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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 "by the Secretary, we have given careful 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 "by consumers while it is administratively extremely difficult to 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 61 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 over - 5,000 6°/o 6 6 6 82 S2 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 23 25 28 32 36 40 43 46 49 52 55 58 9,900 12,900 63 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 if 9 1,200 23 1,300 37 1 13 — 1,400 30 52 — 1,500 66 48 1,600 ;1 66 84 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 — — — - — - — — — 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 Percent — .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 :• law :» A : A • * 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 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 4,,373,906 6 6 _ _ $ _ _ 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 — 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 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 - ITo dependents 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 5,000 6,000 375 746 8,000 10,000 1,305 20,000 2,739 4,614 6,864 873 15,000 25,000 50,000 500,000 66 103 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 - - 10 - - - - - 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 25 40 56 71 48 90 138 249 521 $ 13 30 i4o 42 4,000 1,000,000 5,000,000 $ - 3,000 100,000 - - 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 - tY/o dependents 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 i1 123 207 240 240 240 787 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.
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