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FOOTNOTES

/1/ See Appendix A: "General description of net value added tax according to its proponents."

/2/ Colm, Gerhard, "Methods of Financing Unemployment Compensation," SOCIAL RESEARCH, Vol. II (1935), p. 161; Studenski, Paul, HEARINGS RELATIVE TO THE SOCIAL SECURITY ACT AMENDMENTS OF 1939, Committee on Ways and Means, 67 Cong., 1st Sess., Vol. 2, p. 962; FINANCIAL MANAGEMENT SERIES NO. 58, American Management Association, 1939, p. 11. National Tax Association, FINAL REPORT OF THE COMMITTEE OF THE NATIONAL TAX ASSOCIATION ON FEDERAL TAXATION OF CORPORATIONS, 1939, p. 50.

/3/ See Appendix B: "Some moot questions respecting the determination of a net value added tax base."

/4/ See discussion in Appendix B.

/5/ With respect to articles produced and consumed by the taxpayer, see subsection D(3) below.

/6/ The Declared Value Excess Profits Tax is allowed as a deduction, since it is in fact a capital stock tax.

/7/ I.R.C., 1939, sec. 3441(c).

/8/ Reg. 46, sec. 316.9.

/9/ See, for example, Reg. 46, sec. 316.4.

/10/ I. R. C., sec. 3444(a).

/11/ Reg. 46, sec. 316.7.

/12/ 46 Stat. 590, 672 (U.S.C. Title 19, c. 4).

/13/ See, for example, I. R. C., sec. 3430.

/14/ I. R. C., sec. 3449; Reg. 46, secs. 316.25-316.27.

/15/ I. R. C., sec. 3442(3); Reg. 46, sec. 316.24.

/16/ I. R. C., sec. 3442; Reg. 46, secs. 316.20.316.22. See also "Federal Manufacturers' and Wholesalers' Sales Taxes," memorandum in the files of the Division of Tax Research, pp. 7, 71-74.

/17/ See below, Section VI, B.

/18/ Under the tax base as defined above, while the sum of the tax bases of taxpayers producing an article may never be more than the value of the finished article, it can be less. This is true because of exempt producers and because depreciation charges on existing capital goods and depletion charges are allowed. That is, only net additions to the business capital structure will enter the over-all tax base.

/19/ National Resources Committee, THE STRUCTURE OF THE AMERICAN ECONOMY, Part I, U. S. Government Printing Office, 1939, p. 99.

/20/ Temporary National Economic Committee HEARINGS, Part I: "Economic Prologue," U. S. Government Printing Office, 1939, p. 85.

/21/ Section V.

/22/ Statistical Abstract of the United States, 1939, p. 773.

/23/ Census of Business: 1935, "Retail Distribution," Vol. VI, pp. 156-157.

/24/ I. R. C., sec. 3451; Reg. 46, sec. 316.28.

/25/ Secs. 309(d) and 317(b) of the Tariff Act of 1930 as amended; Reg. 46, sec. 316.29.

/26/ For a complete discussion of sources of information and methods used, see Appendix C.

/27/ Table 1.

/28/ Ibid., column 1.

/29/ Supra, Section III, D.

/30/ Table 1, column 2.

/31/ Ibid., column 4.

/32/ "Federal Manufacturers' and Wholesalers' Sales Taxes," a memorandum in the files of the Division of Tax Research.

/33/ Table la.

/34/ See Table 1a.

/35/ It has already been indicated above that the net value added tax base, as generally conceived and as illustrated, probably could not be applied to financial institutions. In addition, the tax would not encompass the recipients of wages and salaries and taxable interest paid by governments. Thus, on wages and salaries paid to individuals employed by governments, the tax would not apply; whereas, in the case of wages and salaries paid to individuals employed by "producers," the tax would apply. The same is true with regards to interest payments by governments and "producers." The alternative to these exceptions is to define the recipients of wages, salaries and taxable interest paid by governments to be producers. This is the position of the recipients of rents and royalties paid by governments. The definition of such recipients as "producers," however, introduces administrative problems associated with the inclusion of many individuals as taxpayers. Furthermore, in these cases the tax no longer would be a business tax on "net value added" but an additional tax on incomes of individuals from wages, salaries and interest.

/36/ See Appendix A, pp. 1, 2.

/37/ Op. cit.; See also Colm, Gerhard, "The Ideal Tax System," Social Research, Vol. I (1934), pp. 328-329.

/38/ Table 2.

/39/ Colm, "The Ideal Tax System," op. cit., passim; "The Basis of Federal Fiscal Policy," Taxes, No. 6, Vol. 17 (June, 1939), passim; Studenski, Hearings, op. cit., p. 962.

/40/ Table 2.

/41/ See also U. S. Department of Commerce, "Survey of Current Business," June 1940, p. 9.

/42/ Table 3.

/43/ Tables 4 and 5.

/44/ Table 4.

/45/ Colm, "The Ideal Tax System," op. cit., pp. 328-329.

/46/ That is, insofar as government is viewed as a factor of production with respect to the free services rendered to business. However, insofar as proprietors benefit from the free services and enjoy greater profits thereby, the tax indicated is one measured by the excess profits rather than the net value added.

/47/ In the case of sole proprietorships and partnerships, also in those cases where individuals are recipients of net rents and royalties.

/48/ "Compensation of employees" was 62.5 percent of the total tax base in 1939. See Table 1, Appendix C. Short-term interest is not included in the "national income" estimates of the Department of Commerce.

/49/ Entrepreneurs' withdrawals accounted for 18.2 percent of the total tax base in 1939. See Table 1, Appendix C.

/50/ See "Federal Manufacturers' and Wholesalers' Sales Taxes," op. cit., pp. 39-41.

/51/ Op. cit., see pp. 41-50.

/52/ See Appendix A, p. 2.

/53/ Total number of returns filed. Only 471,000 active corporations filed returns, however.

/54/ Supra, p. 24.

/55/ National Tax Association, FINAL REPORT OF THE COMMITTEE OF THE NATIONAL TAX ASSOCIATION ON FEDERAL TAXATION OF CORPORATIONS, Columbia, S. C., October 1939, p. 50.

/56/ "Methods of Financing Unemployment Compensation," SOCIAL RESEARCH, Vol. 2, (1935), p. 161.

/57/ "The Basis of Federal Fiscal Policy," TAXES, No. 6, Vol. 17 (June 1939), p. 369.

/58/ HEARINGS RELATIVE TO THE SOCIAL SECURITY ACT AMENDMENTS OF 1939, Committee on Ways and Means, 67th Cong., 1st sess., Vol. 2, p. 962.

/59/ "Taxation and Business Enterprise," FINANCIAL MANAGEMENT SERIES NO. 59, American Management Association, 1939, p. 11.

/60/ "Toward a Theory of Business Taxation." Statement submitted to Honorable John W. Hanes, Under Secretary of the Treasury, November 10, 1939, as revised June 5, 1940, p. 24. In the files of the Division of Tax Research.

/61/ U. S. Treasury Department Hearing, Dr. Paul Studenski - re "Taxation and Business Enterprise," November 10, 1939, p. 45, in the files of the Division of Tax Research.

/62/ Idem., pp. 19-20.

/63/ "The Place of Business Taxation in the Revenue Systems of the States," THE TAX MAGAZINE, No. 4, Vol. 15 (April 1937), p. 199.

/64/ SOCIAL SECURITY FOR ALL AND HOW TO GET IT, General Welfare Federation of America, Inc., Washington, 1939. Anderson, Dewey, "Taxation, Recovery and Defense," Monograph No. 20, Temporary National Economic Committee, Washington, 1940, p. 260.

/65/ STUDIES IN INCOME AND WEALTH, vol. 1, p. 16.

/66/ See the discussion by M. A. Copeland in STUDIES IN INCOME AND WEALTH, Vol. 1, pp. 15, 18.

/67/ Op. cit., p. 18.

/68/ Regulations 103, sec. 19.22 (c)-4.

/69/ As a general rule, valuation losses in raw materials and goods in process are not taken up until they become finished goods.

/70/ Op. cit., p. 23.

/71/ Op. cit., p. 16.

/72/ Idem., pp. 193-194.

/73/ This appendix presents a detailed description of the methodology employed in preparing the 1939 estimates of tax bases and taxpayers. Estimates for 1935 (Table la in text) also have been prepared, but a separate description of the method employed is not presented since the explanation of the 1939 estimates generally describes the 1935 estimates.

A large part of the information respecting the number of taxpayers and the distribution of taxpayers by size of sales derives from the 1935 Census of Business. For some adjustments, however, 1935 data either were not available or it was too time-consuming to make separate estimates for both 1935 and 1939. In these cases, the proportions of the distributions used with respect to the 1939 estimates were also used for purposes of the 1935 estimates. For example, the 1937 income tax data with respect to the distribution by size of total assets of corporations engaged in mining and quarrying, and transportation were used for estimating both the 1939 and 1935 percentages of the total business units in these two industries with gross income of less than $20,000. These tax data also were used to estimate both the 1939 and 1935 percentages of the total net value added derived from mining and quarrying, electric light and power and gas, construction, and transportation, that probably were accounted for by those business firms with less than $20,000 of gross income.

With respect to the number of business units in the construction industry, there were available the data from the 1935 Census of Construction and the estimate for 1938 presented by Willard Thorp before the Temporary National Economic Committee. Since the 1935 Census data were incomplete, it was believed that the Thorp estimate of 150,000 units reduced by, say, 25,000 units would present a better approximation to the actual number than the 1935 Census report. In the case of business firms in the service industry, it was assumed that 3 percent of the firms had gross receipts of more than $20,000. The Census of Service Industries reported only 1.6 percent of the firms in this category, but an adjustment had to be made to provide for the omission of professional enterprises.

/74/ Supra, p. 3.

/75/ See U. S. Department of Commerce, NATIONAL INCOME IN THE UNITED STATES, 1929-1935, pp. 1-8, for a complete discussion of this concept.

/76/ National Resources Committee, THE STRUCTURE OF THE AMERICAN ECONOMY, Part I, p. 99.

/77/ See Tables 3, 4, and 5.

/78/ Appendix Table 1.

/79/ Appendix Table 2. The value of products includes goods produced and consumed on the farm.

/80/ U. S. Census of Agriculture: 1935, Vol. I, p. xvi.

/81/ Appendix Table 1.

/82/ The receipts of corporations reported as being taken from STATISTICS OF INCOME are the item "gross income." In addition to net sales and gross receipts from operations and rents and royalties received, this item includes capital gains, dividends and interest received which would not be in the net value added tax base, but except in the case of "finance," these items probably do not make up such a large portion of the total as to affect appreciably the validity of the examples used.

/83/ Appendix Table 3.

/84/ STATISTICS OF INCOME, 1937, Part 2, p. 50.

/85/ Ibid., Part 1, p. 28.

/86/ TREASURY BULLETIN, July 1940, p. 3. The coverage is not quite complete.

/87/ HEARINGS BEFORE THE TEMPORARY NATIONAL ECONOMIC COMMITTEE, Part 1, p. 96.

/88/ Appendix Table 4.

/89/ Appendix Table 1.

/90/ STATISTICS OF INCOME, 1937, Part 2, p. 54.

/91/ Biennial Census of Manufactures, 1937, special tabulation published in STATISTICAL ABSTRACT OF THE UNITED STATES, 1939, p. 773.

/92/ Appendix Table 1.

/93/ BIENNIAL CENSUS OF MANUFACTURES, 1939, preliminary summary, December 29, 1940, p. 1.

/94/ BIENNIAL CENSUS OF MANUFACTURES, 1937, special tabulation published in STATISTICAL ABSTRACT OF THE UNITED STATES, 1939, p. 773.

/95/ The Census of Manufactures does not cover establishments producing goods valued at less than $5,000, but neither are their products included in the Department of Commerce estimates of "income produced."

/96/ "Establishments" seems to be used to designate a business firm and not in the sense used in the Census of Manufacturing. See CENSUS OF BUSINESS: 1935, "construction Industry," Vol. I, p. vii.

/97/ Work performed in one year may be paid for in another year.

/98/ Appendix Table 5.

/99/ HEARINGS BEFORE THE TEMPORARY NATIONAL ECONOMIC COMMITTEE, Part XI, p. 5181.

/100/ Idem., p. 5504.

/101/ Appendix Table 1.

/102/ Appendix Table 6.

/103/ Appendix Table 7.

/104/ Appendix Table 4.

/105/ Statistics of Income. 1937. Part 2. pp. 54-55.

/106/ Op. cit.

/107/ CENSUS OF BUSINESS: 1935, "Motor Bus Transportation," p. 19.

/108/ Idem., "Motor Trucking for Hire," p. 21.

/109/ Appendix Table 7.

/110/ Unpublished data of National Income Section of the Department of Commerce.

/111/ Appendix Tables 6 and 7.

/112/ Appendix Table 4.

/113/ Appendix Table 1.

/114/ HEARINGS BEFORE THE TEMPORARY NATIONAL ECONOMIC COMMITTEE, Part 1, p. 96.

/115/ STATISTICS OF INCOME, 1937, Part 2, p. 55.

/116/ Radio broadcasting is considered a service industry. U. S. Department of Commerce, NATIONAL INCOME IN THE UNITED STATES, 1929-1935, p. 297.

/117/ The words "company" and "system" seem to be used synonymously.

/118/ Western Union is counted as two companies.

/119/ CENSUS OF ELECTRICAL INDUSTRIES: 1937, "Telephones and Telegraphs," passim.

/120/ Idem., p. 3.

/121/ Ibid.

/122/ CENSUS OF BUSINESS: 1935, "Wholesale Distribution," Vol. VI, p. 8

/123/ Appendix Table 8.

/124/ CENSUS OF BUSINESS: 1935, "Wholesale Distribution," Vol. I, p. 8.

/125/ Idem., "Retail Distribution," Vol. I, p. -1-22.

/126/ Table 1.

/127/ CENSUS OF BUSINESS: 1939, "Wholesale Trade, Preliminary Summary," December 19, 1940, p. 1.

/128/ Idem., "Retail Trade, Preliminary Summary," December 17, 1940, p. 1.

/129/ STATISTICS OF INCOME, 1937, Part 2, p. 61.

/130/ TREASURY BULLETIN, July 1940, p. 4. The coverage is not quite complete.

/131/ STATISTICS OF INCOME, 1937, Part 1, p. 28.

/132/ CENSUS OF BUSINESS: 1935, "Retail Distribution," Vol. I, p. -1-26.

/133/ Idem., "Wholesale Distribution," Vol. I, p. 40.

/134/ Idem., "Wholesale Distribution," Vol. VI, p. 8. Appendix Table 8.

/135/ Idem., "Retail Distribution," Vol. I, p. -1-22.

/136/ Appendix Table 8.

/137/ Appendix Table 1.

/138/ STATISTICS OF INCOME, 1937, Part 2, pp. 56, 57.

/139/ TREASURY BULLETIN, July 1940, p. 5. The coverage is not quite complete.

/140/ STATISTICS OF INCOME, 1937, Part 1, p. 28.

/141/ Appendix Table 9.

/142/ For an evaluation of the coverage see CENSUS OF BUSINESS: 1935, "Financial Institutions," pp. 1-vi.

/143/ STATISTICAL ABSTRACT OF THE UNITED STATES, 1939, p. 300.

/144/ Appendix Table 1.

/145/ NATIONAL INCOME IN THE UNITED STATES, 1929-1935, p. 209.

/146/ Appendix Table 10.

/147/ STATISTICS OF INCOME, 1937, Part 2, p. 56.

/148/ Idem., Part 1, p. 28.

/149/ TREASURY BULLETIN, July 1940, p. 4. The coverage is not quite complete.

/150/ Unpublished data of National Income Section of the Department of Commerce.

/151/ It has been estimated that there were 700,000 self-employed professional persons in 1939. HEARINGS BEFORE THE TEMPORARY NATIONAL ECONOMIC COMMITTEE, Part 1, p. 83.

/152/ Appendix Table 10.

/153/ Appendix Table 1.