Date September 1937
Author George (?) Haas
Title Tax Revision Studies: General Statement, revenue Estimates, Summaries, and Recommendations
Description Staff memo, Division of Tax Research, Treasury Department
Location Box 63; Tax Reform Programs and Studies; Records of the Office of Tax Analysis/Division of Tax Research; General Records of the Department of the Treasury, Record Group 56; National Archives, College Park, MD.
 
VOLUME I

TAX REVISION STUDIES, 1937

GENERAL STATEMENT, REVENUE ESTIMATES, SUMMARIES AND RECOMMENDATIONS

To: Mr. Magill

From: Mr. Haas

Subject: TAX REVISION STUDIES, 1937 -- General Statement

1. Range of Studies and Recommendations

In a memorandum dated July 7, 1937, you requested that the Division of Research and Statistics undertake the preparation of series of tax studies, as follows:

"1. An outlines of the taxes which you believe should constitute the Federal tax system, together with the estimated yield therefrom during the fiscal year 1938-39. Needless to say, the total yield of the recommended taxes must be sufficient to meet the estimated expenditures.

"2. A detailed statement of the precise changes which you feel should be made in the present Federal tax system to accomplish (a) your general recommendations outlined in (1) above; and (b) any additional improvements in detail which the system requires.

"3. All necessary supporting data to enable us, and later Congress, to act intelligently upon your proposals. Included in such data should be statements of the history of the particular form of tax, its use or adoption in other jurisdictions, ant the arguments for and against it, not only in respect to its productivity but also in respect to its effect upon the social and economic life of the country.

"As I understand it, your Division has already prepared a considerable number of detailed memoranda which will serve the purposes outlined above. I would like the entire body of material organized in binders in such a way as to make it available for ready reference and use."

In response to this request, the findings and recommendations of the Division are presented in the six manuscript volumes that comprise this report. Although every effort has been exerted to make these studies as thorough and as inclusive as possible, the fact that only a relatively short time was available for the completion of the entire project naturally proved a severe limitation. In many respects, therefore, particularly as respect details, our recommendations should be regarded as tentative rather than as definitive.

In our appraisals and recommendations we have attempted to avoid going beyond the limits of the existing constitutional framework and the present distribution of functions and powers between the Federal and State governments. Partly for this reason, but more importantly because of the complexity of the problem and the limited time available to us, our studies have not included any comprehensive and detailed analysis of the general problem of conflicting and overlapping taxation between Federal, State, and local governments; although our recommendations with respect to certain Federal taxes are designed in part of reduce the area of such conflict. Likewise, because the revenue aspects of customs duties are in many cases transcended in importance by other considerations of public policy, only incidental recommendations have been made in connection therewith. The like is true of various Federal taxes imposed for regulatory purposes primarily. Finally, we excluded an appraisal of the taxes levied under the Social Security and related Acts,

II. General Character and Objectives of Proposed Changes

Virtually all students of taxation would agree that the major requirements of a sound tax structure are, first, that it produce adequate revenues; second, that it be equitable; third, that the non- fiscal influences that must inevitably be exerted by each of its component parts be such as produce a minimum of undesirable economic and social consequences; and fourth, that administration of and compliance with the various elements of the tax structure be as simple as possible.

Unfortunately, these desirable characteristics are mutually incompatible in part; and, equally unfortunately, agreement respecting these objectives in the abstract by no means insures agreement respecting them in the concrete. Simplicity of administration and ease of compliance are ideals that notoriously conflict with the demands of equity in many cases. Likewise, equity often conflicts with productivity or with the desire to avoid unfavorable non-fiscal consequences. Every tax system inevitably represents a compromise among these several aims.

The general character of the changes proposed in this report may be summarized as follows:

(1) The annual volume of Federal revenues under the economic conditions, which we estimate will prevail in fiscal year 1939, is raised to approximately $9 billions, assuming that the new law has been effective so as to have had its full effect on revenues for an entire collection year. This estimates is exclusive of statutory increases in social security taxes now scheduled for future years, which will add, in addition, more than $1 billion annually by 1949. The level of approximately $9 billions of revenue as above described is predicated upon the adoption of the suggested tax provisions and related of tax in their entirety. It is evident that nay changes made in these provisions or rates either now or in the future will also change the estimated level of Federal revenues.

The fluctuations in Federal revenues at varying stages of the business cycle may be sharper than under the present law due to the greater reliance upon progressive direct taxes the yields from which are highly sensitive to changes in property values and in the national income. Changes in the law regarding these progressive direct taxes are slow to be reflected in Federal revenues due to the definite lag (a) between the time income is earned and the time of collections of taxes levied on these incomes, and (b) between the time of death of a decedent and the time when the estate tax is paid.

Thus if the proposed provisions of the Revenue Act of 1938 were enacted into law by June 30, 1938, the estate tax provisions following past custom would be made effective on the estates of decedents dying after the time of signing of the Act and the final payment of the estate tax would not be due and payable until one year 1939 revenues of the proposed changes in the estate tax law would be the payment of estate taxes under the provisions of the new law by some estates before such payment is finally due.

The income tax provisions would probably be made retroactive to January 1, 1938 but the increase in Federal revenues due to these new provisions will appear for the first time in the collections accompanying the income tax returns which will be filed on March 15, 1939. Because of the privilege of making quarterly installment payments of these tax liabilities only two quarterly payments will be received in fiscal year 1939 under the provisions of the new law from those taxpayers who elect to use the quarterly installment payment method.

For the fiscal year 1939, with the recommended changes only partially effective, aggregate Federal revenues are estimated at $8,008 millions, or some $835 millions more than the estimate under the existing laws, by $985 millions less than the $8,993 millions which the new law is estimated to produce when fully effective under similar economic conditions. A basic tax structure capable of yielding revenues in these amounts under economic conditions substantially similar to those now prevailing would appear to meet any practicable current standard of adequacy as measured by the estimates of Federal expenditures including provisions for debt retirement.

(2) In the belief that direct taxes levied at progressive rates best satisfy the present-day concept of equity in taxation, and in the further belief that such taxes result in a minimum of undesirable economic and social effects, the bulk of the estimated revenue increases provided by the recommended changes would be derived from alterations in the tax treatment of individual incomes and estates and gifts.

The tables on Page 16 and Page 17 indicate not only the relative importance of the various proposed changes in the revenue law affecting the individual income and estate taxes but also the relative yield of the individual income tax and estate tax provisions of the proposed law compared with those contained in the revenue yield of the individual income and estate taxes is achieved by alterations in the rate schedules.

On the basis of the level of individual incomes estimated for the calendar year 1938, the full application of the recommended changes would increase the estimated yield of individual income taxes from $1,728 millions under the present law to $2,672 millions, or by 54.6 percent. A comparison of the estimated estate tax liabilities for returns estimated to be filed during fiscal year 1939, computed under the provisions of the Revenue Act of 1936 and under the full application of presently proposed provisions for a Revenue Act of 1938, show estate tax liabilities of $401.8 millions and $1,084.5, respectively. This represents a 169.9 percent increase in estate tax liabilities.

(3) The equitable character and the general economic effects of the Federal corporation taxes are improved by the elimination of the capital-stock, excess-profits, and normal corporation income taxes; by the substitution for these of a corporation privilege tax measured by net income as specially defined for this purpose; and by related and other alterations in the undistributed profits tax.

(4) The relative role of indirect taxes in the Federal revenue structure is diminished.

III. General Economic Background of Proposed Changes

1. Basic adequacy versus year-to-year balance: Under present-day conditions and in an economy as fluctuating as that of the United States, a year-to-year balance in Federal revenues and expenditures would constitute a superficial and unrealistic criterion of the adequacy of the Federal tax structure. The expenditures of the Federal Government has been rising to successively higher plateaus over a long period of years and they now constitute an important fraction of the whole national income -- about 12 percent. A tax structure designed to meet such a level of expenditures must, almost of necessity, yield highly variable annual revenues. This variability becomes greatly pronounced if, in accordance with present-day concepts of the demands of equity, considerable reliance is placed upon progressive direct taxes. The latter are peculiarly unstable in yield because they tap highly sensitive constituents of the national income, such as business profits and dividends.

The successively higher plateaus in the level of Federal expenditures have been accompanied in the past, as they doubtless will in tee future, by temporary periods of abnormally high expenditures arising out of such special factors as wars and serious business depressions. The timing and needs of such temporary periods are impossible to forecast; and attempts to create temporary tax structures adequate to meet the year-by-year needs of such abnormal periods encounter grave practical difficulties and involve highly undesirable economic consequences, although counterbalancing necessity sometimes outweigh these evils. The marked lag in collections ordinarily experienced from new or increased direct taxes is well known; and the economic objections to frequent changes in other parts of the tax structure are discussed below. In general, a tax structure which, over a period of years, perhaps a decade or more, yields sufficient revenues to meet all the expenditures of she period, including the retirement of debt created to meet temporary deficiencies, would appear to satisfy any reasonable and realistic test of adequacy, if its framework be such as to permit flexible response to anticipated increases in requirements without drastic change.

2. Desirability of Stable Tax Structure: Attempts to seek a year-to-bear balance in revenues and expenditures must of necessity involve exceedingly frequent changes in the tax structure. Frequent changes, however, unless confined largely to the rates of individual income taxes, give rise to great inequities and to highly undesirable economic consequences. The whale field of tile shifting and final incidence of the various types of taxes is yet to be explored in detail by economists. It Is impossible for legislators to be aware at all accurately in advance, in the present state of knowledge, of the final incidence of most excise taxes, customs duties, and even corporation taxes.

In the case of excise taxes and customs duties, every increase or decrease in rates or coverage introduces an extraneous disruptive influence upon the relative competitive positions of different commodities and of those dealing in them. The extent to which a given increase or decrease in rates will be borne by suppliers, middle-men, or ultimate consumers, will vary greatly according to the relative elasticities of demand and production for the various products and the associated service involved. A tax on processors of wheat, for example, may actually be borne by the farmer; a tax on salt, by the consumer; and a tax on proprietary medicines is likely to be divided between the producers and consumers.

In the case of corporation taxes, the rates and related provisions that have been in force for any length of time are likely to have been capitalized and discounted in the market prices of the corporate securities, or reflected, in some cases and to an unknown extent, in the prices of the products and services of the corporations. Taxes which are measured by corporation incomes constitutes deductions from the incomes available to holders of corporation common stocks, primarily, rather than the holders of corporate preferred stocks and bonds. The whole capitalized value of an increase in such taxes tends to be borne by those common stockholders who own the stocks at the time the increase is made; for the market prices of common stops will tend to decline by the full capitalized value of such increases. Analogously, the whole capitalized value of decreases in corporate income taxes tends to constitute an unexpected bonus to the common stockholders who own the Stocks at the time of such decrease.

Considerations of the character advanced in the foregoing three paragraphs constitute the origin and meaning of tone old adage that the best tax is an old tax: The long series of competitive economic adjustments have already been made in the case of an old tax; they must newly be made in the case of a new tax or an increase in rates or coverage.

3. Flexibility: The general economic considerations that are in favor of a stable tax structure, though frequently ignored, are extremely important; for the Federal tax structure constitutes an exceedingly significant part of the whole competitive framework. And, as previously implied in our discussion of corporation taxes, stability is also desirable in the interest of equity. Nevertheless, an adequate tax structure must possess elements of flexibility.

Of all the constituents of the existing or proposed Federal tax structure, the one that lends itself best as an instrument of flexibility in Federal revenue yields is the individual income tax. Unlike internal excises, customs duties, and corporation" taxes, the final incidence of an increase or decrease in rates of the individual income tax is known in advance. For practical purposes, the impact of such increases or decreases may be said to, fall exclusively upon the taxpayers immediately affected.

Estate and gift taxes, though also direct and levied at progressive rates, by no means lend themselves as equitably for this purpose. An individual's estate is normally accumulated over a long period of years. It would appear to violate every consideration of equity if the rates to be paid by his heirs on the capital value of the whole estate should be determined by the revenue requirements of the year of death. It would be difficult to defend as a general policy that the tax treatment of equal estates left by two individuals should differ greatly because the death of one preceded that of the other by a few days, a few weeks, or a few months. estate and gift tax rates should be stable.

The tendency exhibited during the depression years to introduce a great variety of new excise taxes, and to raise the rates on old ones, to make up for the diminished receipts from direct taxes is not a wholesome one. A few basic excise taxes may be defended as permanent and important sources of revenue from the lower income groups which cannot, for administrative reasons, be reached satisfactorily through income taxes. But, for reasons previously advanced, the economic effects of frequent and important changes in excises are wholly undesirable. Similar considerations argue against frequent changes in corporation taxes.

There are rare occasions, such as when the credit of the Federal Government is threatened, or when a pronounced inflationary rise in prices threatens to get out of hand, or when military needs dictate the diversion of a maximum proportion of the country's expenditures from ordinary consumption goods, when the ill-effects of changes in excise taxes are more than balanced by the competing requirements of public policy. Barring such extraordinary occasions, however, changes in excise taxes should be infrequent.

4. Stable Tax Structure Versus Stable Revenues: It is clear that there is a real conflict, in an economy as variable as that of the United States, between a stable tax structure and one that produces stable annual revenues; a conflict that becomes more pronounced when, in response to the demands of equity, a large role in the tax structure is given to direct taxes levied at progressive rates. In previously discussing this conflict, we have indicated that a tax structure which produces unstable annual revenues may nevertheless be amply adequate over an appropriate period of years, such as an economic cycle; and we have further indicated the great desirability, on both economic and equitable grounds, of a stable tax structure.

Certain further considerations of fundamental economic import suggest the positive desirability of substantial variations in annual revenues when these variations are produced by a basically adequate and stable tax structure which relies heavily upon progressive direct taxes.

In periods of business recession, such a tax structure will produce a marked decline in revenues at the very time when the financial requirements of the Government are likely to increase substantially. The result is a budgetary deficit, which is financed in the ordinary course by the sale of interest-bearing obligations to banks and other investors. The funds 50 borrowed will come either from the real savings of private and institutional investors or from an expansion of bank credit. In either case, the effects of the borrowing will be stimulating to the national economy.

In the opinion of an important body of present-day economists, a business depression is characterized by a lack of balance between saving and investment. During such a period the unpromising or threatening outlook causes individuals and institutions to withhold funds representing bona fide savings from current investment in concrete, durable goods; and this withholding creates a volume of unemployment of both labor and capital, corresponding to the excess of such savings over current investment. If much abortive savings are borrowed by the Federal Government and expended in the current employment of labor and capital, the effect is to increase the national income by virtually the whole of the sums so borrowed, or even more. In this way, during a period of abnormal unemployment, an unbalance of the Federal budget may be said to help to redress the unbalance of the entire economy.

If, instead of being financed by bona fide savings, the Federal deficit is financed by an expansion of bank credit, the stimulating effect is of the same character but is even more marked. Under our present banking structure, periods of subnormal business activity are characterized by ample or excess bank reserves, by a small demand for business borrowing on the part of acceptable borrowers, and by the unattractiveness for bank investment of many securities which are ordinarily acceptable. These factors make it possible and profitable for banks to add substantially to their purchases of Government securities by an expansion of deposit credit. Such an expansion, which may or may net completely offset the contraction occurring in bank credit to private parties during such a period, is wholly desirable. The purchasing power acquired by the Government through such borrowing is entirely new, and not, as in the case of tax money, acquired at the expense of others. Such borrowing has the same effect, in the first instance, as the borrowing of idle savings; but, in addition, it leaves behind it a quasi-permanent expansion in the circulating medium, which helps to counteract the deflationary forces operating in such periods.

If, in contrast to borrowing, the Federal Government attempts to meet its current expenditures by the imposition of new taxes, such degree of success as is obtained tends to be achieved at the expense of the entire economy. The most productive taxes during such periods are excise taxes which are largely paid by the lower income groups, and from funds which would be expended in any event. Hence, an increase in governments revenues so obtained only adds to the deflationary forces already operating upon private business.

The subsequent repayment of the public debt from revenue surpluses which, under the type of tax structure here recommended, would occur during periods of prosperity, would likewise be beneficial to the whole economy. Periods of prosperity, particularly periods of abnormally great prosperity, are distinguished from those of depression in that investment in concrete durable goods tends to outrun the accumulation of real savings. The effect of the repayment of the public debt from the proceeds of taxation during periods of prosperity is to aid to the current volume of savings available for investment; and therefore prevents or retards the rise in interest rates that so frequently initiates a business depression.

From a monetary standpoint, the same effects upon the economy as those arising from operations in interest-bearing debt might be achieved at substantially lower fiscal costs by the issuance and subsequent redemption of paper currency, or by obtaining non- interest-bearing loans from the Federal Reserve banks during periods of depression and repaying them in periods of prosperity. Such operations are undesirable primarily because they would constitute a shock to business confidence, a shock which is not involved in operations of a more orthodox character; and a shock that would be justified in part by the greater danger that such operations, once resorted to during periods of depression, would be less apt to be redressed, than interest-bearing debt transactions, by retirements during periods of prosperity.

5. Relation to National Savings: In addition to the use of abortive savings during depressions, just cited, there is another important respect in which the type of tax structure here recommended would influence the aggregate volume of saving and consumption. Practically all of the saving of the country, other than that performed by governmental units, is done by the middle and upper income classes, and a very large proportion of the total is done by the highest income classes. This fact, in conjunction with the very high rates proposed for the upper brackets of the income and estate taxes, is likely to lead to a significant reduction in the volume of private saving.

The older view of the classical economists was that savings were an unlimited blessing and that taxes which fall upon funds that would otherwise be gave are less desirable, other things being substantially equal, than those which fall upon funds that would otherwise be expended for current consumption. The newer view is that are a social blessing only to the extent that they can find actual current investment. In other words, the important thing is a proper balance between the annual volume of consumption, savings, and investment.

There is good reason to believe that the type of tax structure here recommended will help lead to such a better balance. The taxes levied under the contributory old-age retirement provision: of the Social Security Act fall principally upon segments of income which would otherwise be expended for current consumption, and divert them instead for a long period of years to the retirement of the privately held public debt. Such debt retirement, whether arising from this source or from the ordinary revenues of the Federal Government, will constitute a very significant volume of saving; the counts so paid to holders of Government bonds will become available for private investment. A vast and involuntary increase in the savings to be made by members of the lower income groups under the Social Security Act might well have decidedly unfavorable and profound, economic repercussions if this volume of income withdrawn from current consumption were not offset in considerable measure by a reduction, through taxes levied to defray ordinary Government operating expenditures, in those segments of the income: of wealthy individuals which would otherwise be saved by them.

IV. Fiscal Background of Proposed Changes

1. Level of Revenue Requirements: During the last four fiscal years, the annual expenditures of the Federal Government, exclusive of expenditures for debt retirement, and exclusive of soldiers' bonus outlays aggregating $2,230 millions, were as follows:


                         1934  -        $ 6,745 millions
                         1935  -          6,802 millions
                         1936  -          6,803 millions
                         1937  -          7,445 millions

The budget estimates of expenditures for the fiscal year 1938, as revised in April 1937, aggregate $7,324 millions, exclusive of debt retirement.

The budget estimate for the fiscal year 1938 includes $1,820 millions for recovery and relief, and the amount of this item might well be expected to fall substantially during the next few years. On the other hand, the Federal Government is committed to growing outlays for grants to the States under the Social Security Act, "notably for old-age assistance and for various social welfare purposes. Unlike scheduled increases in other social security expenditures, those just cited are not covered by any scheduled increases in tax revenues. These uncovered social security expenditures, which are estimated at $225 millions for the fiscal year 1938, are scheduled to rise to $565 millions annually by 1945.

Further, it Is by no means certain that all the expenditures now included under the head "recovery and relief" will be eliminated in the near future. Part of theme expenditures are now serving purposes that might otherwise be covered by normal appropriations, such as those for public rods, river and harbor improvements, naval construction et cetera. Moreover, the estimated 1938 expenditures for recovery and relief already represent a reduction of $1,026 millions from those of 1937 and of $1,471 millions from those of 1936. It is not unreasonable to assume that perhaps one-half of the 1938 level of expenditures for recovery and relief may continue, possibly in altered form, for some time to come. Under these circumstances, the ordinary operating expenditures of the Federal Government, exclusive of the increases in requirements under the cited sections of the Social Security Act and other statutes, and exclusive of debt retirement, may be estimated at approximately $6.5 billions.

To this sum must be added provision for debt retirement. The statutory Sinking Fund alone, which is now deficient by approximately $619 millions, will call for annual appropriations ranging upward from $600 millions. It is doubtful, however, that the program of debt retirement during the next several years should be limited to the statutory Sinking Fund requirements. During the past seven fiscal years, the interest-bearing public debt has risen by nearly $20 billions. Debt retirement at a rate of $1 billion to $1.5 billions a year would be no more than prudent. This would raise the annual revenue requirements of the Federal Government to between $7.5 and $8 billions annually.

As described on Page 3, the proposed changes could not be fully reflected in collections during the first fiscal year after their enactment. Even if enacted by June 30, 1938, the program is estimated to yield only $8,008 millions for the fiscal year 1939, as against $8,993 millions when fully effective, assuming business conditions substantially similar to those now prevailing.

The $1 billion "excess" revenue receipts over indicated annual revenue needs of approximately $8 billions will allow for (a) contingent requirements and (b) certain adjustments in the recommended program which ,were not made initially, primarily because of revenue considerations.

As for contingencies which may result in increased Federal revenue requirements, it should be pointed out that the computed rate of interest being paid upon the public debt July 31, 1937 is only 2.58 percent, an abnormally low rate as compared with any since the World War. It is altogether conceivable that a rise in market rates of interest might increase the annual interest charge upon the budget by $100 millions or more, as portions of the maturing debt are refunded. The portion of the public debt acquired for the Old Age Reserve Account will, by statute, bear interest at the rate of 3 percent. If addition, a number of the newer functions undertaken by the Federal Government during the past few years may require increasing financial outlays for some time to come.

If, after taking into consideration such contingencies, the revenue which it is estimated that she recommended program will yield when fully effective is drill thought to be excessive, then either before the enactment of the program or in subsequent years, one or more of the following adjustments could be made: (a) Eliminate more of the excise taxes discussed in the memorandum on Excise Taxes and recommended for temporary or permanent retention primarily on the basis of revenue considerations; (b) lower the rates recommended for the new corporate privilege tax; (c) under the income tax, allow losses to be carried forward for some period longer than the recommended two years; (d) lower the normal individual income tax rate; (e) reduce the Federal tax upon the sale of gasoline and possibly, also, upon other excises; (f) allow capital losses to offset ordinary income to sole extent; and (g) lower the personal exemptions to some level above the recommended $800 and $2,000 for jingle and married persons, respectively.

2. Stability of Tax Structure: The recommendations made herein are designed to provide a stable tax structure. The figures already cited indicate that the revenue yield in years of satisfactory economic conditions would be ample both to meet the expanded requirements of the Government and to provide substantial surpluses, above statutory Sinking Fund requirements, for debt reduction.

All the increases in revenues estimated to be provided by the recommendations made herein arc from permanent taxes. Should conditions permit, however, reductions in revenues can be effected with minimum economic disruption and maximum equity, by reductions in the rates of the individual income tax. The tax treatment proposed for capital gains and losses is far less arbitrary than that now or previously in effect and permits of indefinite continuances. The changes recommended in corporation taxes, including the undistributed profits tax, the substitution of a privilege tax for the present corporation income, capital-stock, and excess-profits taxes, are such as may be continued indefinitely. The increased schedule of rates proposed for estate taxes and the coordination of the estate and gift taxes would provide a highly important and permanent source of additional Federal revenues.

3. Equity and Administrative Simplicity: The proposed changes would greatly increase the absolute and relative role of progressive direct taxes in the Federal revenue structure and would diminish the absolute and relative role of indirect taxes.

While no important improvement is recommended as respects either administration or compliance, save with respect to tee sharing of estate tax revenues with the States, it is not believed that the other changes recommended herein would involve any material additional burden as respects administration or compliance.

4. Detail Estimated of Revenue Effects of Proposed Changes: The following four tables portray the effects of the proposed changes upon the Federal revenues as compared with the estimated revenues under existing law:


Comparison by taxes proposed to be changed, of revenue estimates for
      fiscal year 1939 under present law and under August 1937
        tax proposals of division of Research and Statistics 
   for Revenue Act of 1938 assumed to be enacted on June 30, 1938

                    (Dollar figures in millions)
_____________________________________________________________________
  General and special        (1)       (2)          (3)        (4)
   accounts                        Assuming new              Percent
   (On basis of daily       Under   law passed               increase
    Treasury               present  by June 30,  Difference     or   
    statement, unrevised)    law    1938 /1/     (2) - (1)   decrease 
                                                             (2) over
                                                             (1)
_____________________________________________________________________
Corporation taxes:
  Privilege tax                   - $   708.9    $708.9         -
  Normal tax (current)     $1,160.0     590.7    -569.3      -49.1
  Undistributed 
    profits tax
    (current)                  85.0      82.8    - 2.2       - 2.6
  Back taxes                  158.9     158.9        -           -
  Excess-profits tax           33.2      18.5   - 14.7       -44.3
  Capital-stock tax           145.0     145.0        -           - 
                           ________  ________   ______       _____
 Total corporation taxes   $1,582.1  $1,704.8   $122.7         7.8

Individual income taxes:
  Current taxes /2/        $1,622.0  $2,185.7   $563.7        34.8
  Back taxes                  101.1     101.1        -           -
                           ________  ________   ______       _____
  Total individual taxes   $1,723.1  $2,286.8   $563.7        32.7
                           ________  ________   ______       _____
Other suggested changes 
  in the law:
  Estate tax /2/           $  401.8  $  521.0   $119.2        29.7
  Gift tax /2/                 26.8       5.0    -21.8       -81.3
  Stock transfers              36.0      91.3     55.3       153.6
  Toilet preparations, etc.    20.5      14.7    - 5.8        28.3
  Radio sets, phonograph
   records, etc.                7.9      10.1      2.2        27.8
  Sporting goods, cameras, 
   and lenses                   8.7       8.4     - .3        -3.4
                           ________   _______   ______       _____
    Total                  $  501.7   $ 650.5   $148.8        29.7
All other revenues and 
  receipts (unchanged)     $3,365.8   $3,365.8       -           -
                           ________   ________  ______       _____

  Total receipts, 
    general and
    special accounts       $7.172.7  $8,007.9   $835.2        11.6
                           ========  ========   ======        ====

                         FOOTNOTES TO TABLE

     /1/ It is assumed that the new corporation and individual taxes 
become effective for taxable years beginning after December 31, 1937; 
that all other new taxes become effective after June 30, 1938; and 
that the capital stock tax liability for the fiscal year ending June 
30, 1938 will be collected in full.

     /2/ The estimated receipts binder the new individual income tax, 
estate tax, and gift tax proposals make no allowance for the possible 
breaking up of estates by gift during the period which bust elapse 
between the announcement of the new revenue proposals and their 
enactment into law.
                      END OF FOOTNOTES TO TABLE

  Comparison, by taxes proposed to be changed, of revenue estimates
    for fiscal year 1939 under present law and for a hypothetical
     fiscal year 1939 (which assume: that collections reflect a
        full year's operation of the proposed act) under the
          August 1937 tax proposals of the Division of Re-
           search and Statistics for a Revenue Act of 1938

                    (Dollar figures in millions)
_____________________________________________________________________

                            (1)      (2)           (3)        (4)
   General and special    Under     Assuming      Differ-   Percent
     accounts (On basis   present   full year's   ence     increase
     of daily Treasury      law     effect of     (3) -       or
     statement,                     new law /1/     (1)    decrease
     unrevised)                                            (3) over
                                                              (1)
_____________________________________________________________________
   Corporation taxes:
     Privilege tax               -  $1,398.0     $1,398.0        -
     Normal tax 
      (current)           $1.160.0         -     -1,160.0   -100.0
     Undistributed 
      profits tax
      (current)               85.0      73.4     -   11.6   - 13.6
   Back taxes                158.9     158.9            -        -
   Excess profits tax         33.2         -     -   33.2   -100.0
   Capital-stock tax         145.0         -     -  145.0   -100.0
     Total corporation    ________  ________     ________   ______
     taxes                $1,582.1  $1,630.3     $   48.2      3.0

   Individual income 
     taxes:
   Current taxes /2/      $1,622.0  $2,672.0     $1,050.0     64.7
   Back taxes                101.1     101.1            -        -
                          ________  ________     ________  _______
   Total individual taxes $1,723.1  $2.773.1     $1,050.0     60.9

   Other suggested 
     changes in the law:
   Estate tax /2/         $  401.8  $1,084.5     $  682.7    169.9
   Gift tax /2/               26.8       5.0       - 21.8    -81.3
   Stock transfers            36.0     102.4         66.4   184.14
   Toilet preparations,       20.5      13.5       -  7.0    -34.1
     etc.
   Radio sets, phonograph 
     records, etc.             7.9      10.5          2.6     32.9
   Sporting goods, cameras,      
     and lenses                8.7       8.3       -   .4     -4.6
                           _______  ________      _______    _____
   Total                   $ 501.7  $1.224.2      $ 722.5    144.0
   All other revenues      
    and receipts           $3,365.8 $3,365.8            -        -
   Total receipts, 
     general and
     special accounts      $7.172.7 $8.993.4     $1,820.7     25.4
                           ======== ========     ========     ====

FOOTNOTES TO TABLE

/1/ Assuming that the new law had been effective 50 as to have had its full effect on revenues for an entire collection year. The estimated receipts under the new corporation and individual tax proposals are based upon calendar year 1938 levels of income. All other items of this column are based upon the same levels of income as are the corresponding data of column (1).

/2/ The estimated receipts under the new,individual income tax, estate tax, and gift tax proposals me no allowance for the possible breaking up of estates by gift during the period which must elapse between the announcement of the new revenue proposals and their enactment into law.

END OF FOOTNOTES TO TABLE

 
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