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. r m F. R.
511
TO
I
FROM
REMARKS:
This letter was sent to Dr. Currie
to deliver to the President at 4:00
o'clock 4/22/4L.
4/24/41 - Copy o r letter and memo
:
sent to Secretary Morgenthau.
CHAIRMAN'S OFFICE
Arril 22, X9Udear iir. President:
At your suggestion, Ur. Sullivan of the
Treasury briefly outlined to : e the Treasury* s tax
a
program* As a result of that eonfer-aace and of previous extensive studies iad@ of the tax problem, I
have prepared a tax program as ovtU ned in the enclosed
memorandum. It is similar to the Treasury's proposals
both as to Its total yield and in the general revenue
sources on which it draws.
It differs materially, however, in the
method of computation of excess profits and the tax
rates thereon, the Treasury* s proposal* in mj opinion, being entirely inadequate.
The proposals in the attached
call for less revenue from individual surtaxes and certain excise taxes, -which are offset by a greater revenue
fro:,, excess profits tax..
Respectfully yours,
The Honorable
The President of the United States,
The Wilte House.
April 22, 19U
A TAX PROGRAM
Excess Profits Tax - In© present statute, falling far short of the intention
stated in tine President's message of July 1, I9I4O, *to see that a few do not gain from
th© sacrifices of th© many11 in the task of arming for national defense, should be
drastically revised. Labor can not well be askod to moderate Its demands if employers
are permitted to retain huge profits. Aftor paying taxes reflecting increases already
made and in prospect, many individuals will have less money left than they had before
the defense program got under wvyj meanwhile, many corporations are making more money,
oven after taxes, than they ever made before. In contract to individual earnings,
these corporate earnings escape the full force of th© individual surtaxes because they
may be retained without penalty. An effective excess profits tax is the best way to
make them bear their fair share of the tas load*
Specific Proposal - Fix tho excetc profits "base at not sore than 10 per cent
or less than 6 per cent on invested capital, thG exact figure within these limits to
be determined by past earnings experience. Retain the present specific exemption of
!5#00O. On excess profits over thi$ exemption, levy rates as follows! 25 per cent on
the first £20,QC0j 50 per cent en tho next $25,000; 75 per cent on the remainder of
excess profits. Retain the provisions of tho present law providing for special treatKent of hardship cases.
Special Defense Tax on Corporate Income - Raising the rate of normal corporate
income tax would increase the value of the tax "exemption privilege on income from over
• |20 billion of outstanding fetter*! Government securities. In order to levy upon such
income, enjoying immunity from normal tax but not from surtaxes, a fair share of the
increased tax burdens which th© cosmunity at larg© will b© called upon to pay* a
defense surtax on corporate income of 6 p®r cent, in addition to the present normal
rate of 2I4. per cent, is proposed.
Personal Income Tax - This is tho most equitable of all taxes and should b©
made th© backbone of our tax structure* Up to now, however, we have failed to make
as full use of the personal income tax as other democratic countries have dona, with
th© result that it yields only about 20 per cent of total Federal revenue. Pressures
on Congressional Comsiitwes have resulted in an income tax statute shot through with
inconsistencies, inequities and immunities for minority groups of taxpayers.
Specific Proposal - (a) Tex the incomes of husbands and wives as & single inc o m e The privilege of filing separate returns is & tax-avoidance device that in
practice is valuable only to wealthy couples, and practically all wealthy couples make
use of it. Professional services of a high order at the Government1» disposal are adequate to remove th© legal obstacles to this proposal.
(b) Lower the present personal exemption of $2,000 for married persons to
|l,600« The revenue thus obtained from the better paid wage-earners, together -with
existing and proposed consumption taxes paid by this group, will go far toward making
good possible losses in excess profits revenue if governmental prioe-oontrol, in combination with rising fVge* rates, should restrict th© growth of profits,
(c) Eliminate the present §l4-#000 eurtio: exemption, but continue to allow
deduction of personal exemption (reduced as proposed above) and credit for dependents
for surtax purposes. Sine© an increase in th© normal tax would increase th© value of
the tax-exempt privilege borne by outstanding Federal securities, increased revenue
from the individual income tax should be obtained primarily by increasing the surtax
rates. Accompanying upward revision of surtax rates tho Befense Tax* amounting to 10
per cent of the tax computed at present scheduled rates, should be eliminated. The
proposed schedule of rates is shown in Appendix A.
-2Estate and Gift Taxes - O June X9§ 1935» the President said "The transmission
n
from generation to generation of vast fortunes by w i l l , inheritance or gift, is not
consistent with the ideals and sentiments of the American people. Such inherited
economic power i s as inconsistent with the ideals of this generation as inherited
political power was inconsistent with the ideals of the generation which established our
government.n the task of bringing law into conformity with popul&r ideals, begun in the
Revenue Act of 1935» ought to be finished now,
1* listablisli & single schedule of rates applicable to the cumulative t o t a l
of gifts during life plus ©state passing at death. Under present practice, £ifts subject to tax in the lowest brackets of the fclft tax can b used &L a means of avoiding
©
taxes in the highest brackets of the estate tax* Great accumulations of wealth can be
transmitted by '^i^t as well as by bequest, and a consistent public policy would tax
both type© of transfer at the same effective rates. Raise the now unduly low rates
applicable to estates under HC million, the proposed schedule of rates is shown in.
Appendix A.
2. for the present exemptions of &£#0OQ under the gift tax* H0 O G general
t* Q
under the estate tax, and | j # C insurance under the ©state tax « a total of $120,000 —
&QO C
substitute a single exemption of £25*000.
3* Broaden the l«£,al concepts of "gifte" and "transfer at death" so that th©
estate tax will effectively reach all transfers of property that transmit wealth from
one generation to the next. Transfers fron life tenant to remainderman are among the
widely used devices for avoiding oetate tax.
1±. Liait th© right to make tax-exempt gifts and bequests to educational and
charitable institutions either by limiting the amount oi" such transfers or by requiring
the gift or bequest to be certified as truly In the publie interest by qualified expert
opinion* Such transfers often E*er«ly reflect th© whiE.& of the donor and serve no useful public purpose.
Excise Taxes - rhe following excise taxes would fall largely on goods requiring th© us© of scare© materials and skills needed for the defense program*
Proposed rate
Existing rate
(TSr cent c £ manufactuire'ra! price)
Passenger automobiles and motorcyclee
.
20
%5
Automobile part© and accessories
15
2.5
Radio sets
11
5.5
Mechanical refrigerators
11
5«5
Firearms, shells, p i s t o l s , revolvers
25
11
(Specific rates)
ffasoline
2 / per gal.
1»5/ per gal
Tires
>Qp P * lo
®"
2 . 5 / per lb
Tubes
5*5/ P©r ID
4*5/
Luxury goods (i"urs, jewelry, etc.)
Various rates
Revenue Yield * The yield of these proposals on a full year basis may be
roughly estimated as followst
(Millions of dollars)
1# xixcess profits tax revisions
700
2. Special defense tax on corporate incoiae
600
J, Individual income taxi
(a) Tax incomes of couples as single inooiae
jb) howmr married persons exee^ptioii to |i,600
c) Raise surtax rates and lower exemption
Estate and gift tax
Excise taxes
3.450
April 22, 19U
APPENDIX A
E2ISHHG AM) PROPOSED SURTAX HATES
Surtax s e t incoia©
Rat© (per cent)
(Thousands of d o l l a r s ) Existing{Proposed
0 to
2 to
k to
6 to
6 to
10 to
12 to
lh to
16 to
18 to
20 to
22 to
26 to
32 to
• —
8 to
to
0
0
6
G
10
12
lh
16
18
20
22
26
32
h
6
8
10
12
15
1
8
21
27
30
33
7
10
13
16
19
22
25
28
31
37
J4O
&
16
*
to
50
Surtax net ineoja©
Rat© (per cent)
(Thousands of dollars) Existing |Propose?
50 to
60
60 to
70
70 to
80
GO to
90
100
90 to
100 to
150
150 to
200
200 to
250
250 to
300
300 to
400 to
500
500 to
750
750 to 1,000
1,000 to 2,000
2,000 to 5,000
5,000 and over
Uoo
kl
50
53
56
56
60
62
6k
66
70
72
75
52
3h
56
58
60
62
s
66
67
68
70
72
75
EXISTING AUD PROPOSED ESTATE TAX. RASES
Net Bstate
Exceeding d Equalling
mmm
10
20
30
10
+
50
70
100
150
200
250
I4OO
450
600
750
800
Hotet
10
20
B
50
70
100
150
200
250
400
too
600
750
800
1,000
Rate (per cent)
Sbci sti'ng | Proposed
2
1
*
6
8
10
12
lh
17
17
20
20
23
23
26
26
29
3
6
10
12
15
18
21
25
25
30
30
35
35
39
39
u
Bet Estate
Hat© ( per cent)
Sceedl'iig 1 Squalling Existing Proposed
"Tfoooj
1,000
32
1,500
46
1,500
2,000
49
35
2,000
2,500
51
2,500
3,000
53
G
3,000
55
3,5oo
ih
3.500
57
47
4,000
14,000
50
59
4.500
5,000
61
4,500
53
5,000
6,000
56
6,000
7,000
59
61
7.000
8,000
65
9,000
8,000
66
63
10,000
9,000
67
65
20,000
60
10,000
67
50,000
20,000
69
69
70
70
50,00c
§
Under existing law ^n@t estat© ie computed oy deduetiiag a specific exemption of |l4.0,000j under the proposed law the specific exemption would be reduced
to 125,000.
