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Form F. R. 131

BOARD OF G O V E R N O R S
or THE

F E D E R A L RESERVE SYSTEM

^ffice Correspondence
To

Chairman Eccles

From

Dt.
ae
Subject;

June 12, I9I1I

Tax Developments

Martin Krost
pIK.
On the basis of information from the Treasury and other sources,
i t seems l i k e l y at the moment that the House Ways and Means Committee w i l l
take the following action on the new tax b i l l s




1. Excess p r o f i t s tax - The framev/ork of the existing law
w i l l be retained; the invested capital credit w i l l be reduced and
the tax rates increased; the average earnings credit w i l l be l e f t
substantially unchanged. The committee has not yet decided between the two plans outlined in my memorandum of June
2• Surtax on corporate net income - The Treasury's proposals
f o r a surtax of 5 V e r cent on net income of less than $25*000
and 6 per cent on net income in excess of that amount w i l l probably be accepted.
3# Individual income tax - The personal exemptions w i l l be
l e f t unchanged. A schedule of rates similar to that proposed by
Mr. St a w i l l be adopted. Husbands and wives w i l l no longer
m
have the option of f i l i n g separate returns.
Excise taxes - More moderate rate increases than the
Treasury proposed w i l l be made on non-durable goods (liquor,
tobacco, cosmetics)* Higher rates than the Treasury proposed
w i l l be levied on durable goods competing with defense product i o n . The Treasury seems to be opposed t o high rates on durable
goods other than automobiles, on the ground that capacity in many
of these industries i s not readily shiftable to defense production.
Even i f a high tax on new caxs i s adopted, a tax on transfers of
used cars seems unlikely.