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L O R D , D A Y L U C I U S H. B E E R S HENRY DE FOREST BALDWIN F R A N K L I N B. L O R D A L L A N B. A . B R A D L E Y ALLEN EVARTS F O S T E R 25 & CABLEADDRESS B R O A D W A Y NEW LORDATTY YORK C U N A R D GEORGE DE FOREST LORD PARKER MCCOLLESTER RANDOLPH E.PAUL S H E R M A N BALDWIN L O R D B U I L D I N G NEW YORK W A S H I N G T O N JAMES S.HEMINGWAY SOUTHERN HERBERT BROWNELL.JR. T H O M A S F.DALY HARRY J . R U D I C K August O F F I C E BUILDING 1941 The Hon. Marriner Kccles, Chairman Federal Reserve Board Washington, D. C. Dear Marriner: I was glad to hear you say yesterday that you were in favor of the joint return proposal. You and I are alike in that we have profited materially by the provisions of the existing law and were trying to talk our family economic units out of a fair amount of annual income. You may be interested to know that the New York Times could find no space for the communication Harry Rudick and I addressed to the paper. I would hate to think that our letter was not published because we were on the wrong side of the question. Thank you for sending — who did so — your article. I suppose you were the one a copy of the current issue of Fortune containing I glanced at the proof of this at JeromeTs house last week end, and I shall read the final article with interest, S inc er REP: A your s, c 0 p r LORD, DAY & LORD 25 Broadway Hew York July 31, 191*1. To the Editor of the Heir York Times 1 Compulsory Joint Income Tax Returns A Reply to Professor Griswold In a letter to you which was published In your Issue of July 27th, Professor Griswold of Harvard Law Sohool opposed the pending proposal for compulsory joint income tax returns of husbands and wires. Of the commentators who are against the proposalf Professor Griswold is one of the few who reoognlse the extreme weakness of the arguments advanced by the average objector, i.e., (1) that the proposal is unconstitutional, (2) that it will impair the Institution of marriage^ (3) that It will promote laosorality, and (U) that it constitutes a throwback to marital slavery for married women. Professor Griswold, conceding the speciousness of such arguments, nevertheless objects to the measure on the ground of fairness. We have a profound respect for any opinion of Professor Griswold, particularly in the tax field, but we feel constrained to differ from him in this instance, and to attempt a rebuttal of his arguments. 1* Professor Griswold argues that there Is a "certain element of retroactive unfairness* in the proposal to require joint returns because of the fact that Congress has encouraged husbands to make gifts of income-producing property to their wires and has exacted gift taxes for the privilege. This seems to be the most appealing of the arguments based on fairness, but It does not seem to us sufficient to overcome the inequitable distribution of the tax burden among married couples which exists under the present law. Moreover, - 2 - the gift tax was hardly intended to encourage gifts j If anything, it was intended to discourage gifts by exacting a cost for making them. The gift tax is designed to prevent escape from death duties, and is in large part a corollary of the estate tax* It Is true that many husbands have made gifts to their wires and paid substantial gift taxes in order to reduce not only death duties, but income taxes as well* This, of course, was perfectly legitimate. However, we do not see why an individual by paying a gift tax (and thus saving death duties) should acquire a vested right to have his family9s income tax reduced. Even under existing law a taxpayer who has made a gift to a member of his family, and paid gift tax thereon, m y find himself taxed on the income from the gift property* See, for example, Helverlng v* Clifford, 309 U*S* 331 (I9I4O) and Helverlng v* Eorst, 3 1 1 TT*S* 1 1 2 (19I4O). 2* Professor Grlswold argues that married persons have obligations which are not shared by many single persons, and he suggests that if no other way can be found to raise #300,000,000, a further general increase in rates would be preferable to singling out a portion of the community and imposing a discriminating tax against its members* Hhile married persons have obligations which are not shared by many single persons they also have certain privileges which are not enjoyed by many single persons* It is true that some of these privileges are wholly imponderable, but others are more tangible* For instance, a married couple Is not likely to pay twice as much for rent and certain other living expenses as two unmarried Individuals not living together* Moreover, assuming the necessity of realising the revenue dependent upon the joint returns provision, the vast majority of married couples will pay less tax under a joint return requirement than they would if separate returns were permitted* The report of the Hays and Means Committee m the proposed new measure contains tablet showing that only six per cent of the married couples filing income tax returns file separate returns, end that the regaining ninety-four per eent will be obliged to pay higher taxes in order to sake up the revenue lost by allowing the six per eent to file separate returns* Thus, if the family in* come amounts to #10*000, all of it being earned by the husband, the tax would have to be f 1628 if separate returns were permitted, whereas it would amount to only #1166 if joint returns are required® She disorimln&tion which Pro* fessor Griswold complains of between married oouples and unmarried individuals would thus be supplanted - if the joint return requirement is dropped - by a highly inequitable discrimination between oouples where the inoome stems altogether or almost altogether f rom the husband and couples where the wife contributes a substantial part of the income* As indicated above, this last group comprises only six per eent of all married oouples filing income tax returns, and we cannot see, on grounds of fairness or any other grounds, why this relatively small group should enjoy tax privileges which will react detrimentally to the great majority* As pointed out by the Ways and Means Committee, a husband whose wife enjoys an independent inoome may as a practical matter be thereby relieved from sufficient familial burdens to increase materially his ability to support the Government* For example, a husband in such a position is not under the same practical burden to provide life insurance as the husband whose wife has no independent income* 5* Finally, Professor Griswold suggests that what the Treasury may be aiming for Is mot really joint returns* but the elimination of the discrimination in favor of residents of the nine community property states* In such states the husband is taxed on only half of his earnings* The other half •Il- ls taxable to the wife, and by filing separate returns husband and wife - and thus the family economic unit - obtain the benefit of the lower bracket rates. (Incidentally, a general increase In rates, the alternative suggested by Professor Grlswold, would aggravate this discrimination*) He further suggests that those who oppose compulsory joint returns should consider the possibility of turning the attaok so that it will oome to bear against the community property discrimination* We are certainly with Professor Grlswold in his objection to the discriminations involved in the community property system, but to our mind the problem Is broader than the elimination of this discrimination* There should also be eliminated the discrimination against families where all the income Is earned by the husband* If each of two families has a $10,000 income, each family Is likely to spend the same amount for rent, food, education of ohildren, etc., whether the income is earned wholly by the husband or whether it is earned in part by the husband and in part by the wife, or results in part from investments by the wife* In other words, each family is likely to maintain the same standard of living regardless of the souroe of income* This being so, why should there be a differential in the tax burden of the two families? Other countries, notably Great Britain, realistically consider husband and wife as a taxable unit, and the eltlsens of such countries have not considered themselves outraged by such treatment* Tax laws must be practical and oanhardly ever achieve the Ideal of perfect equality* They cannot take into account all of the personal obligations and hardships burdening each particular individual* Inequalities should, of course, be kept at a minimum, but where we cannot achieve perfect equality, and must choose between Inequalities, Is it not the better part of wisdom to accept an inequality affecting the few rather than the many? Randolph E« Paul Harry J. Rudiok F»S« In today9* Times there is an excerpt from a letter by Dr» Hioholas Murray Butler opposing joint returns* In support of his position Dr* Butler praises the British tax system, but fails to mention the fact that the British hare required joint returns since 191i*» LORD, DAY & LORD L U C I U S H. B E E R S HENRY DE FOREST BALDWIN F R A N K L I N B. L O R D ALLAN B . A . B R A D L E Y ALLEN EVARTS F O S T E R GEORGE DE FOREST LORD PARKER MCCOLLESTER R A N D O L P H E.PAUL S H E R M A N BALDWIN J O H N H. VINCENT (JAMES S. HEMINGWAY HERBERT BROWNELL.JR, T H O M A S F. DALY HARRY J. RUD1CK 25 CABLE B R O A D W A Y NEW CUNARD ADDRESS LORDATTY YORK NEW YORK BUILDING WASHINGTON SOUTHERN August 19, 1941 Mr. M. S. Eccles Chairman, Board of Governors Federal Reserve System Washington, D. C* Dear Marriner: Thank you for the comments in your letter of the 18th. Since you were so interested in the subject, I enclose herewith also a copy of a letter of recent vintage from Harry Rudick to Senator George, agreement with the letter* I am in Griswold has expressed his tentative dissent and we are trying to convert him. Since^ly, REP:T e n d . OFFICE BUILDING August 16* 1941, Mr. Randolph E. Paul, 25 Broadway, New York City, Hew Xork. Dear Randolph: I want to thank you for sending to me a copy of the letter you and Harry Hudick sent to the Editor of the New lork Times as a reply to Professor Griswold on ^Compulsory Joint Income Tax Returns11. I found it intensely interesting and a very powerful argument • I am in full sympathy vtith your ideas • I have taken the liberty of having copies made of the letter and am distributing them here* With kindest regards, Sincerely yours, MSB August 18, 1941* Governor Ransom Chainnan Eecles Randolph Paul* who is one of our New York directors, sent to me a copy of a letter v f i h he and Harry Rudick sent to the Editor tic of the Hew York Times in reply to a letter from Professor Griswold published in that newspaper* It is such an effective argument for "Compulsory Joint Income Tax Returns11, that I thought you would like to read it in case you had not already seen it* I am* therefore* enclosing a copy herev/ith* August 16* 1941, Dear Johns Handolph Paul sent to j e a copy of a a letter which he and Harry Kudick sent to the Editor of the Hew York Times in reply to a letter from Professor Griescold published in that newspaper* It la such an effective argument for "Compulsory Joint Income Tax Returns*, that I thought you would like to read it in case you had not already seen it* I am, therefore, enclosing a copy herewith* Sincerely yours, &r+ John L, Sullivan, Assistant Secretary of the Treasury, Wasidngton, D. C« August 16* 1941, Dear E* G«: Randolph Paul sent to i s a copy of a s letter which he and Harry Huciick sent to the Editor of the Hew Tork times in reply to a letter from. Professor Griswold published in that newspaper* Knowing your interest in this subject* I thought you might be interested in wh&t see&s to me to be a saost formidable argument in favor of joint returns* whether we personally like it or not* X must acte&t it is difficult to make a strong argument against it* ®lth kindest regards* Sincerely yours* Mr* £* G* Bennett* c/o First Security Corporation* Ogden* Utah* LORD, DAY & LORD LUCIUS H, BEERS HENRY DE FOREST BALDWIN FRANKLIN tt. LORD A L L A N ft. A. BRADLEY ALLAN EVARTS POSTER OEOROtt DE rOREST LORD PARKER MC COLLESTER RANDOLPH E. P A U L SHERMAN BALDWIN JOHN H. VINCENT JAMES 8. HEMINGWAY HERBERT B R O W N I L U , JR. THOMAS P. DALY HARRY J. flUOICK 25 BROADWAY NEW YORK CUNARD BUILDING CABLE ADDRESS LORDATTY NEW YORK WASHINGTON OFFICE SOUTHERN BUILDING August 7, 1941. Honorable Walter F, George Chairman, senate Finance Committee Washington, D. C. Sir* While the House Ways and Means Committee was considering the 1941 Revenue Act, x wrote to chairman Doughton supporting his stand with respect to mandatory joint Income tax returns from husbands and wives. Mr. Doughton read ay letter into the Congressional Reoord and it may have case to your attention* The House has defeated the compulsory joint return requireaent. To my mind its defeat was due* first* to the concentrated opposition of the representatives from the community property states who were* of course, not disinterested since the present system affords their citizens an unfair advantage over the taxpayers of the rest of the country, and, seoonfl, to a lack of realisation on the part of representatives from the other states that in opposing the joint return requireaent, they were acting to the detriment of the great majority of their constituents. With few exceptions, the newspapers, even those in non-oommunlty property states, have given an inordinate amount of space to arguments against the measure ana have ignored the arguaesfe* supporting it, with the result that most people pxobably think H o n o r a b l e Walter F . George - S* August ?, 1 9 4 1 . that oor^pulsory joint returns would increase their Income tax bill* whereas la faot the requirement would reduce the tax for the vast majority of them. This assumes, of course, that the revenue lost by elimination of the joint return requirement must he recouped by way of higher rates and lower exemptions* Because of the misinformation with which the public has been fed, the joint return requirement may not now be politically palatable* Nevertheless, x hope your committee will recommend it. However, if your committee is disinclined to restore the stricken requirement, may 1 suggest an alternative* What x have in mind is the enactment of a provision which the Bouse passed as part of the 19£1 Revenue Act, and which was also reooBstended by the senate Finance oamsaittee, but which* unfortunately, was eliminated on the floor of the senate* This provision • part of section 213(a) of the 1921 Act as reported by the Senate Finance Committee * read as follows* "income received by any marital community shall he included In the gross income of the spouse having the management and control of such community property, and shall he taxed as the Inoome of such spouse*" The enactment of such a provision would not, of course9 eliminate the present inequitable distribution of the tax burden between families where the husband Is the sole source of the family income and those where the wife contributes* But It would obliterate the even more inequitable tax differential between citizens of the Honorable Walter F. George - S* August ?, 1941. community property states end those or the non-community property states. Moreover* such a provision would not be subject to attack on the anemic moral grounds which were set up in opposition to the mandatory Joint return provision* X have given seme thought to the provision which was apparently suggested by Representative Dingell of Hiohigan, to witj An amendment of the income tax law which would throw open to the married couplea of the non-community property states the privilege of splitting their income, which is now enjoyed by married couples in the community property states. This, it is true, would treat all families throughout the country uniformly and would eliminate the unfair discrimination between families. It is defective, however* in that it would unduly increase the tax burden of the unmarried. X think nearly all will agree that there is no per* suasive reason why a husband who earns a salary in Mew york should pay a higher federal income tax than a husband who earns the same salary in California* The provision I have suggested above would eliminate this Inexcusable disparity* Although the attempt to enaet It failed in 1921, I think there would now be a substantial chance of success because of the faot that the attention of the country at large has been focused on the natter* AS X m Chairman of the committee on Taxation of the Association of the Bar of the city of Hew y0rk, I add that the views expressed herein are my own and not necessarily those of H o n o r a b l e Walter F . George - S* August ?, 1941. the c c s a t tee. aul for your convenience, I enclose herewith a copy of s y letter to chairman Doughton, also a copy of a letter which t ay partner, .Randolph £» Paul, and I jointly addressed to the j e jw York Times, hut which the Times did not print* HJKtC Respectfully, Enclosures mmxt s* rudiok TREASURY DEPARTMENT WASHINGTON SEP 3 t 4 91 Dear Marriner: Ihank you for sending me a copy of the letter which Randolph Paul and Harry Rudick sent to the Editor of the New York limes with respect to compulsory joint returns. I was especially pleased to read what they had written on the subject. Sincerely yours Honorable Marriner S. Eccles Chairman, Board of Governors Pederal Reserve System Washington, 3). C*
