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or THE


O ffice Correspondence

Date._January 22. 19ii2


Mr. Clayton_________________ ________ Subject;

Letter of January 20, 19lj2


Martin Krost________________ ________ _________ in re Yflthholding Tax_____

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.