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Supplement to the statement of Randolph E* Paul,
General Counsel of the (Treasury Department f
before the Senate Finance Committee
in Executive Session
in support of the recommendation of the
Secretary of the Treasury for an additional
war-time revenue program

In connection with the formulation of the comprehensive antiinflation tax program outlined " y the Secretary, we have given careful
b
consideration to all possible alternative tax measures. One alternative
that deserves special mention because of the widespread attention it
has received is the general sales tax*
In our view, the spendings tax is distinctly preferable to a
general sales tax for the following reasons:
1. The spendings tax can completely exempt individuals with a
low standard of living* The sales tax cannot provide such an exemption,
except in an indirect, partial and unsatisfactory fashion by exempting
whole classes of goods, such as food* A sales tax will exempt alike,
or tax alike, the liberal purchases of a commodity by the well-to-do
and the limited purchases of the same commodity by the needy* The
exemption of individuals with very low standards of living is important
in the interests not only of fairness but also of the war effort. We
can ill afford to impose taxes that would so reduce the standard of
living of many individuals as to impair their productive efficiency*
2. The proposed spendings tax is imposed at rates graduated
according to the amount an individual spends* For this reason it can
be truly effective in curtailing consumption at all income levels. A
sales tax cannot be graduated, except very crudely in terms of classes
of commodities. It is therefore impossible to impose a sales tax at
sufficiently high rates to discourage luxury spending without at the
same time imposing an intolerable burden' on the great masses of the
people* In short, a spendings tax can bo more selective in its impact
on consumption than a sales tax*
A sales tax, even if levied at the retail level, would in
practice have to be paid by business firms on some types of purchases*
It would therefore enter into costs of production with resulting pressure
against price ceilings. In addition, it would be difficult to impose a
sales tax without affecting parity prices of farm products. A spendings
tax would have neither of these effects, since it is collected directly
from individuals*




~ 2 k* The spendings tax proposed will reach as large an amount of
consumer spendings as a retail sales tax without exemptions, and a
considerably larger amount than a retail sales tax with food exempt.
It will do so despite the fact that the spendings tax exempts completely
individuals with low standards of living* The reason for this difference
"between the two taxes is that a spendings tax can include services purchased " y consumers while it is administratively extremely difficult to
b
include such services in a retail sales tax. Out of total consumer
spendings of $75 "billion, the spendings tax will reach over $50 "billion.
A retail sales tax on all tangible commodities will reach about the
same amount; a retail sales tax with food exempt will reach only about
$32 billion*
5» Despite the popular belief to the contrary, the retail sales
tax is not an easy tax to administer. On a Federal level, it is an
entirely new addition to the tax structure, involving the creation of
new administrative machinery. The spendings tax will admittedly involve administrative difficulties of its own. But these are no
greater than those that wouldnrise under the sales tax and the spendings
tax has the great advantage that it can be integrated with the fully
developed administration of the individual income tax*




hMA

Table 1c.
Comparison of individual surtax rate schedule
under present law, H. R* 7373f and Schedule A.
Total surtax cumulative
Bracket rate
»
• Schedule
•
:Present;
'.Schedule: Present •
A
: H.K.7378 :
A
:
law
: law JH.B.737S:

(000)
$

.5
1
1.5

*5
X
1.5

2

2

3
4
6

3

8
10

6

8

10
12
l4
16
18
20
22
26
32
38

-

12
l4
16
18
20
22

-

26

-

32
38
44
50

50

60

70

70
80
90

6o
so

-

100

150

-

150

200

-

2-50

90
100

250
300

4oo

500
750

1 , 0 0 0

200
300

4oo

- 500
- 750

9
9
13
17
21
25
29
32
35
38
4i
44
47
50
53
55
57
59

61

63
64
65
66
67
69
71
72
73

1356
13
13
13
16

16

20
24
28
32
36
40
43
46
49
52
55
58
66
69
72
75
77
79
£1
82

82
82
82
82

1 , 0 0 0

Ik

82

-

2 , 0 0 0

75
76
77

82

2 , 0 0 0

- 5,000
- 5,000

9$
13
15
17
19

21

$

30 $
60
90
120
210
300
560
900
1,320
1,820
2,400
3,O4O
3,7^0

82

S2

23
25
28
32
36
40
43
46
49
52
55
58

9,900
12,900

63

61

-

over




6°/o

6
6
6

16,080
19,380

61

66

69
72
75
77
79

si

82
82
82
82
82
82
82
82
82

4,500
5,320

7,080

25,080

30,980
37,080
43,380
49,780
82,280
115,280
i4s,780
1 8 3 , 2 8 0

254,280

65 $

no

260

185

420
580
980

460

i,46o

2,020
2,660
3,380

4,180

5,o4o
5,960

6,940

9,020
12,320
15,800

19,460
23,240
29,840

36,740
43,940
51,440

59,1^0
98,640
139,140
180,140
221,140

303,l4o

326,280
385,l4o
508,780
590,140
795,l4o
693,780
1,443,780 l,6i5,i4o
3,723.780 4,075,140
-

45

130
195

270

670

1,130

1,630
2,190
2,830

3,550
4,350

5,210
6,130
7,110
9,190
12,490

15,970

19,630

23,4IO

30,010
36,910

44,110

51,610

59,310
98,810
139.310
1 8 0 , 3 1 0

221,310
303,310
385,310
590,310
795,310

1,615,310

4,075,310
-

Table la.
Amount of individual income tax and
effective rates under present law,
H. R. 7378, and Schedule A.
Single person - No dependents
Personal exemption:

Net income :
"before
i
personal
: Present
l»
*w
exemption 1/:

Present law
H. R. 7378
Schedule A

- $750
- 500
- 500

Amount of tax
:
;

H. S. 7378 :

•

Effective rates

Schedule
A

Present:
law : H.E. 7378 :Schedule
A
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

_
-

-

$

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

Percent

_

—

15
34
52
71
89
126
181
273
365
472
686
920
1,174
1,742
2,390
4,366
6,816
9.626
25,811
64,641
414,616
854,616
4,374,616

$

Percent

$

11
26.
40
55
69
106.
161
263
375
497
751
1025
1209
1907.
2560
4536.
6986.
9796
25,981
64,811
414,786
854, 786
4 ,374,786

-

.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

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

1.8
3.7
5.0
6.1
6.9
8.8
10.7
13.2
15.0
16.6
18.8
20.5
21.8
23.8
25.6
30.2
34.9
39.2
52.0
64.8
83.0
85.5
87.5

Normal tax
rate

(percent)

4

6

1/ Maximum earned income assumed.




6

4

6

6

Table la.
Amount ,of individual income tax and effective
rates under present law, H. R. 7378, and Schedule A
Married person - No dependents
Personal exemption:

Present law
H. R# 7378
Schedule A

Net income
Amount of tax
:
before
:Present
H. R.
Schedule
personal
: law
7378
A
exemption 1/

Effective rate
Present : H. R. : Schedule
law
: 7378 :
A

$

-

^

•

:

Percent
—
—
—
1,000
t
1,100
i
f
9
1,200
23
1,300
37
1
13
—
1,400
30
52
—
1,500
66
48
1,600 ;
66
84
1
6
1,800
23
103
121
2,000
140
158
42
2,500
90
260
232
3,000
324
138
372
4,000,
249
616
532
5,000
375
746
880
6,000
1,164
521
992
8,000
873
1,532
1,752
10,000
1,305
2,390
2,152
15,000
2,739
4,306
4,052
20,000
4,614
6,726
6,452
25,000
6,864
9,220
9,506
50,000
20,439
25,636
25,328
100,000
64,396
64,060
52,704
500,000
345,084
414,000
414,346
732,554
1,000,000
854,000
854,346
5,000,000 3,922,524 4,374,000 4,374,346

-$L,500
- 1,200
- 1,000

Percent

—
—

—

-

<

-

-

Percent
—

—

—
—

—

0.4
1.3
2.1
3.6
4.6
6.2
7.5
8.7
10.9
13.1
18.3
23.1
27.5
40.9
52.7
69.0
73.3
78.5

1.0
2.1
3.2
4.1
5.7
7.0
9.3
10.8
13.3
14.9
16.5
19.2
21.5
27.0
32.3
36.9
50.7
64.1
82.8
85.4
87.5

.8
1.9
2.8
3.7
4.4
5.3
6.7
7.9
10.4
12.4
15.4
17.6
19.4
a.9
23.9
28.7
33.6
38.0
51.3
64.4
82.9
85.4
87.5

Normal tax
rate (percent)
1/

4

6

Maximum earned income assumed.




6

4

6

6

Table 1c.
Amount of individual income tax and effective rates
under present law, H. R. 7378« and Schedule A
Married person - two dependents
Personal exemption: Present law - $1,500
- 1,200
H. R. 7378
- 1,000
Schedule A
De-pendent credit:

Uet income
•before
personal exemption 1/

•
*
•
•

•

•
•
•'

- $

Present law
H. R. 7378
Schedule A

Amount of tax
Present: H.R. 7378
law :
•
i

i

i

Effective rate

Schedule : Present: H.R. 7378 : Schedule
:
A
:
A
•
• law :
»

*

Percent
$

1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
2,400
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

-

-

—

-

—

—

—

—

—

$

—

-

13
26
43
62
80
172
356
570
784
1,292
1,880
3,716
6,036
8,756
24,776
63,396
413,296
853,296
4,373,296

6

6

—

Percent

-

9
$
20
34
49
63
81
100
118
137
155
257
491
745
1,019
1,597
2,220
4,096
6,466
9,216
25,291
63,981
413,906
853,906
,373,906
4,

_
_ $
_
_

6
12
58
154
271
397
717
1,117
2,475
4,287
6,480
19,967
52,160
344,476
731,930
3 ,921,884

400
400
250

-

-

-

-

-

-

-

-

-

-

-

-

-

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
18.8
24.8
30.2
35.0
49.6
63.4
82.7
85.3
87.5

Percent
-

.6
1.2
1.9
2.6
3.2
3.9
4.5
5.1
5.7
6.2
8.6
12.3
14.9
17.0
20.0
22.2
27.3
32.3
36.9
50.6
64.0
82.8
85.4
87.5

Normal tax
rate (percent) 4

1/ Maximum earned income assumed.




4

6

6

Table

1c.

Comparison of individual surtax rate schedule
under present law, H. R» 7378, and Schedule B*

Surtax net income :
Bracket rate
Total surtax cumulative
: Schedule
(000)
:Present
Schedule: Present •
B
^
: H.R. 7378
1 aw
:
B
i law sE.R. 7578:
t
•

$

.5
1
—
1
1.5
,5 2
3
2
—
4
3
—
4
6
—
6
8
8
10
10 —
12
—
14
12
—
14
16
16
18
—
18
20
20
22
22 —
26
26 —
32
—
32
38
—
38
44
44
50
—
50
60
60 —
70
—
80
70
90
80 —
90
100
100 —
150
150 —
200
200250
300
250 —
400
300
400
500
500 —
750
—
750
1 ,000
—
1,000
2 ,000
2,000 — 5 ,000
oyer
5 ,000
.5 -

-w

—




6$
6
6
6
9
9
13
17
21
25
29
32
35
38
41
44
47
50
53
55
57
59
61
63
.64
65
65
67
69
71
72
73
74
75
76
77

•
*

13^
13
13
13
16
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

10$
13
15
17
19
21
23
25
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

65 $
50
30 $
130
60
115
195
90
190
260
120
275
420
210
465
580
300
675
980
560
1,135
1,460
900
1,635
2,020
1,320
2,195
2,660
1,820
2,835
3,380
2,400
3,555
4,180
3,040
4,355
5,040
3,740
5,215
4,500
5,960
6,135
6,940
5,320
7,115
9,020
7,080
9,195
12,320
9,900
12,495
15,800
12,900
15,975
16,080
19,460
19,635
19,380
23,240
23,415
25,080
29,840
30,015
30,980
36,740
36,91.5
37,080
43,940
44,115
51,440
43,380
51,615
59,140
49,780
59,315
82,280
98,640
93,815
115,280
139,140
139,315
148,780
180,140
180,315
183,280
221,140
221,315
254,280
303,140
303,315
326., 280
385,140
385,315
590,140
508,780
590,315
693,780
795,140
795,315
1,443,780
1,615,140
1,615,315
3,723,780 4,075,140
4,075,315

$

-

-

Table la.
Amount of individual income tax and
effective rates under present law,
H, R# 73781 and Schedule B
Single person - No dependents
Personal exemption: Present law
H. B. 737S
Schedule B
Net income
"before
personal
exemption 1J

« $750
- 500
- 500

Amount of tax

Effective rates

:

Present
law

-H. R* 7378 : Schedule
:
B
J

Present:
law ! H#R. 7378

1

•

Percent
500
600
700
800 $
900
1,000
1,200
1,500
2,000
2,500

69
117
165

4,000

347

3,000

-

3
11
21
40

483
649

1,031

8,000
10,000

1,493
2,994

15,000

4,929

20,000

25,000
50,000

7.224
20,882
53.214

100,000

500,000

1,000,000

15

$

3^5,654
733,139

3.923,124

-

$

12
28
43
59
74
ill

3^
52
71
89

—

221

5,000
6,000

5,000,000

—

126

181
166
268
273
380
365
472
502
686
756
920
1,030
1.174
1,31^
1,742
1,912
2,390
2,565
4,366
4,541
6,816
6,991
9.626
9. soi
25,811
25.986
64,641
64,816
4i4,6l6
414,791
854,616
854,791
4,374,616 4,374,791

Percent

-

.4
1*2
2.1
3.3
4.6
5*9

Percent

-

-

Schedule
B

2.5
M

6.5

7.8
8.9

10.5
12.1

—

2.0
4.o
5.4

6.6

7.*
9.2
ll.l
13.4
15.2

7.*
8.7
9.7
10.8
12.9
14.9
20.0
24.6
28.9
41.8
53.2

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

18.9
20.6
21.9
23.9
25.6
30.3
35.0
39.2
52.0
64.8

73.3
78,5

85.5
87.5

85.5
87.5

k

6

6

6.6

69.1

82.9

16.7

83.O

Normal tax
rate

(percent)

b

1/ Maximum earned income assumed.




6

6

Table la.
Amount of individual income tax and effective
rates under present law, H# B* 7378, and Schedule B
Married person - I o dependents
T
Personal exemption:

Amount of tax
Net income
before
Present : H. E.
law
: 737S
personal
•
exemption if
•

Present law
H* R. 7373
Schedule B <

-$1,500
- 1,200
- 1,000

:
Effective rate
Schedule
: Present: H* K.
B
: law : 7378
•

i Schedule
:
B

•

Percent Percent
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,800
2,000
2,500

-

-

-

—

6
23

90
138
249

i4o

375

746

42

4,000

5,000
6,000

521

8,000
10,000

1,305

20,000

2,739
4,614
6,864

873

15,000

25,000
50,000

500,000

1,000,000
5,000,000

20,439

52,704
345,084

232
324
532

992
1,532

2,152

4,052
6,452

9,220

25,32s

64,060
4l4,000

854,000
732,554
3,922,524 4,374,000

-

-

-

-

1.0
2.1
3.2
4.1
5.7
7.0
9.3
10.8
13.3
14.9
16.5
19.2
21.5
27.0
32.3
36.9
50.7
64.1
'82.8
85.4
87-5

40

56
71

48

66
103

-

25

13
30

-

3,000

100,000

$

$

-

10

-

-

$

-

-

-

89

126
163
265

377

621

885
1,169
1,757
2,395
4,311
6,731
9,511
25,641
64,401
414,351
854,351
4,374,351

Percent
-

-

-

0.4
1.3
2.1
3.6
4.6

6.2

7-5
8.7

10.9
13.1

I8.3
23-1
27.5
40.9
52.7

69.0

73-3
78.5

•9
2.1
3.1
4.0
4.7
5.6
7.0
8.2
10.6
12.6
15.5
17.7
19.5
22.0
24.0
28.7
33-7
38.0
51.3
6H.4
82.8
85.4
87.5

Uormal tax
rate (percent)
1/

U

6

Maximum earned income assumed.




6

U

6

6

Table D.
Amount of individual income tax and effective rates
under present law, H. R. 7378, and Schedule B
Married person - t / dependents
Yo
Personal exemption: Present law
H. R. 7378
Schedule B

- $1,500
- 1,200
- 1,000

Dependent credit:

- $

Present law
H. R. 7378
Schedule B

400
400
250

Net income
Amount of tax
Effective rate
before
personal ex- : Present H.R. 7378 Schedule : Present: H.R. 7378: Schedule
B
emption l/ •
law
B
:
:
• law :
•
t
4k

•

•

Percent
1

1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
2,4-00
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

—

—

-

—

-

—

-

—

-

—

-

—

—

—
-

$

6
12
58
154
271
397
717
1,117
2,475
4,287
6,480
19,967
52,160
344,476
731,930
3,921,884

13
26
43
62
80
172
356
570
784
1,292
1,880
3,716
6,036
8,756
24,776
63,396
413,296
853,296
4,373,296

$

Normal tax
rate (percent) 4
l/ Maximum earned income assumed.



—

0

10
22
37
53
68
86
105
123
.142
160
262
496
750
1,024
1,602
2,225
4,101
6,471
9,221
25,296
63,986
413,911
853,911
4,373,911

Percent
—

—

—

—

—

—

—

—

-

—

—

—
—

-

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

4

0.6
1.2
1.9
2.6
3.2
5.7
8.9
11.4
13.1
16.2
18.8
24.8
30.2
35.0
49.6
63.4
82.7
85.3
87.5

Percent
-

.6
1.3
2.1
2.8
3.4
4.1
4.8
5.3
5.9
6.4
8.7
12.4
15.0
17.1
20.0
22.2
27.3
32.4
36.9
50.6
64.0
82.8
85.4
87.5

Individual Income Taxes in Great Britain 1/ and Canada gj
Canada
Great Britain
Net
Effective rates
Amounts
Effective rates
income
Amounts
Net
Net
Total :
PostNet
Total
before
Total : Post- :
Total
tax :
tax
war
tax
:
tax
tax
tax
personal
tax
: war
tax
exexmptions liability: credit :liability liability:liability liability: credit :liability:liability:liability
Single person - No dependents
$ 2,500'
5,000
10,000
25,000
50,000

$

850
1,975
4,625
15,137
36,575

i 123
1
207
240
240
240

787
1,768
4, 385
14,897
36,335

1

34.0$
39.5
46.3
60.5
73.2

29.156
35.4
43.9
59.6
72.7

$

826
2,128
5,112
15,496
35,703

626
1,728
4,312
14,696
34,903

33.0$
42.6
51.1
62.0
71.4

25.0$
34.6
43.1
58.8
69.8

|

401
1,378
3,762
13,845
33,553

26.0$
37.6
47.6
59.4
69.1

16.0$
27.6
37.6
55.4
67.1

$

17.4$
33.2
45.5
58.5
68.7

8.7?
21.2
33.5
53.7
66. 3

$ 200
400
800
800
800

#

$ 250
500
1,000
1,000
1,000

Married couple - No dependents
2,500
5,000
10,000
25,000
50,000

$

730
1,855
4,505
15,017
36,455

$

143
227
260
260
260

#

587
1,628
4,245
14,757
36,195

29. 2$
37.1
45.1
60.1
72.9

23.5$
32.6
42.5
59.0
72.4

$

651
1,878
4,762
14,846
34,553

Married couple - Two dependents
r£,500
5,000
10,000
25,000
50,000

$

H,

530
1,655
4,305
14,817
36,255

I 143
227
260
260
260

$

387
1,428
4,045
14,557
35,995

21.2$
33.1
43.1
59.3
72.5

Under Finance Act of 1941 . It Converted at $4.00.
Under Income War Tax Act of 1942.




15.5$
28.6
40.5
58.2
72.0

I

435'
1,662
4,546
14,630
34,337

$ 217

600
1,200
1,200
1,200

218
1,062
3,346
13,430
33,137

Maximum earned net income is assumed.