30 -- -- -- --
___ ___ ___ ___ ___ ___
Income tax and spendings
surtax:
Amount 435 395 270 270 175 175
As a percent of
income 17.4% 15.8% 10.8% 10.8% 7.0% 7.0%
Refundable tax 170 130 190 150 210 170
___ ___ ___ ___ ___ ___
Total, income tax,
spendings surtax and
refundable tax:
Amount 605 525 460 420 385 345
As a percent of
income 24.2% 21.0% 18.4% 16.8% 15.4% 13.8%
_____________________________________________________________________
FOOTNOTE TO TABLE
/1/ Exemptions: Single person, $500; Married couple, $1,000;
Each dependent, $250.
END OF FOOTNOTE TO TABLE
EXHIBIT 4A. ILLUSTRATION OF THE COMBINED EFFECT OF THE
INCOME TAX SPENDINGS SURTAX, AND REFUNDABLE SPENDINGS TAX
Income $5,000
_____________________________________________________________________
Single person: Married couple: Married couple
No dependents: No dependents: Two dependents
_____________________________________________________________________
Assumed spending on
consumer goods and
services $3,200 $2,500 $3,500 $2,800 $3,800 $3,100
Income tax (H.R. 7378
with lowered
exemptions) /1/ 920 920 790 790 680 680
Spendings surtax 360 200 150 80 80 10
___ ___ ___ ___ ___ ___
Income tax and spendings
surtax:
Amount 1,280 1,120 940 870 760 690
As a percent of
income 25.6% 22.4% 18.8% 17.4% 15.2% 13.8%
Refundable tax 320 250 350 280 380 310
___ ___ ___ ___ ___ ___
Total, income tax,
spendings surtax, and
refundable tax:
Amount 1,600 1,370 1,290 1,150 1,140 1,000
As a percent of
income 32.0% 27.4% 25.8% 23.0% 22.8% 20.0%
_____________________________________________________________________
FOOTNOTE TO TABLE
/1/ Exemptions: Single person, $500; Married couple, $1,000;
Each dependent, $250.
END OF FOOTNOTE TO TABLE
EXHIBIT 4C. ILLUSTRATION OF THE COMBINED EFFECT OF THE
INCOME TAX, SPENDINGS SURTAX, AND REFUNDABLE SPENDINGS TAX
Income $25,000
_____________________________________________________________________
Single person: Married couple: Married couple
No dependents: No dependents: Two dependents
_____________________________________________________________________
Assumed spending on
consumer goods and
services $10,000 $6,000 $11,000 $7,000 $12,000 $8,000
Income tax (H.R. 7378
with lowered
exemptions) /1/ 9,626 9,626 9,336 9,336 9,046 9,046
Spendings surtax 3,400 1,400 2,400 1,200 1,800 700
___ ___ ___ ___ ___ ___
Income tax and spendings
surtax:
Amount 13,026 11,026 11,736 10,536 10,846 9,746
As a percent of
income 52.1% 44.1% 46.9% 42.1% 43.4% 39.0%
Refundable tax 1,000 600 1,100 700 1,200 800
___ ___ ___ ___ ___ ___
Total, income tax,
spendings surtax, and
refundable tax:
Amount 14,026 11,626 12,836 11,236 12,046 10,546
As a percent of
income 56.1% 46.5% 51.3% 44.9% 48.2% 42.2%
_____________________________________________________________________
FOOTNOTE TO TABLE
/1/ Exemptions: Single person, $500; Married couple, $1,000;
Each dependent, $250.
END OF FOOTNOTE TO TABLE
EXHIBIT 4D. ILLUSTRATION OF THE COMBINED EFFECT OF THE
INCOME TAX, SPENDINGS SURTAX AND REFUNDABLE SPENDINGS TAX
Income $100,000
_____________________________________________________________________
Single person: Married couple: Married couple
No dependents: No dependents: Two dependents
_____________________________________________________________________
Assumed spending on
consumer goods and
services $16,000 $11,000 $18,000 $13,000 $20,000 $15,000
Income tax (H.R. 7378
with lowered
exemptions) /1/ 64,641 64,641 64,226 64,226 63,811 66,811
Spendings surtax 7,650 3,900 5,800 3,300 5,200 3,000
___ ___ ___ ___ ___ ___
Income tax and spendings
surtax:
Amount 72,291 68,541 70,026 67,526 69,011 66,811
As a percent of
income 72.3% 68.5% 70.0% 67.5% 69.0% 66.8%
Refundable tax 1,600 1,100 1,800 1,300 2,000 1,500
___ ___ ___ ___ ___ ___
Total, income tax,
spendings surtax, and
refundable tax:
Amount 73,891 69,641 71,826 68,826 71,011 68,311
As a percent of
income 73.9% 69.6% 71.8% 68.8% 71.0% 68.3%
_____________________________________________________________________
FOOTNOTE TO TABLE
/1/ Exemptions: Single person, $500; Married couple, $1,000;
Each dependent, $250.
END OF FOOTNOTE TO TABLE
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