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Statement of Randolph
Paul,
General Counsel of the Treasury Department,
before the Senate Finance Committee
in Executive Session
in support of the recommendations of
the Secretary of the Treasury
for an additional war-time revenue program

In his statement Secretary Morgenthau emphasized the need for additional taxes to increase Treasury receipts out of current income by an
amount far in excess of his previous recommendations and to exercise a
strong restraining influence on consumer spending in order to furnish an
effective weapon for combatting inflationary increases in prices.
The Secretary has indicated the broad outlines of the Treasury's
recommendations* It is my purpose to discuss these recommendations in
detail. The proposed spendings tax is in two parts — a flat rate tax
to be refunded after the war, and a progressive surtax.
The Refundable Part of the Spendings Tax
The refundable part of the spendings tax would be imposed at a
flat rate of 10 percent on the total spendings of individuals for consumer goods and services. In general, it would apply to all individuals
who had income subject to the individual income tax, and also to
individuals subject to the spendings surtax whether or not they had
income subject to the income tax.
It is suggested that single persons be entirely outside the scope
of the tax only if their income is less than $500, and married couples
only if their income is less than $1,000* The exclusion \*ould be increased by an additional $250 for each dependent* The test for determining liability to file a refundable spendings tax return would therefore
be stated in terms of income, even though the tax itself would be assessed
on the basis of spendings* The reason for using the income test is to
facilitate the administration of the refundable spendings tax by collecting
it in conjunction with the individual income tax*
Tax base
The tax would be levied on total spendings of persons filing returns
and reporting total spendings in excess of $500 for a single person,
$1,000 for a married couple, and an additional $250 for each dependent*
The tax would be imposed on the taxpayer's total spendings, not merely
on that part of his spendings above these amounts*




~ 2 -

The amount of spendings would be computed indirectly. From the total
amount of funds at the disposal of the taxpayer, derived either from
current income or "by-drawing on capital, there would be subtracted the
amount of savings. ^Savings" would be defined to include, chiefly, repayment of debt, premiums paid on life insurance, expenditures for the
purchase of bonds or other capital assets, gifts and contributions,
payment of taxes and increases in bank balances. The items needed to
determine the tax base are shown in the attached schedule (Exhibit l).
Method of collection
The refundable part of the spendings tax would be collected in the
same manner and at the same time as the individual income tax. A tentative tax would be collected at source on wages, salaries, and dividends
in the same manner as it is proposed to collect part of the regular
income tax. A spendings tax return would be made part of the annual
income tax return. The amount of spendings and the tax thereon would,
also be computed on the sane return. The total of the income tax and
the spendings tax payable would be ascertained by deducting the income
tax and the spendings tax already collected at source. If the amount
collected at source exceeded the combined tax liability, the excess
would be promptly repaid to the taxpayer.
Short income and spendings tax form
The great majority of taxpayers would be eligible to file a
simplified refundable spendings tax return which would be a supplementary part of their simplified income tax return.
Tax rate and amount of tax
The refundable part of the spendings tax would be levied at a rate
of 10 percent on the taxpayer's total spendings. An individual with
an income of $5,000, for example, who spent $3,200, would pay a tax of
$320. If he increased his savings and spent only $2,U00, the tax
liability would be reduced to $2^0.




- 3 Special provision would be required to avoid large differences
"between the tax on persons just "below and just above the exclusion
limits — that is, the limits at which the tax becomes applicable*
For a single person without dependents, for instance, the exclusion
ajnount is $500. Those with spendings in excess of $500 would be liable
to a tax of 10 percent on all their spendings. In some cases, in the
absence of a special provision, the tax would be greater than the excess
of their spendings over the exclusion limits. An individual spending
$510, for example, would be subject to a tax of $51» whereas if he spent
only $500, he would not be subject to tax. To provide for a gradual
transition between nontaxable and taxable individuals, it is proposed
that the tax on persons just above the exclusion limits shall not exceed
the excess of their spendings over the exclusion limits. In the illustration cited, the tax on the single individual spending $510 would be $10.
Refunding of spendings tax
It is suggested that this flat-rate spendings tax be made refundable
without interest after the war. The amount collected in the first year
of operation of the tax might be refunded in the first year following
the close of the war; the amount collected in the second year might be
refunded in the second year following the close of the war; and so on.
It might also be desirable to provide for earlier refunding after the
close of the war at the discretion of the Secretary of the Treasury*
Provision should in any event be made for the earlier refunding of the
tax even prior to the close of the war in cases of proven distress.
The Treasury proposes that the entire amount of the flat-rate
tax be refunded. However, if the Committee should desire to do so, it
is technically feasible to refund the entire tax only to the lower
income groups.




-i
l
The Individual Spendings Surtax
I turn now to a discussion of the second part of the spendings
tax, the spending surtax. This tax would be imposed at progressive
rates on expenditures in excess of an exemption of $1,000 for a single
person, $2,000 for a married couple, and an additional $500 for each
dependent. In contrast to the exclusions under the flat rate tax, these
exemptions provide a minimum of spendings that is free from surtax for
everyone, regardless of the total amount spent.
The spendings would be calculated in the same manner as in the case
of the refundable spendings tax — that is, they would not include such
items as debt repayment, insurance premiums and bond purchases — except
that you may want to consider allowing some extraordinary expenditures
also to be deducted.
Method of collection
The tax would be collected currently by requiring individuals to
report the approximate amount of spending at short intervals, say
quarterly, with a final adjustment after the close of the year. The
quarterly report might contain no more than a single item — the
approximate amount of spending during the preceding quarter*
Tax rates
The tax rates would be progressive.
schedule is suggested:
Spendings
:
(Brackets)
:
$
0 - $ 1,000
1,000 2,000
2*000 - 3,000
3,ooo 5,ooo
5,000 - 10,000
Over $10,000

The following surtax rate

Tax rate
(Brackets)
10%
20
30
HO
50
75

This schedule would apply to a single person in the usual manner.
However, direct application of this progressive spendings tax schedule
to a family as a unit would be unduly harsh on large families and would
favor single persons* This follows from the fact that the larger the




~ 5 -

family, the greater is the necessary amount of spendings and the higher
the rate at which the spendings would " e taxed. This difficulty can " e
b
b
overcome " y putting the family's tax on a per capita basis. The family's
b
total spendings would be divided by the number of persons in the family.
The progressive rate schedule would then be applied to the resulting per
capita spendings. The per capita tax computed in this way would be
multiplied by the number of persons in the family to get the total family
tax. For this purpose, a dependent child would be counted as equivalent
to one-half a person.
For example, a married couple with one dependent would comprise
2.5 taxable persons. If this family spent $5$000, spendings in excess
of the exemption of $2,500 wo\ild be $2,500 or $1,000 per taxable person*
According to the above rate schedule, the surtax would be $100 per
person, or $250 for the family (2.5 times $100). Married couples would
be permitted to file either joint returns or separate returns, since
discrimination would be avoided by the method of computing spendings
per taxable person. The amounts and effective rates of tax under the
above rate schedules are shown in Exhibits 2, 2a, 2b and 2c.
Effective date of surtax
The spendings surtax should be made effective as of September 1,
19U2. It is essential that this be done in order to prevent large
scale buying and hoarding of consumers1 goods in anticipation of the
enactment of the spendings tax# In addition, unless the spendings tax
is made effective as of the date on which it is announced, individuals
would be given an opportunity to convert their bank deposits into
currency, hoping thereby to set aside spendable funds upon which an
adequate check could not be made. These and similar dangers can be
prevented only by making the spendings surtax effective as of
September 1, 19U2, The corresponding difficulties are not of great
importance with respect to the refundable part of the spendings tax
and this could go into effect January 1, 19^3*
Reduction of exemptions for the regular income tax
In addition to the spendings tax, the Treasury recommends a
reduction in the personal exemptions under the individual income
tax.




The exclusions of $500, $1,000, and $250 for the refundable
spendings tax are believed to be desirable in order that a very large
volume of consumer spendings may be brought into the tax base, For
purposes of simplicity the income tax exemptions and the refundable
spendings tax exclusions should be the same amounts of income.
Accordingly, it is suggested that the personal income tax exemptions
be lowered to $500 for single persons, $1,000 for married couples, and
$250 for each dependent. This step will need to be taken in any event
as the impact of the war increases. It represents a $200 reduction in
a married couple's exemption and a $50 reduction in the amount of the
dependent credit, from the exemptions tentatively adopted by your
Committee.
The proposal would increase the number of taxpayers to some five
million above the estimated number under the exemptions tentatively
adopted by your Committee. Under the rates of H. R. 7378, the lowering
of exemptions would increase the tax liability of a married person
without dependents having an income of $2,000 from $lHo to $178; for
one with an income of $10,000 from $2,152 to $2,220. A married person
with two dependents having an income of $2,000 would pay a tax of $S3»
whereas with the exemptions under H. R. 7378, he would pay no tax. For
a $10,000 income, the tax liability would be increased from $1,880 to
$2,050. The amounts of tax and the effective rates for taxpayers with
selected net incomes under present law, under the rates of H. R. 7378,
with the proposed lowered exemptions, are shown in Tables 3, 3ai
and 3c.
The proposed reductions in personal exemptions and credit for
dependents will increase substantially the tax load of those in the
lowest taxable income groups and you may want to consider revising the
surtax rate schedule to reduce the impact on these groups. We should
be glad to submit such schedules for your consideration.
Effect of the Treasury program
The total yield of the proposed program at 19^2 levels of income
is estimated to be $6.5 billion. Of this amount, $U.5 billion would
be refundable to taxpayers after the war.




- 7 Examples illustrating the combined effects of the refundable part
of the spendings tax, the spendings surtax and the reduced individual
income tax exemptions for individuals with selected amounts of income
are shown in Exhibits H through 1 d For example, a married couple with
+.
two dependents having an income of $5f000 would have an income tax
liability of $680. If their spendings amount to $3f800 the spendings
surtax would be $80 and the refundable spendings tax* $380. If their
spendings were only $3*100 the spendings surtax would be reduced to $10
and the refundable spendings tax to $310* Their combined tax would be
in the first case and $1,000 in the second case. Of these amounts,
however, $380 or $310, respectively, would be refunded after the war.
Effect of the Treasury proposals on
the anti~inflation program
The spendings tax will raise very substantial amounts of revenue
and will accordingly be valuable in financing the war. More important,
it will be particularly helpful as an anti^inflation measure in two
ways• (l) by withdrawing consumer purchasing power and thus reducing
the demand for goods, and (2) by creating an obstacle to spending, thus
checking spending and encouraging saving. Because it will apply only
to individual spendings and not to business spendings, it will not
interfere with price ceilings. On the contrary, it will greatly
facilitate the exercise of direct price controls, rationing, and other
methods of combating inflation.
The refundable part of the spendings tax and the spendings surtax
differ in the emphasis placed on these two methods of reducing spending.
The refundable tax, applying to the bulk of total individual spending
at a 10 percent rate, will be effective primarily by withdrawing
purchasing power. The spendings surtax, on the other hand, is intended
primarily to discourage spending directly, rather than to absorb large
amounts of purchasing power. Tor this reason it is imposed only on
spending above a fairly adequate living level, but at increasingly
heavy rates. Insofar as spendings are not checked, the tax will bring
substantial payments into the Treasury; insofar as they are checked,
inflationary pressure on the price level will be reduced.
For these reasons, these taxes should provide a powerful instrument
for combating inflation, Moreover, they provide an adjustable instrument
which, once put in operation, can be increased or decreased as the
current economic situation requires.




- s Like any new tax, and perhaps more than some taxes, a spendings
tax necessarily involves administrative and compliance problems.
These problems are reduced by the fact that a spendings tax can be
administered in conjunction with the individual income tax. As a
consequence, the refundable tax will require no additional returns,
and the collection of the refundable tax at source will impose no
additional burden on either withholding agents or the Bureau of
Internal Revenue. Nevertheless, the spendings tax will create an
administrative problem in checking on information not now required
on income tax returns, in familiarizing the public with a new type of
tax, and in helping the public to fill out the forms that they will
be required to submit. Compared with other measures of like importance
in meeting the inflation and revenue problems, the administrative
difficulties should not prove disproportionately large. In time of
war, administrative difficulties cannot be allowed to stand in the way
of measures vital to the Nation's welfare*




E x h i b i t 1a

The Individual Spendings Tax Schedule
(To " e used " y persons subject to the spendings surtax and by -persons not
b
b
eligible to use simplified income tax return. A simplified spendings tax
schedule will be available to all other persons subject to the spendings
tax.)
Funds at the disposal of the individual
1. Salaries, wages, and other compensation for personal services... $
2. Dividends and interest received, including government interest..
3.

Rents, royalties,

annuities,

pensions

4. Withdrawals from business, professions, partnerships, trusts....
5. Cash receipts from gifts, bequests, and insurance.
6. Receipts from sale of capital assets
7. Receipts from repayment of loans made to others

.

8. Receipts from borrowing, including debts incurred on
installment purchases.
.........
9. Cash nnd bank balances at beginning of year

..

10. Other receipts.....
11.

Total disposable funds

—I

I

.,

(items 1 to 10)

.... , , - - '

:

—

i

—

! .

m.

—

H

,,,•„..

Deductions: Fon-taxable use of funds
12. Cash and bank balances at end of year......

$

13. Cash gifts and contributions.....
14. Interest and taxes paid, except on owner-occupied homes
15. Expenditures on the purchase of capital assets.
16. Life insurance premiums, annuity, and pension payment...........
17. Outlays for repayment of debt, including installment debt.......
18. Loans made to others*
19. Other nontaxable disbursements.
20.

Total deductions

(items 12 to 19).

21. Expenditures subject to tax



.........•...••*•
$

(item 11 minus item 20)............ $

Exhibit 2. Individual Spendings Surtax: Rates and amount of surtax

Expenditure
per taxable
person
(Bracket).

:
:
:
:

Surtax rate
(Bracket)

0 - $1,000
$
1,000 - 2,000
2,000 - 3,000

20
30

3,000 - 5,000
5,000 - 10,000
Over 10,000

40
50
75




:
:

Cumulative surtax
per taxable person
at upxier limit
of "bracket
$

100
300
600

1,400
3,900

Exhibit 2a

Refundable spendings tax and spendings surtax:
Mount of tax and tax as per cent of spendings
Single person - Ho dependents
Exclusion for refundable tax
500
Exemption for surtax
- 1,000
Total spendings:
Amount of tax
:Surtax as : Total tax
before
: Refundable: Surtax: Total :percent of : as percent of
exemption
:
tax
:
: tax sspendings : spendings
500
800
1,000
1,200
1,500
2,000
2,500
3,000
3,500
4,000
5,000
6,000
8,000
10,000
15,000
20,000
25,000
50,000




$

0
80
100
120
150
200
250
300
350
400
500
600
800
1,000
1,500
2,000
2,500
5,000

$

0
0
0
20
50
100
200
300
450
600
1,000
1,400
2,400
3,400
6,900
10,650
14,400
33,150

$

0
80
100
140
200
300
450
600
800
1,000
1,500
2,000
3,200
4,400
8,400
12,650
16,900
38,150

0
0
1.7
3.3
5.0
8.0
10.0
12.9
15.0
20.0
23.3
30.0
34.0
46.0
53.3
57.6
66.3

0&
10.0
10.0
11.7
13.3
15.0
18.0
20.0
22.9
25.0
30.0
33.3
40.0
44.0
56.0
63.3
67.6
76.3

Exhibit 2b

Refundable spendings tax and spendings surtax:
Amount of tax and tax as per cent of spendings
Married person - No dependents
Exclusion for refundable tax - $1,000
Exemption for surtax
- 2,000
. :Surtax as : Total tax
Total :percent of: as percent
tax :spendings :of spendings

Total spendings
•Amount of tax
before
Surtax
Refundable
exemption
tax
1,000
1,500
2,000
2,500
3,000
3,500
4,000
5,000
6,000
8,000

10,000

15,000

$

0
150
200
250
300
350
400
500
600

800
1,000
1,500

20,000

2,000

25,000
50,000

2,500
5,000




$

0
0
0
50
ICO
150

200

400
600

1,200

2,000
4,300
6,800
10,050
28,800

$

0
150

200

0
0

300
400
500
600
900

3.3
4.3
5.0

1,200

2,000
3,000
5,800
8,800
12,550
33,800

2.0

8.0

10.0
15.0

20.0

28.7
34.0
40.2
57.6

10.0
10.0
12.0
13.3
14.3
15.0

18.0
20.0

35.0
30.0
38.7
44.0
50.2
67.6

Exhibit 2b

Refundable spendings tax and standings surtax: Amount
of tax and tax as percent of spendings
Married person - Two de-pendents
Exclusion for refundable tax - $1,500
Exemption for surtax
- 3,000

Total spendings:
Amount of tax
before
: Refundable: Surtax : Total
exemption
:
tax
:
i tax:
i 1,500
2,000
2,500
3,000
3,500
4,000
5,000
6,000
8,000
10,000
15,000
20,000
25,000
50,000




$

0
200
250
300
350
400
500
600
800
1,000
1,500
2,000
2,500
5,000

$

0
0
0
0
50
100
200
300
700
1,200
3,000
5,200
7,700
24,450

$

0
200
250
300
400
500
700
900
1,500
2,200
4,500
7,200
10,200
29,450

Surtax as : Total tax
: percent of : as percent
: spendings : of spendings
0 i
0
0
0
1.4
2.5
4.0
5*0
8.8
12.0
20.0
26.0
30.8
48.9

0 i
10.0
10.0
10.0
11.4
12.5
14.0
15.0
18.8
22.0
30.0
36.0
40.8
58.9

Exhibit

2b

Comparison of individual surtax rate schedule under
present law and H. R« 7378

Surtax net
income
(000)

2
4
6
8
10
12
14
16
18
20
22
26
32
38
44
50
60
70
80
90
100
150
200
250
300
400
500
750
1,000
2,000
5,000

and

2
4
6
8
10
12
14
16
18
20
22
26
32
38
44
50
60
70
80
90
100
150
200
250
300
400
500
750
1,000
2,000
5,000
over




Bracket rate
Present
law
H.R. 7373
6
9
13
17
21
25
29
32
35
38
41
44
47
50
53
55
57
59
61
63
64
65
66
67
69
71
72
73
74
75
76
77

13
16
20
24
28
32
36
40
43
46
49
52
55
58
61
63
66
69
72
75
77
79
81
82
82
82
82
82
82
82
82
82

Total surtax cumulative
Present
law
K.R. 7373
120
300
560
900
1,320
1,820
2,400
3,040
3,740
4,500
5,320
7,080
9,900
12,900
16,080
19,380
25,080
30,980
37,080
43,380
49,780
82,280
115,280
148,780
183,280
254,280
326,280
508,780
693,780
1,443,780
3,723,780
-

260
580
•980
1,460
2,020
2,660
3,380
4,180
5,040
5,960
6,940
9,020
12,320
15,800
19,460
23,240
29,840
36,740
43,940
51,440
59,140
98,640
139,140
180,140
221,140
303,140
385,140
590,140
795,140
1,615,140
4,075,140
-

Exhibit 3a. Amount of individual income tax and
effective rates under present law^ H. R. 7378,
and H. R. 7373 -with lowered exemptions.
Single person - No dependents
Personal exemption: Present law
- $750
H. R. 7378
- 500
Treasury proposal- 500
Net income
before
personal
exemption l/

Effective rates

Amount oi tax
«
•

Present
law

:H. R. 7378
•
•

•
•

: l R. 7378
i.
:with lowered
;
« exemptions
•

Present :
:H.R.7378
law
sH. R.7372:with low
:
:ered ex:
: eruptions
Percent Percent

500
600
700
800
900
1,000
1,200
1,500
2,000
2,500
3,000
4,000
5,000
6,000
8,000
10,000
15,000
20,000
25,000
50,000
100,000
500,000
1,000,000
5,000,000

-

~

1
*'
1t

-

$

3
11
21
40
69
117
165
221
347
483
649
1,031
1,493
2,994
4,929
7,224
20,882
53,214
345,654
733,139
3,923,124

—

15 £
>
15
34
34
52
52
71
71
89
89
126
126
181
181
273
273
365
365
472
472
686
686
920
920
1,174
1,174
1,742
1,742
2,390
2,390
4,366
4,366
6,816
6,816
9,626
9,626
25,811
25,811
64,'41
64,641
414,616
414,616
854,616
854,616
4,374,616
4,374,616

-

.4
1.2
2.1
3.3
4.6
5.9
6.6
7.4
8.7
9.7
10.8
12.9
14.9
20.0
24.6
28.9
41.8
53.2
69.1
73.3
78.5

Percent

-

-

2.5
4.9
6.5
7.8
8.9
10.5
12.1
13.7
14.6
15.7
17.2
18.4
19.6
21.8
23.9
29.1
34.1
38.5
51.6
64.6
82.9
85.5
87.5

2.5
4.9
6.5
7.8
8.9
10.5
12.1
13.7
14.6
15.7
17.2
18.4
19.6
21.8
23.9
29.1
34.1
38.5
51.6
64.6
82.9
85.5
87.5

lormal tax
rate (percent)

4

\j Maximum earned income assumed.




6

6

4

6

6

Exhibit 3a

Amount of individual income tax and effective
rates under present law, H. R. 7378, and
H. R. 7378 with lowered exemptions
Married person - No dependents
Personal exemption: Present law
-$1,500
H. R. 7378
- It200
Treasury proposal- 1,000
Net income
:
before
:Present
personal
: law
exemption 1 / :
$

1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,800
2,000
2,500
3,000
4,000
5,000
6,000
S.000
10,000
15,000
20,000
25,000
50,000
100,000
500,000
1,000,000
5,000,000

Amount of tax
:
: H. R. : H. R. 7378:Present
: 7378 i with lowered: law
:
: exemptions :
Percent
-

-

-

-

-

$

6
23
42
90
13s
249
375
521
873
1,305
2,739
4,6i4
6,s64
20,1+39
52,704
345,084
732,554
3,922,524

$

13
30
48
66
103
14
10
232
324
532
71+6
992
1,532
2,152
4,052
6,1+52
9,220
25,32s
61+,060
1+14,000
854,000
4,374,000

-

$

-

-

-

13
31
49
6S
s6
104
l4l
17s
270
362
576
790
1,044
1,592
2,220
4,136
6,556
9,336
25,466
64,226
414,176
854,176
4,374,176

Effective rate
: H. R. s H. R. 7378
: 7378 :with lowered
:
: exemptions
Percent Percent
-

-

0.4
1.3
2.1
3.6
4.6
6.2
7.5
s.7
10.9
13.1
is.3
23.1
27.5
40.9
52.7
69.0
73.3
7S.5

1.0
2.1
3.2
4.1
5-7
7.0
9.3
10. S
13.3
14.9
16.5
19.2
21.5
27.0
32.3
36.9
50.7
64.1
32. S
85.4
87.5

1.2
2.6
3.8
4.9
5.7
6.5
7.8
0.9
10.8
12.1
14.4
15.8
17.4
19.9
22.2
27.6
32.8
37.3
50.9
64.2
82.8
85.4
87-5

U

6

6

-

-

-

Normal tax
rate (percent)

k

6

1/ Maximum earned income assumed.




6

Exhibit 3c» Amount of individual income tax and effective rates
under present law, H. R# 7378, and H* H # 7378
with lowered exemptions
Married person - two dependents
- $1,500
Personal exemption: Present law
- 1,200
H. R. 7378
Treasury proposal - 1,000
Dependent credits

Net income
"before
personal exemption! ]J

- $ 400
Present law
H. R. 7378
400
250
Treasury proposal
Effective rate

Amount of tax

Present H.R. 7378:H.R. 7378 JPresent H.R* 7378:H.R, 7378
:with lowlaw
:with low- : law
:ered exemp:ered exemp
tions
:tions
MB
•
•

Percent Percent
i

-

1,500
1,600
13
$
1,700
28
1,800
46
1,900
65
—
2,000
83
13
2,100
101.
$
2,200
120
26
2,300
43
138
2,400 $
6
157
62
2,500
12
80
175
3,000
58
267
172
4,000
154
356
466
5,000
271
570
680
397
784
914
6,000
8,000
717
1,442
1,292
1,117
2 ,050
10,000
880
1,
15,000
2,475
3 ,926
3,716
20,000
4,287
036
6,296
6,
9 ,046
25,000
6,480
756
8,
50,000
19,967
24,776
25,121
100,000
63,811
52,160
63,396
500,000
413,296 413 ,736
344,476
1,000,000
853,296 853,736
731,930
5,000,000 3,
,921,884 4,373,296 4,373,736

Percent

-

-

-

-

-

-

-

-

-

-

-

-

<M

0.3
0.5
1.9
3.9
5.4
6.6
9.0
11.2
16.5
21.4
25.9
39.9
52.2
68.9
73.2
78.4

0.6
1.2
1.9
2.6
3.2
5.7
8.9
11.4
13.1
16.2
3,8.8
24.8
30.2
35.0
49.6
63.4
82.7
85.3
87.5

0.8
1.6
2.6
3.4
4.2
4.8
5.5
6.0
6.5
7.0
8.9
11.7
13.6
15.2
18.0
20.5
26.2
31.5
36.2
50.2
63.8
82.7
85.4
87.5

Normal tax
rate (percent) 4

6

l/ Maximum earned income assumed»



6

4

6

6

Exhibit 4. Illustration of the combined effect of the
income tax, spendings surtax, and refundable spendings tax
Income $2,500
: Single person:Married couple:Married couple
: Uo dependents:Mo dependents :Two dependents
Assumed spending on consumer goods and services

$1,700

$1,300 $1,900 $1,500

$2,100

$1,700

270
-

175
-

175
-

Income tax (H. E. 7378 with lowered exemptions) 1/
Spendings surtax

365
70

365
30

Income tax and spendings surtax:
Amount
As a percent of income

435
17.4$

395
270
15.8$ 10.8$

270
10.8$

175
7.0$

175
7.0$

Eefundable tax

170

130

150

210

170

'420
lb.8$

385
15.4$

3^5
13.8$

Total, income tax, spendings surtax and refundable tax:
Amount
605
As a percent of income
24.2$

1/ Exemptions:




2J0
-

190

525
460
21*0$ 18.4$

Single person, $500; Married couple, $1,000; each dependent, $250.

Exhibit i - . Illustration of the combined effect of the
ja
income tax, spendings surtax, and refundable spendings tax
Income $5,000
:
:
Assumed spending on consumer goods
and services
Income tax (H.B, 7378 with lowered
exemptions 1/)
Spendings surtax
Income tax and spendings surtax:
Amount
As a percent of income
Refundable tax
Total, income tax, spendings
surtax, and refundable tax:
Amount
As a percent of income

Single person : Married couple : Married couple
Ho dependents : No dependents : Two dependents
$3,200

$2,500

$3»500

$2,S00

$3,800

$3,100

920
360

920
200

790
150

790
80

680
80

680
10

9K
*>
1
IS. 8^0

S70
17.1$

760
15.2 $

690
13.8$

350

280

380

310

1,1^0
22. 8$

1,000
20.0$

1,280
1,120
22.4$
25-656
320

250

1,600
1.370
21M
32.0^

1,290
1,150
6
23.0^
25. 8?

1/ Exemptions; Single person $500, married couple $1,000, each dependent $250*




Exhibit 4b. Illustration of the combined effect of the
income tax, spendings surtax and refundable spendings tax
Income $10,000

Single person
No dependents
Assumed spending on consumer goods and services
Income tax (H. R. 7378 with lowered
exemptions 1/)
Spendings surtax

$ 5,500

$ 4,000

Married couple
No dependents
$ 6,000

$ 4,500

2,220

2, 390
600

2,220

3,590
35.9$

2,990
29.9$

550

Income tax and spendings surtax:
Amount

2,390
1.200

Married couple
Two dependents
$ 6,500
>

$ 5,000

300

2,050
400

2,050
200

2,820
28.2$

2,520
25.2$

2,450
24.5$

2,250
22.5$

400

600

450

650

500

3,390
33.9$

3,420
34.2$

3,100
31.0$

2,750
27.5$

600

As a percent of income
Refundable tax
Total, income tax, spendings surtax, and
refundable tax:
Amount
As a percent of income

1/ Exemptions:




4,140
41.43

2,970
29.1%

Single person, #500; Married couple, $1,000; each dependent, $250.

Exhibit 4c. Illustration of the combined effect of the
income tax, spendings surtax and refundable spendings tax
'Income #25,000

:
:

Assumed spending on consumer
goods and services

Single person
No dependents

$10,000

f 6,000

Income tax (H.R. 7378 with
lowered exemptions l/)

9,626

9,626

Spendings surtax

3,400

Refundable tax
Total, income tax, spendings
surtax, and refundable tax:
Amount
As a percent of income




Married couple
Two dependents

$ 7,000

$L2,000

$ 8,000

9, 336

9, 336

9,046

9,046

1,400

2,400

1,200

1,800

700

13,026
52.1$

11,026
44.1$

11,736
46.9$

10,536
42.1$

10,846
43.4$

9,746
39.0$

1,000

Income tax and spendings
surtax:
Amount
As a percent of income

1/ Exemptions:

Married 'couple
No dependents

600

1,100

700

1,200

800

14,026
56.1$

11,626
46.5$

12,836
51.3$

11,236
44.9$

12,046
48.2$

10,546
42.2$

$L1,000

Single person $500, married couple $1,000, each dependent $250

Exhibit 4d. Illustration of the combined effect of the
income tax, spendings surtax and refundable spendings tax
Income $L00,000
; Single person
j No dependents

: Married couple
: No de-pendents

: Married couple
: Two dependents

Assumed spending on consumer goods
and services

#16,000

$11,000

$18,000

$13,000

#20,000

$15,000

Income Tax (H.R. 7378 with lowered
exemptions!/)
Spendings surtax

64,641
7,650

64,641
5,900

64,226
5,800

64,226
3,300

63,811
5,200

63,811
3,000

Income Tax and Spendings Surtax:
Amount
As a percent of Income

72,291
68,541
72.3$
68.5$

70,026
70.0$

67,526
67.5$

69,011
69.0$

66,811
66.8$

1,800

1,300

2,000

1,500

71,826
71.8$

68,826
68.8$

71,011
71.0$

68,311
68.3$

Refundable Tax

1,600

Total, income tax, spendings surtax,
and refundable tax:
Amount
As a percent of Income

1/ Exemptions:




1,100

73,891
69,641
73.9$
69.6$

Single person, $500; Married couple, $3L,000j Each dependent, $250.