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Fo'fjll R. 181 B O A R D OF G O V E R N O R S or THE F E D E R A L RESERVE S Y S T E M Office Correspondence To Chairman Eccles From Lauchlin Currie j)ate March 18, 1936 Subject: Revised tax estimates. 16—852 I am enclosing a revised set of estimates of the yield from the proposed taxes. Please substitute them for the estimates I sent you yesterday. If these estimates are accurate it does not look as though the adoption of your amendments would yield the amounts asked for by the President. On the other hand, there are grounds for thinking that they may yield more than the Treasury1s proposals* For one thing, the Treasury1s estimates of a yield of 35 per cent from the combined distributed and undistributed incomes appears high. I have asked Miss Burr to work on the Treasury's estimates. I am also enclosing a paragraph from the current issue of Today* Tentative March 19, 1956 TABLE I DETAILS OF ESTIMATES OF UNDISTRIBUTED EARNINGS OF CORPORATIONS, ADMINISTRATION PROPOSAL AND CHAIRMAN ECCLES' SUGGESTED MODIFICATION ON BASIS OF 1936 INCOMES Administration proposal 1/ Chairman Eccles 2/ (Millions of dollars) Statutory net income J5/ Add: Capital stock tax, no longer deductible Dividends received Deductions other than dividends paid: Income taxes paid Exemption of banks and insurance companies For amortization of funded debt, outstanding January 1, 19S6 Payment of current debt incurred prior to January 1, 1955 7,200 108 1,000 7,200 108 1,000 8,508 8,508 none 4/ 877 100 100 none 5/ 1,000-1,200 none 900-1,500 100 2,877-3,477 Earnings for distribution Dividends paid under present law Percent of earnings for distribution 8,208 3,540 43 5,431-4,831 3,540 65-73 Undistributed earnings under present law, that is, before further distribution as a result of new tax Percent of earnings for distribution 4,668 57 1,891-1,291 35-27 Total, other than dividends paid 1/ Estimates as reported in newspapers• 2/ Figures for statutory net income, capital stock tax deducted, dividends received, dividends paid under present law, and exemption of banks and insurance companies are Treasury estimates as published in the newspapers» Estimated deductions for repayment of debt are subject to a wide range of error* 5/ This estimate is about 15 percent larger than the figure on which Budget estimates were based. 4/ At flat IE percent rate* 5/ Assumes amortization of debt of railroads, and public utilities, over a period of 20 years and of other long-term debt, 10 years* Tentative March 19, 1956 TABLE II ADDITIONAL REVENUE DUE TO TAX ON UNDISTRIBUTED EARNINGS OF CORPORATIONS, ADMINISTRATION PROPOSAL AND CHAIRMAN ECCLES* SUGGESTED MODIFICATION ON BASIS OF 1936 INCOMES Admin1stration proposal 1/ Chairman Eccles High Low (In millions of dollars) Undistributed earnings on basis of present law (that is, before further distributions as a result of new tax) 4,668 Assumed taxable status of earnings ? As additional dividends Balance undistributed ? Rate of tax On dividends 2/ —percent 5/ *J%J 55 1/3-55*5 KJ/ JL.I KJ %J%J On balance—percent Tax On additional dividends On balance Total tax 1,556-1,658 Total dividends distributed 5,540 Under present law ? Additional assumed under new tax 7 Total 8,208 Earnings for distribution Percent distributed . KJ 1,891 1,291 945 945 645 645 4/ 31 50 4/ 31 50 4/ 295 475 766 4/ 200 323 523 3,540 945 4,485 5,431 85 3,540 645 4,185 4,831 87 1/ Estimates as reported in newspapers. 2j Normal and surtax. 5/ Average rate taking account of tax on additional dividends and tax on balance undistributed. Newspaper reports indicate 55 1/5 percent; reported revenue results indicate 35Spercent. 4/ Assumes that additional dividends will be reported by net income classes approximately as under present law. If the penalty rate is not high enough to force distributions to the larger incomes, this net rate and this tax yield would be too high. Tentative March 19, 1956 TABLE III COMPARISON OF REVENUE EFFECT OF TAX CHANGES, ADMINISTRATION PROPOSALS AND CHAIRMAN ECCLES' SUGGESTED MODIFICATIONS Administration 1/ Chairman Eccles High Low (In millions of dollars) New taxes: Tax on undistributed earnings (including tax on additional dividends distributed) Normal tax on dividends Total revenue from new taxes 1,556-1,658 94 1,650-1,752 Taxes repealed or revised: Corporation income tax Capital stock and excess profits Total revenue eliminated 952 (?) 170 (?) 1,152 Additional revenue 518-620 766 94 860 525 94 617 5/ 75 2/168 241 241 619 576 1/ Estimates as reported in newspapers. 2/ On basis of Budget estimates. 5/ Yield at 12 percent on 7,508 million dollars compared with estimate for calendar year 1956 indicated by Budget estimates.
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