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April 11, 1941 My dear Mr, President: In response to your request, I have goae orer the Currie tax memorandum which you gare ne» 3?he in<a£tora&aum herewith attached was prepared in consul tat ion with Dr. Currie, Br, Kansas, and staff serabers, I wish particularly to call attention to the main points stressed, as follows: 1# Public Qo&g#m. over Debt* .Deficit A budget deficit of |13 billions* with exiating tax is indicated for fiscal year I M S . The public will be ssaeh coBCerned unless this gap is closed by a substantial amount* With respect to inflation, specific price control a©aaures ar© of primary importance, but the public will not b© reassured without substantial tax increases. Profits find Labor Corporate profits in 1941 will rise rapidly. Unless these profits (mainly incident to defense expenditures) are taxed awsy, labor desaaads arc alnost certain to get out of hand. Without an honest programs to tak© the profits out of war, we eansot hop© for social and labor stabil ity. Interested groups are pressing for a sale© tax. If corporations &x@ allowed l&rge profits and sales taxes ar® imposed, inflesEsatory labor disturbances will b© f©d from two sourcegt: (1) large corporate profits, and (2) rising labor costs* ^ plus BrQ&&®fiJjfip of lll^^Q Tax Excess defense profits must bo taxed a m y . But this is not enough. Everyone above & basic minijsum Income sust contribute to defense, Oaly by broadening the income tax base and raising the normal rate can we head off a regresaiTe sales tax. proposals sade will yield abomt #2*5 billions additional revenue for fiscal 1942, I'he ^essorandum also calls atteation to the prodigious yield of a strong excess profits tax when the national income reaches #100 billions* It is not only the isost equitable tax, but it is also a great rerenus producer. Respectfully yours, The President, House. The White M. S. Eceles April 11, 19f.*l profits T«sc - £b© present gigtiufe©, f a l l i n g far short of the i n tention stated" "is :feur assa'age of July 1 # 19tjOf "to see that * f*>r do not gala frcw tho saerlfieea of W i&as^f** In MM task of «irmiBg for BaMsatal i§4toUBtc should b© drastically r$i&©ed# Labor can not W*X1 b@ afksd to moderate i t s deaands i f aa* ployers «r© penal tted to nsiida hug* profit®. After paying tisjses r<sfl©©ti&g Us* elrea4y »*d© gad In pro«p«^ct» aany individuals w i l l h«*» leas seney l e f t th*y had b9fogr« th« dcrftozuui ^ogran got uad®r w®y, ^Hll< ©orporat© earnloga tasac asra sharply hlgKar ai^3 many eorpfMratlont sr© inakixie: J'^rs »on»y th&s thsy iiaT© OYtr ^ftde W o r e # In eoirtra«t to lisdirlduftl $«rniKg«» thaaa eorporat© @eeap«» the full forea oX the indlTldaal giarta^@s beoana« tb«y ^ay be r e without p©»alty. AM effective axcass profits t«x i s the beat way to make th«lr fair ahara of th* ttasc load. - i l x tlaa ©sreeee profits ba$© at not mor« than. 10 or l e s s t ^ i R o ' i ^ r o^nt ©» Lfl«S)«ts4 capital* tha ®xm% flgura within lisiit* to ba d@t«i^ia©d by pant ©arniiage ©spsridafi©. ^llsidjaat© borronwsd capital fra& th* statutory lavestod oapltal basa* Hataic the present specific of 15*000, On ©se@8E profits ever t h i s sa^iptlon, l®vy rmt®s as first 120*000 |io»ooo & 45,00c ( gent) 35 50 75 Hetain the proYitioas of the present laxr allowii^ personal serri^e corporations to eso&|)e $3te#s$ profits tass i f stoeScholdert are t&s&d on their appropriate of corporate ©ajrnis^;© ufKl#r the individual lneooeao An alternative* plan m?uld 'W to aeteblish it uidform #xe#«g profits of 6 p*r istSl rstwra an. Invested eapltal* A %tH rat© of 10 p^sr o#nt sdght be ftppll#4 to @«raisfs between 6 m& 7 P®r c ^ n ^ °^ i»v®«tad eapitali a rat# of £0 per oeat t o @amisge between 7 and 0 y^r ^»sfct end the &mm SO©1Q of grcduatieiQ eontinysd tintil a rate of 100 per cent would apply t o ^araiisgs in @sce»e of 15 per cent on invested capital* A Bodifieatioa of t h i s plan* beginnii^ th© rates at a i s w i soEasnsliiet higher than 10 p#r cent .and fixing a Maxis»fia rate of goiEaB^mt l e s s than IOC per oeat* might aset tbe objootioias thtit the schedule of rale I f i r s t outlined would pro4n#e relatiTsly larg© differences in tas^i for eorporatione with relatively s s a l l dlfforeaoee i n earain^8» that f i s c a l ^rodwotir^rmss wt>uld be impaired T3y a eehed^tle taadag the T@ry lar^e ^rol\sa@ of eeraiKgs b®t^s#m 6 aad C p®r eest oa Invested, capital at rslatiTely low r a t e s , asul that a IOC per cent ret© would of ftf^r isoentiYe for offiolen* Mortal Corporation Inecgag T*x * Tbe tsaxiiausi rate of uoraal corporation "'"&iyi"^ \m imrvm®® trtm SsC'i© ^5 psr I S l l i a step ceaerelly pated and already refleeted In corporate poliey # - "£hie Is the J^ott equitable of fell tuaeee and should be ms.de tiio beckboR© of our tax gtrusttare, Up to now, failed tot 2&ake as f u l l u®e of the p^rsoiial IMNHI tqaj EE ."ther denoeratie co\uitrles j , with the result that i t yield© only about 20 per eaaat of total fetoral Fressures oa tfe© Coagresslcsal CoBrdttees Jiave resulted in an lnooeas statute shot through -with Inconsistencies, in©fuiti0s and i^rauisiti^E for lainority groups of taxpayers* pecific P (it) *&*allow tho yerMMal MHfpital Md credit for ttip*Kdm&u tor rm*** pose* ©f surtax* Present practice tfasunts to graatisg « subsidy that iEcr^M.@« In value &s ineace increases* (fe) fax ih© ln®o$zi®& i f fcltt&eMll ana vrliwe ac a gliagla ineotsa, Xhe f f t t i l f g j 0J5 fll£n£ «#p*yr&ic* returns Is & te&»avoldaaoe device that in practice i s valuable only te wealth/ couples# and practically nil iroalti^ 1 couples make ug# of it« rrofessional «©nde«» of & high order at the GoTrctrisaieixt ^ dispoaal qua.ta to r©ss0T® %h® X«g«I sbf?t«©X*i® to this propoe«l if th» UM of !• sot bXeolead % objectors nt-io^ oppotition r^sts b^iemlly QA r c#rvntiTi«& rather than on l&pd grouM®. (o) I^^sr the surtax ^^i^ption to ^#<XK) QE& ii»r«s«# surt«3c rat<i»« (d) i&erfcase th» sorsal tax r&t® from I4. to I Srltieh n ^ i U BSW 3^ V^ P*3" ®*»t» 2^»^r pereoiial es^mptioms for carried ;-ereoos fsrcs l2 f 000 tio |X#600« fhl* MMMpUM ihould not logically be giore than double the praveist ease^tioa for elngXe psrsosjfi of $CK)C» H»eogal«ing; all the di sadT6i2t«c« of ihw^ly inereatlQc t*sss an large aaaberfl of eonparatively losp-iziecagi© eitixens # I t mm e«es» i:§psrmti^o to ixusrease the mato*r of oltlsoiui partlolpatlac by tlie of dlreot taxes iii the t%Mm*&M§ of H i ItfiNN £<tate and pi ft J**** * O a ^U2^ W# ^S'J$# you said " ii to geiief«bioa of ^&st fortimce % i d l l , ttikmrit&sm® or eos®ist#ut witli the idoals and e«atts»at« of the Amorleaa p#©plo» Such #oo:i«^lc power i« a* .Ln&om&icrtaiii vitli the idsal® of this gesiurfttlor; as isii#rit®d pelitie&L pc%*©r was wissoneletent with tfct id@al« of the generation t^blitlwd our g:oK^r2^oait» "l&e tmk of l^ris^l^g l«v into conformity with 14#al«j, tofua in the Keveautf Act of 1955• ou^il to bo flai.»b@d 1« eivtahXith a siacl® schedule of r«tt©# applleaole to Ik* curauilatlve total of g i l t s dKsriag life plus M M l paesii^ at doatiu Under present p gifts eufcjwt to tax l a the lowest kr«ck@t« of the gift | m MH Ve u» of «voidiag t«2E*s in the hi^isoet braek&tg of th© ©stat© tax* Great accumulations of w&alth can be trannaltted by gift us wvll as by b®^uo«t* en4 n coa«ist©st public- pollay would tax both typas of tr«ua»fer At the &«£&« ©ff^etiv© rerbes* But if i t n&re thought deslrmiBle to luav© ®ia incentiTt for the ioafelz^ Q* £ i ^ » » ^^® totfil tax:fe«s««ee<ioa a gift might be arbitrarily reduced by ten *p®r cent frets the tax assessed on a tr^mfcr of the sapo «@ifi%mt m*d© at death* ?als« tho now unduly low ratee applicabl© to Stg>>i under $10 million* 2# for the present ©sj^^tlons of $k09O0Q under the gift tax, M|0#0l goaeral u^isr the ^stat# tax # ead 3.t0t000 insuraaee under the-- estate tax —» P. total of |XS0#CXK3 — substitute & sir^gle exesaptloa of t8$*000t applieablo to insurance pr«c<^#d« ar property in ©ay o t ^ r forsi* 3« Limit the rl^bt to saak$ te^-ex^npt gifts «uM bequests to charitable iovtitutioas #ith#r by limitli^ tins tmmm& ®£ sueh iMpMNNTi or ^e gift or iMpMt t© b© eertlflod #$ truly in the public internet ty qualified @?;p#rt opiuion.* Sueh transfers oft^n ^.sorely reflect the whi^s af the donor and isrv© no useful publl© purpose* Ifc Broaden tho legal MMiifl of "sifts" a»d "transfer at' d«atlin to i&uoludie &11 tr&i'^ferg of preperty DlM transmit ^oalttt trcm one gia*91$loa to -3- • The ylfcla of these proposals in tbe calender year 194£ be roughly e^tim&t©& at follows: (Millions of dollars) 1 # 1&CQ9& profits tax reTisioss 800 ':. i«6m*l corporation tax 600 S« Individual income tax: 1/ (a) Disallow credits against surtax 200 (b) Tax lacom@s of oem$l*8 t\& single ineom# 200 (e) Balse surtax rates M l lower ©xsiaptioa 250 (d) Rais© nansal tax rates and lower extiipiions 500 «• Estate v^jad gift tsx S/ ~ 2,550 With a national income of flQO billion, th© proposed obau^es in the excess profits tax would result in an addition of il»750 to the yield of tbe present law or • total revenue fro© exce&e profit© tax «f $3t500 million. 1/ In the edtisuLtes of individual income tax yields, full sccount has been taken of th® effect of incr@«is#d eori)orat« taxation on dividends. Zj Beoeuse of tho long \f% in collections, tia approoiablo yield is to bd expected in oal«nclfir 194E, but about |500 in revenue nould be realiz-ed in 1943 and subaequ^at years.
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