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VonaV.B.131 BOARD DF GOVERNORS or THE FEDERAL RESERVE SYSTEM O ffice Correspondence Date._January 22. 19ii2 To Mr. Clayton_________________ ________ Subject; Letter of January 20, 19lj2 Pfftm Martin Krost________________ ________ _________ in re Yflthholding Tax_____ rlK- The proposal for a "withholding tax would allow exemptions high enough (certainly not less than $1,000 for married persons or heads of families) so that the writer of this letter, -who could claim a head-of-family exemption, vrould be virtually free from tax. This is a good illustration of the point that a tax that can be so framed as to give an outright exemp tion to those with very low incomes and to bear more heavily on larger in comes is better than a tax that tries to do the same thing by exempting goods that form an important part of the household budget of the poor. A sales tax vdth a food and drugs exemption would certainly be fairer than a flat rate income tax without exemptions as applied to the group of families too poor to save, and it would probably be the most appropriate form of tax to use if the need for revenue became so pressing as to require sacrifices from families with incomes of less than $1*000 a year. Any form of sales tax would bear lightly on families sufficiently well-off to save a considerable part of income, to own their own homes, and to pay for domestic service.
@FedFRASER