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January 26, 19142. Mr. Thomas J. M l giantsoh, Greendale, Wisconsin* Hy dear Mr. Miglantsch: T h i s i s to acknowledge your letter of January 20 in which you inquire why the income tax base should be broadened by lowering exemptions* Z know o f no more equitable way to apply taxation than through the income tax for it is based on ability to pay. Tfnder the present law, I assume that you , as head of a family, would be entitled to $ 1,500 exsanption so that you pay no tax on your te a ch e r’ s sa la ry o f $1 ,1*00. Jfy suggestion was that this exoraption be lowered to |1 ,200 and i f you have dependent children you would s t i l l pay no ta x e s. Assuming, however, th a t th ere are no suoh dependents, you would pay a tax on $200 after taking the 11,200 exemption. At the current tax rate of 10 per cent, your tax would be #20. I understand th a t in Great B rita in and oth er countries this is still a very small amount compared to what p eop le in those countries are assessed on income tax. One alternative that has been strongly advocated by business groups is the imposition of a general sales tax. I take it from your letter that you are obliged to spend v ir t u a lly a l l of your salary. To the extent that a sales tax was applied to your expenditures, it would be much more onerous than what I propose. For example, assuming that a sales tax of 10 per cent applied to expenditures of $1,000, you would then pay $100 in such taxes. To my mind, this would be wholly inequitable and unfair. I sat entirely sympathetic with your feeling about incomes and profits in the upper brackets, and 1 have consistently advocated that the tax rates, individual and corporate, be applied on a progressively steeper scale a ll the way up the line and that a ll loopholes be im mediately dosed in these income taxes as w ell as in g if t, estate and inheritance taxes. I have argued that i t is essential not only to do this but to effect vigorous inflation controls before tapping incomes in the lower brackets* I think you w ill see on a lit t le reflection that putting a ceiling on incomes — and you suggest a high ceiling of $23,000 — would not be appropriate* Leaving aside the question of the capital is tic system and the fact that many of large means have commitments Hr. Thomas J. M i giantsoh - (2) January 26, 19^2 and obligations which could not be met if such ceilings v ere imposed, the fact is that the additional revenue that such ceilings would yield, as compared to the revenue that will result from steeply progressive income taxes, would net be of real significance. Sore important, how ever, is the fact that a major purpose of taxation at this time is to put a damper on excess purchasing power. The bulk of that purchasing power is in income groups under $5*000 a year. Unless the income tax base is broadened t o in clu d e these groups down to those who are virtually at a su bsisten ce level and who should not be asked to make any a d d itio n a l s a c r i f i c e s , the anti-inflationary effect of taxation would be lost. You will agree, 1 think, that as a nation we face the choice either of su b je ctin g ourselves to the taxes and the other measures which w i l l m itig a te in f la t io n or paying in Increased prices infinitely more, as i n f la t io n gets out oI hand, than we pay in taxes. Seedless to add, I agree with what you have to say about the necessity for preserving morale by vigorously preventing profiteering. Sincerely yours, M. S. Eccles, Chairman. IT:b
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