IV Rate Revisions

Possible Methods Of Increasing Income Tax Yields. -- The chief straightforward ways to increase revenues from income taxes are to raise rates or lower exemptions, or both. The further checking of evasion and avoidance might add something, though the 1934 Act was supported to include most of the important practicable remedies. It should still be possible to improve administration appreciably, however, at least along lines which will be mentioned later in this memorandum. If it were politically feasible, which it is not, much additional revenue could be raised by including in gross income use-incomes, such as net rental values of owner-occupied homes. It would be logical and possibly feasible, however, to discontinue allowing some deductions from such incomes, for example, interest and taxes on homes and other property the income from which is not taxable.

Other similar but relatively minor amendments, some of which are discussed later, could be used to raise certain additional amounts, but numerous provisions passed by Congress at the last and previous sessions so distort the income tax and so bring in question its fairness that they cannot be approved even if they do raise some revenues. Among such inequitable provisions are several of the limitations on deduction of losses. In fact the tendency of Congress with respect to the 1934 Act appeared to be to resolve all doubtful cases against the taxpayer and in favor of more revenue for the government. This makes for a spirit of general opposition to an unfair Government, a spirit that renders administration very difficult if it is bitter and widespread. Direct methods of rate increases and exemption decreases may cause protests because of heavy taxes, but they are not likely to cause so much resentment as devious and inadequate devices.

Let us consider next possible rate changes, then possible exemption revisions that may be made if they are necessary in order to raise more revenue.

Possible Rate Increases

1. An increase of 10 per cent of taxes calculated under the provisions of the 1934 Act would, under present conditions, raise about $44,000 from individuals and about $42,000,000 more if applied to corporation also. Under "normal" conditions represented by 1926 incomes such a rate increase would yield about $180,000,000 from individuals, about $140,000,000 from corporations, or about $320,000,000 from both individuals and corporations.

These and following estimates are based in part upon confidential tentative Treasury estimates and are subject to revision. For the sake of convenience here and in following comparisons the short Table 3, page 46 is repeated here. See also Tables 2 and 3, pages 45 and 58.

Table 3. Estimates of Probable Revenue from the Federal Income Tax under the Revenue Act of 1934 /9/

Year                 Individuals    Corporations         and
(a)                       (b)             (c)        Corporations

"Normal" year       $1,862,639,551  $1,360,989,332  $3,223,628,883
"Prosperous" year   2,831,013,357   1,449,062,820   4,280,076,177
"Depression" year      863,127,654     531,870,587   1,394,998,241
"Depression" year      594,601,270     345,174,353     939,775,623

(a) For the normal year computations, incomes reported in 1926 were take as a basis; for the "prosperous" year, those in 1928 were taken; for the first "depression" year, those in 1931; for the next "depression" year, those in 1932.

(b) These estimates were made on the basis of averages per return within each income class and are therefore somewhat high because the method did not permit of any allowance for the skewness of the distribution of the income within each income class.

(c) These estimates are in the nature of a minimal because no allowance was made for the change in the method of carrying forward losses as between the Revenue Act of 1934 and the preceding Revenue Acts. 2. Each increase of 1 per cent in normal rates would raise about $100,000,000 in a "normal" year, about $130,000,000 in a prosperity year (1928), about $50,000,000 in a year like 1931, and about $25,000,000 in a year like 1932.

Table 7 Estimate of the Probable Increase in Revenue over that Estimated under Revenue Act of 1934 if NORMAL TAX ON PERSONAL INCOME were to be Raised ONE PER CENT above the rate in Effect Under the Revenue Act of 1934 /1/

Normal year (using data from STATISTICS OF INCOME.     $102,297,619
1926, as basis) =

Prosperity year (using data from STATISTICS OF         $129,975,852
INCOME, 1928, as basis) =

Depression year (using data of STATISTICS OF            $48,842,113
INCOME, 1931, as basis) =

Depression year (using data from STATISTICS OF          $25,405,911
INCOME, 1932, as basis) =

An increase in our normal tax from 4 per cent to 6 per cent increase of 2 per cent might raise $60,000,000 to $75,000,000 a year additional now and $200,000,000 additional as soon as we reach "normal" conditions. An increase from 4 per cent to 10 per cent (increase of 6 per cent) would increase revenues by nearly three times as much and would still leave our normal tax rates less than half as high as the British rates -- 10 per cent as compared with British normal rates of 22 per cent for 1934-35, 25 per cent for 1933-34 and several years prior thereto.

3. Rates of the Far Revenue Act of 1918 substituted for those in the 1934 Act would not increase revenue revenues greatly during a depression period but would yield about 10 per cent more in a "normal" year and 15 per cent more in a prosperous year (1928 base).

Table 8 Estimate of Probable Revenue from the Federal Personal Income Tax Using the Rates, of the Revenue Act of 1918 Applicable in 1918 with Treatment of Income Elements as Under Revenue Act 1934 /1/

Normal Year (using data from STATISTICS OF           $2,073,625,734
INCOME, 1926, as basis) =

Prosperity year (using data from STATISTICS OF       $3,207,709,725
INCOME, 1928, as basis) =

Depression Year (using data from STATISTICS OF         $929,195,382
INCOME, 1931, as basis) =


     The surtax strikes much heavier in the low income brackets
under the Revenue Act of 1934. This compensates for a large part of
the increase in yield from the normal tax rates in the lower
brackets under the rates scale of the Revenue Act of 1918. The
difference in yield as between the rates of the Revenue Acts of 1918
and 1934 with 1934 treatment of income is therefore not so great
would be expected upon superficial inspection.

     To illustrate:

Net Income Class              Average Normal     Average Surtax
                            1918       1934       1918       1934

$    5,000 - $    6,000   $    125   $    83   $     --   $     --
     8,000 -      9,000        243       161          9         76
    20,000 -     25,000        988       409        738      1,307
    50,000 -     60,000      3,074     1,105      8,118     10,829
   100,000 -    150,000      5,535     1,925     43,703     48,193
   300,000 -    400,000     13,099     4,446    187,780    178,386
 1,000,000 -  1,500,000     21,132     7,124    616,658    563,088

/1/ Estimates by Shere and Koller.
4. Effective rates might be increased by approximately
one-fourth, one-half, or other fraction of the difference between
United States and British schedules. The yields of British rates if
they were incorporated in the United States income tax of 1934 are
estimated in Tables 9 and 10 herewith. It is not recommend that we
should go as far as the British but that we should consider going a
short distance in the same direction.

Table 9 Estimate of Revenue from Individual Income Tax Using British Exemptions and Rates, but TREATING CERTAIN INCOME ELEMENTS AS IN THE UNITED STATES , i.e. Taxing Net Capital Gains and Exempting Dividends and Interest on Government Securities from Normal Tax as under the Revenue Act of 1934.

Normal Year (1926)     =     $5,115,905,878
Prosperity Year (1928) =      6,535,211,421
Depression Year (1931) =      3,089,936,619
Table 10
Estimate of Revenue from Individual Income Tax Using British
i.e. Exempting Net Capital Gains but Subjecting Dividends and
Interest on Government Securities to Normal Tax.) /1/

Normal Year (1926)     =     $5,362,758,151
Prosperity Year (1928) =      5,498,625,232
Depression Year (1931) =      4,6077,729,607

/1/ Estimates by Share and Koller.

This suggestion would mean securing a larger proportion of
additional revenues from the lower and middle class surtax brackets.
This may not be necessary in prosperous times, but, if large
revenues from the income tax are absolutely essential in times like
these in order to provide for emergency relief and also in order to
avoid large general sales taxes which are regressive, it is
necessary to call on these income classes. The largest aggregates of
income are in these and the lower income groups; the aggregates of
income in the high surtax groups are not nearly so large, especially
in years of depression, and hence even very high rates on those
brackets alone will not bring in sufficient revenue in depression

This is indicated in Graphs 7, 8, 9, and 10, which show the massing of Taxable income in the lower brackets in 1926 and 1932. Depression Years show much less in all Brackets but relatively much more decrease in the upper than in the lower brackets, as compared with the 1926 distribution of income.

In his memorandum on "The Burden of Taxation" Dr. Louis Shere estimates that the 1918 income tax, when combined with other Federal and State taxes, was almost confiscatory of the total net income of those in the highest brackets. This confirms the statement above that any large additional revenue, especially in depression years, cannot be gained without tapping the lower and middle income brackets. The 1934 surtaxes are not so high on the upper brackets, and the high excess-profits taxes and certain high excises of the war period are not in effect now, so that under the 1934 Act there is now a wider margin of income left in the higher brackets of the few who still have such incomes. The percentages in different years vary greatly, largely because of the different taxes and rates in effect. According to his figures, State taxes in general are proportional or regressive, but Federal income taxes since the beginning of the war have been graduated steeply enough to make the Federal system very progressive. They also make combined Federal and State taxes progressive in most years studied, though there are some exceptions.

The data of the estimates presented in Tables 3, 7, 8, 9, and 10 in the pages immediately preceding may be summarized somewhat as follows: /9/

First, it may be noted from Table 3 that the 1934 Act should bring large revenues in normal times and much larger yields in prosperous years. The most important fact conditioning and being conditioned by proper financial policy is recovery -- its extent, rate and continuity.

Next, it may be observed (Table 8) that, if the 1918 rates were incorporated in the 1934 Act, they would raise relatively little more than existing rates in depression years, about 10 per cent more in a "normal" year like 1926, and 15% more in a year like 1928 ("boom year"), assuming reasonable accuracy of the estimates.

The enormously greater productivity if present British income tax rates were incorporated in our 1934 Act are indicated in Tables 9 and 10. It is not possible to make the calculations exactly comparable to American figures because of different practices here and in Great Britain. In Table 9 capital gains are taxed, but dividends and interest on Government securities are exempted from the normal tax as under the Revenue Act of 1934. The estimate in Table 10 are more nearly on the basis of British practice, the capital gains are not included in taxable income but dividends and interest on Government securities are subjected to the normal tax. Those two tables give also an indication of the effects of British and American practices with respect to capital gains upon stability of revenues.

It is important to note (Table 3, p. 58) the great fluctuations in the yield of our income tax in depression, normal, and prosperous years as compared with the British. This is largely because the British depend chiefly upon normal tax rates -- 22 1/2 per cent now, 25 per cent until recently, as compared with our 4 per cent. The aggregates of normal and surtax rates upon the highest brackets are not greatly different in the two countries. Another reason for the stability of British yields is the importance and relative stability of the part of the tax base consisting of the "animal value of property and occupations".

Other very important causes of instability of United States taxes are: the high surtaxes upon the unusual profits of prosperous years, which exaggerate the fluctuations; the inclusion of capital gains in the United States, which increases this differences still more; and the provisions for deduction of losses prior to the 1934 Act, which had a still further important influence in the same direction. See Table 11 showing the comparative dependence of the United States and Great Britain upon normal taxes and surtaxes, respectively.

Table 11. -- Contrasts between relative proportions of Normal /1/ and Surtaxes /1/ in United States and Great Britain (Millions of Dollars: ??? Equivalent to $5.)

                            UNITED STATES

Year /2/            Total Tax            Income Tax /3/      Surtax
                Liability (Corp. &

1926               $1,962.3                 $1,513.9         $448.3
1928                2,348.4                  1,659.6          688.8
1931                  645.1                    459.0          186.1
1932 /5/              602.4                    372.1          230.3

                            GREAT BRITAIN

Year /2/             Total               Income Tax /4/    Surtax &

1926               $1,503.0                 $1,173.5         $329.5
1928                1,469.0                  1,188.0          281.0
1931                1,820.5                  1,437.0          383.5
1932 /2/            1,561.0                  1,257.5          303.5

                       A                             B
               % of Income Tax to              % of Surtax to
Year /2/      Total Tax liability           Total tax liability

1926                77.15                          22.85
1928                70.67                          29.33
1931                71.16                          28.84
1932                61.77                          38.23

                      A                              B
                % of Income Tax                % of Surtax &
Year /2/         to total tax               Supertax to total tax

1926                77.08                          21.92
1928                80.87                          19.13
1931                78.93                          21.07
1932                80.56                          19.44

/1/ Tax liability rather than taxes collected.

/2/ United States: on calendar basis.

Great Britain: on March 31 fiscal basis: therefore following year is shown as comparable; for example: U.S. calendar 1926 & G.B. year ending March 31, 1927, etc.

/3/ For comparative percentage purposes this figure reflects all individual tax except surtax, that is, normal individual income tax (less credit for earned income) plus tax on capital net gain (less credit for capital net loss); together with corporation tax.

/4/ Includes tax on individuals and what compares to corporation tax in U.S.

/5/ United States: includes all calendar year returns for 1932 and all fiscal year

In view of the present and prospective economic situations and
financial needs and for other reasons indicated above, the writer's
preference among the rate revision suggestions made above is for a
moderate change of rates in the direction of the British schedules.
A somewhat similar result could be secured by substantial increases
in our normal rate as mentioned under method 2 above. If this is
thought to be relatively too burdensome on the smaller incomes, it
could be combined with method 1. Method 1 alone would raise
relatively little revenue and if carried far would make the already
high surtaxes unreasonably high on the top brackets. Moreover, it
should be remembered that State Governments, as well as the Federal
Government, now levy income taxes, and that the former are likely to
depend upon them more in the future than in the past. This indicates
the urgent need for harmonization of State and Federal tax policies.

It is to be noted that the writer suggested a move toward, but not to (at least unless necessary), the British schedules, but the increase should be to the extent necessary to provide absolutely essential revenues. This assumes lowered exemptions as recommended below, supported by other taxes as well as income taxes. It assumes also that everything must be done within the bounds of political expediency but with no shrinking from a courageous tax policy that will reduce deficits and maintain strong public credit, even in the face of contemporary unpopularity. It is the essence of statesmanship to increase the popularity of what should and must be done.

SECTION V Personal Exemptions

V Personal Exemptions -- Possible Revisions

Another way to increase the yield of the income tax and to lessen its narrow class, or undemocratic character, would be to lower the personal exemptions. It probably is not politically feasible to lower them as much as should be done, but, rather than resort to a regressive general sales tax, it would be sounder to lower income tax exemptions enough and at the same time increase rates throughout the entire schedule sufficiently so that these two changes, combined with other desirable changes that are feasible, would increase income tax receipts by as much as an alternative general sales tax would yield.

1. A very small reduction which is recommended, if more is not feasible, is the changing of the $2,500 personal exemption to $2,000 for husband and wife and also for head of a family. This is twice the amount now allowed a single person, and it would make the two exemptions the same as under the Federal Act of 1918, the same as the mode of State income tax exemptions, and the same as for the Canadian income tax, though naturally higher than exemptions in Great Britain and practically all foreign countries where cost of living are normally lower.

This does not imply a denial that a general sales tax would be preferable to unsound credit and inflation, nor that a general sales tax could be used to help check or minimize wild inflation if that should get started. But, if adequate and better taxes are properly employed, we should never have to face the suggested undesirable alternative.

Two independent estimates, made by different methods, of the fiscal effects of reducing this personal exemption upon the bases of returns for "normal" (1926). "prosperous" (1928), and depression years (1931 and 1932) are given herewith. /10/

Table 12. Estimated Additional Revenue if $2,500 exemption were reduced to $2,000 assuming other provisions as in the Revenue Act of 1934

Based on               Estimate                  Estimate
returns                by S & K                  by W & A

1926                  $90,985,603                $66,999,000
1928                   97,330,292                 72,418,000
1931                   84,553,529                 38,179,000
1932                   29,652,580                 24,632,000

2. If politically possible, especially if much more revenue is
urgent, reduce the exemption of a single person to $800 and that of
husband and wife to $1,600 or $800 each. A widow or other head of a
family would have the same exemption as husband and wife. This is
comparable to early Wisconsin and some foreign personal exemptions,
though much more than the equivalent of present Wisconsin and
numerous foreign exemptions. Moreover, it seems entirely reasonable,
especially where revenues are badly needed.

The estimated increases in revenue that these reductions in exemptions would yield are as follows, assuming no other changes in the Revenue Act of 1934:

Based on               Estimate                  Estimate
returns                by S & K                  by W & A

1926                  $202,902,433              $156,533,000
1928                   229,484,801               169,194,000
1931                   165,899,391                89,201,000
1932                    75,229,306                57,550,000

3. The personal exemptions should not be applied to the surtax
base: they were not so applied by the Federal law until 1934, and
they are usually supposed to safeguard a minimum of subsistence or a
moderate standard of living. Surtaxes are not supposed to begin
until the taxpayer has an income in excess of such minimal, hence it
appears rather illogical to grant personal exemptions against surtax

It may be admitted, however, that rates, credits, and exemptions may be adjusted so as to accomplish much the same ends by a variety of means, and apparently a sort of equalization was intended when Congress in 1934 reduced the surtax exemption from $6,000 to $4,000 but permitted the personal exemption to be added for surtax purposes. Thus the married man with two dependents got a personal exemption of $3,300 ($2,500 + $800), which more than offset the $2,000 lowering of the surtax exemption. This advantage in turn was more than offset for taxpayers in the higher brackets because the higher rates reached lower down in the scale of the new brackets. The unmarried or single person did not get so favorable an offset as the married man because he has a personal exemption of only $1,000 to offset the $2,000 reduction in surtax exemption.

Table 13 Following are estimates of the increases in revenues that would be caused by discontinuing the application of the personal exemptions for surtax purposes under the 1934 Act

Year                                       Increase in Revenue

"Normal" year (1926 income basis)             $190,624,546 /1/
"Prosperous" year (1928 income basis)          213,640,210 /1/
"Depression" year (1931 income basis)          104,555,473 /1/
"Depression" year (1932 income basis)           41,595,259 /1/
1934 (1932 income basis)                        50,000,000 /2/
/1/ Estimates by Shere and Koller

/2/ Estimates submitted by Miss Burr, Treasury Section of Financial and Economic Research on the basis of 1932 income returns. About 70 per

4. If the recommendation for the discontinuance of personal
exemptions for surtax purposes is not adopted, an alternative that
would meet most of the objections to the present practice would be
to confine the application of these exemptions to the first bracket
(or, if necessary, to the first and second brackets) without
permitting such exemptions to elevate the brackets all the way up
and thus in effect reduce surtax rates. (See calculation "B" below).

For example, under existing law (1934 Act) a man and wife with two dependents get a personal exemption of $3,300 ($2,500 + $800) plus a surtax exemption of $4,000, total $7,300 for surtax purposes. Suppose this family had a net income of $110,000, them:

     A. The base for normal tax
        would be                     $110,000 - $3,300 = $106,700

     B. Under the "recommendation 3"
       above the surtax base would
       be                            $110,000 - $4,000 = $106,700

     C. Under present law the surtax
       base is                       $110,000 - $7,300 = $102,700

     (Surtax base is cut off at the top)

D. Under the alternative "recommendation 4" in the paragraph
immediately above, the surtax base would not have an extra $3,300 of
personal exemption cut off at the top (thus lessening the taxable
income in the highest bracket where the highest rate applies),
rather the surtax would be calculated as in "B", except that the
first bracket (or first and second brackets if the first alone was
not as large as the amount of exemptions) would be reduced by the
allowable personal exemption, and the surtax rate applicable to the
first bracket (or rates applicable to first and second) would be
applied only to the remainder of income in this bracket after
deduction of personal exemption. This would leave the other brackets
undisturbed with the same rate applicable to each of them as if
there were no personal exemption for surtax purposes. In other
words, this method in effect cuts and surtax base off at the bottom
where the low rates apply, whereas the present method cuts it off at
the top where the highest rates apply.

5. The same result may be accomplished by an adaptation of the Wisconsin method of exemptions to the Federal surtax. There the graduated tax is first calculated without benefit of personal exemptions. From this preliminary tax liability figure is subtracted a flat amount ($17.50 for husband and wife, $4.00 for each dependent, or $8.00 for a single person), regardless of the size of the income or of the income tax. The exemption or credit is in terms of tax and not in terms of income upon which tax is calculated. Under the usual method, where the exemption or credit is in terms of income, it serves to reduce the tax by the amount of the credit multiplied by the rate applicable to the highest bracket, so that the taxpayer with a large income may get many more dollars in tax reduction than the smaller taxpayer, although both have the same credit against income. Obviously this method has importance only when used in connection with graduated rates. The Wisconsin method accomplishes approximately the same as "recommendation 4" though some think that it is politically more expedient to draft the law in terms of "recommendation 4".

The following calculations illustrate the differences in surtax liability under "B", "C", and "D" above, assuming the 1934 Act unchanged otherwise,

    B. $28,000 + $3,120 (52 per cent of $6,000) =        $31,120
    C. $28,000 + $1,404 (52 per cent of $2,700) =         24,404
    D. $31,120 (as in B) - $145 =                         30,975

       Personal exemption calculated as follows:
       ($2,000 in first bracket @ 4 per cent = $80 plus $1,300
       in second bracket @ 5 per cent = $65., total $145, on
       $3,300) personal exemption)

    E. Wisconsin method, same as "D"                     $30,975

6. A meritorious alternative system of personal exemptions that
might be applied to normal or surtax base, or both, is illustrated
by former British practice, though the recommendation of this system
is not pressed now because others mentioned above are to be
preferred at the present time in view of the totality of

Under the former British system of vanishing exemptions, /11/ those having incomes in excess of certain amounts received no general exemptions ("abatements") at all. For example, in 1913-14, incomes not exceeding 160 were exempt and on incomes in excess of 160 the following abatements were allowed:

TABLE 13 a Vanishing Exemptions

POUNDS                  POUNDS                      POUNDS

160                          400                       160
400                          500                       150
500                          600                       120
600                          700                        70
700                           --                         0

H.B. Spaulding, The Income Tax in Great Britain and the United
States, 1927, p. 37.

Earned Income Credit. -- Perhaps a word should be said about
credits for "earned" income. As Chart 1, (Page 157 shows, such a
credit was first provided for the Federal income tax in the Act of
1924. Its application was extended twice during the next few years,
but it was eliminated in the Act of 1932. The elimination was due
partly to the need for more revenue and partly to the extra
complications and numerous errors which it caused in the preparation
of returns. The Act of 1934 introduced a very modest 10 per cent
credit, the calculation of which will be much simpler because it is
a straight credit against income whereas the former credit was
against tax with the various limiting conditions. The latter caused
most of the complications in calculating the tax liability.

The British have permitted credits against earned income since 1907, and the justification for such a credit has been widely recognized. The general assumption is that one without adequate savings to provide for illness, unemployment, old age, and other special needs should lay aside something regularly for such needs, hence only a part of his current income should be spent for current needs. The "earned" income credit is designed to allow for the difference in his tax paying, ability and that of another individual with a like amount of "unearned" income whose property already accumulated serves as an endowment fund to meet these special needs.

If the Federal income tax were the only tax to be considered, the case for the income credit would be much stronger than it is. As a matter of fact, State and, particularly, local Governments have been supported largely by property taxes for many decades. If Federal, State, and local taxes are viewed in combination it is seen that we have long had differentiation against "unearned" or "funded" incomes, and hence that it is not necessary to apply a special credit in the Federal income tax to secure this result.

There are two or three modifying factors which may be mentioned, however. To the extent that certain classes of property may evade or avoid taxation and to the extent that income, gasoline, sales, and other special taxes are substituted for property taxes, this differentiations is lessened, though this lessening may be more than offset by increases in property taxes. It is clear, however, that to the extent that income taxes increases in height and in relative importance, there is increasing need to consider credits for "earned" income. With conditions as they are, there seems to be little need of changing the present "earned" income credit either up or down.

Summary. -- The main considerations in determining the proper amounts for the personal exemptions are cost of living, revenue requirements, administrative expediency, and general public policy. Almost every one would agree that a minimum of subsistence should be exempted. Many could leave untaxed a standard of living much higher than this minimum, how much higher dependent upon the balancing of all considerations. Large exemptions obviously reduce revenue, but they simplify administration greatly. Some argue, however, that the question of exemptions is a purely administrative and political problem and that is would be wise to eliminate them if feasible and reduce certain individual taxes accordingly. As stated above, (page 74) taxes, rates, and exemptions can be adjusted or manipulated to accomplish almost any desired graduation. The main question is what is best, including what is most feasible, all things considered.

It is also argued by some that the expense of collecting taxes on millions of small incomes at the base of the income pyramid is out of proportion to the revenue received. It is stated by those at the head of the Federal Income Tax Unit, however, that there would be very little extra expense caused by lowering personal exemptions as recommended above. Moreover, reducing personal exemptions for graduated taxes has the effect of adding that much to the top income brackets, which are subject to the highest rates. Thus, such exemptions increase revenues: (1) by including more taxpayers, (2) by increasing taxable income of those already paying, and (3) by bringing more of the income of those already paying into the brackets subject to the highest rates for each taxpayer.

If many new returns of small incomes are to be required, it is important that they should be checked sufficiently well to prevent much evasion. It is much better never to let evasion develop on a large scaled than to have to root it out after it has developed. Therefore, simplifications of administration through large exemptions is much more defensible in the early stages of income tax experience than after administration has been perfected. The United States has now had sufficient experience, however, to enable it to dip down deeper in the income than it has done heretofore.