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[Part 1 of 3]

                              Table 19A

Aggregate expenditures of American families and single individuals
for main categories of consumption and total income by income levels.
1935-36

--------------------------------
                    Aggregate   
                  expenditures  
                       for      
 Income level                   
                  Food   Housing

--------------------------------
                   A. Amounts   
                  (millions of  
                    dollars)    
 Under $ 500      1,254      634
   500 - 750      1,645      781
   750 - 1,000    2,097      999
 1,000 - 1,250    2,074    1,037
 1,250 - 1,500    1,745      887
 1,500 - 1,750    1,474      786
 1,750 - 2,000    1,246      701
 2,000 - 3,000    2,776    1,641
 3,000 - 4,000    1,020      662
 4,000 - 5,000      386      271
 5,000 - 10,000     602      481
10,000 and over     546      626

    Total        16,865    9,506

                   B. Percents  

Under $     500    44.5     22.5
  500 -     750    42.3     20.1
  750 -   1,000    40.3     19.2
1,000 -   1,250    37.8     18.9
1,250 -   1,500    36.3     18.5
1,500 -   1,750    34.5     18.4
1,750 -   2,000    32.8     18.5
2,000 -   3,000    30.7     18.1
3,000 -   4,000    28.1     18.2
4,000 -   5,000    25.8     18.1
5,000 -  10,000    23.1     18.5
10,000 and over    17.3     19.8

     Total         33.6     18.9
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[Part 2 of 3]

                              Table 19A

Aggregate expenditures of American families and single individuals
for main categories of consumption and total income by income levels.
1935-36

-------------------------------------------------

                    Aggregate expenditures for   
 Income level    Household                       
                 Operation  Clothing  Automobiles

-------------------------------------------------

                 A. Amounts (millions of dollars)
 Under $ 500           269       212           63
   500 - 750           382       356          118
   750 - 1,000         525       495          218
 1,000 - 1,250         571       523          316
 1,250 - 1,500         490       479          315
 1,500 - 1,750         435       435          327
 1,750 - 2,000         391       388          327
 2,000 - 3,000         940       991          891
 3,000 - 4,000         402       425          375
 4,000 - 5,000         171       187          169
 5,000 - 10,000        316       329          299
10,000 and over        393       441          363

    Total            5,285     5,261        3,781

                           B. Percents           

Under $     500        9.5       7.5          2.2
  500 -     750        9.8       9.2          3.0
  750 -   1,000       10.1       9.5          4.2
1,000 -   1,250       10.4       9.5          5.8
1,250 -   1,500       10.2      10.0          6.6
1,500 -   1,750       10.2      10.2          7.6
1,750 -   2,000       10.3      10.2          8.6
2,000 -   3,000       10.4      11.0          9.9
3,000 -   4,000       11.1      11.7         10.3
4,000 -   5,000       11.4      12.5         11.3
5,000 -  10,000       12.1      12.6         11.5
10,000 and over       12.4      13.9         11.5

     Total            10.5      10.5          7.5
-------------------------------------------------

[Part 3 of 3]

                              Table 19A

Aggregate expenditures of American families and single individuals
for main categories of consumption and total income by income levels.
1935-36

------------------------------------------------
                   Aggregate                    
                 expenditures                   
                      for                       
 Income level                        Total      
                 Other  Total        income     

------------------------------------------------

                    A. Amounts (millions of     
                            dollars)            
 Under $ 500       385   2,817            2,062 
   500 - 750       606   3,888            3,616 
   750 - 1,000     875   5,209            5,130 
 1,000 - 1,250     966   5,487            5,589 
 1,250 - 1,500     891   4,807            5,109 
 1,500 - 1,750     821   4,278            4,661 
 1,750 - 2,000     741   3,794            4,214 
 2,000 - 3,000   1,804   9,043           10,577 
 3,000 - 4,000     747   3,631            4,599 
 4,000 - 5,000     310   1,494            2,045 
 5,000 - 10,000    577   2,604            4,092 
10,000 and over    793   3,162            7,576 

    Total        9,516  50,214           59,259 
                                Total           
                  B. Percents   expenditures as 
                                a percent of    
                                total income    
Under $     500   13.7   100.0            136.6%
  500 -     750   15.6   100.0            107.5 
  750 -   1,000   16.8   100.0            101.5 
1,000 -   1,250   17.6   100.0             98.2 
1,250 -   1,500   18.5   100.0             94.1 
1,500 -   1,750   19.2   100.0             91.8 
1,750 -   2,000   19.5   100.0             90.0 
2,000 -   3,000   19.9   100.0             85.5 
3,000 -   4,000   20.6   100.0             79.0 
4,000 -   5,000   20.7   100.0             73.1 
5,000 -  10,000   22.2   100.0             63.6 
10,000 and over   25.1   100.0             41.7 

     Total        19.0   100.0             84.7 
------------------------------------------------

Treasury Department, Division of Tax Research.

Source: "Consumer Expenditures in the United States", Table 31A, p.89: "Consumer Incomes in the United States", p.6


[Part 1 of 2]

                              Table 20

       Illustrative table of weekly exemptions and deductions
       allowed for purposes of the special withholding tax on
                         salaries and wages.

--------------------------------------------------------
                            Annual            Weekly    
                          exemption       exemption /1/ 

--------------------------------------------------------
Single person, not                                      
  head of family            $ 800         $ 16          
Single person, head                                     
  of family                 2,000           40          
Married person with:                                    
  No dependents             2,000           40          
  1 dependents              2,400           48          
  2 dependents              2,800           56          
  3 dependents              3,200           64          
  4 dependents              3,600           72          
  5 dependents              4,000           80          
  6 dependents              4,400           88          
  7 dependents              4,800           96          
  8 dependents              5,200          104          
  9 dependents              5,600          112          
 10 dependents              6,000          120          
over 10 dependents          6,000 \s?\     120 \s?\ $8  
                      $400 per dependent   per dependent
                      over 10              over 10      
--------------------------------------------------------

[Part 2 of 2]

                              Table 20

       Illustrative table of weekly exemptions and deductions
       allowed for purposes of the special withholding tax on
                         salaries and wages.

-----------------------------------------------------------
                       Weekly deduction         Total      
                        (10% of weekly          weekly     
                      personal exemption)   allowance /2/  

-----------------------------------------------------------
Single person, not                                         
  head of family      $ 1.60               $ 18.           
Single person, head                                        
  of family             4.00                 44            
Married person with:                                       
  No dependents         4.00                 44            
  1 dependents          4.80                 53            
  2 dependents          5.60                 62            
  3 dependents          6.40                 70            
  4 dependents          7.20                 79            
  5 dependents          8.00                 88            
  6 dependents          8.80                 97            
  7 dependents          9.60                106            
  8 dependents         10.40                114            
  9 dependents         11.20                123            
 10 dependents         12.00                132            
over 10 dependents     12.00 \s?\ $.80      132 \s?\ $9 per
                       per dependent        dependent      
                       over 10              over 10        
-----------------------------------------------------------
                         FOOTNOTES TO TABLE

     Treasury Department.

     Division of Tax Research.

     /1/ Determined on the basis of 50 weeks to the year.

     /2/ Total weekly allowance rounded to the nearest dollar.

                          END OF FOOTNOTES

FOOTNOTES

/1/ The 10% figure is arbitrary and is allowed in order to approximate a net income basis for tax. Income tax statistics for 1938 show that for individuals with net incomes between $1,000 and $5,000, the deductions for taxes paid, interest paid and contributions amounted to 12.9% of their personal exemptions and dependent credits.

/2/ For example, during the period January 1938 - June 1940, persons who were employed on a part time basis ranged from 6.0% to 12.6% of the total working force.

/3/ Chairman of the Committee on Taxation of the Chamber of Commerce of the State of New York.

/4/ Professor of Economics, Iowa State College, Ames, Iowa.

/5/ The Commonwealth differentiates the amount withheld weekly on the basis of marital and dependent status. In South Australia, a flat exemption only is allowed, and no distinction is made on behalf of marital or dependent status.

/6/ Testimony of William J. Schiefflin, Jr., Chairman of the Committee on Taxation of the Chamber of Commerce of the State of New York and Professor Albert G. Hart, Iowa State College, in Hearings before the Committee on Ways and Means, Revenue Revision, 1941, pages 150 and 324; Letters to the Secretary from R. P. Ettinger, Prentice Hall, Inc., dated April 30, 1940. S. T. Armstrong, dated March 17, 1941, and Mark H. Gunlefinger, dated February 19, 1941.

/7/ Hearings on Revenue Revision, 1941. Testimony of William J. Schiefflin, Jr., Chairman of the Committee on Taxation of the Chamber of Commerce of the State of New York, page 150, and of Professor Albert G. Hart, Iowa State College, page 324.

/8/ Section 33 of the Income Tax Act of 1894.

/9/ Section 2 of the Revenue Act of 1913 and Section 9 of the Revenue Act of 1916. Under Regulations 33 (unrevised), Part 2, tax was not withheld on incomes derived from the following professions and vocations: agents on a commission basis, lawyers, doctors, authors, inventors and other professional persons whose income is irregular and indefinite. Sources of income exempt from income taxation (e. g., value of property received by gift or bequest, proceeds of life insurance policies, Government interest and compensation of public employees) were also exempt from withholding. Further, tax was not withheld by banks on interest paid on deposits nor was tax withheld on bond interest received by corporations although such interest was includible in the annual income return of the recipient of the interest. According to the Ways and Means Committee Report (63rd Cong., 1st sess., House Report 5), it was anticipated that collection at source would save the taxpayer annoyance and increase the amount of revenue which the Government would otherwise receive.

/10/ The exemptions were $3,000 for a single person and $4,000 for a married person. No credit for dependents was allowed under the Revenue Acts of 1913-1916.

/11/ The income tax under the Acts of 1913-1916 was payable in full on due dates. Withholding agents of some type of income (e. g., income from interest) were required to submit monthly lists of amounts withheld but the tax was not assessed or payable to the Collector until after the annual return was filed. Certificates of exemption and deduction were to be forwarded by the withholding agent to the Collector as soon as received.

/12/ Mortimer L. Schiff, "Some Aspects of the Income Tax," The Annals of the American Academy of Political and Social Science, March, 1915, pages 24-26.

/13/ ANNUAL REPORT OF THE SECRETARY OF THE TREASURY for 1916, page 19.

/14/ ANNUAL REPORT OF THE SECRETARY OF THE TREASURY for 1916, page 674.

/15/ Page 25.

/16/ Total income less deductions except the allowance for donations.

/17/ The original law was applicable to incomes arising after June 30, 1940; the amended law applies to incomes arising during the calendar year 1941.

/18/ A similar plan has been suggested by Dr. Carl S. Shoup. For a description, see Appendix 1.

/19/ Except that employers are not required to deduct tax at source in any instance where the total AMOUNT of wages or salaries (exclusive of subsistence) paid to an employee during any week does not exceed $8. The purpose of this ruling is to obviate innumerable small deductions of tax which might involve refunds.

/20/ Explanation and rulings issued by the Income Tax Division of the Department of National Revenue, reprinted in CCH Canadian Tax Service.

/21/ The province of British Columbia has however had a tax at source on wages since 1931. Under its law, the tax is withheld on all salaries if such salaries are $14 or more weekly. The basic difference between this and the Dominion tax is that under this tax no allowance is made for differences in marital or dependent status in determining the level at which withholding starts. Amounts withheld at source are credited against tax liability determined on the basis of an end-of-year return. For 1940. 153,000 individuals filed returns. Of these 142,000 or almost 90 percent received refunds; 10,000 showed additional taxes or refunds due of less than $1, on which no action was taken; and 1,000 showed additional tax liability. Almost 48 percent of the total amount withheld was refunded to taxpayers and it is believed that a large amount of taxpayers entitled to small refunds failed to make claim therefor. (Source: Hart, A. G., "Details of Proposals for Prompt Collection of Income Taxes," pp. x-s-6-12)

/22/ The refund procedure is outlined in Appendix 2.

/23/ "Old Age and Survivors Insurance Statistics," 1938, released by the Social Security Board, 1940.

/24/ It is understood informally that the Canadians anticipate that due to war-time enthusiasm, relatively few refund claims will be made.

/25/ For example, persons might sell their receipts to other persons at a discount rather than go through the nuisance of claiming & refund.

/26/ Chairman of the Committee on Taxation of the Chamber of Commerce of the State of New York. HEARINGS, page 150.

/27/ Salaries and wages constituted about 58 percent and dividends about 14 percent of total income for returns with net income; salaries and wages constituted about 73 percent and dividends 25 percent of total income on returns with net income of under $5,000. (Tables 4 and 5)

/28/ Page 9.

/29/ If this additional tax were regarded as a surtax and therefore applicable to partially tax-exempt interest, the tax could be withheld on this source without difficulty.

/30/ See Table 8.

/31/ Page 9.

/32/ Survey of Current Business, June 1941. Of the total net income of $12,447 million for unincorporated business, $4,970 million are attributed to agriculture and $7,477 million to other types of proprietorships and partnerships.

/33/ Workers in industries covered by old-age provisions of Social Security or in public employment constitute about 80 percent of the total number of employees in the United States. For data on numbers of workers in covered industries and public employment, see Table 16.

/34/ Professor of Economics, Iowa State College, Ames, Iowa. HEARINGS, page 324 et seq. The plan is also discussed in a report entitled "Financing Defense" prepared by the Economics Staff of Iowa State College under the direction of Professor Hart.

/35/ A flexible rate schedule was also suggested. Comment on this subject is, however, outside the scope of the present memorandum.

/36/ A. G. Hart, "Details of Proposals for Prompt Collection of Income Taxes," pages x-s-16-17. A similar plan has been suggested by William Vickerey of the Office of Price Administration and Civilian Supply.

/37/ Page 9.

/38/ Tables 2 and 16.

/39/ Tax on salaries and wages is assessed on the basis of the 12-month period ending within the previous tax year (the tax year begins on April 6). Thus, if a return is made on a calendar year basis, the assessment for 1940-1941 would be based on income derived during the calendar year 1939. The tax would be collected during 1941. In the United States, income tax liability for 1940 is based upon income derived during 1940. The tax is payable during 1941.

/40/ See page 4.

/41/ The basis of assessment is similar to the British. See page 18.

/42/ This section is based on Hytten, T., "Collecting Income Tax at Source," in the Economic Record (Australia) December 1932, page 278.

/43/ $16 per week is roughly equivalent to the present personal exemption for a single person.

/44/ On the basis of 1936 data published in "Consumer Incomes in the U. S., 1938." The concepts of income and dependents for this study differ from the concepts for income tax purposes. The 18 million figure is therefore only an indication of the magnitudes involved and may be several million too high. (See Table 17)

/45/ Exemption certificates could not however be issued in connection with sources of income other than salaries and wages. Undue amounts withheld from such sources other than salaries and wages would have to be handled by refund.

/46/ See Table 18.

/47/ A spending unit is defined as a single individual or a family of two or more persons pooling their incomes. Actually less than 14 percent of the spending units filed returns since the number of returns includes 48,477 returns of estates and trusts and approximately 150,000 separate returns of wives whose husbands also filed returns.

/48/ Income defined by the National Resources Committee includes wholly tax-exempt interest, certain income in kind, imputed income from rental value of owned houses and amounts allowed as deductions under the Federal income tax law, but excludes capital gains and losses. The Department of Commerce estimate excludes imputed income and includes payments to aggregates of individuals, i. e., insurance companies, savings banks, etc.

/49/ Before instituting a special income tax at source on the type suggested, consideration should be given to the alternative of lowering personal exemptions. To an indeterminate extent, many individuals would curtail making expenditures for consumer goods if their prospective tax liabilities were increased and through the popularization of tax anticipation certificates inflationary price increases would be controlled in a manner similar to a special income tax at source, though perhaps less effectively.

For the purpose of controlling inflationary price increases, it may be adequate to reduce the exemptions for heads of families to $1,500 since expenditures of those in the lower income classes are not likely to be made for articles, the supply of which is limited by Defense needs. (For information on expenditures, see the National Resources Committee report, "Consumer Expenditures in the United States"). Table 19A shows that individuals with incomes of $1,500 or less have little if any savings. 75% to 85% of the expenditures of these persons is for food, housing, household operation (fuel, light, etc.) and clothing. Persons with higher incomes spend a smaller proportion of their incomes for these items and more for automobiles and other consumer goods.

/50/ The 10% figure is arbitrary and is allowed in order to approximate a net income basis for tax. Income tax statistics for 1938 show that for individuals with net incomes between $1,000 and $5,000, the deductions for taxes paid, interest paid and contributions amounted to 12.9% of their personal exemptions and dependent credits.

/51/ In order to encourage accurate statements of marital and dependent status, Treasury forms for the purpose might be supplied to employers who, in turn, would give them to employees. On these forms, the names of all persons claimed as dependents would be reported in triplicate, one copy to remain with the employer, one with the taxpayer and one to be sent to the Bureau of Internal Revenue.

/52/ Persons who work 52 weeks would receive the benefit of 104% (52/50) of the annual allowances, since the same amount would be allowed for each week of the year that a workman was employed. The total liability would, however, be adjusted on the basis of the annual return, so that no advantage would be given to such persons.

/53/ Persons who did not have total income exceeding the annual exemptions but have had tax withheld would have to file a return to prove that their stamps should be redeemed for each.

/54/ A tentative allowance for deductions similar to that outlined under the suggested plan could be provided for by increasing the value of each certificate by 10%.

/55/ The allowances should be spread over 40 weeks rather than a longer period in order to insure full allowance to as many employees as possible. According to social security statistics, 90 percent or more of employees earning $1,000 or more were employed during all four quarters of the year and 98 percent or more worked 36 or more weeks out of the year. (Old Age & Survivors Insurance Statistics, 1938, p.2).

Crowding the allowances into 40 weeks under the suggested plan is not practicable since it would complicate the withholding procedure. If, under the suggested plan, an attempt was made to crowd the allowances, it would need to be provided that the allowances would be permitted only during the first 40 weeks of the year. It could not be ANY 40 weeks during the year, since, when employees change jobs, no information is available to employers as to how many weeks during the year the employee had already worked. To grant the allowances only during the first 40 weeks would be unfair to persons unemployed during the first months of the year. This problem does not arise under a system of exemption certificates, for as long as the employee has coupons left, it is evidence that he has not worked 40 weeks during the year.

/56/ As outlined in Dr. Shoup's memorandum, "Suggested Program for Revenue Legislation 1941 and 1942."