House Report 79-1106

79TH CONGME8S 18t Ses8ion

HOUSE OF REPRESENTATIVES

NRo.r10 NO. 1106

THE REVENUE BILL OF 1945,
OcToBER 0, 1945.-Cormmitted to the Committee of the Whole House on the
State of the Union and ordered to be printed

Mr. DOUGHTON of North Carolina, from the Committee on Ways and

Means, submitted the following

REPORT
[To accompany H. R. 430]

The Committee on Ways and Means, to whom was referred the bill (H. R. 4309) to reduce taxation and for other purposes, having had the same under consideration, report it back to the House without amendment and unanimously recommend that the bill do pass. GENERAL STATEMENT The bill has been designed to aid both individuals and businesses in the difficult period of transition from war to peace. To accomplish this your committee believes that it is necessary to reduce the high wartime tax rates to provide incentives for business to expand and to increase consumer purchasing power. Certain expenditures necessary after the end of a war, however, will keep Federal revenue requirements at a high level during 1946 if a large deficit is to be avoided. Federal expenditures for the fiscal year 1946 have been estimated by the Bureau of the Budget at 66.4 billion dollars and the deficit for fiscal year 1946 at 30.4 billion dollars. Federal expenditures for calendar year 1946 are expected to be much lower, but it is anticipated that the deficit will still be sizable. In view of the probable extent of the deficit in 1946 it is necessary to limit the over-all reduction in taxes. Your committee believes that with onlv a limited tax reduction possible in 1946, moderate tax relief for all groups would be preferable to the complete elimination of a few wartime taxes affecting only a relatively small number-of taxpayers.
SUMMARY OF CHANGES IN EXISTING LAW The bill makes the following changes in existing law: Individual income taxes 1. The present surtax exemptions are made applicable to the normal tax. Accordipgly the normal tax exemption of $500 for each income recipient is eliminated, and there are allowed in its place exemptions

2

IrAt W"Istm 13ILL OF 104t,

of $500 each for the taxpayer, his spouse, and eah of his dependents. This change will be effective on and after January 1, 1946. 2. The rate applicable to each turtax bracket is reduced by four percentage points effective on and after January 1,1946. The combined normal tax and surtax starting rate thus becomes 19 percent instead of the present 23 percent. 3. The surtax rates are further revised, effective January 1, 1946, so that generally the reduction of normal tax and surtax combined for any taxpayer wIll not be les than 10 percent. Corporate taes 1. The exces-profits tax rate is set at 60 percent for the calendar year 1946. The present excess-profits tax net rate is 856 percent. 2. The entire excess-profits tax is repealed, effective December 31, 1946. 3. The corporate surtax rate is reduced 4 percentage points as of January 1 1946. This results in a minimum 'cor.mbined corporate normal anA surtax rate of 21 percent in place of the Iresent 25 percent and a maximum combined rate of 36 percent in place of the present 40 percent. 4, The capital stock tax is repealed beginning with the capital stock tax payable on July 31, 1946. The declared-value excpss-prqfits tax beginning with the related year is also repealed. Excise ttxes 1. The excise "war tax rates" are reduced to the 1942 rates effective July 1,1 946. These are the "war tax rate" imposed by title III of the Revenue Act of 1943 to be effective until. 6 months after the termination of hostilities as proclaimed by the President or specified in a concurrent resolution of Congress. 2. Tax refunds, to the extent of the excise tax rate reductions, are to be made on all floor stocks of distilled spirits, wines, and fermented malt liquors, held for sale or use in production on July 1, 1946, on which the wartime excise tax rates had been paid. Similar refunds are to be made with respect to the reduction in the manufacturers' excise tax on electric light bulbs. 3. The tax on the use of motor vehicles and boats is repealed, effective July 1, 1.946. t Eknploymerae 1. Employment taxe for the old-age and survivors insurance program are continued through 1946 at the present rate of 1 percent on wages paid by employers and 1 percent on wages received employces, instead of increaing in 1946, as provided by present law, to 2); percent for each of the-S groups.

bty

SUMMARY OF ESTIMATPD REvrzNui EPrTXCT OF TAx REDUCTIONS The- estimated tax liabilities and reductions under the committee bill are shown in table- I. Total tax liabilities under the committee bill for 1946 are estimated at $27,140,000,000-$5,350,000,(00 less than the estimate for existing law in 1946. Of this $5,350,0 000 reduction, $2,627,0Q0,000 is attributable to reductions in individual income taxes; $1,888,000,000 to reductions in corporate taxes; $535,-' 000,000 to the return of oertain excise tes to their 1942 rates $140,000,000 to the repeal of the tax on the use of motor vehicles4-a

Table: Table 1.- Estimated tax liability under the com it e bil for calendar years 1946 and 1947,1 as compared with tax liability under present law

TWO

1W

LL RtV* MM 010-48

t to be m od, the war excise boat; anid *iON,0Q0, taxes on floor st Oks of alcoholic leversges and light bulbi In 1947, ta liabilities under the comiittee: bi ounid; be $7,252,000,000 lower than estimates under existing law for 1947 general If conditions remain the same as in 1946. This is a $1;902,0O0,000 additional loss ovdr that of i946i Most of the additional reduction in 1947 arises from the repeal of the excess-profits tax and a full year's operation of excise taxes at the 1942 rates4 However, the repeal of the exces-profits tax also increases somewhat the losses under the reduction of the corporate surtax rates, since the repeal of the eces. base profits tax Increases thefor for corporate surtaxes An increased loss als results in- -1947 similar reasons, from the capital stock and declared-value excesd-profits taxes The tai refurtds ofl floor stocks of certain goods Is a nonrecurring item and, thus offsetg in A small degree the increased losses in 1947 over 1946. To make this comparisn between the revenue effect of the committ bill in 1946 and 1947 possible, it was arbitrarily assumed that general conditions in 1947 would be the same as in 1946. This includes the assumption that the supply of goods and services subject to excise taxes will remain constant. The distribution of tax liability reductions among the various corporate taxes in which reductions are made is based on the sequence of the action of your committee which was: First, to red ice the excessprofits tax rate and repeal the tax, second, to reduce corporate surtax rates; and third, to repeal the CapitAl stack ind~ declared-value excess profits taxes. If these taxes had been acted upon in a different order, the losses from each corporate tax would have been different although the total loss would have remained the same. This, difference in individual items can be accounted for by the fact that various corporate taxes are interrelated, and action on one tax frequently changes
the aize of the base of another tax.
TABL% I.-^tmatU d taxliability under the committee bill for calendar years 1946 and 1947,1 as compared with tax liability under present law fin millions of dotllas
kuinae yiald

laI

1. Internal FYveflRW

(I) Income, ez6ss profits, nd 'Capital tick taxes: (a) Corporation taxes: I x-4,847 8,547 Ixoss profits .................a 556 Normal stoek snd deelared tax and surtax .-..a, a,461 Vidif Capital 1 551 eas profits ............. Total o nation taxes 9,0 4 7,t1 6 (6) Individual Inotne tWe*s. NorMA) tax 0.. ., W and Surtax anidrhati ta o ......m......,.... 11,6I 25 9,410 rpltalshL Total individual income taxes13,40 10,71 Totl Income and excess 1wofits taxes and the capital stoc tax....... 2,u 17,49
.....

.,

la Wwotnottm O tabep. 4 94

_,=
=

Dears, committee bil

Present Cmmit 19tee
_I

l0

1,300
406 183 1,8

2, SU 64
240

,444
782

72 1,845

1,4S

27 i

_ 2,8 27

4..51S 8-071

4

THE RMIUNUt SILL Or 1945

TABLU I.-Estimated tax liability uider the committee bill for cl and11947,' as compared with tax liability under present lawo (In minions orl lWu
Estimated yields
Souros

gtN ear I inhud

4

Decrease, oomrnitteebill

Present ittes Com..1... law bill

1. itral revnue-Cootinued ( Miscell*neous Internal revenue excludinglcaptsil stockitax: (4)JExcise taxes afeoted by reduction in war. time rates: Liquor taxes; Distilled spirits. Fermented malt liquors .

Wines .,..

.

.

1,473 47

Total liquor taxes..... 1setillers' excise taxes: etc Furs --------------Toilet preparations. Luggage, etc Total retailers' excise taxes. Telephone, telegraph, radio, and cable facilltles, etco Local telephone service Transportation of persons . Admisions .------------------------Electric light bulbs and tubes. Club dues and initiation feesBowling alleys, billiard and pool

2,0M
201 90 79 62 432

1,224 513 36 1, 773
153 65 61 47

249 32 11 202

472
15

Jewre",

............

48

25 18 16

326
111 107 160 203 10
9 2

106
15 21 28 65
4 2 2

s0 212

44 39

-----------

126 128 188 2( 14
11 4

41 00 129 10
5 2

29

duction In wartime tax rates... (5) Use tax on automobiles and boats . (e) All other . Total miscellaneous internal revenue excluding capital stock tax .. 2. Employment taxes (net) .-. ... S. Customs .. .. .. .. 4. Miscellaneous receipts Not receipts, general and special accounts- Rdunds on floor stocks'I. ........... . . . Net receipts less refunds on floor stocks._

tables. Total excise taies atRected by re-

3,234 140
2978

2 701
.......

53 140
........ ......

1,041
.

2,978

140

0,364 392
450 2 ,900
32,490

6,079
392 450
100
.

675
....
.
.

1,181
....

go9 0027, 300 6,190
160
27,140
6,380

.

.----

7,252

32,490

7,252

Assumes for cowmpaative purposes, the umzne general conditions in 1947 In 1946. Takea tax reduction or repeal First, action on the excess profIts ountthefollowingsquenoe tax; second, action on the corporate surtax rate; and thid, action on the capital stock and declared-value excse profits taxes. Tax refunds are classified by the Federal Government expenditures but are included here as reductions In tax liability since they arise directly from the committee bill.
as

REDUCTIONS 1. Providng same personal exemptionsfor normal tax as for surtax This bill make the present surtax exemptions applicable to the normal tax, effective January 1, 1946. Thus the normal tax exemptions of $500 for each income recipient are eliminated,' and there are allowed for both normal tax and surtax exemptions of $500 each for the taxpayer, his spouse, and each of his depencients. This provision would relieve from tax approximately 12,000,000 of the 48,000,000 persons receiving income subject to tax. This provision would result in a revenue loss of approximately $780,000,000
now
The pesnt normal ta

GXNERAL DIsCUSSION

OF

RECOMMENDED INDIVIDUAL INCOmm TAX

exemption

sooem II the ilaoome

Is les

for tbJmse
th
a

of

yaer.

a

taxpayer

allowed

sl7

to

the qrtent

tbo

THE REOVENUJ SILL OF 1945

5

of which $310,000,000 represents the1lo8 from removing the 12,000,000 person iisfrom the tax trol 1. Those removed from the income ta rolls would be taxpayers in the lower income groups who at present are subject to the normal tax but not the Olrta*. Examples of persons in this class at the present time are taxpayers with one dependent' and with net income before exemptions ranging from $500 to $1,000, taxpayers with two dependents and with not income ranging from $500 to $1,500' and taxpayers with three dependents and net income ranging from i5O0 to $2,000. The proposal would also reduce the tax of all married persons hose spouses have incomes of legs ltan $500 and all taxpayers with dependents, since an additional exemption of $500 would be granted to a taxpayer for his spouse and each of Iis dependents. This would in effect grant tax relief of up to $15 per spouse or dependent to every taxpayer. Your committee believes this change in the tax law to be desirable for the following reasons: (1) The taxpayers subject only to the present normal tax were first brolight into the tax base when the Victory tax was enacted in the Revenue Act of 1942. They were added to the tax rolls only as fa wartime measure and witll the end of the war. this reason Tor retaining them in the tax base is removed. (2) Persons relieved from the tax by this proposal constitute the lowest income group now subject to income taxes and receive income which is substantially below that required for an adequate standard of living and therefore do not have the ability to pay income taxes under a peacetime tax structure. (3) This pro osal would be an aid to income tax simplification by providing tIhe same exemption for the normal tax as for the surtax, and would reduce tax administration costs--both for the Federal Government-and for employers withholding the tax from wages. 2. Reducing surtax rate by four percentage points The committee bill reduces the rate applicable to each surtax bracket by at least four percentage points, effective on or after January 1, 1946. This would reduce the starting rate for the combined normal tax and surtax from the present 23 percent to 19 percent. The estimated reduction in tax liabilities in 1946 resulting from this proposal would be approximately $1,740,000,000. Although your committee does not believe it is desirable to embody a comprehensive revision of the individual income surtax rates in this bill, it does beieve that some relief should be provided to everyone who has been paying' high wartime taxes. This provision grants substantial tax relief to l individuals subject to the income tax at the time when many eo; them must shift from wartime to peacetime employment. Thus this provision should be an aid in curbing deflationary tendencies of our economy as it shifts from high levels of wartime production to peacetime levers. S. Assuring taxpayers generally at leadt a 10 percent tax reduction In addition to the reduction of four percentage points in eacn surtax bracket, the bill further revises surtax rates so that generally the
I Or a spouse with no Income.

Table: Table 2.- Comparison of individual surtax rates and cumulative surtax under present law and under the com it e bil

6

reduction of the normal tax and surtax combined for any a ayer Will the $20,000 t $22,0 sura bracket, -the four percentage points redu ction provides more than a 10-percent tax reduction an above that bracket less than a 10-percent reduction. Accordingly this prove n will require additional reductlions beyond the four percentage point reductions in the surtax bracket of $20,000 to $22 000 and higher surtax brackets. The estimated revenue loss in 1946 from this proposal is'about $110,000,000. Your committee believes that it s desirable t provide a 10percent reduction in individual income taxes to aid unincorporated businesses. .Present-law limits the aggregate normal tax and surtax t 90 percent of the net, income of the taxpayer; To assure taxpayers subject to the limit a 10-percent, reduction in tax, this 90-percent limitation is decreased to 81 percent of the net income of the taxpayer. Generally this limit affects taxes only when net income exceeds $650,000. The proposed new surtax rates and the tax burdens for each bracket compared with present rates and burdens are shown in table 2. The data shown in this table include both the effect of4the 4 percentage points reduction and the minimum 10-percent reduction. A comparison of individual income tax burdens,under present law and under the committee bill are shown in tables 3, 4, and 5. Table 3 shows the burden on single persons with no dependents at various income levels' table 4, the burden on married persons with no dependents; and
nat be less than 10 percent. Below

table 5, the burden on married persons with two dependents.

TABLz 2.--Compari8on of individual surtax rates and cumulative surtax under present law and under the committee bill
Burtial net income

Percent 20 22 D 30 $,0.0.0 $800. 34 $8,000-$10,00038 10,000 .-.. . #12,02, .. 43 12,000.-.14,000.... 47 14,000...-16,000.$1,000. 18,00m-0 63 $18,000 -000 .... 58 $20000 . 22,000.. $,00 0. ... 59 v 0o -26 o $26,000 ... 62 $32,000.. 5 $32,000....-O38,OD---. . .......... 69 44Oo ... 72 $.60 ...... ,low 76 $t0,00.0.-.. 60,000. $60,000. ...-----------78 R1 $70,000-X1$80,000... $80,000 900.0 . 84 $@. 87 . .0,000 .. ... $100,000. .. 100,000 89 $150,000... -.. 20 1000 0,000. . _. 1 _ _--0

$0

$4,0

THZ

UVIMUU

BLL OF

1945

Surtax rates

Cumulative surtax

Reduction under comnmittR bill e

EoeediNf Notexoed- Present ~Committee bill ing- law
-

Present Committee Percentage Cumulative law points bill surtax
------

$2000

------------

------------

Percent 18 is 22
2 30 34 39 43 46 49 50

$40 840 .1,300 1, 90 2,840 3, 00 4,260 5,20

.

-

....

-

65 67 70 72 78 78 79.6 8) 81.5

b8 62

63 55

3~4,320 42,120 50,220 58,620 87,320 111,820 156, 820

8,380 10,740 14,400 18 300 22, 500 26,820

0,200 7,260

12Z880 20,080 23, 80 30,8680 37,B80 44,880 62,4890 60,2 0 100,030 140,63

1,120 1,640 2 240 2, O0 3,700 4,50 5, 480 6,400 7,460 9, 580

680

16,300

4 4 4 4 4 4 4 4 4 4 a 6 7 7 7 . 7 8 8 9 8 9 9.a 9 9.5

.....,

1,580 , 420 2,840 3,840 4,440 5,340 6,140 7,040 11,790 16, 290

0 160 240 320 400 480 560 640 720 800 920 1, i00

2,000

Table: Table 3.- Comparison of individual income-tax burden on specified net incomes under present law and under the com it e bil

Table: Table 4.- Comparison of individual income tax burden on specified net incomes under present law and under the com it e bil

Tp ~13

UZ BaLL 0

1945

7

TABLZ 3.-Cornpariaon of idiUidw4 income-ax burden onpec4d ,ntd incom r the cOmite bU und preet law and
SINGLE PERSON, NO DEPENDENTS
Income-tax . Inoomoe burdenw

Net Income before per-. sonal exemption
Present law

-11ffective tax omttee bill burdw(permet) rate I Reduction under __,,,,_,,,
_a
. .

. i . .. _........CIte

Present

Conunittee
bil
............

Amount

Pereunt 17.39

$500.--------------------$600. $700 ........................ $750$800 .--$900 ... $1l000 .... $1,200.------------.

.

92.90

69.00

$2,.00 5 7.80

. ... ...

.

-

--

-

---

-

-

$1S800 $2,000-.. $2,500 .--*$3,o00 . $4,000. $5,000 ....... $6A000........... $7,000 ---___-------------_ $8,(E ----------..

$I 1W $1,500.....
.......__
*----,

2181.00 230.00
290.00 45.00 835.00 1,105.00 1,395.00 1, 70&500

$19. 00 38,00 47.50D 57.00 76.00 -5.00 133.00 .190.00 24l7.00 285. 00

& 62 10.22 11.80

7.07

W42 18.61

.

--

,,

.

.. .

.

..

......

$10,0(0 .......... . .................... $11._ .....-.... $12,000 $13,000 -----------$14,000 . $l.5,000.---------....-----------$20,000. $25,000 ..... $30,000. $40,000 $50 000 -----------------$7 ,o000 --------------------$80,000---$90 000 $100,000 ...... .....
-

2,0385.00 2,385.00 2, 75 00

-

-----

-

---

13,795.00D 20, 680.00

4,450.00 4,930.00 7, 580. 00 10, NO. 00

3,145.00 S gm 00. 3,'500

1,735.00 2,0.0 2,375 00 272,. 00 3,095.00 3, 49000 3,910.00

1,445.00

1,75.00

380.00 485.00 695,00 ,.00

- 20.87 22. 10

1I&40 19.50

17.25

24.36 25.44 26.50 27.55
20.62 30.09 31.79 32.87 37.90 42.36 45.98 61.45 '55:89 59.5 62.59 65.26 67,85 60.87 77.24 81.18

23,25

28.59

9. so 11.06 12.67 1& 72 14.25 15.20 16. 17 17.37 1. t8,0 19,58 20.64 21.89 -22,72 23.75 24.77. 25 79
:2& 8$ 27.93

'.33 7.12 &344

543

$4.00
10.00 1. 00. 20.00 28.00 40.00 '52.00 60.00 11#.00. 100.00 1K 00 140.00D 180.00 220.00 260.00 300. 00 340.00 380. 00 420.00 480.00 800.00 80.00
1, 405. 00 2,105.00 2, 80 00 3,600.00 4,400. 00
8.00

17.39

17,39 17.39 17.89 17.39 17,39 17.49

17.3) 1739 17.09 10.29' 1&.77 125 14.74 I3.79
12.94 M1&"

17.39

9,520,00 12, 390,Q00
25 140. 0 32, 130.00 39,416.-00 46,905.00

5,8W00.00

29.00

27, 95 00 35, 730.00 43,15..00

18,47i,00

34.6W .8.08 41.30
46. 19

1,070.00

540.001 780.00

12,33

50.28 53. 55 56.81 58.31

11.76 10.29 10 10 10.- s '10.25' 10.04

10.08
10.4 .

---

----

------

$150,000 .................

$250,000.____.____

$20,000-.
$400,000
__

t°°°-----------------

162,355.'00 209, 350.00 26, 30. 00

00 115, 80, 00

B9',8$*0

_.

675, Q00.00 $750,000 ..... $1,000,000---.- 900,000.00 1t800,000.00 $2,000,000. . $3,000,000 ---------4,50,000.00
-

444',350.00

3M0 350.00

4,.050,00.00

104,117.50 146,110.00 188,357:50 2:30,87. 50 315, 107 50 39,807.50 607,500. 00 810,000.00 1,620,000.00

62,875,.00

5 785.00D

60,87 62 87 09.41

83.74 8a545 87.59

88.87 90.00 90.00 90.00

90.00

73.05 75.34 76.80 78.78 79.92 81.00 81.00 81.00 81.00

450,00. 00

180, 000. 00

90,000.00

5,29.00, .6,100.90 6,996.00 11,742.50' 18,245.00 20,992.50 25,742.50 35,242.50 44,742'.5 0 678,500.00

10.14

10.03 10.04 10.00 10.07 10.00 10.00

10.01

10.00

10.00

TABLz 4.-Comparison of individual income tax
Income-tax burden

burden on scvified under present law and under the committee bill
MARRIED PERSON, NO DEPENDENTS

net income

Net Income before personal exemption
Present law
.. .. 5 ..-...... . $7 $800 .. ..---..

Effective tax rate (percent)

Reduction under oorn.minttee bill

Committee
bill

I

Present
law
0.850

C commit

bill

.I
.

Amount

Percent
100.00 100.00 100, 00

.............. $700

$3.00

$900 .......

..........

........

6.00 7.50 9.00 12.00

.86

,....

.*...

..........
.........

..............

$1

$15,00 . $1 800 ..
$5,000.

.......... ,200......

. .f

130:00

16,00 61 00

1.00 1.12 1.33 1.:50
5.08 3.67

....w. ...

$3.00 &00 7.50 .9.00 12.00

M3800
95.00
.P).

199.00
.

00

S2,I0.. ., *3,000. ... $4,000 .
.

245 00

19.00
25.00 360.00

.. .
.

...... ........... .....

aM.00
975

12.25
14.40 15.83

11.06

8.44
9.50
11.40

I

23.00 35.00 47. M 6&00 75. 00

1&00

10.00W 100.00 100 00 r37.70' 2, 92

25 M
'J.0
I& n

$5,000

.............................. .......

475.00 725.00
00

12.67
4.75

590.00 00. 00

18.12 19.50

10.00

17.00

mroo

W800

25.62 90.53

17.90

Table: Table 5.- Comparison of individual income tax burden on specified net incomes under present law and under the com it e bil

TmkiLv 4.-Cdmpardson of individual keht4em tax burden on apeci/Led net income under present law and under the committees bill-Contifnued
MARRIED PERSON, NO 1)EPENDENTS'-Contiftued.
Income-tax burden Net Income before per.
s~nal exemption

Mofetivte tax rate

(pwerent)

Iteduticton tUnder committee bill

Present law
1 885.0 2 215.0 2 885.00

Committee bill
*,~00 1, UI %00 1,50.00 1,88.00 2,2100 2,81.0 2, 01.0 3,280.001 8.70000 4, 12 0) , .000 9,240.00

Present Committee Amoutt law bill
21.06 17.50 18.57 22.21 23.56 19.87 24.61 20.89 2585P 22.10 20.86 23.0 24.25 28. 04 25.2 29.04 30.2 26 .2043 27.47' 31.30 36.5 3i2.70 36.90 41.18, 44.98 40.33 50.59 45.37 55.17 40.600 58.92 82.07 02.04 55.79 58.16 64.74 07.18 60.43 60.43 62.47 76.94 09.14 72.84 80.98 75. 17 83, 6 85.30 70. 73 87.47 78.67? 88. 78 79.84 90.00 81.00 90.00 al.,00 90.00 81.00 90. 00 81.00
286. 00' 205.00 335.00 a00 U.10,0 455.00 405.00 ....35.O0

Petwen
16.40 15.0e8 15. 12
148

7 ,0 00..........

$6,000........

I

000-......... l1,.............. 12,000...........
..........

,0 I)--------------

1,555.,00

$1,26.0

*216. 0

17.00O

13,000,

5,......)... 0000-........... W.0 Om.0, ....00......
2
...........

................. 20,000........

14:00(1.-------

...........

700---------0 ...,..00.... ,00.......... 60,465.00 I100,0 -----------60, 435.00 150,000 -......... 115,416.00 Ia,0W. 00 ,0(0X4-1--------50000----------- 20,8 95.00 25A,895.00 '0,O00 O00,000........-.... 349,895.00 443,898,00 500x---------700---------- 675000. 00 900, 000.0 D O
...........
............

.000 -----------

46,830.00 54,390.00 til, 470.,00 103,70500 145,6 ')00 187,935,0 230, 18 ,00 314,0OM. 00 309185,00 607, 600. 00 SI0, wo1.00 2,0,0----------1,8SM0,OM0.00 I, 620, 0(0).0 4,050, 000.00 ,000,000-.........4,500,000.00

2,955.00. 3,365.00 3, 775.00 4,235.00 4,695.00 7,315.00 10, 208.00 13,45. 00 20, 235.00 27,885.0 38,380. 00 43,425.00 51, 795. 00

12,100.0 '18,1too.0 24,800.0 31,780.0 39,0W. 00

6, 965.0 11,710.00 10,215. 00 2D, 9W.,00 25,710.00 35,210. 00 44,710.00 7,500.00U ) 90,(1. 00 180,0(10). O 4,50,000.00

2,785.0 3,675.0 4,376.0 5,205.0 6,075.0

775. 00 1085.0 1,86r.0 2,0500.

657.00

13. 82 13.11 12.133 12.28 10.09 10.25

14,041

10.30 10.10 10.11 10.07 -1Q.t5 10.05

10.27

10.03 10.18 10.08 10.03 10.05 10.06 10.07

10.00 10,00 10.00 10.00

TADLEC 6.-Comparison of indit~~dual income tax bur-den -irn specified "el incomes under present law and under the committee bill
MARRIED PERSON', 2
burden Income-tax Income-taxburden Net fncotie Wfore per -_____
onal ex~~~~m1)t~~~on

DEPF9N1)ENTS
RIective tax rate

(j)4ercent)

Reduction under
committee bill
Amut
Aon

Present law
---------

Commiltee

1)11I

Pre.'nt
law
O.M

Commitftee bill
......
.......

Percent

$.0

.........

0.00 12.00 $900.-~~~~~ --------1.33 ~ ~~~~12.00 15.00 1.50....... -...... IOm.. ----00----- 15A.00 1.75 21.00 21, 00 --....... 1,200-.... 2.00 -----30.00 30.00-........ 1,500------...... - 2....... 39.P 30.00 117 -...... $1,800...... 41V.00 2.2.5 -...... .. $2,000..... 45.00......... 65.00 3.80 0.40 160.00 $*9,.00 $2,500-..... 6.33 9.17 85.00 1 0. 00 275.00 $3,000-............ 12.02 9.50 126.00 380.00 505.00 $4,000-........... 11.80 59.00 15.10 165.00 70. 00 $5,000-......... 16. 75 13.33 205.00 800,01) $8000----------- 1,005.00 245.00 15.00 18.50 1,295.00 1,0).5.(O $7000-........... 16.25 285.00 19.81 1,309.00 $8,000-1...I-----,585.00 325,00 21.28 17.67 1,5NO,00 1, 915.00 $9.000-....:....... 18.80 365.00 22.45 2,245.00 1, %0.00 $10,000----------20.00 405.00 23.77 Z 2,210.00 $11,000-2,---------618.00 21.17 445.00 24.87 2,540. 00 2,95. 00 $12000-........... 22.38 48& 00 26,12 3, 395.0 D O ,%910f. 00 $3,000........... .23.43 27. I! 3,280. 00 65, 00 $14,000-....;..-.3,Mi.5.00 56.00 43 3700.00 24.61 4.265,00 28, $15,000 ..........6, 020. 00 765.00 33.92 30.10 ...0...0... 6,785.00 W$..0 1,025.00 38.82 34,72 8, 63.1)0 $25,000-.......... g,705.00 1,348.00 30.40 42,88 1Z865,00 P30,0W Ill2M. 00
.......
......
.

$760-............7.50 --....... 1. 00 $800-~~~~~ --........ 1.12 ~~~~~~9.00
.....

....0..50 --

7.50

3:00

.....

......
.....

100.00 100.00 100.00 100.00 100.00 100:00 (' 40.82 30.91 24.75 21.85 20.40 18.92 17,98 10.97

100:00 100.00

.

...........

10.28 18.49 14.91 14.29 I&so 18.28 11.27 10.58 10.41

TAID ItMtMIX HIL O1F 194i

9

TAnLm b.-CoMpdtrihon of individual income kaz burden on epedijd not i'noon under present law and under the committee bill-Contliued
MARRID PERSON, 2 t)EPPND)ENTS-Continued
Income-tax burden
Net Income heto)e per-

Effective tax rate (iperoenh)

Reduction

bil entibitteeWMI4
PIrst

sonsl exemptlon-

Present low

Comiltte Present Cbrimittee bill law

~ ~ bil

Amount

$19,55.00 ....*.* 40,000.. *.. 26,865.00 ..... n000 -

W 0 -8,0 30,0)0 :00............ Mf, n.00 5g;n 0 ,1. 10000o.... 1.1,400.00 200,000 . 260,MI0 .....0.7, 986.00 254, M. 00 3(0,000 .. ... 848, 00,(K3. 985. 00 ,009- * - -442,985. W *- - *760,000675,000.00 0 ~1,o0900--00, 00. 1,80(0000.00 .00,0,000000-4,500,000.00
................ ........
.......

70 0

5000. . ..34,00.00 . 42,646.00
00.

.

$17 500. (6 24,1i0. 81, 08. W 36,12(1.0 too 780. 0 M.4,000 - 1s4 M.0 w 141,8 0.00 187,00.9).W 229, 400 W 813, W. OU 98,8000 75. OM . V10,O0.00 1, 020, o.00 4, 060,0W0.00
.00

48.86 53.73
68. 79 W. 0

6O

56.07
M.

80. 88.10 84.09 87. 26 88.(K 90i 00 90.0 0.o00 90.00

: 54.74 57.22 9. M 61.0 7. 42 74.84 76.48 78.46 79. 07 81.00 81. 00 81.0W 1..00

51.80

43.75 48.24

10.40 04.(00 10.22 2,746.00 10,19 3,526.00 10.14 4,.325. 00 1 0 9t 8,20S.00 02 ?0 0 10 f 68 6 itF0,00 10. 1 os 11,155.00 1a 08 20, 9. 00 10.06 2b,046.00 10.07 35,145.00 10.08 44,64.00 10.00 67, 0.00 10.0o 90,00.00 10.0 180,000.00 0.00 450,000.00

GUENPRAL DIscusstoN oF RvCOMMmNDItn COILPOHATn REDUCTIONS 1. Reducing and repealing thee'ees-proflt8 tax This bill sets the excess-profits-tax rate at 60 percent for the calondar year 1946 and repeals the entire excess-profits tax effective after December 31, 1946. It ii estimated that the reduction of the excessproflts-tax rate to 60 percent for 1940 will reduce net excess-profitstax liabilities in that year by about 50 percent, or by about $1,300,000. The remaining half of excess-profits-tax liabilities will be removed for 1947 by thempeal of the tax in this bill as of the first of that year. The way Hi which the 60-percent rate for 1946 will reduce excessprofits tax liab)ilities by one-half can be shown as follows: The present credit which, as a result of the.Tax Adjunstment Act of 1945 (approved Juiy 31, 1945), can be taken currently. Thus the net excess-profitstax rate is 85X percent. In addition to this, however, there is an over-all corporate income and excess-profits tax limitation in present law of 80 percent with a credit of 10 percent of the excess-profits tax portion. This has resulted in an over-all effective excess-profits tax rate for all corporations taken together of close to 80 percent. Since profits taxed under the excess-profits tax Wollld be subject to the corporate normal and surtax rates of 40 percent if there were nO excessprofits tax, these profits are in effect only subject to an over-all additional tax of about 40 percent. as the result of the excess-profits tax. Thus a 50-percent reduction in this additional tax would reduce the excess-profits tax by about 20 percentage points below the present over-all effective excess-profits tax rate of about 80 percent, or would reduce-the excess-profits tax to the 60 percent proposed by this bill for 1946. There is, of course, no 10-percent credit against the tax at the 00-percent rate. Although your committee recognizes the desirability of having no excess-profits tax in our peacetime tax structure, as indicated by the proposed repeal of the excess-profits tax as of the first of 1947, it did not believe that the complete elimination of the excess-profits tax for
H. Repto.,

79-1, vol. 5-64

:to,

THEZ

AVNI4 d

WML.OF 1948

1946 was, a desirable as. the.reduction of other corporate taxes which affect all corporations with taxable income. It shIuld also be noted that the continuation of the excess-profits tx for 1946 automatically makes the unus excessprofits credit carry-back available from 1946 to 1944 and 1945. This should especially aid those firms which are faced with a difficult reconversion problem Your committee also decided that the need of railroads and certain other industries for an extension of the unused excess-profits credit carry-back 1 year beyond the repeal of the excess-profits tax presents a problem of sufficient importance to merit special consideration in the next tax bill. 2. Reducing corporate 8urta rates byfour perceriage points The corporate surtax rates under this bill are reduced four percentage points, effective after December 31, 1945. 'This reduces the present combined normal tax and surtax rate of 40 percent on corporations with net incomes of $50,000 and over, to 36 percent. For corporations with net incomes of less than $50,000, it also reduces each of the rates four percentage points. For example, the bill provides a combined normal and surtax rate of 21 percent on the-'t $5,000 of income instead of the present 26-percent rate. The reducetion of four percentage points for corporations with income over $50,000 represents a 10-percent tax reduction. For corporations with income under $50,000 it represents a tax reduction ranging from 10 percent to 16 percent-the greatest tax reductions going to corporations with the smallest incomes. The estimated revenue loss in 1946 from this proposal is about $400,000,000. Your committee believes that the reduction in the corporate surtax rate is desirable for the following reasons: (1) Many corporations not subject to the excess-profits tax during the war will face problems of readjustmiient from a war-' time to a peacetime economy and thus will be in need of tax relief. The proposed reduction in the corporate income tax grants relief to all of these corporations with taxable income. (2) Corporate income-tax rates have been raised during the war period from a top rate of 24 percent in 1941 to the present rate of 40 percent. Thus the excess-profits tax is not the only "war imposed" corporate tax and should not be the only one reduced. (3) Only about 20,000 corporations are expected to have income, subject to the exces-profits tax in 1946 out of a total of about 260,000 corporations expected to have taxable income.- Thus, if the excess-profits tax were eliminated in. 1946 instead of the proposed reduction in both this tax and the corporate income tax, less than 8 percent of all corporations with taxable income would be given tax relief. Since it is believed to be especially desirable to stimulate new and small businesses, it would seem desirable to grant all of then with taxable income, part of any tax relief given in 1946. S. Repealing tae capital-8tock and declared-value exce88-profi texe8 Under this bill, the capital-stock tax is repealed beginning with the capital-stock tax payable on July 31, 1946, and the declared-value excess-profits tax with respect to related years is also repealed. The capital-stock tax is payable in July of each year and is imposed on the

Table: Table 6.- A comparison of the present corporate tax structure with changes which would be made by the com it e bil

value declared by the corporation. It is presumably determined in accordance, with estimates of income fto be earned in the current taxable year, since the declared-valu exeprofits tat is levied on the amount of income in excess of a specified ratio of the declared value of the capital stock. The etimated l in 1946 from the repeal of these two taxes will be $-180,000.,. Repeal of these taxes would simplify the corporate tax structure, since one return would be eliminate and the present income-tax return somewhat condensed. Your committee believes that 1946 would be an especially appropriate time to repeal these taxes because the transition period wll be a more than usually difflclt time in which to predict corporate income and thus the operation of these taxes will be more erratic, than usual
in 1946.
TABLU 6.-A comparison of the present corporate tax structure with change. which would be made by the committee bill
A. INCOME TAX

I. Normal tax: (a) Corporations with normal tax not incomes uf not more then $5000: 15 percent-.... No ohinge. liIrst $-,000-17 percent-. No oh m. $5,000 to $20,000 .--------------1000-9 percent. .. No oh inge. $20,000 to 31 percent.,.. No che . ,25M i0 to No eharzge n (b) corporations wiit&r m taz not incomis over W,OOO . . . . . . . . . . 24 Peroont II, Surtax: incomes of not more aD. . (a) Coorations with surtax 'at Irst $25,00010 percent. 6 percent. 18 percent. $50,000 to $50 OOO percent widi surtax incomes over $50,000 16 12 percent. nct ............ ,-..-..-22 percent_ c. . Consolidated retsurtax not Incomes, ad- 2 percent go
................
..............

_. 854 1-*rcent . o nt e. ....P...,.,............ ent. R180 percent of (No' "W . et 11tiW 1947. I . (6) Over-all Income and excess profits tax limited to -tion. _Income.

(e) Net rate payable

__ .. , . _

)OCorpatIns
ditional.

-TA

a MVm-U

1945

PmRent law

Committee bill

..

B, EXCESS-PROFITS TAX
.

..................

-

C. CAPITAL STOOK AND DROLARED-VALUE EXCESS-PROFITS TAXES
. ...............

-$1.25 for each Repealed. ................... (a) Capital-stock tax. $1,000. (b) Declared-value oxcessprofta tax: Portion of net Income from 10 to 15 preent of declared value.- 6.6 percent. . Repeald. Portion of net income in excess of 15 percent of declared value... 13.2 percent... Repealed.

GENERAL DIscussIoN op RECOMMENDED EXCIsE TAX REDUCTION 1. Reducing wartime excise tax rates The excise "war tax rates" under the committee bill are reduced to the 1942 rates, effective July 1, 1940. These are the "war tax rates" imposed by title III of the Revenue Act of 1943. One excise tax, the luggage tax, would continue to be a retail excise tax instead of reverting to amanufacturers' excise tax as it was in 1942. The tax rate

12

THE REVENUE BILL OF 1945

in this case, however, would be returned to the 1942 level of 10 percent although continued on the retail sale values rather than on manufacturers' sale values. The estimated tax liability loss in 1946 arising from the excise tax rate reductions has been estimated at about $540 000,000 for the half of the year in which the reductions would be elective. The Revenue Act of 1943, in enacting the temporary increases im the excise tax rates, provided that the additional wartime increase would be removed approximately 6 months after the termination of hostilities in the present war. Your committee believes that it is preferable to fix a specific date for the removal of these additional rates so that b6th the consumers and businesses involved would have advance knowledge of the termination date. Your committee also believes that it is desirable to assure the removal of these wartime rates in 1946 when the purchasing power of many workers will necessarily be impaired due to readjustments arising from shifts from wartime to peacetime employment. The luggage tax is retained as a retailers' tax rather than being returned to a manufacturers' tax because it is believed that it will be easier administratively to collect this tax from the retailer who also pays similar excise taxes on many other closely related articles whose classification is not always distinguishable from luggage. The changes in wartime excise tax rates which would be made in this bill are shown in table 7. 2. Refunding wartime exese taxe8 on floor 8tock8 Your committee bill provides tax refunds of the additional wartime excise- taxes on all floor stocks of distilled spirits, wines, and fermented malt liquors held for sale or use in production on July 1, 1946, on which the wartime rates had been paid. Federal Government expenditures for these tax refunds in 1946 are estimated at $160,000,000. The Revenue Act of 1943 subjected floor stocks of such alcoholic beverages held for sale or use in production on the effective date of the wartime excise tax rate increases to special taxes which were the equivalent of the additional war rates. This bill now reverses this process and provides refunds on floor stocks held at the time of the repeal of the wartime rates. In view of the substantial tax reduction, particularly in the case of distilled spirits, your committee believes that this is necessary to avoid subjecting retailers and manufacturers involved to an unfair tax burden. Not to do so might result in substantial inequity. since those holding such floor stocks on which the wartime rates had been paid might be forced to reduce their prices on such stocks and thus absorb the war tax if in competition with others obtaining alcoholic beverages on which the additional wartime excise tax rate had not been paid. Therefore refunds are granted in those cases where such price reductions actually are made. Although no tax was imposed on floor stocks when the tax on electric light bulbs was increased, your committee believes that refunds on floor stocks of electric light bulbs are justified by reason of the differences in the trade practices of competitors.

Table: Table 7.- Comparison of war-tax rates on excises with rates to be ef ective after June 30, 1946

THE REVENUE

BILL OF

1945

13-

TABLE 7.-Comparison of waar-tax rates on excise with rates to be effective after June $0, 1946
Description of tax
Admissions Permanent use or lease of boxes or seats. Sales of tickets outside box office Cabarets, roof gardens, etc. Dues or membership fees. Initiation fees - .-.--------------.--Jewelry. Furs Toilet preparations ..... ..... . Distilled spirits Imported perfumes containing dist lied spirits. Still wines: (1) Not overly percent of alcohol 2) Over 14 percent and not over 21 percent of alcohol. (3) Over 21 percent and not over 24 percent of alcohol. sparkling wines, liqueurs, and cordials: (1) Champagne or sparkling wine. (2) Artificially carbonated wine. .. (3) Liqueurs, cordials, etc . Fermented malt liquors Billiard and pool tables and bowling alleys. Electric light bulbs and tubes. Telephone long-dstance Domestic Lelegraph, cable, or radio dispatches. . Leased wires, etc Wire and equipment service .. Local telephone service. Transportation of persons . Beats, berths, etc --------Luggage.
.--.-------

I

War-tax rates
1 cent for each 5 cents or major fraction thereof. 20 percent ...... 20 percent .20 percent ................ 20 percent ....--..--.. 20 percent -20 percent. 20 percent .20 percent ..........-...$9 per gallon .$9 per gallon
-

I

Now rates
1 cent for each 10 cents or fraction thereof. 11 percent. 11 percent. 5 percent. 1 percent. 11 percent. 10 percent. 10 percent. 10 percent. $8 per gallon, $5 per gallon.

-

-

-

15 cents per gallon-10 cents per gallon. 140 cents per gallon. 60 cents per gallon -$1 per gallon. $2 per gallon
.... ...

.............

.

15 cents per hall-pint or fraction thereof. 10 cents per half pint or fraction thereof~. 10 cents per half pint or fraction r thereon $8 per barrel; $20 per year per table; $20 per year per alley. 20 percent. 26 percent -------25 percent .... ......... 25 percent ...----. 8 percent .. 16 percent15 percent ....... 16 percent. 20 percent of retail sales price-.

10 cents per half pint or fmotion thereof. i oonts per half pint or fraction thereof. 5 cents per half pint or fraction $7 per barrel. $10 per year per table; $10 per year per alley. 5 percent. 20 percent. 15 percent. 15 percent, 5 percent. 10 percent. 10 percent. 10 percent. 10 percent of retail sales price.

thereof,'e

S. Repealing the tax on the use of motor vehicles and boats The tax on the use of motor vehicles and boats is repealed under your committee bill, effective July 1, 1946. The next use tax it due at that time. The tax is an annual stamp tax of $5 on the use of automobiles and a stamp tax of from $5 to $200 on the use of certain boats, the tax in the latter case varying with the size of the boat. The estimated revenue loss in 1946 from the repeal of this tax is $140,000,000. The use tax was first enacted in the Revenue Act of 1941 and was intended primarily as a source of revenue during the emergency and war period. With the war ended the reason for retaining the tax no longer exists. Therefore your committee believes that the tax should be discontinued. GENERAL DiscussIoN OF RECOMMENDED EMPLOYMENT TAX LEGISLATION Under your committee bill employment taxes levied on employers and employees, to finance the old-age and survivors insurance program, are continued through 1946 at the present rates of 1 percent on wages paid by employers and 1 percent ob wages received by

I4

THE REVENUE BILL 0P 19456

employees. Present law provides that the rates on each of these groups be increased to 23 percent effective January 1, 1946. Your committee at the present time, with the aid of a group of experts, is stud ing the social-security program, particularly with reference to its financing. It is believed that it would be desirable to await the completion of this study before making any changes in employment tax rates. GENERAL DisCUssION OF OTHER PROPOSED CHANGES 1. Determining eJfect of proposed tax reductions on individual and corporations usengdfiscal years All of the proposed tax reductions in the individual income tax as well as the changes proposed in the excess-profits tax (both the rate reduction in 1946 and the repeal in 1947) and the corporate income tax require special legislation for individuals or corporations OD a fiscal-year rather than a calendar-year basis. Your committee bill provides that fiscal-year taxpayers be allowed a pro rata portion of any tax reduction, determined by the portion of their taxable year falling in the calendar year in which the tax reductions become effective. A similar pro rata basis would be used to determine any unused excess-profits credit carry-back available to a fiscal-year taxpayer with respect to any fiscal year beginning in calendar year 1946 and ending in calendar year 1947. 2. Extending Federal Government exemptions from certain Federal excise
taxes

This bill provides for the continuation of the authority of the Secretary of the Treasury to exempt from certain Federal excise taxes any articles or services to be purchased for the exclusive use of the United States, if the Secretary determines that the imposition of the tax with respect to such articles or services will cause substantial burden and expense which can be avoided by tax exemption. The Secretary's power, under present law, to make such exemptions expires 6 months after the cessation of hostilities.

DETAILED DISCUSSION OF THE TECHNICAL PROVISION'S OF THE BILL TITLE I-INCOME AND EXCESS-PROFITS TAX
PART I-INDIVIDUAL INCOME TAXES
SECTION 101. REDUCTION IN SURTAX ON INDIVIDUALS

Under the bill reported by your committee, the surtax rates for individuals range from 16 percent to 81.5 percent, as compared with rates of 20 percent to 91 percent under existing law. The rates applicable to the surtax brackets from $2,000 through $20,000 have been reduced 4 percentage points; the rates applicable to the higher brackets have been reduced by--amounts varying from 6 to 9.5 percentage points. The new schedule of rates results in a reduction of at least 10 percent in the total normal tax and surtax rates on ordinary income of all on all individuals with net incomes below about $650,000. Subsection (b) of this section of the bill amends section 12 (g)'of the code, which limits the present aggregate normal tax and surtax to 90 percent of the net income of the taxpayer. This 90-percent limitation is decreased to 81 percent of the net income of the taxpayer.. In general this over-all limitation comes into play where the net income approximates $650,000. The reduced rates provided by this section will be applicable to taxable years, beginning after December 31, 1945. Special provision for fiscal years beginning in 1945 and ending in 1946 is made in section 131 (a) of the bill.
SECTION 102. ALLOWANCE OF SAME EXEMPTIONS FOR NORMAL TAX AS
FOR SURTAX

Under existing law, section 2.5 (a) (3) provides a single exeniption of $500 for normal tax purposes, except that in the case of a joint return of a husband and wife, each having adjusted gross income of $500 or mole, the normal tax exemption is- $1,000. If -a joint return is filed by husband and wige, one of whom has an adjusted gross income of less than $500, the normal tax exemption is $500 plus the adjusted gross income of such spouse. For surtax purposes, the taxpayer is, entitled to exemptions in the amount of -500 for himself, $500 for his spouse if a joint return is filed or if a separate return is filed and the spouse has no gross income and is not the dependent of another, and $500 for each dependent whose gross income is ls than $500. - Subsection (a) of this section of the' bill would revise section 25 (b) of the code to make the present exemptions now allowable in computing the surtax also available as credits against net income for the purpose of the normal tax. Subsection (b) contains 11 technical amendments necessitated by the change in the exemptions for normal tax purposes. These amendments conform sections 11, relating to

NIB

THE REVENUE BILL

OF 1945

normal tax on individuals, 23 (x), relating to the deduction for medical expenses, 25 (a) (3), relating to normal tax exemptions, 47 (e), relating to the reduction of credits against net income in the case of returns for a fractional part of a year under section 146 (a) (1), 58 (a) (1), relating to requirement for declaration of estimated tax, 143 (a) (2) relating to withholding of tax at source on tax-free covenant bond interest, 163 (a) (1), relating to credits of estate and trusts, 214, relating to credits against net income in the case of nonresident aliens, 215 (b), relating to allowance of credits in the case of nonresident aliens where tax is withheld at source, 251 (f), relating to credits against net income in the case of citizens entitled to the benefits of section 251, and 401, relating to exemptions for the purposes of the tax imposed under supplement T. The amendments made by this section shall be applicable to taxable years beginning after December 31, 1945. 'Special provision is made in section 131 (a) of the bill for taxable years beginning in 1945 and -ending in 1946.
SECTION 108. INDIVIDUALS WITH ADJUSTED GROSS INCOMES OF LESS THAN $5,000

This section amends the tax table contained in section 400 of the code, relating to the optional tax on individuals with adjusted gross incomes of less than $5,000. The schedule of taxes imposed thereunder has been revised to give effect to the reduced rates in the surtax as provided by section 101 of the bill and to the increase in the exemptions for the purpose of the normal tax as made by section 102 of the bill. The new table of taxes would become effective for taxable years beginning after December 31, 1945. Special provision is made in section 131 (a) of the bill for taxable years beginning in 1945 and ending in 1946.
SECTION 104. REDUCTION IN WITHHOLDING OF TAX AT SOURCE ON WAGES

Section 1622 (a) of existing law' requires the use of .three different percentage rates in computing the amount of tax to be withheld at the Source, if the employer elects to use the percentage method in lieu of the wage-bracket tables provided in section 1622 (c). The several rates are necessary in order to compute the appropriate amount of tax to be withheld in respect of the normal tax and the first and second brackets of the surtax. Ther rates provided under existing law for such purpose are 2.7 percent, 18 percent, and 19.8 percent, respectively. The separate rate for computing the amount of tax to be withheld in respect of the normal tax is occasioned by the difference in the exemptions provided in section 25 for normal tax and for surtax purposes. As a result of the amendment contained in section 102 of the bill which makes the present surtax exemptions available for normal tax purposes it is possible to eliminate the 2.7 percent rate entirely and to combine the normal tax with the surtax rates. The two rates now corresponding to the first and second surtax bracket rates are revised to reflect the amendment contained in section 101 of the bill reducing the surtax rates. Acuordingly, subseetion (a) of this section amends section 1622 (a) by eliminating the 2.7 pereent. rote iend bv rcffeIlinf the I8 percent and 19.8 percent rates to

THE RLTENUE BILL OF 1 944

7 17

17 percent and 19 percent, respectively. These rates take into consideration the standard deduction of approximately 10 percent. A technical amendment is also made to conform the percentage method withholding table to the new rate applicable to the St surtax bracket. Subsection (b) of this section substitutes for the present withholding tax tables under section 1622 (c) (1) new tax tables which reflect the changes made with respect to the surtax rates in section 101 of the bill and with respect to the normal tax exemptions in section 102 of the bill. Subsection (c) is a technical amendment to section 1622 (h) (1) (C) to conform the reference to exemptions in the case of dependents to the changes made-by section 102 of the bill. The amendments made by this section of the bill are made applicable to wages paid on or after January 1, 1946.
PART. II-CORPORATION TAXES
SECTION 121. DECREASE IN CORPORATION SURTAX

This section of the bill amends section 15 (b) of the code, relating to the surtax on corporations, section 207 (a) of the code, relating to certain--mutual insurance companies, and section 362 (b) (4' of the. code, relating to regulated investment companies. The amendments made by this section are designed to effectuate a reduction of 4 percentage points in the surtax on corporations, except in the case of Western Hemisphere trade corporations, which are exempt from surtax, and. foreign corporations not engaged in trade or business within the United States, which are subject to a special tax under section 231 (a) of the code. In the case of the surtax imposed by section 15 (b) of the code the amendments made by subsection (a) reduce the surtax rate upon surtax net incomes not over $25,000, from 10 to 6 percent, upon surtax net incomes over $25,000 but not over $50,000 from 22 to 18 percent, and upon 'surtax net incomes over $50,000 from 16 to 12 percent. In the case of regulated investment companies, subsection (c) reduces the surtax rate under section 362 (b) (4) of the code from 16 to 12 percent. Under existing law mutual insurance companies subject to the surtax imposed by section 207 (a) (1) (B) are not taxable if their corporation surtax net income is not over $3,000 and are subject to an alternative surtax rate of 20 percent, in lieu oi the rate prescribed by section 15 (b), of the code on the portion of their surtax net income over $3,000 and not over $6,000. Also, under existing law, mutual insurance companies which are interinsurers or reciprocal underwriters subject to the tax imposed by section 207 (a) (3) (B) are not taxable if their corporation surtax net income is not over $50,000, and are subject to an alternative surtax rate of 32 percent, in lieu of the rate prescribed by section 15 (b) of the code, on the portion of their surtax net income over $50,000 and not over $100,000. In order to maintain the.breaking points for the alternative taxes at $6,000 and $100,000, respectively, the 20 percent rate is reduced to 12 percent and the 32 percent rate to 24 percent. The amendments made by this section are applicable to taxable years beginning after December 31, 1945. Under section 131 (a) of the bill, special treatment is prescribed in the case of taxable years

18 T8HEUMW U BILL OF 1945
provi'.oyLt in section 131 (a) no application to mutual insurance compamIies to which subsection (b), applies, or to regulated investment
SECTION 122. REDUCTION IN EXCESO-PROFITB TAX FOR 19

beginning in 1945 and ending in 1946. However, the fscal. year

companies to which subsection (c) applies.

This section amends section 710 za) (1) of the code, imposing the excess-profits tax, and repeals section 710 (a) (5), permitting deferment of tax in cases of abnormality, and section 784 of the code, providing a 10-percent credit against excess profits tax. It also makes certain technical amendments necessitated by these changes. Under existing law, section 710 (a) (1) of the code imposes an excess profits tax of 95 percent upon adjusted excess profits net income, or with certain qualifications, a tax which when added to the tax imposed for the taxable year under chapter 1 equals 80 percent of the corporation surtax net income. Under the amendment made by subsection (a) of this section a tax of 60 percent of the adjusted excess profits net income is imposed in lieu of the 95-percent rate and in lieu of the 80-percent limitation. Under existing law, section 710 (a) (5) of the code permits a taxpayer to defer payment of a portion of the excess profits tax in certain instances where the taxpayer is claiming relief under section 722 of the code. In view of the reduction of the excess profits tax rate to 60 percent the reasons for this deferment privitege have largely ceased to be operative and accordingly the provision is repealed by paragraph (1) of subsection (b) of this section. Paragraph (2) of subsection (b) eliminates a cross-reference to section 710 (a) (5) in section 722 (d) of the code. Under existing law, section 784 of the code provides a 10 percent credit against excess profits tax. Your committee intends that the 60 percent excess profits tax rate under the amendment made-by subsection (a) shall be a net rate, and accordingly section 784 of the code is repealed by subsection (c). Subsection (d) makes technical amendments to section 26 (e) of the code relating to the credit for income subject to excess profits tax, to conform section 26 (e) to the new rate of 60 percent and to strike out reference to the 80-percent limitation. The amendments and repeals made by this section are applicable to taxable years beginning after December 31, 1945. Special treatment is prescribed by section -131 of the bill in the case of taxable years beginning in 1945 and ending in 1946. With respect to the repeal of section 710 (a) (5) of the code by subsection (b), a taxpayer with a fiscal year be n in 1945 and ending in 1948-will apply section 710 (a) (5) to its final tax computed as prescribed in section 710 (a) (7) of- the code, added by section 131 (b). Section 123 of the bill deals with repeal of the excess-profits tax for taxable years beginning after December 31, 1946.
SECTION 123. REPEAL OF EXCESS PROFITS TAX IN 1947

Section 123 (a) of the bill repeals subehapter E of chapter 2 of the code, relating to the excess profits tax, with respect to taxable years beginning after December 31, 1946. Except as noted below with respect to taxable years beginning in 1946 and ending in 1947, such

TE anu

o IILL 0I? 1945

19ig

repeal, however, is to have no effect whatever with rs-pct to (axable MA, years beginning prior to Janut '1947. Any liability, penalty, or iterest which acues under subhapter E of chapter 2 snth; tepect shllbeunto a taxable year b in prior to Janury 1,a1947, affectd by such ropea, and any proceeding ncesr to enforce such liability penalty, or interest may be instituted at any tine within the applicable period of limitation as if subchapter E of chapter 2 had not been repaled. Provision is made under section 131 (b) (1) of the bill for the excess profits tax in the case of taxable years beginning in 1940 and ending in 1947. Subsection (b) of section 123 makes certain technical amendments with respect to taxable years beginning after December 31, 1946, to conform other provisions of the code to the repeal of the excess profits tax with respect to such taxable years. Section 26 (e) of the code, relating t the credit for income subject to excess profits tax is repealed. Sections 13 (a) (2), 15 (a), 26 (b)j, 102 (d) (1), 131 (1), and 204 (a) (2) of the code, relating, respectively, to the definition of normal tax net income, the definition of cororation surtax net income, the credit for dividends received, the defnition of section 102 net inconp, the limitation on the foreign tax credit, and the definition of normal tax net income and corporation surtax not income of foreign insurance companies other than life or mutual and foreign mutual marine, are amended to conform to the repeal of the credit under section 26 (e).
PART III-FISCAL YEAR TAXPAYERS
SECTION 181. FISCAL YEAR TAXPAYERS

The code contains in section 108 special rules for the computation of the tax in the case of taxpayers making returns on a fiscal year basis. Section 131 (a) of the bill amends section 108 of the code by redesignating subsection (c) as subsection (e) and adding a new subsection (c) to provide for the computation of the tax imposed by sections 11, 12,13, 14, 15, and 400 in the case of taxable years beginning in 1945 and ending in 1946. It provides that in the case of a corporation or an individual the tax shall be an amount equal to the sum of (a) that portion of the tentative tax (computed as if the Jaw applicable to taxable years beginning on January 1, 1945, were applicable to such taxable year) which the number of days in such taxable year prior to January 1, 1946, bears to the total number of days in such taxable year plus (b) that portion of a tentative tax (computed as if the law applicable to taxable years beginning on January 1, 1946, were applicable to such taxable year) which the number of days in such taxable year after December 31, 1945, bears to the total number of days in such taxable year. This rl4bsection of the bill also adds a new subsection (d) to section 108 of the code to provide a similar rule for the computation in -the case of corporations of the tax imposed by sections 13, 14, and 15 for taxable years beginning in 1946 and ending in 1947. Section 131 (b) adds new paragraph (7) to section 710 (a) of the code to provide for the computation of the excess profits tax in the case of taxable years beginning in 1945 and ending in 1946. The rule so provided is similar to that provided in section 710 (a) (6) with respect to taxable years beginning in 1943 and ending in 1944.

TRIOItMttMUN BtLt ,OF t946 Section 131 (b) Mo~o adds new paragraph (8) to 8ectioti 710 (a): to provide for the computation of the excess profits tax for taxable years beginning in 1946 and ending in 1947. In view of the amendment made by section 123 of the bill repealing the excess profits tax with respect to taxable ynars beginning after December 31, 1946, paragraph (8) provides that ic Oxcess profits tax for such fiscal years shall bo an amount equal to that portion of at tentative tax, computed as if the law applicable to taxable years beginning on January , 1946, were I applic-able to sueh taxable year, which the, number of (lays in such taxable year prior to January 1, 1947, bears to the total number of (lay8 in such taxable year. The Tax Adjustment Act of 1945, increased. the excess profits tax specific exemption from $10,000 to $25,000 for taxable years beginning after D)ecemnber 31, 1945, and provided a special rule for computing the exemption for taxable years begitintig in 1945 nfld en(ling in 1940. In view of the amendment a(l(ing paragral)ll (7) to section 710 (a) -to provide for the computation of the tax for stielt fiscal years, this esitbsectionl conita~iis te~chnical nmendwtiniits elinifiatijig this special rule. This subsection of the, bill also amends section 710 (() (2) of the code to provide that the unused excess wrotfts crd(fit for it tatxalle year begitining in 11946 and ending in 1947 sil be anl anotiunt which bears the same ratio to thre unused excess profits credit for such taxab)lo year othernwise allowal)le as the total niimber of (ldtays in such taxable year prior to JJanutry 1, 1947, bears to the total niiumber of (lays in such

20

te

taxable year.

TITLE II-REPEJAL OF CAPITAL STOCK TAX AND DECLAItED VALUE EXcEHsS P'ROFITS TAX
SECTION 201. REPEAL OF CAPITAL STOCK TAX

This section repeals chapter 6 of the code which imposes the ca ital stock tax. -This tax is applicable with respect to years ending June 30, and the repeal is effective with respect to years ending nffter June '30, 1945; in other wor(ls, the repeal is effective with respect to the year ending June 30, 194(6, and succeeding years.
SECTION 202. REPEAL OF DECLARED VALUE EXCESS PlROFITS TAX

This section repeals suibehapter B of chapter 2 bf the Internal Reveniue Code which imposes thie declared value excess profits tax. Tlhe repeal is technical, since, thwe tax ap)plios only to corporations subject to capital stock tax, which tax is repealed by section 201. The declared value excess profits tax is due with respect to the income tax taxable years endfing after the close of the capital stock tax taxable year. Thc repeal of subehapter B is accordiinigly made effective with respect to income tax taxable years ending a ter June( 30, 1946, the first year with respect to which the repeal of the capital stock tax is effective. TITLE III-EXCISE TAXES
SECTION 801. TERMINATION OF WAR-TAX RATES AFTER JUNE 80, 1946

This section deals with the excise taxes imposed, or the rates of which were increased, by chapter 9A added to the Internal Revenue Code by section 302 of the Revenue Act of 1943.

THE RfEVmNUt

BILL OF 1942 21

Subsection (a) amends section 1650 of chapter 9A so as to change and,nake more definite the period of i 4pplicabilty of the Inereaged excise-tax rates imposed by section 1650. UJnder preseflt law the increased rates become gbnerally inapplliable on and after the 1st day of the first month which begins 6 months or move after the date of termination of hostilities. Under the amendment made by subsection (a) the war-tax rates become generally inapplicable on agad after July 1,1946. The several wat-tax rates and the reduced rates are shown in table 7 in the general disussion of the excise tax reductions Subsections (b) and (c) of section 301 of the bill specially fir the dates of termination of particular war-tax rates. Subsection (b) changes the date of termination of the war-tax rates applicable with respect to billiard and pool tables and bowling alleys. Under section 302 (b) of the Revenue Act of 1943 the war-tax rates are effective through J one 30 next following the first day of the first month which begins 0 months or more after the date of the termination of hostilities. Under the"Amendment lhe war-tax rates continue through June 30, 1946, and thus are inapplicable on and after July 1, 1946. Subsection (c) (1) makes the decreased rate of tax applicable with respect to calbaret charges apply at 10 a. tn., prevailing local time; July 1 1946, Under subsection (c) (2) the reduction in the taxes imposed by section 3465 (a) (1) with respect to telephone toll calls and telegraph cable, or radio dispatches or messages is applicable to amounts paid for services rendered on or after July 1, 1946. The reduction in the taxes imposed by section 3465 (a) (2) and (3) with respect to leased Wires, wire-equiipment service, and local telephone service are applicable with respect to amounts paid pursuant to bills rendered on or after the first day, of August 1946, for services for which no previous bill was rendered. Where bills rendered on or after the 1st day of August 1946, include charges for services previously rendered, the reduced rates do not apply to such services as were rendered more than 2 months before such date. Subsection (d) (1) amends section 1651 (a) of chapter 9A of the Internal Revenue Code to reduce from 20 percent to 10 percent the rate of tho tax on luggage, etc., sold at retail. Subsection (d) (2) makes the retail tax permanent by repealing section 1654 of the Internal Revenue Code under whichithe tax terminates on or after the first day of the first month which begins 6 months or more after the date of termination of hostilities in the present war. Subsection (d) (2) afso repeals section 1655 which, for the purposes of chapter GA of the Internal Revenue Code, defines the term 'date of termination of hostilities in the present war." This definition is ren(lele(l unnecessary by the amendments of the several sections of chkal)ter OA made by the bill under which the duration of the taxes or tax rate increases imposed by chapter 9A is no longer related to the ternlination of the war.
SECTION 302. REPEAL OF USE TAX ON MOTOR VEHICLES AND BOATS

This section repeals chapter 33A, added to the Internal Revenue Code by section 557 of the Revenue Act of 1941, taxing the use of motor vehicles and boats. The repeal is effective with respect to the period after June 30, 1946, so that the tax will be inapplicable

AA

t22T1 REJt4VIUT

BILL OP

1948

with respect to the use of motor vehicles and boatk on and after July 1,1946.
8ECTION 808. DRAW-BACIX ON DISTILLMD SPIRITS

Section 303 amends section 309 (b) of the Rbvenlue Act of 1943 Which fixed the rate of draw-back of tax on distilled spirits used for certain nonmedicindl Purposes at $6 per proof gallon for- the period beginning April 1, 194J, and ending on the first day of the first month which begins 6 months or Thore after the date of termination of hostilities in the present war. By the amendment made by section :303 the period during which the $6 rate is applicable runs to July 1, 1946.
SECTION 804. FLOOR STOCKS REFUNDS

This section deals with the termination of the wat tax rates applicable with respect to certain alcoholic liquors and electric light builbs and tubes. It adds sections 1656 and 1657 to the Internal Revenue Code. Section 1656, as added by this section cover alcoholic liquors) in eluding distilled spirits, imported perfumes'containing distilled spirits, wines, including liqueurs and cordials, and fermented malt liquors. It provides for refund or credit (without interest) of the excess of the taxes (including floor stocks taxes) paid with respect to such liquors on account of the war tax rates over the taxes that would have been payable in the absence of the war tax rates. To be entitled to refund, the liquor must, on July 1, 1946, be held for sale or use in the manufacture or production of an article held for sale; the person so holding it must, piior to August 1, 1946, file claim for refund; and he must also make, eep, and file records as required, and must establish to the satisfaction of the Commissioner, with respect to each kind of article for which refund is claimed by him under this section, that after June 30, 1946, and before October 1, 1946, the price at which articles of such kind were sold (until a number equal at least to the number, on hand on July 1, 1946, were sold) reflected, in such manner as the Commissioner may by regulations prescribe with the approval of the Secretary, the amount of the tax reduction, Under this section the Commissioner will be authorized, under regulations to establish a system for making refunds where the benefit of the tax reduction is passed on to the consumer. The regulations may prescribe the method of arriving at the price at which the article was sold before the -tax reduction. The regulations may also prescribe the method of ascertaining the reduced price reflecting the tax reduction, if a refund is to be allowed. Refund is not to be allowed under this section with respect to any article unless, with respect to all the articles of all the kinds as to which refund is claimed, the requirements of the section and the regulations are satisfied. Section 1657 as added by this section provides for credit or refund of tax with respect to electric-light bulbs held in floor- stocks on July 1, 1946, and with respect to which the manufacturer's tax under section 3406 (a) (10) was paid at the war-tax rate. The amount of the credit or refund is determined by the difference between the war-tax rate and the tax that would have been payable in the absence of the wartax rate; in other words, the new tax rate. The credit or refund is to be. allowed only to the extent that the manufacturer has reimbursed

THE RVNUE BILL

OF

no 1942

the person holding the' Rticle lt floor stocks for the amount of war tax passed on to such' person. The refund pr OVision pplies both to electric'light bulbs held for sale on the effective date of the chane in rate and bulbs held for use in the manufacture or production of an article intended for sale. 'No interest is allowable on such credit or refund, and claims are required to be filed prior to October 1, 1946. The Commissioner is authorized to prescribe necessary regulations and no manufacturer or producer will be entitled to credit or refund unless he hah in his possession such evidence respecting inventories of articles as to which he has made reimbursement of tax as the regulations prescribe. BECTION 805. CONTINUATION OF POWER OF SECRETARY OF THE TREASURY TO AUTHORIZE GOVIRNMIDNT EXEMPTION PROM CERTAIN EXc0iS
TAXES

This section deals with the authority conferred by section 307 (c) of the Revenue Act of 1043 upon the Secretary of the Treasu to authorize exemption from the taxes imposed by chapter 19 of toe. Internal Revenue Code relating to retailers' excise taxes, chapter 29 relating to manu'facturers excise and import taxes, and chapter 30. relating to transportation and communications taxes, notwithstanding amendments of the Internal Revenue Code made by section 307 of such act rendering curtain exemptions for benefit of the United States, States, etc., inapplicable with respect to the United State. To make permanent the authority thus conferred upon the Secretary, section 305 of the bill strikes out the last sentence of section 307 (c) which now makes the Secretary's authority inapplicable to any contract entered into on or after the firstday of the first month which begins 6 months or more after the date of termination of hostilities in the present 'War. It was believed that administrative processes would besimplified if the person selling articles or rendering service to the United States paid over to the collector of internal revenue the taxes on such sales. The Secretary has authorized exemption in several exceptional situations where exemption was found to be administratively more efficient. It is administratively desirable that the authority granted to the Secretary be continued. The authority, as continued, would also enable continued exemption to be granted, should it appear desirable, in the case of other governmental excise tax exemptions which
will terminate at some period after the termination of hostilities, for example, the exemption from the tax imposed by section 3404. TITLE IV-SOCIAL SECURITY TAXES SECTION 401. AUTOMATIC INCREASM IN 1946 RATE NOT TO APPLY This section postpones the increase in the rates of the taxes imposed by the, Federal Insurance Contributions Act subchapterr A of chapter 9 of the code). Under existing law, the rate of the income tax on employees imposed by section 1400 increases from 1 to 23 percent on January 1 1940' and the rate of the excise tax on employers of one or more employeesimposed by section 1410also increases fromI to 2N percent on -such date. In the case of each suph tax the amendmentprovides that the1 percent rate shall remain in force through the calendar year 1946, and that the2X percent rate shall be applicable to wages paid and received during the calendar years 1947 and 1948.

Table: Table 8.- Estimated number of income recipients, number incur ing surtax, and number incur ing normal tax, together with their net income, surtax net income, normal tax base, net capital gains subject to alternative tax, surtax, normal tax, alternative tax, and total tax, under present law, as levels of income estimated for the calendar year 1946

APPENDIX
TABLI 8.-Estimated number of income recipients, number incurring surtax, and number incurring ormal tax, togdher with their net income, surtaz net income, normal ft base, net capital gains subject to alternative tax, surtax, normal tax, aete atise tax, and total ta, under present law, as levels of income estimated for the calendar Year 1946
[Money amounts In thousands of dollars]
Number of income recipients
Net income elan

Net Income of-

.et
surtax

All

sujc net tax Recipi- 1- Recipli inAU cme bn t atIncurring Incurring.enZs normal recipients et i n ormagl native ernts surtax ta surtax n ora taxta

tx .capital Nrs surtax Noramns surtax Altmr)
_
a

aie

Tt

Oto 1

7.074,309 10.812.700 23,548.700 8.813,S& 2,778,160 1,162 360 35.055,078 47.11,500 823.218 823 218 823,218 S to 10. 30 to 2&.-323.-910 323,916 323.916 69.555 '25 to 50-.69,555 69, 3035 23,035 23,035 .50 o 100-.6.383 6.383 B-8 383 100 to 250 839 250 to 500.-63,39 177 177 500 to 1,000-177 49 49 49 and over1,000

15. 897,200 1 to 2-23,548,700 & 813.530 2 to 33 to 4.-77 160 Z to5-1, 162,360 UnderS -6 200.000

16,476,251 7,632 556 2713.092 1,1588S

9.741,201 5,409,491 34.310.173 23,777,392 21,144,039 18.412.696 9,487.608 9,270,773
5.131, 10B 79.814,125 5, 452 00 4.786,000 2.349,000 1,536,000 897.000 213,000 119,000 90, 798

Over a-1.24972 L 246.972 1, 24,972 15,44. 798 _ _ Grand total._.... - 53.446,972 3, 302, 048 148.382472 ~95, 256, 923

3,356.843 34.310.173 21,144,039 9,487,606 5I 102,467 5,131,106 62,03Z 819 7&429,787 5,452. 000 5,452 000 4.788,000 4.786,000 349. 000 2.349,000 1, 538, 000 1,536.000 897,000 897,000 213,000 213,000 119.000 119,000 90.798 90.798 15, 44 798 15442 798 _ 77, 475,8617 193.872, 585

88408 388 407 474,875 1,932.336 2,9K 915 8706387 2.194,663 675,724 -10. 973.320 22,524,182 9654}. 2,144,2128,201,820 16.733.113 -1,0 2217 242-0 1, 310,871 5.285. 939 .096, 85-1,067.971 7 3.410,138 4,548,772706, 434 1464 -84--8-8 6 29,783,5M 5 849,08 -5,97.752 1,45491 -i7,643,24 1. 5 326 94M, 283 151,0 -4,365.725 5. 03470 -7,346 1,00,267 1365 14,692 1,3 $4,836 4.369,266 4. 602,829 68548 12.803 1,106,15 25.786 1,024,715 2.241.465 12,28I912 93319 O 44, 13,042 875,378 26 08 1,484,121 L 496,572 6 027,731 2,8 14,9 860, 168 29, M 8M 790 13 510 6 755 177,52 164 827 5,970 198 812 198,975 100,329 3 05 7,836 89,399 103 203 i5, M6 103,140 74,764 Go 589 2 087 10,381 82,096 21,162 69, 93 56 M4 146,80 5,1,2655 73,431 I 9M 307 1X,69 290 14, 8 579 _= ,611 73,431 13, 11il, 5fibO 43,475,849 69. 5(3,217 14B,802 11,181.017 2, 085102

Table: Estimated percentage distributions in respect of number of income recipients, number incur ing surtax, and number incur ing normal tax, together with their net income, surtax net income, normal tax base, net capital gains subject to alternative tax, surtax, normal tax, alternative tax, and total tax, under present law, at levels of income estimated for the calendar year 1946

Estimated percentage distributions in respect of number of income recipients, number incurring surtax, and number incurring normal tax, together with their net income, surtax net income, normal tax base, net capital gains subject to alternative tax, surtax, normal tax, alternative tax, and total tax, under present law, at levels of income estimated for the calendar year 1946
Number of income recipients
0

Net Income ot-

?I

Net Income clan ($M0)

Incurring In gn
-

Al

recipe

ent.s

ents curritg
surtax

ELa

ToW
tax

Simple percentage distribution
O tol-

I--------------------------

to 2 2 to 3------1

29.74 44.06 16.49

4 to

8 to 4----UnJder 5-

5.2D 2.18

19.49 45.39 21.03 7.47 3.19

97.67
-

W0.57
2.27 .89

22.36 48.69 18.22 5.74 2.40 97.42

10.23 36.02 22.20
9.96
5.39

7.08 30.89 23.77 11.97
8.59

8.90 36.55 22.52 10.11
5.47

4.45

25.24

83.79

5 to 10--.
10
to

--

W to, o-

1001to
260to

SOO-.

250----------------------------------

1.54 .61 .13 .04 .01

.19
.06

1.70 .67 .14

2501W
1,00

NK0 to 1,000 and over-

(l) 01)
2.33
00.00

(1l)

.02

(1)

.05 .01

f1)

80.07 7.04 5.72 6.18 5.02 3.03 2.47 1.98 1.61 1.16 .94 .2 .8

83.55

2.50

5.81 5.10
1.64 .98

18.87 12.11 7.84 a8.51 10.04 10.05

24.08
11.65 6.55

4.24 32.41

3.46 19.83 14.69 9.55 6.32

4.24
32.41

.13

.1

.10

.12

Over 5Grand total

3.441 2.58
100.00
100.00

16.21
100.00

.19.93
100.00

.13 .10 16.45
00. 1.

.23

5.16 3.41 1.98
.24

.46
.16

78.92 -53.64 7.24 8.80 10.00 1212 6.82 3.29 17.56 9.17 2.15 7.83 17.76 1.24 .40 $.61 .29 9.20 1.47

.10

.15

-

10.87

14.41

.80
.56

31.49

-I

I 100001I

2108 100.00

100.00
100.00

46.3
100.00

24.08 9.83 11.65 6.32 6.55 78.92 -57.3 8. 51 7.24 __ 10. 125 6.62 .29 3.29 17.56 2.15 7.00 17.76 5.01 124 20.40 .29 L33 9. 20 .15 10.67 .7$ .10 .56 14.41 10. 21.08 42.7W 100.oo 100.00

3.56 21.52 18.07

0
Mb

I

Aw L

than 0.005 per cent.

&4iM4TW n a ditribtions in respeT of number of income recipients, number incring surtAx, and number iAwcrilnorue tat, togd withMrdloincome, surtax net income, normal tax base, net capital gains subjedt to alterntWie tax, surtax, normal tax, altermiatie tax, and tOWa tax, under Present law, at levels of income estimated for the caluendr year 1.946-Continued
Number of Inas* reiplaits
No izcoodat-

copta1

Not bnone dl_ ByO

|

;t D Suta

Noma

|

+ti |Xf

I _..- __ _, .

PeFcentage distributon, cmlatd frae
. -

uzest to

mt imooe 1rgut
_ _ _

$to L 1 74 _____._--_--__----------_--_---2 2 74 3.46 4.2418 8.o0 M.a0 t24 445 1 to & __ __ _ _ _ 7tso . 06 .4 61 87 71 06 O 44 CL 46 1 I2to3-__ _____ 37h7_6___ 36. 72 a. 37.77 52.---4-5 905 6 -_7_3__ 60.72 _644 ---8.0 _ 411S5 n 4 3S3 .7 47.32 711?7 59 g-.a . 9921 as -----5 4 96.3 1 71.276711 16 89.36 to ----1 101.25-e9.81 9172 .71 .54 9.46 74.4 me 978 77-.6 t O2 86.6s 2.716 8 96.31 96 96 is to W __.____________________________919 87 99.94 99 92 B 90.94 97.00 O I 7..6 6. 22 60 to OD 16.61 96 45 3 _9.91 96. 17.17 41.32 1632 .3S W L W so W091 98630 O . 601 10 0to--50-9.46 6172 97.17 tW 65.72 0.55 91.46 90.46 (2) _.-------------------) 9. 9 ) O 60 250 60.75 6 792 to SW_-__-----X "9 1L o W IL64 s.78 W73 96.3 96ee 9.75 (t U. 4 4 W 0 600 to 1,000. ---- -----------------___ ____ _ ^ ^^.91 90. 89 Mae Ma law

2------.0---------10.----7.06 027
S7a

Off2_

72.37

20

-

sn

s

9

_

75

07

7

3

3

C

_-

----- --

-

1,000 and over

-

_ _

___ 1_ 00_ 100.00 _______

0

10Q . 00

10

0

100.00

100.00

woo9W I0 1e D9S I300 1w-[
1800

.

1000 100.00 100.0 1000 51 89.77 77.64 7026 2to3, 6.96 53.76 20 3L 13 S to 4 ___. 71 31.3 it10 IOL 73 4 to5______ _ 51 GU ___ Cst 2LO 158 6to 10 1. 21 3.4 1_33 -_ .79 10 49 10 to 2 t 1.7 .8 0 O _ .. _ 25 to 5o .19 .21 &4 .2B __ 30 to .06 .06 .06 0 3,00 0________________ .0 1 .01 100 to 250 __---_________L 39 M 44 250 to 1,,- ___-------_-__----) SW0 {1 :>22 1,ODo m_ .10 (")
--------

0101------w--*---to
-----------------------

100.0

6125
X 49 X32

2 S94

1600

91.10

_____

-__----

---

---

----

-

-

-----------

-

-

-

19.93 12.90 672 3 so0 _____
L

70
W

.27 .12

3.16 54.55 70.32 3t402 SL11^46 2L92 t30 34 4 16.45 3.LO 1064 21 45 5 ? 11. 40 & 625 304 _____ __ 1.41 2.83 .85 .45 .:12 .40 .16 .10

16.

10091

95 75

6L.35
L

-

.176.9
100.0 gm00 72.44 o. as
1I41

-

0

100.0

3. 76- 9-44 79 3.3
_
_S

-

__

.10

30.3 273

13847a 91& .L71

436 0. .4.

SI fS

St.23 _

31 _9

n7. 6

37.6 25.44 16.7
44 2.83 L35
.

21 3M84 7.22 3.to 6 L78
.51 .26

_

100.9 ao00

42.70 36.1S
32.4 14 65

___

72.44 Las

7.66

.16

.53 .26

34.1 X Oil

.18

36.36 XZ 0. 1441

lot

.1

31b

I Lss I MM

tian OA0S percet.

t91.9MM

percent.

Nob-F4pz

we rounded and will not DOWMily odd to total.

Table: Table 9.- Individual income tax as ap roved by the Ways and Means Com it e : Estimated number of income recipients, number incur ing tax liability,1 their net income, surtax net income, normal tax base, net capital gains subject to alternative tax, surtax, normal tax, alternative tax, and total tax, at levels of income estimated for the calendar year 1946

TABLz O.-Individual income tax as approved by the RIays and Mfeans Cammittee: Estimated number of income recipient, number incurrwI tax liability,' their net income, surtax net income, normaltax base, net capital gains subject to alternative tax, surtax, normal tax, alteriatiw gtx, ntot tax, at im of income estimated for the calendar year 1948 -Maw mts tn thoauandsi of &do
Number of wMnnMe -Ne b Net d dpimts

~~~surtax net tax bm ~~~~~~~~~~~~~~~~ Net Net hwmnw ebw imea, Nartnm
10C~rdn

AB)

tx II.

biltyl

Allrepn

Redpimts

u-lt. wmagan S _ Sutax 8 N_
tax
----

Alteinuitv

_

tax liability

kisxrhng

W3 173 309,17 57,-30 3J36 1, -9 1_ to 1M,8,2 Is. 7,074.300 9,741,20 35,460,4 _ 1,75 10 1I _W__ ,7 A_ S 10,, ,310,173 1t2. ____-3___--__54___________ 700 19,47 1 1nM413,606 8,201.825 8106222 1,314,149 2 __813,SO0 7,63 SW 21,144,9 24k,47 S-____--__--_. 1,18749' 457,82M 259 1S7,90 5,2 4 113 3 9,270,773 2,778160 12,71302 9,47,6 t67ft7 5MM , 410,13 8, 131106 8,102,467 t10k270 4 -1,1030 1,1l86 3,4K0_ 4,73,0_ 5l 2A 000 356 0,106 79,814,126 0% O4M819 2,5S 29,766460-----------m Under _ __ --------------& K -172 01 4, 6047 --- - 113__w,8 8 37,371 21 M 83,4,M 431.72 82M,218 845200 . to a__--_--_______7,146 1a8 4 1, 17L87 145 43 1.3*05 4T00G 14.,02 3 _ __ 914 331 I0to _ WON 2 M 1M M I U, 67,13 2,78 s6 _ _ X -2 W 0 O 913,613 _1S 5 to s--2. A8693"6 MM L3,042 26064 44.31 - -3-08-----85 -O1,5,005 1,5W6W 1.484121 L4821 30 to 100 14. OW 56.0) B 5,773 81,106 a6m,16 296 87,00 %33 10 .00 to20-- -, 383 M9 5,956 6, 7 % 13,510 161 147,673 2 to O. 6M9 1L812 213, 0o 218,000 --------------------61.660 140 670 86,682 3,0 1A 7,8O5 101 0M 177 1,000 177 119,000 119,000 _ _Mt .Im W=,265 10,ma1 5,617 2,667 6 6M 57N 3,1 3, 798 21,162 49 49 adovertoo 7 351' 410,213 5.011,328 Oe --- -,7146,462 4. 527. 13k673O0 1,442,738 13,UO _1_ 1, 246972 1S,444,7 *.2t 6 7 723 73 ,21 146,462 9336,297 1,303,207 43,446204 44 972 .36.30.. O 3,256938 7h478,617 43,4767,2 Grand totaL---

_____________
-

03

-

--

-

--

-

--------------------------- -

------

-

-

---

-

-

o6. I'oX
of

-

-

-

-

--

-

-

I

ni mbw wbo her sua

but not normal tax Is Digibi.

Table: Individual income tax as ap roved by the Ways and Means Com it e : Estimated percentage distributions in respect of number of income recipients, number incur ing tax liability,1 their net income, surtax net income, normal tax base, net capital gains subject to alternative tax, surtax, normal tax, alternative tax, and total tax, at levels of income estimated for the calendar year 1946

Individual income tax a. approved by the Ways and Mean. Committee: Estimated percentage dietribution. in respect of number of income recipient number incurring tax 1 lity,1 their net income, surtax net income, normal tax base, net capital gain s*ubct to alternative tax, urtax, ;;rusa tax, alternative tax, and total tax, at le1ls of income estimated for the calendar year 1946
l

Net income clas

Simple perentage dIstribution

0-1---

--------

-.---------

.3.74 44.06

.149 &20
1.54
.61

19.49 45. 39 21.0

.18

Under 5
--

-------

97.67
--

7.47 319 96.57
2.27

10.29 7.06 3602 30.9 2.77 22.2) 9.96 11.97 9 St06

4.44 2524 187 1211

7.84

83.79

6-10 --10-3.----.--

25-50.---------------------------.-------100-250 20---800-1,000 .-_______________________ 1,000 and ove _- _ Over --------------------Grand totaL _---

-

-

-

--

--

----

-----

.13 . 04 .01

-

(~)

.89 .19 ..W .02

&572
02 & 147 1. 61

80.07 7.04 618 &3.s
1.96

66.51 10.04 1.05 5.16
3.41 1.96

4 444 -. _ a -_31 44 _ 1 81 224 I 25.24 -146 1_87 -414.08 1& -A _ __ 12.12 ______-___ 9.19 12112 ------- -a4 7.85 -__-__-__ 612 7.85 -_____ 6._ 652 0.52 510 _ _L
-

.94 .22

-

(2)
1.33 100.00
& 44

.13

.10

1.16 .28 .15 .12

.46 .24

.16

10.04 10.04 5.15 &341 1.96 .46 .24

-

1 21

-

100.00

100.00

19.93 100.00

31.49

.16 31. 48

100.00

100.00

Parotage dtribution, mmulatd fom smallest to armt net Income cdies
OtoL
--

-

-

-

-

-

-

-

-

-

-

-

-

1Q
to

----------------------------------

1 10to __--_____---_..

9.74 73so D.29 95.49 97.67 90.21

96.81

19.49 64.87 86 90 W 37 6, 9& 9& 83 9W.72

10 29 46.25

83.79 89 51 94 54

44 w. X 40

87.111 8J

37.75 6.621 73 48 SD.07

7.06

00.66'
78 55 8.00

4.44 24.68

2l

4.44 29.68 46.56 t 6 66 t W8 52 7a 56

W860

._
-_ -

TOtW Wa

m
-

IN 03

---

.9.76
17.61 17.81 20.45 9.22 10.70

&65 12.3 9.79

8.38 6 02 1.58

1.45

.8 .so

100.00 100.00

48. 100.00

10.04 10.04 5. 5 3.41 L98 .46 .24 .16 31.48 100.00

-

-

17.61 17.81 20.45 9.22

9.79

14.45 100.00 100.00

17

87 1323 .38 T.14 A.a L.3 . .06 46 79

C:

No
W-

1 00

_

__ _

__

_ __---

_-

3.31 22.12 WIl1 45.38 1L 50 86.15 72.78

4.44 a.68 u~6 f8 66.52 78.56 88 00

---_-__-__
i
-

asm
37.45 46.91 61. Os 74.27

--

_-

-----

-----

.--.
--_

. *---

:A

-

06 to 10 -______________--so to sOQ 5------------------100 to 280 _0__ 30 to500 to 1,000 1,000 and _ _________________ _ _ ._.._
---

9

9woo
(1)

94

W0.92 996
.

97.00
.61

_-

-

J40

------------------------------

(10

O1(
=O

so. 56
00.78
OD

0

mo

1.0S

O. 30 98.40 ,W. 73 W 00.0

W 31

3.75

30.00

97.17 .15

O,71 97.1

99.1 )0

L1 ea I1b
I._o
141

237.38

45.17
6&63 74.85
55

It096

82 56

100.00

lao so

lo00.0

& 855' 99.40

Wm.so
;

00. 15 .W 90.84

97.17

76

27.36

8.63 74.85 86 a8 I0 OD

4617

SSZ 3L W.51 10.00

.

Pe
12

bitag ktribution, mulated ftM Iargest to _Mu st not inomne elm
__

188.00
-----------------

---------

--------

S-10 ---_-__-_---------__-__-_--_ W 26 -- -------------------------1*--- -------------------------------------------

70.2 9.71 4.51

1008D 80. 51 35 13
344 3-17

U&00 89.77 3.76
W

____

RL 3D A3-S
2L#d 1040 tU. LW
.44
.1

9294 9125 3.49
39.52

0_____

law$
&143 300
.5 .12

96 56 7M 32 1. 46 31 0 .40

100
Iftl 81 bL32 4.0 3.8E I17.44 G.M
77.88

100.60 39 to 70.32 5L 44 39132 33-48 2L", 100 01 22 11.40 90.. 2 54.3 2.53. 34.3 .15 . 00 14.45 .U.

__

_

___

___ ----

___ ----

---

----

_

>20

.0o

.79 .19

.39
-OS

__-___________________________

.01

..

1.70
..2

_^,W -d -.00aNAw
I'Tb.

------------

------------------------------__ vr..
but

.10

"-46 Ias; . 85 .40 . 18

70.32 51.44 3.3 SO 32 3L348 21L 4 1LL.40 &36 Ias .U .40
. is

90.24D
54.83 3L 37
2L 15

.17 7¢ 'L

aaom 3Ms
SLOW

77 11

1.04
1-45

wat

to
1.44

14.45

.00

ig
wbe Mm~~Ng, i IU. than 0.005 V w t. then s 'man. perc-tt.
nsuabr
a
.59

mg~

tubl zou~ga&b
to

0'to

Noum-ftgm

mo as"s

and VWi Ut somry am

"A

Table: Table 10.- Tax burden under sup lement T of present law compared with that under com it e bil

Table: Table 1 .- Tax burden under sup lement T of present law compared with that under com it e bil

a0

11110 ftaMUM ML oP ii048

TADLU IO.-Tax burden under euppkme*W2epeI otcm'rd~iAthIud,
SINOLI PXR8',1N WITH NO DEPMMDENT5

AdjusWe onioefidvdasuig

-

__

Preset Commit' Present Comt Amount *w bMl law law tesbill
0 *9 1.97 2 3M8 5 83 44 .58 &5so 11 74 .f03.76 1a 7 17 9 7.00o --------------------- -----~= 136 9.5 4 11.8* U ..............1.........112 12.0 S 9.9 187 12p ......... . 177 147 19.0 so ..................... 8* -----oo -1-----104---------1-0.93O 4 14,w 11.7? M 2no 17..........8 1458 249 10.10 DM2 x---o---.-------32 1s.56s 51 13.9 in8 .390................ 405 15.29 70 18.40 388 .....8............... 877 487 18.71 1s.53 s0 i 31469 816 . .........0 17.3 872 74 14.58 1I.00o go . 800................... 82 521 1.8 1(589 107 741 01 10.83s 18.40 128 . 08 18.78 15.60 184 ,280 -797----------------u 710 18.9 1076 143 800-883................ 767 19.14 780-................. 909 1L.94 1in
... .. .. ... .. .. ...

Petnt
l.07 ISO63 15.97 17.87 17.39 118 17.68 17.83 Is.9go 17.17 17.00 17.88 17. 2 17.88 17.81 17.26 17.13 17.04 i. 0.7 1 16.85 16.76 10.72

...

..

..

.. ...........................

............................
......................... I
--

0 V22.00 17 82 4.17

-.................. ......

...

1~~~9

..............

12.64

-------

-

............................
..........

---------------------

.....................

TA1ILE I1I.-Tax burden under supplement T~fpresent law compared with that under
MARRIED PERRON WITH NO DEPXNflXNrS

Tax

Mo3tive ftot
(Pwont)

feduotion over

Adjusted grow income of Individuals using
Presnt Commit-

Pre"Xnt low
39
2 4 7 10 is is 19 IS 3

law'I

te bW
39

Pfessut Commiftlaw' tes bill
0 0 0

mutPon

Aon

son

.. .. ... ..... ... .. .. ...

...

4 7 10 it . ..........0-......18 .......100............ 39 1,200-.................I_ 1,00-0..................7 7 1,400-------------------...i..........o-1...... 6 o 1IN-180--------- -------... ... .. ... ........ ...
----

....................

........
--

.391 2
.. .

..

.....

... .. .. ........ ......

..

-

.

000-2................02 33 280-.................... 398 .800-................ 387 .......0-........ ...7 411 . ...0............-

--------------

U .0-518----------------739-8.................. 74 . ...00-081....... S S ,860-08................7 . ...........0-... 748 769 780-.................
....

...........6......-...

....

463

0 0 .88 .&7 0 0 .8as 0 1.11 0 1.20 1. 36 0 3 00 17 84 431 82 8.6 .88 of III 0.7 184 10,10 197 11.24 240 12.20 263 1396 817 18.70 870 1(2 410 14.39 11.81 4m 811 15.73 55 i 10.10 10.1 0I&8

100.00

178 a5 10.,

0 0 0 0 1.42 102 8.71 26 4. 39 & 46 2175 7.70 & 76 2113i 86 65 9.60 21.81 10. 26 31.01 75 10.90 20.44 84 11.1 20.09 a 11.39 103 1.0.3 113 10.34 1II so 12.76 139 19.02 1I.18 i 1, 178 1344 117 1t

0 100.00 100.00 100.00 100.00 100.00 a178 3 F47 31.89 28. 00

147

1t349

I

Aswaaws only 1 apmw ben Inoin0

Table: Table 12.- Tax burden under sup lement T of present law compared with that under com it e bil

TASLU 12.-Tw bnrd.R

AdjustedC*
-.
....................
.

'K u.-*''--''-'*''''---'--'

1,
11,400

1*14.:.................. 1..10 ...... ... ..................
....... ... ............

M OO1 10100 to 10 00 100.00 0 U 70.. 8..U 1004,0 . .0 ..10 ............................ .. 0 7 n a 81t 4 30 670 I................. 50 82.0 lob so 4130 am-------------------1? 5 111 8 6 4 41.40 -............. .......... 211 74 . ,X0 0 0.. 187 7.0 4 87 6.n07 ............. 5.54 31.86e 1S0 3 303 8.OD ......................... 500 87 .00 00.21 92 ........... .....1. 9.70 :......... 27.40 100 760....... 008 7.* 418 00.32 10.45 7.70 110 .0.0.0-..............-... 1 26 119 35. 82 -470 11.06 ,08 573 24 47 126 11.02 am...... . 002S. _ 442 9.31 1i 750-5..*79 11
.......

AM0O 1.
.

40

TED aViqUa BiLL 01 1045

31

wvr.Xions.87

p

lw wnparod with AM

WITH TWO DBP3ND3K" MARRIID PX3ON

MOMctin rate
P ot Commit- Prsnt CommitCMItoo bill iew

Roduati ow

TM mt

tsbnA'"tpM
0
0 0

$
4

wo.*...

. ..... ......... ... ::: .... ...........
---

,

.. ...
...

0

S
I

I7

0 0
0

.83 .nS ;a
'

0
O

so S 4
7

0 I4O-.0 10000
10o.00

1,000

.....-. - --,--... -------. *..
3

00..12
15

1S
0 is

10

°

0O .ao 1 1.
LA

5

...

-------------------....

0 0

1. 1.78

O 90
0

0 O

O

10 1s i 15 0 is

°

to00 e

100.00 OO

.

.

.

..

.....................................

SAmmum. only 1 xpou ha inoom.

SUPPLEMENTAL VIEWS OF THE MINORITY
[To accompany the committee report on II. R. 43091 Tax reduction, a balanced Budget, anld debt retirement have ever been the traditional fiscal policy of the Republican Party. As a party dedicated to a solvent America we welcome the tax reduction carried in 1-1. R. 4309. If strict economies had been practiced by the administration much greater tax reductions would now be possible. Future reductions in tax rates can only be made if the administration will cut out wasteful and unii ecctssry spending. This tax reduction bill comes as a most unusual and welcome experience to the taxpayers of the United States. For 16 long years we have had a series of tax increase bills (18 in number), each successively more burdensome thatl its predecessor, nearly all of which were made nwcessary by p)rofligate spending, which yearly piled up) deficit upon deficit tilt1h national debt had asumined alarming proportions, even prior to the outbreak of the war. The American people are to be commended for the patielce they .exhibited as tax increase after tax increase was piled uipon their sagging shoulders. As the prol)lem of raising additional funds prew, it was necessary for the ConKress to adopt unusual ami extraordliInary means for raising revenue. I or instance, we have in mind the excess-profits tax, whict was probably the best method the Congress could have devised to curl) excess profits arising from tlhe war. But it was not a scientific tax program in that. its opelation imposed many hardships. The demands upon the Federal Treasury are becoming increasingly heavy and the time lias come for the administration to take an inventWry- of our assets and liabilities with a view to determining what we informashould do and how far we can go. We already have tion on that phase of our economy to say without hesitation that we cannot continue to play Santa Clauis to th e other nations of the earth and remain solvent. Only a solvent America can help meet the postwar problems of the world. Billions will be needed to provide adeq nate care for those who return home maimed and wounded. The dependents of those who made the supreme sacrifice must be secured against want and ulncertainty if we would (lo our full duty to our heroic dead. These sacre(l obligations must come before all other

enougfi

considerations. Additional billions will be needed to reconvert industry to peacetime production. The transportation systems of the country also will need enormous sums for rehabilitation that is long past due. These huge sums can only be secured by res-oling the confidence of the investing public. Such confidence can be encouraged and restored through a sound fiscal policy. The Republican members of the Ways and Means Committee are not wholly satisfied with the measure as reported to the House. We
32

THE ]REVENUE BILL OF 1945

33

favored the outright repeal of the excess-profits tax with the termination of the war. Secretary Vinson concurred in our views. Unfortunately for the country a majority of the committee preferred to do it piecemeal. It was through our efforts that substantial tax reductions were obtained for business generally, especially for those who difd not earn excess profits. It was also through our efforts that substantial tax reductions were secture'd for all individual income taxpayers. We also urged and supported the repeal of the very troublesome and confusing capital-stock tax and the dleclared-value excess-profits tax. Reconversion of business And reemployment of labor are the pressing problems before the Nation today. N,41othing will stimulate and encounigo these two elements of our economy as much as a sound, fair, and forthright tax program. H. R. 4309 is the first step in that direction,. but it is not enough. The country will expect further and more substantird reductions in the next tax bill which will be taken up at the next sesSion of Congress. HAROLD KNUTSON.
DANIEL A. REED. ROY 0. WOODRUFF. THOMAS A. JENKINS. BERTRAND W. GEARHART. FRANK CARLSON. -RICHARD M. SIMPSON. ROBERT W. KHAN. CHARLES L. GIFFORD. CARL T. CURTIS.

0