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BOARD OF GOVERNORS

F E D E R A L RESERVE SYSTEM

office

C o r r e s p o n d e n c e

Xo

Chairman Sccles

Fran1

Date

February 1 2 , 1 9 ^

Siihject; Information on Tax Structure

Martin Krost

Individual income tax rates and exemptions
United States - Personal exemptions, $1,500 married, $750 single,
$ij00 each dependent, 10 per cent earned income credit.
Normal tax - 4 per cent; applies to first dollar of income above
personal exemption plus credit for dependents.
Surtax - 6 per cent; applies to first dollar
personal exemptions; thus surtax applies before normal
just above $750 for single persons, $1,500 for married
dependents; {1,900 for married persons, one dependent;
persons, two dependents.

of income above
tax; surtax begins
persons, no
$2,300 for married

Combined rate of I. per cent normal tax and 6 per cent surtax
j
begins to apply just above $833
single persons, $1,667 for married
persons, no dependents, §2,111 for married persons, one dependent, $2,556
for married persons, two dependents.
Surtax rates - 6 per cent on first |2,000 of income subject to
surtax, 9 per cent on next |2,000, 13 per cent on next |2,000; highest
rate is 77 per cent on income in excess of |5 million.
Great Britain - Personal exemptions: All incomes below fjj0
il.
exempt. Incomes above f j ^ are exempt to the extent of $320 single, $560
ilO
married, $200 each dependent, 10 per cent earned income credit.
Hormal tax (called nstandard rate") - 32 l/2 per cent on the first
|660 of income subject to tax, 50 per cent on the remainder.
Surtax - 10 per cent on incomes above |6,000, ranging to 1 7 per
*
cent on income in excess of f80,000, or combined rate of 97 1/2 per cent.
Credit is given for a small part of the tax in Savings Benk
accounts payable after the war.
Canada - Personal exemptions: |660 single, fl,200 married.
Special defense tax rate of 5 per cent applies to total income received by
those receiving incomes larger than the exemptions. E.g. A single person
receiving $700 is taxed on the whole 1700, not merely on |I|0. Single persons
pay 7 per cent on total income if income exceeds $1,200. Credit for each
dependent: #20 tax credit, equivalent to fljOOexemption applied against income.




To:

-2-

Chairman Bccles

Regular income tax is addition to this, with exemptions same as
U. S.; rates range from 15 per cent to 85 per cent.
Indi-vidual Income Tax
(Married taxpayer, no dependents)
Income
1,000
2,000
5,000
10,000
20,000
50,000
100,000

United Kingdom
United States
imount of tax in dollars
....
42
375
1,305
4,614
20,439
52,704

111
505
1,855
4,505
11,230
36,455
84,080

Canada
__

175
1,000
3,080
8,330
26,965
61,875

Effective Rate (per cent)
1,000
2,000
5,000
10,000
20,000
50,000
100,000

—

2.1
7.5
13.1
23.1
40.9
52.7

11.1
25.2
37.1
45.0
56.1
72.9
84.1

—

8.8
20.0
30.8
4L.7
53.9
61.9

Corporation taxes
United States - 2 4 per cent normal tax; 7 P e r cent surtax; total
I.
51 per cenTI Excess profits tax: rates range from 35 p©r cent on first
#20,000 of excess profits to 60 per cent on excess profits over #500,000.
Canada - Iformal tax; 18 per cent, 22 per cent if consolidated
returns are filed plus 22 "minimum excess profits tax" (really an addition
to normal tax)* Total; I. or 1^2 per cent.
4O
Excess profits tax; 75 P e r c e n t o n profits over 1936-39 base
period earnings.
United Kingdom - 50 per cent normal tax but stockholders receive
credit against personal income tax for tax withheld on dividends distributed.
Excess profits tax - lOOper cent on earnings over base period
earnings; 20 per cent available as post-war credit.
Base period is 1935; or 1936; or average 1935 ^ i 1937; or average
xd
1936 and 1937; at option of taxpayer.




To: Chairman Eccles

-3-

General sales tax
Canada has general sales tax of 8 per cent on manufacturer1 s
sales price; exempts staple foods*
England has general sales tax, called "purchase tax". Food, rent,
utility services are exempted. Less essential articles are taxes at rate
of 33 l/3 P 0 r cent - furniture, household appliances, etc. — on wholesale
price. Essential articles are taxed at the rate of 16 2/3 per cent household utensils, clothiag, etc. These rates are equal to 2I4. and 1 2
per cent on retail prices*
Excise taxes in the United States
Already bring in 3-5 billion dollars in revenue. Cover tobacco,
liquor, sugar, gasoline, automobiles, tires and tubes, refrigerators,
cosmetics and toilet preparations, matches, telephone and telegraph service,
amusements, domestic use of electricity, passenger transportation, many
minor articles. Hates on these will have to be sharply increased and list
will be extended. (Advisable not to mention specific new commodities, as
industry representatives will protest in advance of official presentation
of the tax program.)