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A full transcript of an interview by
Beardsley Ruml on the CBS "People's
Platform," broadcast over the Columbia Broadcasting System coast-to-coast
network, Saturday, January 16, 1943,
7:00 to 7:30 P.M. (E.W.T.)






This is Lyman Bryson, Chairman of The People's
Platform. My guesit tonight is Beardsley Ruml, and
we are going to talk about plans for paying federal
income taxes on a pay-as-you-go basis. Mr. Ruml is
treasurer of Macy's and Chairman of the Federal
Reserve Bank of New York.
Mr. Ruml, you have suggested a basic reform in
our income tax procedure. What is wrong with our
present system?

When the federal income tax bill was passed in
this country in 1913, it had an important defect
which was that a citizen was required to pay in the
year 1914 a tax on his 1913 income. In this way, we
got started on a vicious practice of paying out of one
year's income a tax on the year that had already gone.
As a result and in consequence of increasing rates,
the debt which people owe to the federal government
for income tax has become a national danger. The


present system is a bad system for all of us and should
and can be corrected. It is clear that the government
cannot continue for long to be the creditor of some
27,000,000 taxpayers and their families, in debt for
income tax as they are today, particularly when there
is no substantial question of revenue involved in
changing the basis of assessment and getting the
whole country on a current pay as you go basis.

Could you make the situation any better by making a change?

There are two broad purposes for reforming our
historic income tax practice in order to place our
income taxes on a current basis and to eliminate the
accumulated income tax debt. The first purpose relates to the financing of the war, to the reduction
of potentially inflationary purchasing power and to
the preservation of the integrity of our income tax
system through obtaining the highest possible level of
collections and the lowest possible level of defaults.
The second purpose springs from the personal and
humane desirability of removing from millions of
citizens the constant threat of unpaid tax debt, a
debt imposed under a faulty tax system, unwittingly
unprovided for by our citizens, a debt now grown
so large under present tax rates that loss of current
income for any reason by the individual taxpayer
brings acute financial and personal distress.



All right, now, concretely, what do you suggest
that we do?

In order to accomplish the desirable objective of
getting our income taxes on a current basis, I suggested to the Treasury in March of last year and to
the Senate Finance Committee in July a plan which
I called the Pay-As-You-Go income tax plan. This
plan is to be applied to individuals, not to corporations. The first problem is how to get out personal
income taxes on a current basis without paying two
years taxes in one year.

Can that really be done?

The answer is as simple as daylight saving. Let us
turn our tax clocks ahead one year. The taxes we
have paid last year out of our 1942 income are taxes
on our incomes received in 1941. We can best solve
the problem now by recognizing these 1942 payments
to be taxes on 1941 as they really are; and by beginning 1943 by paying on 1943, thereby dropping out
the year 1942 from the tax calendar forever.

But that sounds like forgiving everybody one year's
taxes. Is that what you mean?



Not exactly. The tax year of 1942 is gone but not
forgiven. I want to stress particularly that the essence of the plan is to make a change in the method
of assessing personal income taxes. That change is to
assess this year's tax against this year's income. By
this change in the method of assessment, the taxpayers go on a current basis and accordingly at the
same time they are income tax debt free. Much confusion has been caused by referring to this change
as the "forgiving" of one year's taxes. "Forgiving" is
a term which I have never used in describing the
plan. It suggests, and wrongly, that this year the taxpayers will have a year in which they pay no taxes
and that the Treasury will have a year in which it
gets no revenue. Nothing could be farther from the
truth. Our thinking will be clearer if we think of the
plan as a change in the method of assessing income
taxes. When we' turn the tax clock ahead, we do not
stop the clock.

Mr. Ruml, last week at his press conference,
President Roosevelt said that he thought "we are all
in favor of getting on to a pay as we go basis," and
that a "lot of people think the only way to do it is
to forgive the individual either all or a portion of
one year's taxes" — "but it means the poor old Treasury is out of pocket just that much money " I think
we would all like to have your explanation of how


we can turn the tax clock ahead as you suggest without hurting the Treasury.

First of all, Mr. Bryson, I feel sure that when the
President referred to the Treasury, he was not speaking about the old grey building that sits on Pennsylvania Avenue just east of the White House. Nor do
I think that he meant the people who work in the
building, all the officials and civil servants, who from
one point of view are also the Treasury. No, I think
he referred to the Treasury as the financial agency
of the government. The Treasury is to the people as
a pocketbook is to an individual, an instrument of
utility but not an end in itself. And so it is the financial soundness of the government and, in a special
sense, the economic well being of the country that
we must be certain to protect:

That's right. How do we provide for that?

The answer to the question is that we shall all go
along paying our income taxes, only they will be on
a current basis. The Treasury will also go along getting its revenues. The only difference is that when
a taxpayer dies or ceases to receive income he will
not owe a tax as he does under the present system.
Reduction of tax payment by the taxpayer as a result
of setting the tax clock ahead occurs only at some


future date, when and as the taxpayer's income ceases
or declines. The reduction is therefore spread over
the whole life time of the present income tax paying
generation, and occurs beneficially for each taxpayer
at the time when his income fails. As for the Treasury, the Treasury has never considered taxes receivable as an asset, and accordingly they can be written
off the balance sheet of the government without the
change of a single penny.

Then there really would be a reduction in the long
run. What would it amount to say, for a generation
of taxpayers?

If we study the consequences of the plan over the
generation we find that since the loss would be spread
over a period of some 35 to 50 years, the gross
amount of eight billion dollars estimated as tax liabilities on 1942 income would amount to an average
of only $180,000,000 to $220,000,000 a year. The
first big loss would come, if at all, in the year of a
post war depression, and it would occur as a timely
adjustment both for the economic welfare of the
nation and for the help of each individual taxpayer
whose income has suffered reduction. Another way
of looking at it is that the loss over a generation
would be about the same as one month's current
expenditure. It seems a small cost to achieve a basic


income tax reform, preserving the integrity of the
income tax system, making possible other badly needed war time tax measures, and affecting beneficially
27,000,000 citizens.

Would there be any way of cutting down the unavoidable loss—the gross loss?

The gross loss of revenue in any case would be
partially offset by better tax collections and collection methods and also by recoveries through the estate
tax of part of what would otherwise have been payable as income tax. Many people feel that these offsets to the gross loss would be very substantial indeed,
particularly if a high withholding tax is promptly

I take it then, Mr. Ruml, that you do not believe
that the adoption of your suggestion for a pay as you
go income tax plan would hurt thefinancialsoundness of the government or the economic well being
of the country.

That is correct, Mr. Bryson, for the reasons which
I have given.

Of course, there are other suggestions for pay as
you go plans. Some people seem to feel that it would


be better to defer the tax on 1942 income rather
than cancel it. We might pay it gradually, say in five

This criticism of the plan that has been made by
some, but not to my knowledge by the Treasury,
stems from a feeling that somehow it is wrong to
cancel a debt. These critics would like to get on a
pay as you go basis in 1943, but retain the tax liability for 1942 as well, although they recognize that
it must be deferred or spread over many years. The
effect of all such proposals is to complicate the problem, to leave a disagreeable debt overhanging millions
of taxpayers — a debt that would be a perpetual
football of politics — and to increase beyond the will
of Congress, as expressed in legislated income tax
rates, the burden of payments to the federal government assessed on the individual taxpayer.

Are you suggesting that it may not always be wise
for a creditor to insist on the payment of a debt?

The feeling that it is somehow wrong to cancel a
debt runs very deep and it is respected in quarters
where the feeling itself is not shared. It is not easy to
find the reason. Certainly it is a common practice as
evidenced by the experience of banks and other commercial institutions, to reorganize debtor-creditor re-


lations without prejudice, upon the initiative of
either party, whenever it becomes necessary in furthering the best continuing interests of both. Removal of debt liabilities in this way is considered a
means of preserving the integrity of the relationship
and a recognition of joint interest in a future welfare.
It avoids the deceit and bitterness characteristic of
evasion and default.
Certainly die cancelling of debt in order to further the welfare of all concerned has had the high
approval of age old moral authorities.

That's certainly true.

There is also a special reason why the liabilities
which have arisen under our income tax procedure
may properly be set aside as I have suggested. These
liabilities are not debts such as those which arise in
the exchange of money, property, or services between
private individuals. They cannot be removed by
bankruptcy proceedings. On the contrary, they are
the result of a unilaterally imposed levy by a legislative body under a traditional practice of assessment
recognized by all to be defective. There would therefore, appear to be neither practical nor ethical
grounds of a general character for not changing the
basis of assessment of income tax and removing the
old income tax liability if that seems the best way of


solving our problem. Moreover, in view of the defect
and delay in our income tax law there is sound and
just reason why the correction should now be made.

Don't you feel that it would be desirable to have
a withholding tax or payment at the source as part
of our tax program? Why not ask our employers to
take the taxes out of our wages?

Most people feel that a withholding tax at a high
rate is important in keeping tax payers current. I
have from the beginning favored withholding or
collection at the source, and have said so. I think
collection at the source improves the pay as you go
plan because it makes it easier for people to keep on
a pay as you go basis. And if we want a withholding
tax at a high rate, the pay as you go plan does solve
the problem of having a withholding tax without
having some amount of double taxation, that is of
paying two years taxes in one. However, if a withholding tax provision at a high rate turns out to be
either undesirable or impractical, the pay as you go
plan stands on its own feet as a sound method of
getting the country free of income tax debt.

What about inflation, Mr. Ruml? That's still a
danger in the minds of a great many people. Would
your plan effect that problem?



I do not believe that pay as you go plan would
lead to inflation. The only persons who would have
more cash on hand under the plan are the few who
have saved up for their income taxes and who hold
them in ready cash. These are few indeed, and they
are not spendthrifts. On the contrary, it is a matter
of common observation that the American people
will not spend their savings, or their War Bond purchases when they have once been acquired, except
under conditions of real economic pressure. Striking
evidence of this is found in the familiar Christmas
Savings Clubs, where money is purposefully saved to
buy Christmas presents; and yet when the time for
expenditure comes, under all the pressure of the holiday season and in spite of the identification of the
savings with the season, only 30% of the Christmas
Club resources are actually spent for consumer purchases. As a matter of fact, since the pay as you go
plan will make withholding taxes possible at a high
level, and since we will be collecting for 1943 in
1943, the total effect will be anti-inflationary rather
than otherwise.

All right, suppose we do decide to turn the tax
clock ahead, and assess this year's tax on this year's
income instead of on last year's, there are still difficulties. How can we pay our income taxes on a current bam when we do not know at the beginning of


a year what our income is going to be in that year?
How do we figure what we owe the government?

The way of solving this problem is not too difficult. We will go ahead as we do today, filing an income tax schedule about the 15 th of March declaring
our previous year's income. But this will be a tentative return for the year then beginning and we will
pay our current taxes on the basis of this tentative
return. After the year had ended there would have
to be an adjustment up or down depending on
whether our actual income for the year was greater
or less than that on our tentative return. But this
adjustment would be made on the same blank and
at the same time as our return for the following
year. This return would be at one time the final
return for the old year and the tentative return for
the new. There would be no doubling of returns involved and only a few extra lines for the adjustment

It doesn't sound as if it would be much more difficult than what we have to do now.

It won't be.



But some taxpayers will have sharp reductions or
increases in their regular income after the year has
already started. What will you do about them?

One feature of the plan is the provision for relief
in case a taxpayer knows his income in the current
year is going to be less or greater than that of the
year of his tentative declaration. The plan provides
that he may declare his true knowledge of lower or
higher income, as a result of salary changes, and so
forth, which have actually occurred, and make his
current payments accordingly. This provision elimiinates the awkwardness of avoidable year-end adjustments and keeps the plan closer to a true pay as you
go basis than it would otherwise.

What about "windfall" cases; I mean cases where
a taxpayer's income for some reason was very much
greater in 1942 than in either the year that preceded
or that followed. What would you do about such a

The plan includes special provisions for minimizing objectionable "windfall" cases. These provisions
were not included in the original plan and have been
added to meet a widespread feeling that, even though


the number of cases be few, it is desirable to guard
against them. To meet this feeling I have made three
suggestions for handling these "windfall" cases.

But suppose these three special rules do catch all
of the most objectionable "windfall" cases. There
may still be a few remaining cases of too much good
luck for somebody. What then?

Much as I dislike "windfalls," even if they cannot be entirely eliminated, I am still for the plan.
In all fairness, we should not refuse to do good for
millions simply because we will be doing too much
good for a few that don't deserve it.

Does the plan apply to everybody, to all taxpayers?

The Pay-As-You-Go income tax plan proposes to
give equal treatment to all taxpayers under the plan.
This means to skip a tax year for all alike in every
bracket and start the whole country income-tax-debt

For the lower brackets?



For those in the lower brackets, the plan will obviously have far-reaching beneficial results, since unfortunate circumstances of loss of income will not
be doubly unfortunate because of last year's debt.

And the middle brackets?

For those in the middle brackets, the plan will
eliminate countless personal and family tragedies, free
many able citizens for public service, and step up
the efficiency of American industry by making possible the retirement and pensioning of executives who
are holding on, largely to pay their income tax . . .
and never catching up.

What about those who pay really heavy taxes?

For those in the upper brackets, it will make much
less practical difference than might appear. First, because like anybody else, as long as they have their
income they continue to pay their taxes; and, when
they die, what otherwise would have been payable
as income tax on the taxpayer's previous year's income is subject to estate taxes in its highest brackets.
The reason I favor over-all application of the principle is because it gives equal treatment to all tax-


payers under the plan. In adapting pay as you go by
skipping a year, I believe we should treat all citizens
alike. As we turn the tax clock ahead for some, we
should turn it ahead for all, and get the whole nation
out of income-tax-debt as of the beginning of 1943.
Insofar as we want more equality of income and of
wealth we can have these through the progressive
income tax and the progressive estate tax, but we
should not use this general income tax reform, pay
as you go, unequally to accelerate indirectly the impact of progressive taxation. Let us achieve such
leveling, or lack of it, as we desire, directly through
legislative action on measures explicitly drawn to
serve that purpose.

Let us take a concrete case. Here is a married man
with one dependent that made 2,400 dollars in 1942
and who makes the same amount in 1943. What
would he pay under the present plan and what would
he pay under pay as you go?

This taxpayer would pay $129.00 under pay as
you go, exactly the same amount as under the present
system, only it would be a tax on his 1943 income
instead of 1942. At the end of the year he would be
free of income-tax-debt instead of owing a year's
taxes as the present system requires.



Suppose this man's income dropped because of layoff so that in 1943 he only had 1900 dollars instead
of 2400 dollars. What would his tax be?

His tax would $42.00 in 1943 instead of $129.00
as under the present system and still at the end of
the year he would be free of income-tax-debt instead of owing a year's taxes as he does under the
present system.

Do I understand that if the pay as you go plan
goes throughf we will all have to make an income
tax return and a quarterly payment on March 15
just as under the present system?

You certainly will. The pay as you go plan provides for identically the same declaration on March
15 as the present system. The only difference is that
it is a tentative return for 1943 instead of a final
return for 1942. But this means you will owe nothing for last year and what you are paying on March
15 is a payment for tax on your 1943 current

There are many citizens whose income is irregular.
What about farmers, contractors and professional
men? How do they calculate what they owe?



Farmers, contractors and professional men would
be on a current basis just like everybody else. But
the method of collection should be adapted to the
kinds of income. For example, deduction at thd
source would be a good plan for salaries, wages and
dividends. Professional men and contractors could
be on a quarterly basis as at present, using their last
year's income as a basis for a tentative declaration
and making a year end adjustment. Farmers should
be aided by having their payments come due when
their receipts come in. But in every case we should
all of us pay our income tax in any year on the
income of that year and not be a year in debt.

Broadly speaking, what will the plan accomplish?

The Pay-As-You-Go income tax plan is a three
way plan; as I have said, it applies only to individuals
and not to corporations. First of all, it is a plan that
will relieve thousands of citizens from hardship and
distress arising from income-tax-debt, and that will
bring peace of mind to millions more who are in
income tax-debt danger.

And there are also advantages to the government?



Yes, for the government, too. It is a method for
clearing the decks for an all-out war-financing program. If we can all be free of income-tax-debt on
the first of next year, we can start on a pay as you
go basis and stay there. If we need high withholding
taxes we can have them; if we need to supplement
voluntary savings with compulsory savings, we can
do that, too. But, whatever is called for, it would be
paid out of the current year's income, as an assessment on the same year's income. We would not be
paying for dead horses while we are fighting a war.

What about the post war period?

The Pay-As-You-Go income tax plan is the best
kind of financial planning for the post-war period.
Our policies can then be forward looking, not backward looking. We will not be trying to collect income taxes from people who are unemployed. We
will not have a spending spree in the first little boomlet, financed on unpaid taxes, and then a tax debt
headache if income should drop off for a year, or so.

But, Mr. Ruml, why did such a plan as this have
to wait so long for someone to propose it?



As I said earlier, when the income tax law was
passed in 1913 it had this defect of paying income
tax assessed on last year's income. At the time the
defect was of no practical consequence because income tax rates were low and affected comparatively
few people. In 1913 the rates began at 1% and the
top (Normal and surtax) was 7%. Exemption for
a single person was $3,000. It is only with the recent
high tax rates and the lowered exemptions that the
problem of income tax debt has become so acute and
so general that we must eliminate it.

What are the chances of Pay-As-You-Go in 1943 ?

The chances of getting the new year 1943 on a
pay as you go basis seem to me to be distinctly good.
I feel that a pay as you go plan in a form acceptable
to Congress will certainly be adopted, because income
taxpayers want to pay their taxes on a current basis,
they want to be free of income-tax-debt and they
know it can be done without hurting the Treasury
and without paying two years' taxes in one. The
taxpayers know that Pay-As-You-Go solves the
problem simply and fairly by skipping an income
tax year. They know the whole trouble was caused
by a basic defect in our[22]
income tax law which has

existed from the beginning, that of paying a tax on
last year's income out of this year's receipts.
This defect was not their fault and they know it.
They want it corrected and they want to be on a
pay as you go basis in 1943.