78Tm C m 18t Session A

I HOUSE OF REPRESENTATIV7ES O H

REPOr:T No. 871

THE REVENUE BILL OF 1943

NOvEMBER 18, 194&T-Cohnmitted to the Coiumittee'of thle Who1e louse on the state of the Union and ordered to bc printed

Mr. DOUGHTON, from the Committee on Ways and Means, submitted tile followinig

REP ORT
[To accoIIII)nyV H I. 36871

The Committee oHl Ways aln(l M{neans to whom was refomred thle bill (H. R. 3687) to provi(le revenue, and for other purposes, having had the sa-me under consideration, report it back to the House without amendment and recommend(l thtit the bill do pass. In preparing this tax bill, your committee has given consideration to the following factors: (1) The need for additional revenue. (2) The inflationary problem. (3) The present tax burden. (4) The necessity for 3iAnplifying the present tax system. (5) The, possibility for economy iII governmental exp~iditlurcs.

(1) Tim, NEED Foit ADDITIONAL REVENUE In the Statement by the P1resident oln the Stumination of the 1944 Budget, released August 1, 1943, it wN'as estimated that for time fiscal year 1944 Federal expen(ditures, excluding debt retirement and trust fund disbursements, would total $104,000,000,000. Of this amount, $97,000,000,000 were war expenditures. Trie net receipts were ,estimate(d at $38,000,000,000 for the fiscal year 1944. Based upon the figures for thei first quarter of tihe current fiscal fllC year, Feleral receipts are uniln at an annual rate of over $2,000,000,000 in excess of the revised budget estimate of August 1, 1943, while expenditures are $15,000,000,000 below. Although it is recognized that the receipts (Iurilg the first quarter were increased soinewhat by nonrecurring revenues, and thatl war expenditures may rise above present levels, it seems probable that the changes frorn the present level of revenues and expenditures necessary to bring the year's final result into agreement with thle August 1 Budget summation are of so great magnitudes the deficit for the year may h) reduced from the Budget figure of $66,000,000,000 to not more than $57,000,000,000.
1

THE REVENUE BILL OF 1943

Therefore, from the revenue stanllpoint, the need for additionalx'even ucs hias apparently been exaggerated; and lower governmental expenditures than estimated wouI(l reduce income payments, the net inflationary gapl), and pressure on prices. If our (expe(lnitures reach1 no more than $96,000,000,000' they will still be far greater than those of the United Kingdom andn Cantada. It is (stimated( that the total expen(litures for the United Kingdom will amount to $23,000,000,000 for the fiscal year 1944, while for Canada the total expenditures for the fiscal year 1944 ^rill amount to $5,500,000,0)00. YouIr cominitteTe gave serious consideration to the question of redtlutionl of govt'4Iiineliital eXpendlit llres, so far tas such redliction wolll not interfere With the war effort. In this connection, the Bildgt Director was called beforec thle committee to explain tile present need for such large expendfitures. It is believed that a consideral1)1 e redtultiotl of expenditures below the estiniate may. hie acc(mll)lished tbrollugh1 Joint action of the legislative and executive (I(e)partllents. This would lessell tile tax bil(ldelu which oulr Citizens are(a1lle(l tj)oll to neet. (2) TjiE INFLATIONARY PRoBPLEM Youir committee gave ctareful colsi(lderati on to the inflationary gal) and its efle.ct Oil pr1ce (oilt rol. It was found that while there was little variation among estimates of total ilncom-le payllments to individuals for 1944, or among estimates of the gross inIflat iOlnary giil), i after dleldtictionl of 1)prsonltil taxes anl(l OilSinn-er eXp)eil(litIlln('S, tt're( were coInsidleral)l (ditiferenc's among the esftimnate8s fhirished to the (colmnitttee b)y official Sources of tile net illa tiionary gpl), after allowing for regillar forills of savings sulcll as War bonds aiid life illstillisace and otlier noninflationary consuiner 'l(tiriii('S. Thllese estimates of tir, nlet gal) varie( from about (xpit p i $10,000,000,X000 to over $25,000,NO)00p0,0i00cr upon thle classiof savil's bet weell those(' t eniporrily fland those perlnlltia ietly ficltionll 4oreover(',r it. was readily aplatreIt thal't the ('trreIt Set asi(le. inflationary gap is Silall iln m nllit li(le Comall)re(l with the grand t tot il of more thnl $100M,0000N0,000 of ac(cumliat('(1 savings in thle hands of individuals,; in the torni of War Savings o)s11(1, (cash surrend(ePr value of life insurance, savings deposits, and idlle currency and (demandl dI deposits, of wviichie $50,000,t)00,00( to $60,00000,00()0 r(epresetnts potential excess lbluyinlg lpower because this anmouint is clearly in exc'c;s of loronal Savings. The conclusion of the commlllittee was that maintenance l)y thll( GCovernmlient of the proper psychology, an(l freedomn fromt fear of inflation, on the p)art of every consumer, is considerably more ilymnOrtlunt talmi thle absorption of curr( 'eut eXcess hulyiig power tl roligh a(1lditional taxes. Them committee is firmly convinced thiat the proper b)e nmmimtaided only 'by psychology ('tallthrough effective price strict. e(ononmi-.8 in goveCrnnient itli coiltrol, rationing, and wage( expendlituores, control. (3) TinEPIRE'SEN'iT Trx B'URDE.N Your committee hls endeavored to raise as mutchl revenue as it is believed can reasonably be b)orne by the taxpayer at this tillnw, witholit unduly disturbing ouir economliyr.

Table: Table 1.- Existing income-tax burden for 194 and 1945, including net Victory tax and one-half of unforgiven 1942 tax (as uming no change in net income)- Mar ied person, no dependents

THE
(a)

REVENUE BI'L

OF

1943

INDIVIDUAL INCOME-TAX RATES AND EXEMPTIONS

Our present individual income-tax rates and exemptions are as follows: 1. Nominal tax, 6 percent. 2. Suittax, 13 to 82 percent. 3. Exemptions for normal and surtax: Single person, $500. Married person, $1,200. Credit for dependents, $350. 4. Gros5 Vkicoiy tax, 5 percent. 5. Victory tax exmptions, $624. 6. Victory tax current credit: (a) In the case of a single person, 25 pCrCent of the Victory tax Or $500, whichliver is the lesser. (b)1 thle ease of a head of family, or married persons~ filing one, reIturn, 40 percent of the Victory talx or $1,000, whlichever is the lesser. (c) For each dependentt, 2 percent of the Victory tax or $100, 'whiclhever is the lesser.
(b) INDIVIDUAL
INCOME TAX BURDEN

It is believe( that so far as thle individual income tax is concerned, we are ap)proaching the point of diminishing returns. Few persons realize that under the existing law, with the carry-over of the 1942 tax required to bei paid in 1944- and in 1945, no individual, no matter how high his income, will have left more than $25,000, assuming his income remaine(l constant and his uincanceled tax is paid out of current income, The following table illustrates this point:
TABLE 1.-Existing income-ta(x burden for 1.944 and 1945, including net V'ictory tax and one-half of unforgiven 19,12 tax (assuming no change in net income) ---larried person, no dependents
Net income not Victory, b)efore pensomial andl onet-1111f exenh pt ion uuiforgiven
tax I
$0._

lIuconmo,

Effective rute
percentt 0,213
.

rellimlliffig
after tax

IIIConIeC

Not incomlie be(fole persoial

net

exell)tio(

U11forgiven
tax
I

$750

$1. 28

8.

72

.--

..-.

6.28

837

$1,200

$1,0(00-----

t100(X).--,00( . P x)
----

7. 04 14.62 21. N 79.

992

15.67. 38 205. 45
32f5. f 445. 78 71:3. 11
987. 20 1, 297. 28

13.024 14. 8')9'

17. 8X27 19. 744 21. 621 23.0 90) 24.643
25.9
33.

1.462 1. 773 6. 285 743 10. 272

15,0W ----. ,410(H) .-...-..

$0,000----$1;,(0N
1 ")
: .

1,n61.36
2, 33.5.'A3 2, 735. 62
5,

1, 117 1. 44

9,50
G98

*74:3. 72 792.06 985 3P . 1,178.72 1, 420. 72 1, 642. 62 1, 754. 65 2, 174. 39) 2,f6i54.222 3, 2'86. 89 4,012.80 4, 7(2. 72 6,3Y3.64 60, 28. 56
6,
664. 47 7, 2#4.38

$20,000.----$25,0 . --------$60,M{)($10,000.----$5(6,(X)-.
.$ 1
1, )
--

$70,000 $2.41A,000

----

tfo,cX)- --.
.$ I 50,1)(8)$2110,0tX.)(

,
11c1me,

Victor;y

Effecrale

lucome rem al lui g

after tax

$7, 906. 4.5 39). 5.32 11, 187. 11 44. 748 14, 710. 78 49. 0315 Z2, 1i)3. 11 5. 407 .10, 2,4(0 58 61. 481 :38, S,5. 03 (14. 759 47,SOS. Il9 6S. 297 57, (08. 24 71. 372
6(1. 725. 80
71. 139

Perernt

$12, 093. bi 13, 812. 89 16, 289. 2'2

17, 830.80 19, 76. 42 21 144.37
22,

22, 191.81 01. 76

761. 91. 80 7(0. f91 127, 155. 13 X1. 770 178, X8:3. 41 89. 421 231, 107. 69 (2. -443 492, 49(1. 58 08. 491)

23, 274. 20

23, 4(8.14

21, 166. 69 18, 9'2' 31

7,
3.

22,844.87
42

(039. 78

27. :3541'

$1 ,0008,O}0.

9,960. 22

2, 011., 7.4). 0(1 5, 045, 750. (XI

1, (8)5, 750. (O

753, V2A). (W)

101.

433

100.

M. 575 787

-6, 750(. ()
-45, 760.

-3, 260. (m)

(KI

1)0. 915

Net Victory tx CornimUted on

gross Income

equal to tell-i1ntths of net iuicoume.

Table: Table 2- Combined Federal and State income-tax burden, calendar year 194 , mar ied

THE REVE)NIJE BILIL OF 1943

Other tables relating to the amount of unforgiven tax, and to tile 1944 and 1945 tax bur(len ill the case of a single person and a1 married person with two dependents will be foutid in the Appendix, tilles 16, 17, and -18. It Nvill be rioted froin the al)ove tal)le that a married per-son with a $10,000 niet income will have $7,264.38 left after Federal income taxes, a, $100)000 net illcome, $23,408.14 left after 1Fe(deral incOme taxes; ill ,case of at liet ilncoml-e of $1,000,000 the total Fleleral iflCOfllC tax tbe will vXce(ed the lnet ilicOIle b)y over $5,000. T'he above tablle (does not include tile State inmome-tax b)ur(lei. The following summary in(licates thle total sedel-al andl State ilncom'e-tax burden ill selected ctises:
TAill, 2 'Combined Federal and Stale income-tax burden, calendar year 1944, mn arried
Net Income

O} eorgia and Federal

Carol iua

t North

New York .luiesoea

an(d Federal

and(1 Federal

Federal

and

WIsconsin and Federal

$209 1,0137

01 $2 M $2--.. $20'206 $2,0009 o 04I 0. 1, 1, i $. 0-1(X0)X191 2, 9.9 2,50 2,1472 2,013 $10,000-) -..--....-------76, 771 76. 77, 032 $100,-000-tO. 7(12 . 7fi, 941 1,005, 621 l--1, W5, (644 1, 001, SW 1, 005,0O $1,0),X-)

77,081 1,004,201

29,14

It shou01d(1 be imote(, in a(l(hition, that these figures (lo not iniclude1 soc;ial-security taxes, or Fed(leiral and State excise an(l sales taxes, or State p)ropeI'ty taxes, aill of which make the direct income, tax more burdenisomtle. In this (cOtlil((t ion, one featlture iti the recent development of Amnerianll tax(es, csp('Ciilhly under the stress of wvar, lhas lheen thie growing reliance oii direct taxes as -(rainst, taxes oIl (tisulml)tion. Not only does the income tax 1)ut gI'viat, emphasis onl tlle total amoutit of taxes that on1e n11iust. pa3y but it x(eTts little restraint Oil the lise of luxury it(1115;. Sigi lifi(aritny, Cinadat collects 32.4 percent of hier taxes by levies oil(.01isutll)tiOll, 1111d Gieat Bilt-aini 2-3.9 previ'et, w li le tihe ( Litfitd Stlat (5 lit thle preeSmit Collects 0111y 18.8 1)eIrcelt ill olnsuml)t ion taxes, -11(leral, State, aid Local. The l)roposed changes will lift this )e'i'('('11itHi to 21. Th'is iid(licates that the burden of directt taxes onl individuals has beell iclrlleasinig too rpl)i(ly and without leaving sufficient tilne for people to a(ljust thleir ld(Igets to take care of this inreiase(l tax burden. The irI'eases ill the individual income tax from the lve-a\'alr period are shownil in the followhing two tables. lIn addition to the rate i1(1i '5('tSC taN.;)ayers have to make higher actually payineits, while inIColml(e is visiiII', ats a result of paying onl culrreilt iniconle ilnstea(d of thle p)ast year's ill(nOnom. 'Flle following table Shlow'S thle result ot' illCreases 511i1e 1930 at cerltliIa illCo1m1 levels:

Table: Table 3- Mar ied person, no dependents

Table: I. NORMAL TAX RATES

THE REVENUE BILL OF 1943

TABLE 3-Married person, no dependents

TAX PAYABLE IN TAXABLE YEARS

Net Income before personal

exemption

193(1-39

Yearly

1940

1941

1942

9I43'

1946''

$21.28 --. . .. . --------$21.23 $1,200 79.3 , M00 2 --.---... 7.. $3,504) -----------------------. $22. 144. 48 157.3 -.....8A) 103.2)0 $1,800- . .---..:-. -.-.--187. 5 42. 144). 110 2105.48 .. $2,0 ..)-4... 1) . . . .-..-. 90. 4) 22.00 $11.0() 325.61 29*1.61 $'2.5-()445. 78 13s8. M 321. 0n) . 0 40). 28 :30.8( $3,0 .-----------893. 95 .'375.00 74(1. 00 987.20 110).0 ( $.'i,000() -.---------Y(. (X) 28. Oo 41f. nn 2, 73.5. 62 .-------------1, 3o0,5. I y $10.0-) 2, 466, (12 2,152. 0 864. 00 9. 2l). 00 10,03. 61 2. .189. 01) 11, 187. 11 li. 3, $825.00(1-) 1"2. 40 .8 hz69. 00) 14, h43.40 20. 439. (10 25, 328. IN) 27.074. 8 30., 240. 1 $1Wi,) --------------:1 4; W 43 47') 40 52, 704.(8) 1&, 0*8). 00 0.58. 36 741. U1. 46 32, : (. $1(X--01 67, 044. 717, 3. 60 732, 54.0( 854,OO.00 899, 000. W 1, 005, 750. 0 $1 ,0K),0(-O------------

AMO0UNT OF INCREA.S
Net income before personal

IN TAX
1943
over
1942

1940 over
1931(1-39

1941 over

exemixltion
.
-

19-10

1942 over
1941

1943 over 1(39 I

19:3&19 I I
$21. 28

1944 over

$21.28
$ $ 1I,S(( 2#I)0
,
.

$48.00
-.. ..........

.]

$22.80

.. ....

$1 1i:

....

$3,

00

22. S) 40

$1,000 .
1

113t.(M
3M.

30.00

7,7.00 3,020). 10
6,

42.00 79.00 107. 20 25). 00

lo0. GO0

8).40 0. (O 142.00
186.

31.28 41.28 47. 95 414. 61

$21.28

371.00
847. ( 2,.351.00 4,8M. (. I 1 ,356. 0(

81. 28 147. 9.5

31 1 42

814.161
1, 7461.58 4, 524. 36 (O0 45,
000.

$IS00o
$1,0(X0,

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

--.....

11 007. 40 3S, 5:39. (A)

5, 25'9. 101

277. W) 14, 97(0. 40

121,446.00

36, 1 I.. :16 219, 956. W

187. 95 397. 8138. 95 2,).51. 62 7, 56.. 61 18, 20.. 58

79. 28 144. 48

.2941.61 28

326, 70. 00

437. 78 907. 20 2, 31. 62 8,09a. II 21, 371. 68 44, 122.841

167.38 205. 45 325.01

79.28

includes net Victory tox. Incllde s 12! pereenit of tiifor;rIvetn tax.

lax

perI'S0I1,

Ol n single Mlore' complete tables showing rates of tax alld t'he maI'ied person with (depe1n(dents, anlld a mlaltrriedl persoH with two (Iependl(Ients ar'e given ini the App)end(ix tall)les 19, 20, 21, anid 22.
no

(C)

RESENT CORPORATE TAX BURDEN

Your committee hns giveti careful considerations to. the present. tax burd(lei upon corporations, It is recognized that the taxes wilieh aro now being imposed directly upon corporations, and indirectly upon the dividend income flowing to shareholders, are as highr or higher than those impose(l l)y the other United Nations. It is vitally important that our corl)orat.ionls be kept int a sound financial conditions so that thiey may be able to convert to peacetime production and the armed forces after thel war. provide ploymnent for mcin
em

The

following surIIaiiy

burden:

leaving,
will

shiow our existing corl)orate

tfx

more thait $50,000: Percent (a) Corporations 15 First $5,000 --17 $5,000 to $20,000 19 $20,OOO to $25,000 -(b) Corporations with normal tax not incomes In excess of $25,000 and not in excess of $50,000-$4,250 p)1i 31 percent of amount over $25,000. (c) Corporations with normal tax xet income over $50,000 -24

1. NORNIAL TAX RATES with Ilorlmlal tax not ilCOfleS of not

Table: I . SURTAX RATES

Table: I I. EXCES -PROFITS TAX

Table: Table 4.- Net dividends paid 1936-4

Table: Table 5.- Income from dividends from domestic and foreign corporations by net income clas es (including fiduciary returns)

6
-

THE REVENUE BILL OF 1943

*

II. SURTAX RATES

rercenl t

<a) Corporations vith surtax net incomes of not more than $25,000-10 (b) Corporations wvith surtax net inCOmes in excess of $25,000 and [lot, II ('XCeSs of $50,000---.$2,500 pIltus 22 percent of the ainount over

(c) Corporations with surtax net incomes ovcr $25,000.----------------(d) Consolidated returns: ('onisolidat ed surtax net ineomc, additional ._

2A000.

16 2

(c) lxcess-protits credit: (1) 1Invested callital Jtlet.ho(d: .. l irst $5,000,00() of invested capital $.5,000,000 t.o $10,000,000..$10,000,000 to $. Si200,000,00().... . .. . .... Over $200,000,000 (2) Incomtne mitet hod: Portion of average earnings in Iase p)erio(ld._ (d) Post-war credit of excess-p)rofits tax (e) Debt relief: Rt 1irelmnet of (d(el)t onttstandhitig as of Sep)t,. 1, 1912 (linifte-d _ _ _ __ . . _ to amount. of post-war cred(Iit.) (J) Over-all tax littitualion nppliied( I') sit rt ax iset illC(ome before b)(eig re_-- . (dluCe( b)y ad(j ust ed (vxce..s-p)rofitis ntet, ome ------.

n (a) 1ate -------(b) Specific ex(tnPT)tion ($.5,000).

Ill. EXCESS-PRtoFlTrs TAX

90

8 7
5 5 10

(;

'10 4
80

III spite, of t he fict. thlilt, Some corpoiatiomis may have larile pr)Ofits after tax i, t le (ii(leli(l rCorI'd (doeS IIot Sllol'linre distibut ions, in (coliplUisoll Wvit Ii thle (livide(l(ids of (orpjorlitiolns ill tihe p)re-war years. '.il 1(' ollowing teal)lC shows tle lnet (liv id((llls paid by net iLcollle( coporat iolls over several recent years: TABtLE 4. -ANc dividends p)alid 19f)UX-4
193.$7 4,6791, 000 .. 198 8--.- -3, 155, l00 198.. ---,783,00() 4, 036,000 1(94() -..-. ...

(est mi1t d) .. tI 19-141 (est imated) Source: Tr'e:asury D )eparttini: d.

I9-13

1942 (est illmted)-

19461

...
- -

'1, 426,000 4, (((, 0(( ----3, 900, .4, 000, 00J

.

It will be note(l diht, ini spite of thle fact. tlat, some corporaltiorls lh've' hIrge profits, thle (liv i(den(l (listriblltiolns 1ire le"'ss ill thle aggregatel thlani ill tde pre-war yatars of 1986 anid 19:87. It shIolll(d be poillte(l out tihi t a, lar1geg portion of (divi(iden(ls go to persols irl Ilie low ilcollme IrOlII)S. T1r10 following tlelbl illdiCalt(es} ow the, ilIC0o1me flolm (iidkend(ls is (list rilblte(l: UtCrOu dividelids ( domest('X ic(ad forCeign Corp)orniat ions by net rTmljll; 5,---1nl(cume fUom
ilnOvtm ct(IS's (including Jiducwiry rctuns)
19398
Net

ine(101 e e1hssvs

llts
$R3r,' 062. 0l0f) 392, 4530,CO FJS, 1,00 3.;S 0 81 540,oco O 255. 2tX,11(,0 1t07, ;tI. 0(}0 8, 102.0(00 58, 210. W(M(1 6,8 W00

IlJi1o

-.. u'n'lir $ -,o-b........... $799, :173,. 1)0l : , 2 $5,00) It S 0,000 .r.1i12;. t)('u) . .... $ (tO,ttttto 25,000_ 1 44.15, ((itt $2.5,(ltt It $50,1100 .. . . 1(t, 13, (l( 0 to $.W0,(olt t9,0--(J------.-. 221, 4361, (Jflt .. .83, 6.(0(0 $t t:('t,to $ 60,t -) $1t(tgJO to *t3J(o() -... 8V,089,01 r)() 4 i(;0 to $500,000 .4. Slt,((1 $tIt n 611, 1t0 ..... ()O V$A1O.(t(i tt $1,000,00

$1,Utt0,000 and o

e r...

000 ...,....0,U)
2, 4t i U,((00

1,07. 000

$1,1025, 41(7, ()1 u 4:31J. I I00il 608. 740t. 10 422. 008, oob 3 37.082, 000) t 128,095,000 139. 419, 0M) 08 464 1()0( 60, 443 (NX) 72, 711, 00()

Total-

2, 65, 080,000

3,268,442,000

THE

REVENUE BPLL O(F 1943

TABLE 5.-Incomefram pitidends from domestic and foreign corporations by ne4 income passes (including fiduciary returns)-Continued
PERCENTAGE. DISTRIBUTION
Net Income classes
19
1939

S32. Under 15,000 -$------------ 4 14. 4 ,000 to $10,00019.2 !iOOOto $25000 ( 12.6 ,000 to $0-0000. .000 4160,000 to $150,000---30000 to $3010,000-8. 6 0OO to $500,000 --------------------2.2 1. 5 500,0 to $1,000,000 -1. 6 $1,000,000 and over -100.0 Total

too000-9.0

$29. 1 18.7 19. 5

13.4 10.3 3.8 4. 1 2. 0 2.0 2.0

100.0

$31. 4 13.3 18 12' 9.7 39 4. 3 2.1 1. 5 2.2 100.0

The reduction in dividend distribution to the shareholders can in a large measure be traced to the heavy taxes we are imposing upon corporations. In this respect, our present burden upon dividends is greater than that imposed in either Great Britain or Canada. To get an accurate picture of this situation it is Iiecessary to consider both our corporate an(l individual burden with that of Great Britain and Canada. The peacetime normal rate in Canada was 15 percent. This has been raised to 40 percent except where- the 100-percent excess-profits tax is higher than 10 percent of the net income. In such a case, the 10-percenit tax does niot apply, thereby miakinig the norImal rate only 30 perceiit. The reason for not increasing the rate in the 1942 law was explailled by the Caniadian Mlinister of Finaniee in hlis bu(lget

mIesSage as follows: I have given a good deal of consid(leration tob variotts alternative means of increasing thc excess-l)rofits tax. 1 believe that. the increase sho011(l affect thle tax on excess profits ratlher th11 oil l)roffis tltat have lnot increased substantially over pre-war levels. Alrea(dy the taN oil profits that have not increased is heavy when we bear ill Inil(l that, those profits whlenl dist.il)lited as dii(vid(ns are subject to all the personal income taxes in ad(lition to tlhe corporation taxes. Tlils involves, In effect,, a (discrinlilal ioll against income earned inJ the form of corporate profits as disti ct from otnlir tvyps of ilicollie, such as interest. Som ci liscrimination may be jiisiified, bl)it I believe we have already gone far e(noughl ill that direction Con;se(qUently, I p)ropose' to inlcrella(' t lie rate of tax oil excess profits but nlot tho flat rate of tax whi ichl aI)l)lis to p)rofits generally. Furthermore ill Cnda(la thle Provinices have,(' given'l up the ilncoille-tax field for the rationn of t1eC wvar. Trhe British pIeacetime noIInal rate, was 25 Percent and this hIIs beenl raised( to 50 pIe'cenit. BIt (divi(Idenls from Britishi corporations are" not Sub1)ject to at f further 1101or11 tax ii; t}1e 1l111(1s of the BritishX1 slharehol deI. Moreover, th(e Britislh surtax does not,apl)Iy to incomeIs of

individuals of less thati $8,000, andLhe British shiarehiolder1 will receive ai ref und of the nailial tax if Ihis inlCome is less trinim his exemiptionI, which is $320 for-a single person, $560 for a married person, aInd $200 for taclt (d(pl)Cll(lel1t. Great Britaiin's 50-prc)( Rent tax O1l corpoi'ations is 1egar(led as thle indivi(lual's niorIal tax an1l w-hen the in(livid(l al pays tax onl his l) total ilncomle tle .50-p)erCeilt tax which has (bI l)aid(- by the corporatio11 on1 hiis dividend inCome is deducted from the Sum of the ii1(lividual's tax; and if the inlivi(lual owes no in(lidi(lual tax the whole

Table: Total central and noncentral government taxes per capita 1943-4

him by the Government. Mlore-over, in Great Britain, no State or local income taxes all're imposed. Not. onily (lO high corporate normal an(l surtax rates affect the small ilivestol, bitt they also seriously curtail tile normal inconlicO received by clbalitable, religious, alld(l e(lIl(ctiolnalinstiti tioiis whi('ch is so necessary for their' to carry oln their activities. Many of our educatiolnal institutions have ha(l their r('venies severely curtailed through war activities. The cutllailment of divi(len(ls will not be ainy great burden upon the wealthl sharehol(ler. If hle is ill the surtax bracket, a )ovc $200,000, tle Gloverunment wvill, ulI(ler present law, take at least 90 percent of every dollar of income above that t amount. Onl the other lhaldl, n slhareholdlei ill thle lowest bracket will pIly, und(lr time existing law, a tax, evell after tilhe )OSt-war cre(Iit is takell into account, equivalent, to i talx onl comparable income from nonimvestmlentt sources of nearly $50,000. Inl addition, meanly Stattes impose corporations income, taxes which also lesson the aniountt available for dividend distributions.

THE REVENUE BILL OF 1943 8 50-percent normal tax whic-h the corporation paid will be refunded to

(d) lixcisi-:s The existing law also imposes a long list of eXcisel taxes. This has been' greatly incresed(l sillce .1 939. For the fiscal year ended June 30, 1944, le'(dral1 excise t lxes ar1e' estimated to yield over $4,000,000,000, exclusive of social-security taxes.
I

1 CAIT '1''N1URDE1 N ((') PERBt(.

Our State an(l local taxes yield approximately $10;00(oooo000. When ti hese are u(lvde to 1hThic-( leral tax llir(leln, We( filld that. the total ller taxes Oil a1. per c a)itat basis al c uch( high t hall the per Ca )it a taux lbulr(lell iii Great Britaill ol (Can adal(in. 1llijs is shown by the followinlg table I)p(re red by the, l tirelary D)ep)artnimnit:
ifletiaxes / ' ('(I/fila 19f.3--4;4 7'0tal CTill(lal and fl(Oflu'flI l 7'vternmI t $357 171110(1 81Iates Un~it((d Kinidoiu..29t

CO'NMM ITT1'EE PI'OPOSALS

(a1) EST.I.\'IATE RFZvINUE, E-FFE'c"IS It is estimated that, thle committee bill wNill increase 1Fe(leral revenue1s, ichinlinig 1)051tal, lby at total of $2, 1:39,:300,000, (fluring a full Year of op~erat ion, at levels of income anold business, activity estimated for the calendar year 1944. 1 mcomne-tax re~ceipts ~j11 lbe inicreasedl by $770,800,000, of which corporation taxes will accounts for $616,000,000, and hidivimdual income taxes for $154,800,000. Reven..ue from. ta xe.s services will lbe increased onl conInod ities 11(1db(y $1,201 ,700,000,

Table: Table 6.- Estimated tax liability under the com it e bil , as compared with the tax liability under the present law, for a ful year of operation

THE REVENUE BILL OF 1943

while postal revenue will be increased by $166,800,000. Total Federal revenuei, including net postal revenueM, will be increased from an esti nated $41,341,200,000 under pr-esenit law, to $4.3,48.0,500,000 uinderl the committee bill. Tho above estimates do not include changes ill rieventuc resulting from the term-iiination of governmelltal exemption flomn (certain excise taxes, als such changes in revenue will be completelY offset b)y clmiai(gs ill exCIpel(litmUtes. Tlhe additional r-evenue under this bill will make the Feder-al, State, and local tax b)uideln in excess of $50,000,000,000 annlllually. I)etails of tlhe reveuic effects of the committee bill aire slhown, in tle following table: TALHE 6(.-- stsimnated t(ax liability un(ler the committee bill, as comn paredl with the tlax liability under the present law,.for a full year of o)erationf
liti millions of (olHars]

generall an1(d sp}cflalcco(otlltts ami~ telt p)os0tal reventiu

1. Inlternal reni'iiiie:

Yield of co((m-

,iittee 1,il

(1) In(come1 anmI excess-l)rofis taxes: ('orv)ratioll:; Iw('o!HQe -.-. Fx('Pss-p)roflts tax. I Declan d v'lue exc(ss-prolits tax.-'Twil orlorto ion (gross) . Less pIost-wOr ewdit . 0 'Total 1o )rrtion (Iet) Nt Income tax (gros).-----

11,6183.8

4, 60. 6 IMli 6

----------

116, 421. 0 1,1104.9

15, 250. 1

17, 752.1
...

Victory tax (gross).

lDs-s

pst-0war credlit --.--

. . \ictory tax (Ilet) 'Total i viid(lial .. ...---'Totlfit inieoniio and(1 (excess-profits

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

17,7752.1

taxes

33, 1)08. 2

(2) M iscellaieous internal revetoto: Capital stock, estate. 1ll(1 gift taxes: ('apilal stock tax --------------------. Estate tax -------------------------

3f5.0

(GiMftaxTotal capital stock, estate, and gift

t x.is
S--.-.

522.4 40). 2

027. a

_-

: _ _ _ _ _ _ _ _ . = _ ._ = . _

'T axes 011 (conlmmodlties 111(1 services:

Li(Itior taxes: sj D)istilledi lrits domesticc ilml)ortedl) (excise tax) * 3 F'ermien ted1110111 liu(plors 2 2

fln(i

Rectificatloni tax ,, WVines (dololestic an! lnm)orte(d) (excise tax) Special taxes in connection with li(itior occiipaltlous ... ('ontalier stamip9 -- .---Iloor-stocks taxes
All other
.

1, 105.2 57-1.0 11.5 t1. 0

_~
11.0 V.4 .6 1.6
,

Y iell of pares ent lawv

or decrease (-) over yield of

Increase (+)
present law

4, 731. 0 10, 88.8.

-8. (0

1, OSS. 9 14, i40. 1

_ =

105.11 15, 729. 0

760.0

715.0 616.0
I

602.0

14, 105. 5

3,646.8
-5, 324.2

f, 324. 2 -1, 832. 4

3,491. 8

17,597.3
32, 237. 4
_._=

1,832.4 -3,491.8 164.8

770. 8

305. 0

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

22. 4 40. 2

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

..........

927. 6-

735. 2 504. 0
11.6
l

P70}. 0 70.0
....1......... 18.0
...
..
-- -- - ------

30. 0
11.0 9.4 .6

-1
I

.......

1.6

__ __

,-

..

,Total liquor taxes ..........

f See' @ostfl(s at enl(d toible.

1,767.9

1, 309.9

458.0

10

THE R-EVENUE BILL OF 19 4 3

TABLJE 6.-Fstimated tax liability under the committee bill, as compared with the tax liability under the present law, fori a full year of operation-Co ntinued
General and special accounts and aet postal
revenue

Yield

it toee bill

of corn-

Increase (+) Yleldl oif res- or deerelase (-) ent law over yield of pireseiit law

I. Intirmial rovnuc--('Contlntied. (2) Mt ist;'llatious internal revenuie-o('Ontintied. 'l'nxes on colIIrIIodlIties l nd serv ievs-('on. T1obnc(co taxes: (igarette.s (smaIl)2. 'J'ol)acco (Clwwing and sllolkig)2. . ('igars (large) C Igaret p... tub. aid
1

892.8 45.0

892.8 -.-.-

3s1. 7

o AllII ther

----

7. 0 1. 3s

45.1 31.7 .----

7.0
1.

'Total tobtttco taxes

977. 9

977.9

Samllip tIaxes: Issues of secrarilles, lond transfirs, anad deeds of convey anvte Stock tralnsfers Pplaying Cards. Sil ver bullion -alts or transfers 'total stnaii) taxes. --------------.

111.5; 7.

125

~(4)

25I. 2

---

.,(
--, o. __

aI rillfdw? arers' emxci tIav(s: ( i; . o li Imhrierlicng oils

11(

_SI_ .

6
..7

:, __1

'UtSSi'ig('r aIItoirIOlil(S aridt Iiot(n. (vb.IS Aationiioiile trucks, bltsses, tni t railers 1Parts a1( tic(aesSorbs for autorlll biles ''irvs and inninr tulbes n JF leetri al energy '.lietrie, jas, arid oil npp liajiecs li-ctri c light lathlis H ado receiving. sIls, pIoliriogrIpiii rv(eortIs, and mis-dl ilastrias -.-.

251. 1 5)1-. :3 .9
:s. .5

. 1. I1) I. 3s

.9

3. 5
2.
. --_ -_ -_

4S. 5
:;, 6

25. 0 41). 1)

11). 0)
3.

--_
_-

25.0
3.5 1.1 2.8

5.0
3. 5
1.
.

.')

_-

_ -

2().0

Refrigerators, refrigeratlag apparatuis andl air-corrilitiloners. Business anld store llaehilles. - I'hot graphic alil;tlrattus .
Splrl ilag gootl

' IlI' IIS

}

I I 2.8
11).
.,

hl atelles. 1..a, --e ..

lpistoks, and

i.. 9

-:

-----

10. 0

5. (
.

F'ir'arml)s, shells, volvers

laxesx .

2.0
8
-

re-

.5

.8
l

'1Totatl imanrafactarers' excise

IRetnilers' excise taxes:
Jewelry, te.-. tuirs . 'T'oilt p rn'l aralilo--s.. Illugagl,(3 Imildbags, wallets, ('t -. .---.-..

484. 5
161.7 93. 0 86. 4 58.4 399.,

4U9. 5 5
:8. 2 35.0
-----------_

15.0
72. 5
51. 8 5 1. 4
2:

89. 2

'Tot il retailers' excise' taxes AIsct'ltrullailells taxos: 'eIoldoine', tvlepral ith, radio and (abli' fialv it'iis e-a,'ud wires, etc. o 'I'v' illne luill, l(oal sir vice 'Transportatirin Of oillby lpilp line. 'T'rarnslportaltion of pi'-rsors. 'Il'arusportalion of property -(utieral ndmilIssions, ete -. -, _('Cabarels, e-tc-.hlub dirles anrd InItIation fees. Le.iases of safe t1 Iosit lbOxese.Y I[Ts of mrttor vehicles afnd hoatO ('tCoOmtal aind2 other vegelalle Oils . l)rt'ceSSed; O(oi(lalrgalrim-s, viv(., hIflzichidin S (i'ial axis atml ildillIteratedl

1 62.

58.4 ,. I

174.8 :327. )

170.0 116.7 14. 5 211i. 8

121. 2 W.8

171). 3 5
ltW.

11. 5 1.11.8

48. 8 48. 9
163. 5
75.0 4. Pt

11(i.7 11.3 6. 5 115. 5

115. 5

19. 4 i. 2 (. 5

r. I

2.0)
3.1

2.0

See fool niot i's

bht tir .n . t Il (if In bt'.

I.

THE

RNU1E

MIX

OF 1943

TABLE 6.-Estimated tax liability under the committee bill, a8 compared with the tax liability under the present law, for a full year of operation- Continued
General and special accounts and net postal revenue L Internal revenue-Coutlnued. (2V Miscellaneous Internal revenue-Continued. Taxes on commodities and services-Con. M Iscellaneons taxes-Continued. ... ... Sugar tax-. Coin-operated annisement and gal inng (eiVc Bowling alleys and billiard and
----

Yield of comn in~~~ittee bill

61.0
12. 2

. Parimlutuel wagers .... All other, Including repealed taxes

6

10ool tal)les-

28. 8 27. b 1.2

Total miscellaneous taxes totalal taxes onl coImlmodilties and

services.---

1,429. 6

Total

revenue

nilscelluneous Internal ..----.

5,110.0
6,03.0 el M.

(3) Employment taxes: Employment by other than carriers: F'e(leral Insuiranee (Contributions Act.Federal UJnemnployment 'T'ax Act.
Total.
Taxes on carriers and

2, 799.

207.0

Internal Revenue Code) ...

(chal).

9,

their employees subehal). 13 of tie

-.

2'2.7
.3,

Total eiploynient taxes. Total Internal revenu-e.

268. 7
12. 1 400. 0 677. 6

42,311fi. 5

S.

4.

2. RaIlroad unemployment Insurance contributions-_Customlls Miscellaneous receipts I

.....

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

Total yield, general

5.

and1( slpeclal-accouints

43, 305. 1

Net postal revenuiie: 4 F irst class:

Otlier tahou local delivery letters. Air mall, (loIliestic Secoiid class.
Third class

Local (ldlivery letters.

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

Special services: Registry. Insurance (ld liver. Collect .--.

on

Pourtli class (',ec tax on transportation

of

property)

+140. 2 +7. 9 -80).0 ) +50. 4 -17. 9

+619. 1)

-3.8
+5.0
-.

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

Siheial dt(livery .------------------.-......-.-

'Mommey order--

+11.3
-4. 9

Other.

Total inet iiostal reveliiie . -.Total yield, general alnd Sp(eial accounts, net l)0stal revenues.

+ I75.. I
4_3_
.=

amid

43,480).3

I Estimates of the yield of the committee bill and(l of present law are at levels of incolme and busIllnSeSS estlmated for t10e calendar year 1044. Un(it) llnt take jllt((UIconsidratlon claiiges fit revenue which tire completely offset by changes in expenditure, such as terminatloII of goveronienital excise tax exemptions. 3 Collections for cre lit to t rust hi nuds are not iicluhded These estimates are after allowances for drnwhacks of $19.7 millions under theCeoinlnt tee bill and of $14.8 millions under present law. 4 Less than $0.05 million. A ThQ tax on luggage. has heen changed froen a manufacturers' excise to a retailers' excise tax. * Includes collections froni taxes onilarco(tles: taxes uiler tile National Firearms Avt; aid the tax oil hydraulic nuliuing, all of which are efTective currently. lii addit ou, includlleS colIectioeis from repIe'l't( taxes not reinstoteXl by the Revenue Act of Itll: amid collections froni tlle- following excise taxes repealed by the Rteviiue Act of 1942: rubber articles, electric sitIis, (optical equipnivit, wid wasliiug machines. Excludes Ipostal surplus, if any. shown sej iarately below. * Excess of revenue over expenditure; based upon tile "'Cost Asctrtulhnnent Relport for the Fiscal Y'ear 1942," of the Post 0111c L)epartmient; nionpostal services exCl1ded. NoTE.-Flgures are rounded and will not necessarily ad'I to totals. Source: Staff of Joint Committee on Internal Revenue Taxation, Nov. 19, 1943.

.=41,3
Yield of present law
1.2

11

Increase (+) (-) or dcease of over yield

present law

61.0 -.-... 12. 2 1...----1.8 27.0

27.6

938.0 3,909.3 4, 8;341. 9

491. f6 1,201.7

1,201.7
_-

2, 79, 0 207.0

.-.
-

-.---

3,iX 10
262.7

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

3,20;8.7
12.1

23,2% 7

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

40,34:3.0 400. 0
677.

1, 972. h

41,332.6

1,972.
+44.1)

+25. 9 +140). 2
-:3.

'-24.0O
-17.9
-8.3 -1.5 -4. 7 -. 9i
-(1.7
-.4.9

+11.0 +74.4
+1.6

+6.4A +5.04
+'21.0
-I-. 8
= -= .=.

+S. r, ' =

41.

3-11

2, 13. 3

12

TRE REATENE BILL OF 1943

(b) INDIVIDUAL INCOME TAX Your committee is of the opinion that there should( be no inereose i] iftlIiVi(ldiul income taxe-s, tat t his t ime. (eXcvpt whlre a slight hicr1ease is necessary for the putirpose of lt egra t iig the Victory tax without a ]e(at loss iln re(ven111u. The comllmit Ie felt tatl in) the interest of sirllplififl ion of the tax StIruictutire it was a(dvisat1)1v(' to repeal tile \ictory tax. But, at. the. sallie timl(, it was believed highly (lesirable to retain as taxpayers as many as possible of the twe Ive to foulrteenl mllillionl persons now10 subject only to tho Victory tax, and to integrated thle Victory tax ill such that Ilalmll'ha le $3,500,00,000() of revenue brought iinto tihe rieasu ry Ulidel' tlis tax would not I)h lost. These requiirements are subsi ami, tially mllet, by the(' commllittee bill. Ill b)rief, Youri (collmlFitt((v bill, us it p)eltLiills to tOe, ind(lividllal illcoime tax, is its follows: 1. Repeal Victory tax. 2. Increase the i;ornal tax rate from 6i p)rblcent, to 10 p)ercelt. 3. Adopt the surtax rate sche(luvle which is shown below. 4. Repeal tihe varmledl iticonie (credit. 5. Req!flir,, Jlnalried(l pleI'rsS filing sepal'taIc retumi'ns each to tIake a sinlpgle persols ('.xellJ)p iOII. 6. Provi(de that thle tax shall not. be less thanl 3 per(lent of the nlet, ilmcO.ile ill (eXeVSS of I special e('Xe1)1tioll of $S0)() for a single person, $700 'for malrlied(l p)cIsotis, and(l $100 as at credit for each (lepe(lenlit. 7. Retaini all other major provisions of p)reseilt law, including regular iI(' roime tax exenpij)timoris of $ 1,200 for married( persons aid $:3500 for. sinle' perslls ai11d credits for depenldelnts of $350 acild,l1id thle over-1ll tax lii nitat ioll of 90 pel-celit of niet M ill'oIIIe. A few chanlgslave h tl() illmade ill tilme surtIXI'it1tes to efrect tlhe I int(gr1a tioll of tlle \ ietoy ttx NvWit tih(' illi'ofile ttl.x ill Stuch Illmilailnl v,., V rias possible tli(' existing tx burldell. 'Thie Ievis((l to retail t nwelay n as aX t b sli i't lelei. is lollows O

Table: COM IT E BIL SURTAX SCHEDULE

THE REVEXUE BILL OF 1943

COMI'MITTEE BILL SURTAX SCHEDULE

13

If the surtax net income isNot over $2,000 .. Over $2,000 but not over $4,000 ----Over $4,000 1)lt not over $6,000 Over $6,000 but not over $8,000. Over $8,000 but nt over $10,000on
Over $10,000 but noto over $12,000-.-.-

The surtax shall he1: percent of the surtax netincome. $260, phis 16 percent of excesS over $2,000. $580, phis 20 percent of excess over $4,000. $980, plus 23 percent of excess over
$1 ,440, plis 27 percent of $8,000. $1,980, p)Ilis 31 percent of

$65,000.

excess

$10,(00. Over $12,000 hut. not over $14,000.--- $2,600, ,phis 36 percent of excess $ 12,000. Over $14,000 Wuit (lot over $16,000 $3,320, plis 40 percent of excess $14,000. $4,120, pius 43 percent of excess Over $16,000 b ntot over $18,000 $16,000. Over $18,000 b)lit not over $20,000 $4,980, phis 46 percent of excess $18,000. Over $20,000 bulIt uiot over $22,000---- $5,900, p)1uii 49 percent of excess $20,000. Over $22,000 but not over $26,000.-.$6,880, phis 52 percent of excess $22,000. Over $26,000 but niot over 2, 000---- $8,960, plis 55 p)breent of exce.I;s $26,000. $38,000 Over $32,000 b)uIt jiot $12,260, p)11s 58 percent of exce.1si $32,000. Over $38,000 b)lit niot over $44,000. $15,740, phis 62 percent of 'ex c('S Over $44,000 blit niot over $50,00 $19,4601, phis 65 percent of excess $44,000. $23,360, plis 68 percent of exce8s Over $50,(00 blit not over $60,00)$5i,=)0, 000. Over $60,000 l)lit not over 70,000 $30,160, 1)phi 71 pereent of excess $;0,000. Over $70,000 but, not over $S0,000..$37,260, 1)pls 74 percont of excess $70,000. Over $80,00( b~ut. not over $90,000. $44,660, plus 77 percent. of cx elCs $80,000. Over $90,000 t ntot over $100,000 $52,360, plus 80 percent of (Xcess $90,(00. Over $100,000 buit not $150,000 $60,360, pbls 82 percent of excess $100,090. Over $150,090 btt not over $200,000-.. $101,:3io0, plus 83 percent of excess $ 150,000. Over $200,000. $142,860, p)11s 84 Percent of excess $200,000.
----

over over over over

'over over

over
over over over

oVer

over
over over
over over

over
over
over

over

over
over

Table: Table 7.- Comparison of tax burden, exclusive of one-half unforgiven tax, under present law and under com it e bil

11

After the changes above described, the individual income tax burden will compare with that under present law follows:
as

TABLE

Net Ineone before persollill i-XvIIIIptjol

$7b0 .$1 , 00)

$1

IrX)

$1,800

$214.XX------

$2,W $:1,IXK. $4,(X01

...

$ ,I..

$20),0,00
$
$

),OJX............

. $11.,000---.-..-...
-

41

$700 0W ---. $,1(),gXAJ .. $90),114).

$1001)1x)

tf.

THE RE VENMJE BRLL OF 19 4 3

of lax burden, 7.-Cornpawrisonpresent law and

Single person

exclusive of one-half unforgiven tax, under under committee bill

person, 2

Married person, no (lepend- MIarricd

eots
I

ents

Prevent law 1
$17.00

Committee

bill

Present law

Commiltte
$1.Ni
0.

Present,

law I

Connit tee

:
(dp)end
bill
27. ()
18.(X)

110.8,5
112. 13 10)7. 27
1112. 44

$2.3.0()}
7. 110
09. 1 1111.00 N 230. )0

.$1. 28 .....
21.28
11.28 7. 94 14. (12 3. 1N)
1)0

$1. 19 6. 844 7. 41

.3

15. (N)

1I. 014
(

13.1(A

IS0. MA
33. 00 "is, IN) 2.53.00

221). II)

1, I()1, :1 1, 400. 0) 1, 7111. 27 2. )5 1. 93

2,7.80 :1:32. 3:1 445c 77 117:1. 829. 2(

144.48
187.911
29(1.

79

fi!N. 400). () 119UR0.0X Im:1. IX) 1, 1, 741).M

2,1075. 01) 2, 425. M) 2, 70. .00

Mi

--

2, 41)7. IV) 3. 27 2, 4, 917. 1W0 7, (25. 9:3

27 1:1. 857. 110

11), l11l.
28,

20.,
:15,

..

$2,(X)

$2'(.(XX) ...

A),IX).)..

..

..

-----.

$5dXOIK $7t (1,I $1 ,Xxl( .()O.

$2,)X(N.t
$.,
I

...

.....o

79S. 13 4:1, 834. 112, 179. 24 (1), S)9. s8 (C (1li1i. :3 I I 1, ((:1:1. 13 l11,20,0.91 207i, 973. (19 441. 812.58 7i1. ;,IX). (X) S9o, [AM). (N) 7 1,71, SX). ) 4, 499, 5A44.
9,

U.7.

6i(2. 02

1:1, 85'. (M) 20, (120. (10 27, US5. )0 :.5, 7711 .0 4:1. S55. (9) 212 ,41). (0 C:11, 925. (4)

4, 97). 7,4 62).1(0 1(), {g(. (O

10l, 8s4. III 27, 174. r,8 3:1, 74. 1:1 42, 813. 1;9
11, :13.

13.

I0,

1, 779). t 2,11)7. 2. 1(1( (12 4, 51s1. 7, 1)99. 055

.

405. 28 611(. 6Ii 893:. 15 1, 1,73. 2), 1, 41 01.

li

138. W 184. WX
299.(X)

29. I 9 38.'113 57.75 1119.31 264. 841

414. 00 (M1.00

484. 07

0:14.

1;I

185.

28

24

I 1, 0(4:3. 1:3 I 15, 256. 113, Sm. 1:1 (10( (( 1. 1J59, 282. 1I 1(!1, 7.1). O '20 732. 1() 2)0, x57. (11' 209,} :191(1. (X) 's)0;, f) II. 69' 67,;), O$g),t, Ou 444, :944). co 4413, 7:12. )0 4 1), 746. 4:3). st10. (175. (XX). 17;1,1)(00. 1H) (1-, 0I)I). IN) 7:i:3 41). (N) 94), 0UY) I(X) 899, OIX)0 (K) 898!, S(X). IXXI, ((IX). 00 1)0 1, 7 48, 1,8 XI) INO. 1, 7f 1),Ul )l)I 00 4. 5I, IXX). 00 .8K0. 4, 4481 00 4, 499, 0U0. 0) 4, 5W0,
61121.
, ,

68, 584.

59, 752.

2, 174.0(1 2, 113(1. C 4. 62 .s ) 7, 228. it, 1too. 0)( 1 g, o)o :10. 1 1 6. {2,, 4(A). MN 27, 00 35, 224. )W 4:1, 288. IX) 61, t152. 0 (1.), :1Io. (M)
,28

1, 220. [00 1, 5 21)0 4X) 1, h14. I)

928.

7:0. 08 071). 19 1, 20 i4. :31 1,55:1.41

1, 878, 5:3 2. 20)7. (1 4, 2)7. 19

1, 1

1, :11(.14) 1,111:13.00
1:1.

7.(;.M)f
0O

4801.

740,.1M

O,6(i
I,
19,

; 5/t. :31

2.

7/5

12,(1(1,2.

M4 2811.97
088. (19

2(, 391. 118 :14, 0)5 1:3

4",

2,)I2 . 26, 935. 00

19111

7(62. 14) 12,925.04)

,

2, 277. ()0 4. :306. () 6i, 8:36.

00(

0,31S7. 24 : 67, 085.3(1

:it, (178.00( 12, 721. 0)0

6 1, 0(11.1)
1 14, (12.

Gg' 6&;.. (N)

(1(1:1,)

M(9, 707. 00

11,1,

208N, 1)74.
4.1 .)741.

59

;..5, (X'I. 14)

K)0,
(41. 00

)0

0.

4,

1, 81), 00'). (O 1), UJ. 00

Net Victory tlX C0111)IlltCtd On gross ilCOIII('

e(qt(al tO te-rinithls of net Income.

Table: Table 8.- Comparison of ef ective rates under present law and under com it e bil

T.ABLE: S.-Comparsison of iftetive rates

Single person

under present law and under committee

bt7l
MTarried person. 2 dependents

[Computed with and without one-half of unforgiven tax added]

Married person, no dependents

Net income before personal WV without unforgiven tax

exemption Present law

With unforgiven tax

Without unforziven tax

Present law
-s

With unforziven tax

Present law

Without unforgiven tax

Present law

With uifdrgiven tax

Present law

Committee
bill

Present law
Percent 2.833 6.7-80 c. .so
14. 010 16. 182 17.629
22.875 24.398 25.7549 27. 103 2S. 371 30.82F0 36.755
47.390

Committee bill

Committee bill
1-

Committee bill Percent

Committee bill

Committee bil

Percent

$1,000.0.. $1,2 T o
$
_ ,,
-----

.. .r.50 8 $ 00.

2. 33 6.780

Percent

3.833

10.727 1 700 14. 673

2. .,ISs

7,766

7. 666 8.625

13.416
17. 250 18.400 19. 665 21.250

11. 840

$92000-$2

1.5. 9.8

.333 16.6.11

50,0
-

$3,000 $4,000$5,000I - $6,000

19.6Co6 21. 03;6

18.33

Percent 3.833 7.666 S. 762 12.613 14. 727 I6. 8442 1S.251

Percent
.213

Percent
.200 .375 .900 1. 250
4. M
IL W 9. 290 11.9fiO

Percent

992 1.462
9. 397 14. ,64 13.509 16. 165 17.8'-79 19. !'54 2). 8i65 22.249 23.414 24. 666 30.221

5.2S5 8.026

1. I .3

29. 225
21.633 23. 393 24. 900 26.279 27.514 2, t,59 29. SO)
'>. 3Wi

rs~oo

$1-5,000.-$25.00 .

-I $10.000.
.. ...,
-.---

$S. X). O

221. (Os 2:3. 343 24. 518 295. G49 26. 7.51 27. 832 13. 117

42. 57,

---

51. 73011

46. 192
56. 115 59. 663 C2 (25

25.937 26. 944 27. 950 33.133 3S. 1 )0 42.520 46. 116

23. &33 24. 92S

1)>. to0

42.389
57.667 (12.567 66. 537 69.8.55 72.765 75. 404 r..74_ 77. 7,45 85. 549 o0. 014 9'' 920 98.7 37 100. 51 0 10. 632 100. 816 100. 926

30.937, 36. 771

0.oO$80,000.
9 -1---

,,--

65. =24
67. 577

51.550 55. 971) 49. 616 62.650

51.454

47.333 51.379 57.487 62. 422

69. 878

$150,000 $500,000 .--------$750.000') $5,(W000 U-

S3. IS9 NS. 372

X9. 933 89. 953

69.910 81.197 873. .56

88.8,8s 90. qX) 90. 6O

65.300 67.694

--

--------

89.990 99Y. 97

90.000 90. OU0

S41 42. 75. 52) 77.993) 8li. 194 90.611 93. 48S 99. 243 100. 576 100. 682 100.841

100.936

35.499 40. 138 43. 950 49. 616 54. 149 57. 990 61. 102 63.916 66.392 (S. 584 75. 892 80. 045 82 743 88. 1 '9 89. 666 89.900p 89. 950 89. 980

13. so 1f6. 700 IS. 51,'8 20. 313 21. 714 23.050 24.15.5 25.360 30. 853 36.140 40.784 44.600 50.290

54.929

58. 706 61. 840 64. 565 67. 017

188.7;46 s2. 4q.

90.000 90. (o

80.872 .8;3. 402

76. 837

.213 .917 992 , .37 1.462 ,900 1...3 1.250 5.285 i4.600 8.743 8. 33 10. 075 10. 272 13. 120 13.021 15. 150 14. 859 17.827 18. 362 19.744 20.425 21. 621 22.400 Zt. 090 23. 939 25. 443 24.643 25. 950 2f. 91 28.050 27.35i 33. 598 i :3 230 39.5.32 40.172 44.748 45. 394 49. 685 49.035 5M. 407 . 6. OS1 60. 481 61. 252 64. 759 65.475 68.2997 68. 975 71.372 72. 021 74. 139 74. 765 76.591 77. 287 84.770 85. 715 89. 421 90. 247 93. 192 92.443 99.096 9& 499 1r0. 433 100.156 100. 6715 100.57.5 100. 787 100.837

Percent
.

Percent
-

Percent

19R _--------_-_-_

.781
I.364 1.6i5.5 1.946 2.140 2. Q)37 6.372 8. 95; 12. 124 14.f6 1G. 319 18.061 19.417 20.872 22.076f 28.047 33.463 38. 297 42309 48. 24 52.783 56.816 60. 120 62.9S4 65. 5:39 67. St3 75.362 79 G641 82 41t6 87.98a 89.84:)

.30 .75 01.20 1.500 1. 6.s0 5.520 8. 433 12. 150 14. 92 16.833 18.714 20.162

21.5,98 22.77&
28.706 34.180 39.048 43. 083 49.030 57.790 61.0 30 63. .30 6. 341 68. 650 76.40S 80. 546 83.229 88.614 90. 000

1. 36;4 .300 1.655 I.750 1.9463 1.200 1. 500 2.140 2.887 1.650 6.015 6.867 9.691 9.229 13.305 13. 331 16.031 16. 403 18. 007 18.520 19.961 20.614 21.483 22.228 23.117 23.833 24.468 2S. 162 31.179 31.838 37.268 37.985 42704 43.455 47.21647.990
63.481 67.167 70.354 73. 20S 75.738 88.979 92.085 98.320 100. 396 100. 547 100. 773
100.909
84. 190 53. 869 58.994

.198 .781 .926

Percent

'.4
,12

CV Ma Ca)i
c gI"

53.87.0

60.081

A 5674

81.8so

90.000

100. 915

100.935

8.949 89.976

90.000 90. 000,

100.667 100. 3W 10. 933

68.071 71.200 X7 010 76. 684 85.236 89.884 92.89 98.949 100.556

64.460

Cn

Table: Table 9.- Comparison of tax burden (including one-half of unforgiven tax) under present law and under com it e bil

TABLE 9.-Comparison

of

tax

burden (including

one-ha7f of Itflforgiven tax)

Married, no dependents

under present

law

and under committee bill

Married, 2 dependents

Single person

Netincfwrsomeal
exemption
Present law
I

6
Commitlee bill

Netaftertax

Netaftertax
Committee bill

Netaftertax
Committee bill
Present law
Committee bil 00
00

Pre'ent
law

_P
Prezent law Committee bill
$600.

Committee bill

$17.00
$7.10

$23. 00

i,699,i.I q.
4

B 51.3000
s ,

.--

63. 2X3 11S. 40

--

70. 1t)
12')
252.

5t
_

5 642. .n
7219.90

$1.

13

S .1500---.--

$2

I 1. 13 242. 73 317.33 j

t,3
53

1,:
1.

1.

S7
94

!7,3.S7

7;. 14. ('2

94

$1. 50

3.00
9.
1

$3.00
$4,000$4,000
.

$7,000 $9.000

$8,ODO
$1.

491. 40 63;2~60 9)15. 01 1, 21% 93 I '547. 35. 1, 897. 27

.

36i7. 06;

328.
505.

379. 13
6;-4 9.

tH)

935. 75-i
] 2-i5. 00
1,576.7.5 1,9
2

3, f)4. !1.
3,
.53

I,1332. 2,337, -10

7s0,~.
iti2.
335.

25:7. 27 I41,482.1;7

1, 023. 27 1, 247.37 1.471.47 1,6211.S7

1,997..:7
2'.
.

21I. ''S

00

i351 ,),) 3. 06'. 25

3, 7-55.

325. 6 1 44.;. S
9",7 . 1. 616. 313 1,971.44
sS,. 20

1 5,. 38S 20}.1. 45

,1:
11

9.2.X 9

5.00K 5I0. 90
61.00

743. 792.06 98<5. 38 1. 178S.72 1.420.7 2

72

$98.

7-2

748. 50
797. 00

00

$1.19 5.S6
29.19 38. 53

$5%. 14 SI
792.59 3.00
18.0
00
27 00
1

1,

142.62

21i u1. 50

328S. 00 454. 50 734. 5O

1.74. 55 2.174.39

1)7

26i.00lo
00
7.5

4,4!5i2. .55
73

4, 423. 25
5,

92. 75

2. V,4. Ct) 3. OS2. 02

5.513.35

5, 30.32
t
6.

5. 707. 2:5 IV)0 6,

I.

0744.

3.
8.

0MI.

515.000

MODD-----$30,000

8, 47. %tw
15, 436. 48 23, (W7. 15 31. 23. 96 39, 922. 63 48, S9S. 8-2 5s, 212.49 67, 863. 68 77, 74.5.49 12S, 324. 51 0 18.,02 54 232, 3001. 60 49(.3,69. 58S 753 S27. l)O

5, 51-5.75.r

$40S000
$50.000 S$6,000 $70,000 $80,000
$1 00 $150,000
t250,00

472. MIt 11,5'22. 07 I 1,. 3. '25 ' 3. 1 -,2. 4'8 1 15. 413.SS 14, 503. 22995. 13 ,I 9:32. 4. 18 716.04 31,211.3S

9, 4Sf6. t15

9i17. I'

IO(1 25 4S4. 25 .52l .,

5',2

13,
1

1!16. 75

OW0----.--

39,894A. 50 20. 077. 37, 48. 916. 1:3 21, 101. IS 5%. 27.3. 25 2I 1, 7s,7. 51 67, 961. 88 '22. 136.:"2 2; 2254. 5 13 77,
90.

7,(004.S7 IS1. 6S.21'20. If!5. S)

14, 586. 12

5. 031. S 7, 906. 45 11, 1,7. 14, 710. 78 22,. 13. 11 30, 210. 5, 3, S55. 63
11

2.315. 53 2 , 7V. 112

1. (121.25 1. 344. 00 1. 1175. 75 2. 035. 50 2. 4012. 25

3, 253i. S9

2. 554.

2.172.40

1. 15. 00 1, 431. 00 1, 6'49. 10 1. 79S. 50

991. 00

7.41 13.64 19. 86

.57. 75

744.

7 50.

1PR0.
.70

986.39
14

1, 470. SI
1, 761.47

S8. 997.00 1, 191.00 1,482.00

1. 773.
00

LT

3. 265. 50

2545.

171. 69
20.

33. 00
50.

1. 942.25
. .2 f 467. 78

50

2, S).5. 00

(134, .5. I1.,45. 50

8,

.5.1341.50

21,7 O26. 75
'22
20, 708.

129, 291. 38

$200000

181, 222.
233, 7 1 7.

'1.1375.49i

'22.,1119. 62
00

47, -11. 19 S.. 0:-}. 21

127.
1

14.905.50 '22. 432.50 30. 126. 00 39. 285. ')

4..702.7 2 5.38 ;3. 64 6, 02S. 56 6, 664. 47 2'114. 3 9. 910. 22 12, MI9. 55 13. 1I2. S9
7.

4, 012.80

3,978.75

532.

74

276. 88 533. 25
820.00
1,111.2.5

3$

2. 3.

32S.31

15,89. 22 17. 836. 89 19, 759. 42

5,324.25 5, 964.50 6. 597. 75 7. 19'5). 00 S65. 50 11. 965.50 13. 65. .0 150(09L. 50
17, 56-7. 50
19.37
20. 22. .00

4. 656. 00

1,080.44
1, 397.31
2 080.
2.

408

1, 71S.66

1.443.00
145.00

4,
7,
10,

676.

446. S9 94

O.53
06

1,778.2.5

453,. 5

66. 725. sO 76. 59j1. Si

57. 617. 00 67. 2i 9. 00

7. S7.750 . 128. 53. 00 I1.40..45. .50 4

48. )51. 5O)

21.

22.191. SI
22,
901.

144.3;7
76

714 .51)

21. 717.

2 3. 27*4e20 O 1, 711. 00 2
2. 844. 87

33. 00

; Z0

$500,000
7$750.000

$1.000,000._
$2,000,000

I, 006,327.00U
2,016. 327. 00 5, 0413,327.00

f.310.4'2 46,.21.. 00 I'17: 699: 7.54. 327. UU -3, S27. 00

31

1,

971.

46

1. (, S27.00
2

IS. 777..37 1 6, 2S3. 00 3, 7S3. -4. 327.00 -t6, S27 0I9

$5,000,000

5, 041. S27.

.016,827.00 -Il(. 327. (W) -46 327.0U

income

246, 27.

23, 714. 24 5 1. I 56. 59 19,50.0(1. 22. 0417. 69 211, 1117. 2:12, 982. 00 1 18,82. 3 17, 0I18. 00 7185.31 S 19, 7 ,. 53. -12 49.2, 41:;. 5S 44. 1S. 00 495.-1,,1 603,58 491, 77. 00 IS.395).42 7532*0 .00 754, 250. 0) -3, 250. W0i -4 250. ( ,52> 973. 00 754,1.73.;0 1. U5. 50. co 1, 096. 7.50. 10 -5. .10 -(6, 7,50. 00 1. O0. 473. 00 1, 006, 673. 00 -2.973. -5,473.00 2. O, -15. 50.0 -167. 50. 6.750. 2, 015, 7O. .,016, 673. *2, 015. 473. 00 15, 417. W 5: 045, OU 5o 046, 750. 0U -45, 750.0 !-46 750. 00 5. 045. 473. 00 5,046,6,3.00 -45.4 73.00W
7.8S,43. 41
1:55.
13

3.U408. I4

2.712.

21.427.00

649.N883 I 47, 91}0. 75 e. 8;,7. 93 k1;6, 1:3 5S4. 8S 75. 738. 24 126. "S5. ,127, 54. 'i3 1.958.29 179,768.38 11O,2 14.69 =, 247. 00 491.
65.

38.1

O. 47, 017.57 56, 28:,. 99

76

14. 161.99 21. 547.85 29. 497.21

r,.6.

25 4. .7.5. 75 7, 597,(O 10. S63. 75

2,516.

14, 397. 13
21, 869.

38,. 676.i.0
611.

'it),. 011). 63

SS

76.

221. 911.37 22, 98,2.43 23., 716. 01 24, 112.07 21, 261. 76
1

5,557.00 34 6, 221. 75 6,855.00 7,553.11 10, 25 7,43.275 323. 224, 12, 546. 5 12,403.00 14. 323. 136.25 14, 602. S7 1.5, S3.,. 01 15, 45'' 1.5 1:'0. 2N, -19, 9590.37 21, 323. 50

4,195.92 4,919.56 5. 602.69

1.

2.349. G2 2, 7-23. 12 3,46;.75 4, 190.00

1,967.00

rv

4. &83. 75

6,. 28

919.47
2

l .t

94

8.

18,

12

502. 79

co

0'-.25 23,390.87
Z3, 415.12

2, 350. 12 23,

ciA.

75.

-46,67-3.00

-16. 6373. 00

-6, 673. 00

17,7 53.00 253.0 -4. 173.00

5,

:40, 231.6 2

22,1

45.

37

' Net Victory tax computed on gross

equal to.ten-nintlis of net income.

3 THE REVENUE BILL OF 1943

It will be noted that only relatively small changes in income, tax burdenll result from the committee I)ill. Those thlait (10 occur result, in general, fronl the fact, that the nlet, Victory tax, Which was levie(l at (liflerent rates for dliflerent family status, but with the Ise of a flat exemption, is boxing replaced by a flat rate of tax, iapli e(l to the next ilncOmle ill excess of exemptions an1d credits which vary With the family states;. Tlhe following steps toward simplificat ion have b(een achieved through thle integration above described: (a) The separate computation of Victory tax and credit taken.

17 individual

currently has been eliminated. (b) The income base subl)ject to norimnl tax and s-irtax haris bee(m Inu(le the same fo practically all persons (ill those llot receiviling partially tax-(,exeml)tf int(r'est). (c) The computatioii of earned-incom(e cre(lit hins been elminated. (d) The use of the short-form return for those receiving less tilan $3,000 gross income has been retained l)ut the ret urn has blel simp)lified by (a) p)roviding.for the numlriber of depen~dents ill the tax tible Illnd thereby eliminating the (leduction of the credit for depnd(lents on thle fae of the ret urn and headings for (b) reducing the numl)er of alternative family status from 3 to 2. l A further simplification is allieve(l ill tile, comillitte l)ill by setting July 1 of the taxable year us the (late for determinea tion of tl;(' family status of the taxpayer for purposes of all rettlrlls; heretofore thme family stat us (let(lflninfltioll (dlte of July 1 applied Only ill colnllect ioll with tle filing of the alte(native tax oln the short formlt of retillmin under the comminitt(ee bill it w ill apply as w'ell to both tlme long1 formll of return and thme (d eclaration of estimated tax. Iftereaftecr no t axp'aerI ill filing his retutrlln1 will be requlire(l to prorate exemptions ,and credits because of a change ill status. a The following tabl(T 1)h'een de'signedm for inclusion ill Slupplemelit T of the code, and for inldusion ill the optional form of ret1111 for use, by plersons ha-ving gross incomes of $3,000 or less, consisting wholly of onel or more of the following: salary, wages, compensa tion foir personal s r-vicles, (liVi(lends, interest, or naimni ties. For pri poses of this repoi ,*, a heavy line has l)een drawn t through t he ta ble andcrl,tailn figures are pl'inlted ill italics. Figures ill the tax columns to the left of the hicavy lile represent regular income tax, while those' to the right represent minimum tax. Figures p)rinte(l ill italics indicate that at these p)Oinlts the- tax jnayer has income above the income-tax exemnipfions an(lcredits but that his minnimuln tax is mrreater thian his income tax.

()2237-43--2

Table: Table 10.- Short-form return income tax table

18

THE REVELN1UE B1IL OF 1943

TABLE 1O.-Short-form return income tax table

If the individual is a single person, or married person making a separate return whose spouse has gross income, and ha-

And the gross incolne Is

FSix dIel0ecnd- depend- depend- depend- depend- depend- depend- dependents ents ents
No

One

Two

Three

Four

Five

Seven
ents

ents

elTt

ents

ents

Or the Individual Is a married person making a joint return or a marrie(i person Inaking a separate return whose spouse has no gross Income, or Is the head of a fandly, and hasOver

Blnt
not oNer

del endellts

No

One dependent

dej end-

'fwo

euts

(depw11(1- depend- depend-

Three ents

Four ents

Five ents

The tax shall he$525

$0.O(
1. 20
$.

$0.

675 fi(N
CAll) 1125

62.5 t;.'O
6175

12.00 17. 40) 22.80

0. (0 ( 0.0( 0.o
0, 7(1

O(0 o0o

$0. 00

(. ()() (J. 0$)

O()
0$)

$0.00 0. 00 0.00 0. o(
0.0$) 0.0$) 0.00 0.00 0. o0
0.0$)

$0.00

0.0
0.

0. 0) 0.00

0.0) 0. 00 0.00

$0.

0)

$0.00
0.11)
0.00 0. 00

0. (O

$0. 00
0.00 0.00 0.00

0. 00
0. 00

"7.5
7253

7(M)
72-5

28.2(0
33. 39. 0) 44. 49. L(K 6.5. m( 60. 7(0
J0
0.

0.0) 0.0$)
0.0$) 0.00 0.0$)

0.0(1 0.00
0.

O.M
0X)

o. o()

0.no
0.0o

0.0(1
0.

750

1.40 2. 1() 2.8PA

21)

3.
4.

775 W()
825 875

0.(0$ 0.0$) 0.60 1.20S

1.90O 2.i
6(1

0.

0.0o
0.00 0.00 0.00
.

0.00(
0. 00 0.00
0.

0.00

2.5
75 .12.'i 900)

71,

I(

(0)
925
WI0
97-5

76.0IN)

1tM)
0VA 1, 075 1, 1()( 1,200( 1, 125 1, 150 1, 175 1, 20 1, 22.5 1, 250) 1, 275 1, 1, 325 1, 350) 1, 375 1, 40 1, 425
1,

.:7.tx

82. :30 87. 70

93, 10

4, 9$) 6. I6) 6. 3(1 7. (00 7.70 8. !,O 12. C1)

18.00

0.0$)

0.0$) 0.3(1
1.
1. 7)

0. (0 0.14( 0. 0) 0. (N) 0. ()(

0.

0. () o. (1)

0.u
0.00

0.00
0.00

0.00 0.

4.(N)

4. 71) 5.40
6. 6.8$)

0. 0.00(
0. 10

l0
(HJ

0. 00 0.00 0.0$)

0.

I()

I9 25 1,0225

98. 5() 11)3. 00 10) 3$)

.

2. 44) 3, 10 3. 8()

0o00 o) 0.oo

(. 00
0.80
0.

0.1)1)

0.00
0.00 0.00 0.00
0.00

0.0()
0.0$) 0.110 0.0$1) 0.00
0.60 0.11(

114.70
120. 10 12.' (1
1:16. 30 141. 71 147. 10 I,2. 50

23. 40 28. 80) 34. 2)

39. 60

7 8.30
.

6.0(

4. 1$) s. 3()

1, 075

9.

1,100o
1,

1I4

45. (X 60.40

5,5. 80
61. 20 60. CA0 72. (N) 77. 50 82. 9( 88. 30 93. 7(1 99. 1I0 104. 5(1)

10.40 11. 10
11.80

70)

6. 71)
7.40 8. 10

2. 3:( 3.0$) 3. 71)

4. 4(

0.1(o
0.7(1 1. 1(0 2. 1()
2. 8( 3. 50
4. 20

0.00

,175

12.56) 13. 20)

13.9$)
14.6CA)
15.

8.8() 9. r5)
10.20 10. 9(
1 1.60

6. 10

0. (0) 0.0(1 0.0$)

1. 20

6.5S(1
7.20) 7.191) 8. CA)
. 31)

0.00 0.00 0.00 0.00 0.00

0.0o
0.00
1.
2. 6) 0.84) 3.30

1, 22.5
1, 250

4.9(1

1,275

158.100 103. 40 174. 20

so

11,00 1, 525'
1, 1,

I 32,5 6I(H) 2.5

I68.80

161.00 16. 70
.
18.

37(5
1,4(h) I ;25S~ 1,425
1,$27,r

1, 4(NN

1,4f50

179. 60 185. (N) 190. 41) 195.80

12. 3( 13. 0) 13. 70 14.40

10.lo 0 10. 71)

11.40 12. 10 12.80 13. 50 14. 2)

6. 60O 6.30 7.00

7. 70) 8. 40
(1.
9.

0.0(
0.00

O. 8O(

4. 0(

4. 70

Aro

0.30 1.00 1.70

'2.40
8.10 3.80 4.60 .5. 20

0.40
6. 1(

9) 116. 30)
10
9.

1, 475
1,

2()1. 20
206. 60

120. 70

1, 475

1,7(X) I, 1,725

OMX)

52)5

212.00

1, 7250
7700 1,6 25
1,

217. 4$)
222. 80
228. 20

126.1(0 131. 13:1.

142.
1513.
1 6:
.

24. (O 29. 40 34.80 40. 20(

15. 10
15.80

1M)

80

4S. Mt 61. 0()

0.

16.560 17, 20
17.90 18. 70 19. 40 20.10

10. 50 11.20

7.

W(1

14.9W
15. 70 10.41) 17. 10 17.80 18. 0 19. 20 19. 90
20. 60

44)

:(1

61. 8)

1, 575
1,775}1 '( 1,800. 1, 725

1,:

147. 70
1()

1,650'}i 1,5750
1,
1, 1,

1,6;75

7(X)

#23. 110 239. (N) 214. )1( 249. 8$)

255. 2$) 260. 6l) 2641. 11) 271. 276. I(4) 282. 341 287. 70
293. 10)

158. 5(1
169. 30 174. 70,

67. 2) 72. 0 78. 00

8:140

20.80) 21. 654

22.
20

I.W90 12.70 13.4(1) 14. 10 14.80 165. ( 111. 20(

1(1. 9(

8.90

10.40
11. 10

9.70

11.80 12. 60 13.20

(.90 O. 'U 7.40 8.10 8.80 .560

1(1.2

88.8S)

725
7.50
S(00

1, 77.5
1,9(;25
1, 1;50

180.1()
191 .

94. 20
15. 10

W. Wt

22. 90 M. 60 4. 30 00
6.

13.90
14.60 15. 3(1

185.

6. 70

1.

110.
12'i.

1,425 I,9(75
I2 0X

I1)6. (1M
201. X() 207. (2 212. 6$) 218. O) 223. 4(

1, 875 1, (Xi)

1,950()

1,975t)

2918. .(
341:. 91) 309.

31)

:314. 70 320. 10

228. 8) 234. 20) 239. 00

E, 7. M) 142.9)(
148.

121. i1) 7$) L2. 10)

I11.. IN)

30.18) 3.5. 4(1

21. :3() 22. 0) 22.70 23. 41) 24. 10

40.80) 46. 20 5i1. 60

57.00 62. 40 67. 8)

24. 80 2 ) 2 262.
241. 9) 27. 6(1 2. .1o 29. 00

17. 1W 18. 31) 19. 1) 19. (1 ") 20). 21. 10 21.8$)

22.

16.

70

170.4b
18. 10

'23. 21)
2:1.90W 24.61)
25..

O)

18.80 19. 5O
20. 20.
21.

10.90 11.60 12.30 13. OU 13. 70 14, 40 16. 10 16.80 i

.

20

90
0

:11)

22. 30 23. 00

I53. 70 159. 10

73. 78.

00

'29.80

2(. 00 20. 80

23.80

17.20 17.90 18.60 19.30 20.00

20. 80

THE REVENUE BTLL OF

TABLE 1O.-Short-form return income tax tnble-Contlnued

If

the individual is a single person,

And the gross lacome is

- One No depend- dependents

ent

B3ut
Over

__ 1, .. . _ .
19

43

19

or a married person making separate return whose spouse has gross Inwome, and hasa

Two

Three
ents

Four
ents

Fivo

Ix

dependeats

depend-

depend.

dependents

de(:end-

ents

.';even de! eridents

Or the individual is a married person making a Joint return, or a married person making separate ret urn whose spouse has no gross Incomie, or Is the head of a family, andl has a

not

over

No depend-

ents3

One dependCIt

IWO

(ielwenTd ents

'I'llree
ents

deend-

.dependents

Four

Five

(deel

d-

ents

The tax shall te$2,

025 2 05)0 2, 075

,

$2,050
2, ()7f5

t32' 330.

50
31

2, 10)
2, 125 2, 15.0
341. 70 317. 10

$215. 00 2.50. 40 255. 80

2111.

$14311 50 1;9. 9S
175.30
180.70

.84. o
89.

4(1 94 .80

2, 100

'20

2,2(00

2, 125 2, 150 2, 1751

2, '225 2, 250 2, 27a

2,:MX

2, 325 2, 350
2. 375

2, 11N) 2,425 2,450 2, 475 2. 'AX)

2, 525

2,

2, I.o 2, :175 2, 400 2, 125 2, ItA) 2, 475

5)81

2, 175 2, 200 2, 225 2, 25)) 2, 275. 2, Vu 2, 325

3t52.50 357. W)
3
. :1(1

266. (A) 272. 00 277. 40)

186.

11)

100. 20 1 (5. 60U

121. SO

$.0. 60 51. 20 31.190 Set. o10

SO

$27. 50

(IO1. 1)0 I (1lt. )00

202. :10 247. 70 213. 2) 218. GO

28. W4. 29.10i 30(1. 3)0

:11. 00

2x. 20

$24. 50
25. 244 2-5. 26.

21. 5)

22. 21) 22. M44

24.
67

24. 4A)
(1)

27.301)
28.444
28. 71)

.00
41~.30

.:1. 70
32.40 M33. I()

:3)8. 74)
374. 2) 379. 10
385. (XI

310. 40
395.
80

288. 20 2i(3. 7( 219. 10 30)-1. ) 30111. 90

31 5.30t

80 2s2.

127. 2) 132. 70 143. 150 148.00

ltd.

67. 10
40) 2()
64)
44)

:12., t110
29.
:10,

62. 20

(13

231. 70) 41) 27. 10)

27. 21

13,.8.

10

41,

:34. 50
35.

3 1. 54)

22'

.4.

:2. 20
90

V',). 4() 2311.84)

24(1. 20 2 15. C,,)

21t).
210.094 30.6(0

315.
7:1.84)
79.
36.

:30

4(11

60
34.

20

4041. 60

320). 70 326. 10
:11

159. 1(15'.

7()
It)

37.

412. 0) 417. 40 422. 84)

439. (I4) 414.40 .1 11. 8( 455, '20 4CA). 70

312.

2, 55) 2, 5T7h 2.(00

2,

625

2, 050

2,675

2, 700( 2, 725 2,750 2,77.5

2, W4 2,

825

2, 850 2,876 2, 51M) 2, 925 2, 950 2,975

If the

2, 525 2, 54) 2, .'7,5 2, W X) 2, 625 2, 654 2, 6) 7 5 2, 74)4 2, 725 2, 750 2, 77.5 2, 4O') 2, 825 2, 8-50 2, 875

428. '20 4:13. W'(

3W6. 9S) :3)) 317. 70)

3:1.,:.

I. 5O)

2.;1.0()
26 1. 80

171). 176. 1's 1.3 0t

70 1!2. 11) 197. .' 2 4)2 208. 30 2131. 70)

8i1.
90.

9t$.
Ill.

39. 40.

10

3.58. IA)

:3)11. 1.14
(7-1. 701 10 3!\fi.31)
385.

26;7. 24) 272. I') 278. 0)0

1I

S) .04:. (NAl
2'

.38. 70 40 40. 10

315. 71)
:16. 44)

31.30 :32 (O)

:12. 70 :13. 40) :s1. 11) 34. Of) 35. (A)
:141.

4.4:

283:. 41)
288. O
29J4. $20
305. 00

117. w) 122. 44)

127.8(

60J O 42.350

:17. 1(1 37 1. iO
4(1. 04)

:1t)

37. 0I)
37. 70
:18. 41)

441A.P)

4791. (4)I 485. 2( 41)1. :1) 49)7. 4(0

MM:. 50

4,2. 90

3 1(6

315. 80

310.40

219. 11) 224. 50 229.90

2:15. 31) 240. 80

1:1:1. I2(1

47.30
413.

144. IC).
80

592.70 N8. 10'

CA) f8. 90 74. 30

40. 70 41.
42.

40

42. 10

39.

IN 4:1. [A)
44. 2(1
4 1.114)

10)

39.80 40. O
41. 2' 4I.
42.

4(07. 24)
412. 60
4

18.004

2,9N)O1
975 3,0(10
2,

2, 925 2,905

515f. 70
.521. 80 27. 90 634. 00 b40). 10

421. 41) 42. 80 431. 20 4:9. 60 4 .15.0)0 4.0. 10

342.00

:121.:U 324f. 70 332'. It) 337. 5))

791. 8(
85. 21)
941.

348.'8 3:53. 70 359. 10 364. 0 369. 90

241;. 2) 25'1. 6X) 257. (0) 262. 40 2M7. 80 27:1. 2) 278. 60

284. 00

165. 74) 171. 11)

4".s0

1741.50
181. 10

289.40

187. 30 1112.70 198. 10 2(41:. ,)

208. 9)

94, I0N 1411. 4(0

106.

4/7. 70
48. 40

4:3. :11) 4-1. 44. 70 45. 44)

46. I4) 4(1. 80 47. 50 48. 20

112,20

117.60 12.4. 04

P. 10
4_9.80
61.

128. 40

lnitiriler

amount eat over

0lpp)llcable the

i, dIptnden i Is S i xl-ess-of (1h4' lirg'vst inniber of d1epI-I ndvt'1l s shown t he tax shall i iII the (L eC of I le largest nu4in1ther of depl ndent sinuwnl, reWliced hy $3.00) fozr La'cii largest nunnihr shown.

of

be fhit
ellf4

the

The table sIhowni ablovc wascoilpu)llt(d(l bly uisilg tile gi-oss inICOrlic lit Imi(d)oinlt of each gross illconc b)rticket;; (Ic(luctiols NV(lwer allowed i aet tile rate of 6 percent of gr-oss inCOllIeC, and thle cStiltinlg tax figure

Table: Example 1.- Mar ied person, no dependents

Table: [No Caption]

Table: Example 2.- Mar ied person, two dependents

20

THE RE1VENNUE BILL OF 1943

wns rounded to the iiearest 10 cents. The following examples will ill ustrate the proced(lure:
L;,XAMPLIE 1.--farrield person, no() (epcflndeflls

Gro.-s income )racket. $1, 000-$1, 025 incomUe at, lidp)oiflt of brckt--1, 012. 50 l)eductiolns (6 I)creelt of gross income) -60. 75
---------------------------

Gross

Net, inCOmeI---------------Inicomiie-tax cxemp)tion.

951. 75 1, 200. 00

Not sIII)jec('t to income tax,

its

exeHImption exCee(1s

net income.

Ainihium tax exemp11)tio$ $700. 00 ..Income subject to miniiizimum tax 25. 75) 1i ii i i iii tax ait 3 rereclit 7.r Minillllnil! tax roulinll'o to nearest. 10 c(ellts.. 60

col0lnll, of tih e hove table.

*CroFs
ilOIl!('

This figure of $7.6i( will he found in the twenlty-first lille, fifth

r I"x.;kmI-F 2.- .lhrrie(l p(r$(f, I Irt)

(dp/)crodlents
S

1)rack('et

I00-10, $2, 123

. C(o'IsS iiicuimie at I@i(i-J)(point of braelket.2 11'2. 50 _ ., . D)eduzctionIs (6 pelreent of gross income) 126. 73

Net iIICOnle suiI)ject to il coiHC tax

Income tax ICncioe tax

credlit

emx-iptiofor

dlCp end)(leInts

..1, 985. 75 1, 200. 00

700. 00

_ _ ,
-

.. Amioiunt stibjeet to iitCOIie tNormal tax at. I0 pereent.(ret -. _ Surtax at 3 _et __

-

85. 7 5
8. .8 1. 13

Total income

tax19. 7.3

Minimiium tax exem---tion- -700. 00

Nliininium tax credit for(dlepen(ents.---------.--200.200

-- . . ..m..Amount siibject to iuiiniuilim tax . .......1, 083. 75

would he required to pay thim inilnimum tax; therefore, the I'oIInded figure, of $32.60 is contained iii the table, $2,100--$2,125 line, Seventh clumnII-llI. uIn conn)ecttioll with the in)Comle, tax table it should bel made clear that those usilig tel( short-formll return will not l)e relqnired to compute either the regIlar. income tax or the minimum tax. It will be immaterial whether thel required tax is mninimuin tax or income tax. Those har-ing a gross income in excess of $3,000, and therefore using thel long form, will only in rare instances be required to comn)tet thel minimum tax as it will apply only where, tie. number of dependents is ini excess of five in the case of a single person, or three in the case of a married person. The following table shows the gross income level above which the regulali iMComIIV tax would l)e greater than the minimum tax.

M'iinimum tax at 3 percent 32. 57 Miijiuino tax rounded to nearest 10 ceits -- --32. 60 As the. minilum tax is higher than the income tax, thlis person

Table: Table 1 .- Gros income level above which the regular income tax is greater than the minimum tax, ac ording to marital status and number of dependents

THE

RWEN1ENE

BILL OF 1943

2 21

TABL1n

Single 'person, return,itor f Single person, ret urn, or a m carried( inarriedl ninarie dpel Mnarritd person Nurnher pforson marrieg mritiedii rsonl \'umber of eprso pro iigmligasp (kpondents for r septarrte Ht whose rate rettuirn lepeldeut s irnseparate rmhose rso rctin has lBhose swlisea rllowed for returni:-ose araou returne is allowed Is SIVIIIs(h hlas no gross el liias no gross spo#)ll~se spolise
Ntunihf~r ot
a

income tax is greater than the 11.-Crosa income level above which the mflinimutmll tax, according to marital statusregularitumber of dep)eiients I arnd .Marrie(l person |Married atperson IMIak ing joint making joint
'll
Ot or
a

gross

inlcollule

h loflOt thlefamily a

ileoric, or

gross Income

tile lheadl of
a flam1ily 2
$3, 829. 79 -1, 2412. 02 4,6 4. 26
6, 478
6,

income, or

O-

1-

$531. 91 4. 15
2

2--, :-354.38 3 -1, 768. 4-----2, 180. 85 6I

2

2,6'.09

$1, 3r5. :-8 -$3, 005.32 3, 417.55 1, 7O. 62 7 2, Ih(O. 85 8 -3, 820. 790 2, 513. 0! i 4, 242. 02 3, 00.5. 32 110 4, 054. 2 3,417.553
.

Wi..4(9 72

credit is allowed for ce-oh of such deplndents except 1.

of Assuitnes deduetions of a6 percent of gross income, aIs allowed on short-forim return. If taxpayer is head fandily only hevause of dependents for Whomi lie would be elntitlehl

to

credit,

Three further mlo(lifications in individual income-tax pIrovisions are nla(le in the committee bill. One of these provides that married coul)les filing separate returns111ustt each take an single person's exemnption. While one, effect of this provision Avill lie to reduce slightly the present advantage avaLilal)le to married persons filing separate returns over those filing joint returns, this reqlllir'emenl t was a necessary step) for this simplification of the short-formn return. Another modification is found in the section yliCh (lisCOIntiTlUleS t"he allowanCe of lAe(leral excise taxes paid fromt gloss income, exCep)t where the tox paid is a business expense. Ti'his provision will not onlyl ransso revenue 1) t. elimni I teo existing co vfuisionl(ln a(ll istrative i(lllty. (ific Lastly, tlie Committee has pr'ovide(l for a special deductions of $500 fromt t1l(e gross incolne of everv )1bmn(l lsoni ill order to covet thle nd fLoIII bliidtless, Sutich.s dlw cost of rC(Celdes eX)ollses restiltIi lid( gui(ldes. TIllis wtol(l reli(ee nin bll ind pelrSons of ally tax -Thatsoever; at id would redutclC lihe tax of (t her l)li[i(l perSolls.

as.na (Ileduction

g(irectly

wLTIriIOLD)IN( RATES A NI)

EXE 111ITI' N.l

tilose only to the \Vitory tax, and(l tilder the comnliiit tee hill, to those subject only to the minimum tax. It was folnd (desirn)le, t le i r^ i llo(wevei, to nlj list l)y Small U1 IlOI ts exe}( 1)1 i5 llstuse( fo w 1fh0(ldirig l)lii)ros('s, il o d(d'r to apj)proxin-lte mliore* closely thle ('0 PI'('( L amoulInt of tax thall (loes the existing systvnim.

a burdeid is not mat erially alt ered Bealuese the, present a w 's icmcll c-tax il itu1derl the (C0Iiuilit tee bill, it wafs not niel(sts iry to (clhligoi tlhe present 0 20 percent w it hold ing ralte ap1)li)abe1)J with1 reSl)(('t to Sain ries a m(i wages above tlie ilConli-t ax exem)tioinis. Nor was it, new-''sa rv to l change tue 3 pv(rcelt 11iliiniin rate al)l)licable nderI)resenrt law to

.sulbject

Table: Table 12

232

THE R!IWENNUE 1BILL OF 1943

only:

The following exemptions are to be used for purposes of withholding

TABLE 12 NORMAL TAX AND SURTAX WITHHOLDINU EXEMPTIONS
Married per- son, or marson cluiliin rledl perSon a personal claiming a
exemlptlon
Fay-roll period

Single per-

personal

Person

ex-

claimin no
Pesnle

wliose witholing penent Ing0. tion emp frwithldO- claimslIon etowitIhelding pEachdent clailns none.
Spousle or head of
UWilOe

fauily

for Spouse wi a personal exeimption for

for

odn

withholding
$10 .

630 Senflanimal -0 1, 272 Annual 3. 6( l)aily or niisceellaneous ()er (lay of such )erio(l)-

-48 Biweekly.. SCIi1111oiltllly.53 (M Mlonthily -1-0-6-----------------------------318 . Quarterly-

Weekly

..........

$ . ... $24

14.00 20 0 0 22 '1 50 0 44 b1 00 0 93. 00 132 0 186. 00 2fi1

$0

$7.00

528

1.

tl O.

372.00

1.00

MII.NIM U.\ TAX WITHHOLDING EXK'I PTIONS

$14 Weekly ------------ -------------------BIiweekly-28 . 31 Seiuini(Altilly --- ----- ---------fi2 Mlontilly 18( Quiaterly Semianniuail .172 . ----744 Annual ---------------------2. W oi iIiscellaIneotii (per dlisy of such period) Itaily
-

20 22 44 132 264

$10

$0

528 1. 5(1

0 0 0 O 0 0

50 00 27.00 54. 00 18 00 . 25

$2. 00 4.00

The wage, brackets tise(d ill the WvihlhOlitig tables havei beeli Ifi(l, narr0owe(r tlal those llSecl iin the Ctirelit Tax Payment Act, of 1943 in o(lIer to reduce thle ainouiit of over-wxithholdig and(l un(der-:withholijng restilting from the fact that wages may vary fromi the mi(lpoint of tile bracket ill which they fall. In the weekly table, for example, the wage brackets rise ill steps of onily $1 llp to a weekly wage of $60, or $2 from watgvs oi$60 p)cr wvek to $ 1 00 per week, etc. The witlhllol(fill tal)les are comliplite(d by the so-called precise nietblo(d w'h}ichll is; Iflll(IC optiomil for eplolI3yers. T'1he tax is co-nptited tplon tlhe gI-oss income ait the mii(lpoint of the wage brackets, deducting the proper exenmption an(l cre(lit for (lepei(l(ents, amid applying either the I-ate 3 peelnllt Ii'iiimu , Or the 20 perlelit regulla'r inConIle tax rate, to the excess. Trle restilting tax is tlhei roill(lded to the nearest 10 eeilIts. (C) 1RIInO.SII.I CORPOR TE' I NCREASE Yonr c(ollinlittee' Ieconllell(vl(latio(is ais to corporate taxes mnay be briillyV stuiiiltuaized as follows: (1) Retaini existilig coi'po-ate normal anl surtax rates. urelas(e the excess-pr-ofits rate to 95 per-cent. (2) Ill(' Ret aill tilhe pl-esen t 80 i)percllt over-all ev'filitg Witlh respect (3) a11(1 d tO (orpo t e Ilmlll1 St1'ttaX, a exces;s-1)lpOnits taxes.

Table: [No Caption]

THE RKEIENUE BrLL OF 1943

23

(4) Reduce the invested capital credit with respect to invested capital in excess of $5,000,000 as shown by the following table:
Proposed,

percent

la~w, per8
7 6

ExIsting

First $5,000,000 invested capital8 $5,000,000 to $10,000,000 invested capital 6 $10,000,000 to $200,000,000 invested capital -5 Over $200,000,000 invested capital -4
----------------

sturtax rate beyond 40 l)ercent might also seriously aflect thle war production of tlh(e smaller collIl)alies. It, is belieXre(el, hlowev-er, thlat 1a rate of 95 percent Ol excess p)rofits, as suggested ill the hallrillgs before thletWalr Policy Commission, 1931, is nlOt uillreasonll)le, So lollng as all ald(le(l (l1cen1tive is 11t(il(lI throl11i1 tile 10 perceiIt 1)st-wlr cre(lit to(X('ler WNithl till X( p)erelit ceilino'g. Y011i ('(111111itttee also gave careful eOIlSi(lderatioll to tOle reflect Ii ll)O the excess-pirofits tax of thle Variolis cre(litS, carry-backl;s, anl carryovers. WNhlile it was 11ot possi ble to suggest chn s ii these Cred(lits, s carry-overs, an1d (carry-)ackls at thlis timie, these mat ters, ats well ats tle relief provisions of section 722 of thle 1t erlnal Revelne Co(le, will l)e carefully stui(litd ill coiinec(tiont with the 1944 revenutie bill. I however, there is a (haltige whliih we )believe shotild b)e la(le at t iis timle. Unler the illveste(d cnl)ital metho(d, corporationis are permit ted to ) increase their inivestedl capital by plowiniig haclk into thlfliness; ('a I'lliligs Nviliell have nlOt. )eell sul)ject to taxation ill tihe h1anlfis of the illdlivi(Illal slharehlolder. However, corporations uisifig th('e average ca liitigs metilod aire not perrmitted to increase their earninigs blase Iy l)lowi,,g back into te(, copl)oratioli profi ts wlichlhave niot been su object to txa t ion ill tihe hianls of tflie shlari'eoldvrs. E11ninhigs after Jiiutiary 1, 1939, ale not. permitted(l tinler thle Calln(lial law to ilicrease tO( in vest ed capital of tile corporaltiionl tiitil tiley il)j 1e flhave beeni capitalized by being ('sct to taxatioll ill tIeli 1dl;s of tile reasoui for stulch a ruile was very olbv-ious, ill(lii(liaI shareliloelld1er. 'Hre for otherwise it colmipally wolu(l stop pavilig (dhi(lellds and1(l leave it's profits ill tile blisliess in or(ler to o0)1tiii tflie additional illveste(i (capitili would lose lnot only vxe(xSes-profits crc(lit. Moreover, thle GoCei'ril itllt taX(ws b)llt also ilnlividlial ilicoile taxes from thie indiv idulni slharehlolder. Iln view of this obvious advantage of the iniv(sted capital method over Seelfl ulreasotl)lbe ftluther to tile avatge earninigs miet1o0(, it. (does nlOtS I red( tce the investe(l cal)ital credlit, particularly with res)esct to capital inl excess of $5,000,000.

(5) Increase the specific exemption credit now allowed for excess-profits taxes from $5,000 to $10,000. (6) Prevent litigation uin(ler the present law by affiraintively closing the looJAiole by which stock of (defunjict corporations is pturchlased, or other acquisitionsI: made, for the purpose of avoiding .Fe(l eral income or excess-p)rofits taxes. (7) R(equiire retuntits froim certain talx-exemili)t organizatiolns. Your, commnittec was of thl opinion that to extenlid thje normal anld

24

THE

REVNT'ITE

BILL OF 1943

AVOIDANCE OF INCOME AND EXCESS PROFITS TAXES

There has come to thle attention of youi' committee a practice on the part of solle (cOlV)OlS1tiOls wvith large excess profits of purclansing corporations withi ciurr'eint, past, olr psospctive iosse', deficitss, or large current or unused excess l)rofits (l(lits foir the Im)li'pOS of reducing excess profits and( income tfxes. It is tlhe custom of many reputable attorneys to a(lvise clients not to in(lglge in suclh transfers since they feel that th)e courts can interpret pr'esenit lau so as to invali(Iate thelm,tl)and if the courts SliOll(d not act the impression hias been preval(nt thlat Congress would take directt action to close this loopho1te. In order to prevent, further abuses that might unl(lerImile the position of the honest taxpayel's, your committee has inserted a provision alROwilng the Conmmissioner to invalidate such claims for deductions or cre(lit where. hie finds thiat the transfer was ma(le for the purpose of avoiding p)aymenlt of taxes. Yourll comnllmittee believes that taxpayers deserve the assurance that thiey are not going to be discriminated against in favor of tax (1o(lgel's, and that they may ConltilnLuC to Con(luet their affairs and business ill the or(lirar- way without fear either that they will bear a tax b)ur(ldel which others similarly situated will escape, or that theil' ordinary and usual transactions wvill be impugned as tax dodging. Since the devices (lealt with by the bill hlave always been. such plp)lble tax-dodginig scheimes, the legality of whiich was questioned from the begilniln, tills preyii-ion is made retroactive to all taxable years beginning after Decemiber 31, 1939. This woul(l avoi(l giving lpl)prOVal, ('vell b)y implplicatiol, to any pi evions tax.dodging sclheme.

prescribe. These returns; unlders the bill, arc required to be made for thle taxal)le yeai's beginning after December 31, 1942, and all subsequent i(litt of your committee to make a thforough study years, and it is tlhm
I

'1'AX-EXMPTII"1' OR1GANIZATIONS Under existing law a lage (group1) of corporations enjoy tax exempn tion and miany of whlich are not required( to file information returns. It has conic to the attntioii of your committee tlhat minlly of these exempt corporations atnd organizations tre directly compe)eting w~it 11 d( coiliI)laies require to pay inc-om1e taxes, tiind that this practice is becoming more widespread and afford ing a lool)hole for tax evasion and avoidance. These organizations were originally given this tax exemp ltioil oln the theory that they were not operated for profit, and that ilone of their piocee(ls illure(d to the benefit of shareholdlers. However, many of these organizations ire nIOW engaged in operation of apartment houses, office buildings, and other businesses which directly comIp)ete with ind(lividlals an(l cor)orations required to pay taxes on income derived from like operations. Your committee' was without sufficient data to act intelligently, since nany of these corporations and organizations aire not now requirc(l to file reports, and in the absence of such infori nation, it was felt best to continue, the preselst tax exemniption, but to require, themll to file report's stating specifically the items of gross income, receipts, and dis)bursemlents and such other information, and keep such records, as the Commissioner of Internal Revenue may
RETURINS 1BY

Table: Table 13.- Excise tax and postal rate changes contained in the com it e bil

THE REVENUE BILL OF 1943

25

of the information contained in such returns with the view to closing this existing loopiiole and requiring the payment of tax, and the protection of legitimate comlpanlles against this unfair comlpetitiveC situation. Your comnmiiittece e.xejl)te(+l from- this rec(iii reim(ent to file restiirls, religious, educatlional, and charitable organizations whtlich llmeet the definite 0t6ntdards set forth under section 112 of the bill.
(d) EXCISE TAX RECOMMENDATIONS Your committee felt that. the most productive source of reventIe, and thel most (ff(vctivc device feasible for the curtailment of inflationary spending,; was increased excise taxes. By this method, it is possible to select those goods which are clearly luxuries and tax them at a rate in accor(l with the palrticulalr market Situation. The following recommiendlations impose only minor administirative, burdens since iii most, cases they oJnly involve ta rate clhanlge in a tax that is now being successfully collected. The excise taxes selected have the virtue, that in in(livi(dual cases, where the, tax would be a. hardship, consumption may be cllItailel or shifted to nontaxable items. Eveix if the entire increase in excise taxes were shifted to consumers, an extreme alsslllp)timi, the general (cost of living would be raise(l by only a slight degree. The total increased revviue froin excises and postage will be $1,368,500,000. ic c T.BiL r 13.-EIxcisc fax and po.sta(l rate ch(lfngels cont(lined in (he cor itIce bill
|Estinuated adArticle or service Present tLx base anid rate

Propo'sied

t ax hase anld rate rue InIrii proposed tax buso anid rate I

I (iitio(na reve-

M millions of
1.

Distilled spirits .-

2. Bi er -$7 p)er barrel S. Winie: Still: 10 cents ler gallon . tndler 14 peieelrt.1 !o 21 piercent -----. -10 Cciits pir gallon.. $1 per gallon Over 21 1wreentt ('1Si per hliif j)illt S iarkling ----------! hi .J (-elits per 1lif plint Other -4. Electric ligut fbllhs mind 5 pircaent of iroriri1factiubes. tiirer s' sales i)ri(ce'. -------)--e- r 5. Jewelry-it- ep t of elitil price 0. Fur rind fur-trirniw- ad (l ar-- do t icl(s. 7. luggage, hnndbag Nvs, Ilets, 10 piercenit of miainurfachIrUers' sales p~rice oll elc.

hrltone e-rag~e 01I('01(1).

e 1)(,r gallon (draw-hack ol S3.75 pvr gallon oni

$9 per pallon ((draw-brik of i.5 par gallon on lionbeverago IIcohiil).

$8 per barrel ..
15 ments lpr Calloi (M) ('tlls per gmllon ---------$2 1)(,r gallon -. pillSer liraIf inltI p
Ill

eullu,.'

370.0

70.0

18. 0

25

turers' salos price. 20 pierenii of refatii iripe a 25 percent of retail prii.14L .

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

i -int (-tcis lper l:lf fit 1)(-reiit of inmanufac-

20.0
7 2. 5) M1.8
3. 4

......I

8. Toilet preparalos -11 U. Telephone, telegralph, radio, etc.:

cattle.

luvgL'age only. 10 lwcrcernt of retail Price.

.---.do

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

.',1 4

I.oeal telephones --- 1 percent of charge Lorig-(istirice telep)hone 2o percent of charge 15 percent of Liharge (do'lelegraph, radllo, and )rwst IC).

15 recentt of chrirg25 percent of charge. 25 percent of charge..-

48. 9

Leased wires, et Wire anrd euqulpmnent

-

service.

10 percent, of charge (interna15tional~t) 15 percent of charge 5 percent of charge for service.

15

piercentl

of chrrgo

pereenrt of charge 7 percent of ciarrge for

service.
15 ;prcenrt of charge..... Apply tax to fourth-class munlu also.

49.8
7'. 0

10. Tranisportation of persons.- 10 percent of charge. 11. T'ransp)ortatloiiofprol)ic-ty-- 3 percent of amirount paid; coal, 4 ceuts per short

I ton. -See footnote nt end( of table.

26

TABLE 13.-Excise
Article or service

12. Admissions:
13. Cabarets
15.

14. Club duesandInItIation fees

Bowling alleys, billIard pool tables. 16. Pari-mutuel wagers

17. Postal .? cirstclass

Total, excluding postage-..--.-.---

orders dependintg upon amount. liegistered inall.--------- 15 cents to $1 per article..6 to cents per article Insured mail O. 1). m ail. 12 cents to $1.20 per article.
Money
------------

(Irand total

I F,stlinates of alditlndal reven tie are for a full year of operation at levels of business estimated for calendar year 1044. l:st imait; wre hased utpon the revenue figures citedl fi the Cost Ascertaininent Report for 1942, released by the lust Office De)parltment.

,s y)otir cominittee felt that the rates of excise taxes Contained ill thliq bill w(Pre jslstifiedl only in view of tile wartime emiergency, it was provi(led tiat the increases imposed shall terillinate 6 months after the close of hiostilities in tile present war. Iii this connections, it was brought to the committee's attention that in the case of distilled S)il'its, wines, and( fermented malt liquors, upon which floor stocks taxes, corresponding to the respective rate increases, are imposedI in this bill, tlere nlighlt result extremely heavy burdlens up)ol certain dealers if, wlhen the increase.sP in tax are terminatedl, there s not p'ovi(le(l soilie form of adjustment for floor stocks then onl htmand. A s tihe(r Nvas illSlffiieent timlie to stu(ly thlis question fully it wvas deci(dled ( to ttmke thl(' latter upl) iln tle next tax b)ill.
DISTI[J4ED SPIRITS

(h

THE RMVDN.3UE BILL OF 1943 3

tax

and postal rate change contained in the committee bill-Con.

| Estimated add~~~~~~~~~~~~~~(itlOnal revePresent tax base and rate Pioposed tax base and rate nue under proposed tax base and rate
-

__I

(Meneral admiissions.._

Ueased

boxes,

etc

.-

..

I cent for each 10 cents or fraction thereof. 11I percent of charge. 6 percent of charge.II

percent of charge

2 cents for each 10 cents or fractIon thereof. 2(0 percent of charge 30 percent of charge. 4 _ _ 20 percent of charge .-.
--d. -do-.
.

t
}

163.
91. 3
6. 1

and

I$S0 per table 1$10 per aIleyNone -----

$20 per table

6

27.0
27. 5

percent of total Wagers.

.I--

1,201.7 44.0
11.0

2 oents per ounce, local delivery.

3 cents per ounce

8 cents per ounce .. .. 2 and 3 cents for each 2
ounces.

Air mail 1'hirdi class -_-_-.___

cents per ouncee.. and 1 i cents for each 2 ounces. 6 to 22 cents per order,
6

..

74. 4

10 to 37 cents 20 cents to $1.35 per article. 10 to 70 ceuts per article. 24 cents to $2.40 per article.
. --.. ... -.---

21.0

6.6
6.

4. 6

Total

postage .........-I----------------..-.
.

16(1.8

--. ..--

--

1, 368.6

rTlle most important excise proposal from a- revenue stan(dpoints is thatt rnisilng the tax on distille(d spirits from $6 to $9. This will result ill in(rtS(l revenuie, of $370,000,000. Since the production of all liquor with the exception of limited amounts of rum aind brandy has b)t'enl 5stsen(le(l, the, (dein1lall is so high tilat the lddce(l tax wil IlOt. r'(l(ll(e cOnStlulll)tion. Ordinarily s8hl it hig}L tfX I1te(' Might ill(Tease the aJilOllnlt of bootlegging. It is felt that tills will not occili' ullt(1el' Ilie prS('ilt (ir'cullistances. The w8 rtimie shortages of suich I 11111te(Ilsl)S lX sugi r till(l coppl)el' will prevent n MllStanti nil increase in it illegill (listillihtioll. 1)ist ill (l Sp)ilits are now sull)ject to price control. Since payment of the taix fby t le (1eiler Wvill restsit in-a great ter cil)ital investment, somne.

Table: [No Caption]

THE REVEINUE BrLL OF 1943

2 27

mark-up may have to be allowed onl the anlount of the tax in the new ceiling prices so that slightly more than the amount of the tax inay be passed along to the consumer. A draw-back of $5 a gallon is allowed on alcohol used for nonbeverage puIrtpOsCs.
BEER AND
ALE

indicate that anll additional tax of $1 a barrel on beer, bringing the tax to $8, will have little effect on tle market situation while raising aidditional revenue of $70,000,000. The probabilities are that beer (,ol1sunmption during this an(d next. year will for the first time pass tile preprollibition peak. OIn tle supply side, producers are faced with shortages of nialt and containers all(l with limitations on transportat ion. Hence, despite the tax, brewers will 1)be a)le to s(ll as much of' their
l pr oduclt as they cani mark l(t,. nbc( tax is inilpose}(l lit. the( iii llflhlfilctwlr 'S level.
W I NE'P

High wartime incomes find thle shortage of distilled spirits together

Taxes on various gracles of wine following sellodule:

are

recomlenv(led accord(lilg to tho

Proposeil rate

Present rate

Estiliiatcd
illif anaiol l
revenue

14-21 1irceci tilclolhoL .--()0 r 21 percent, alcohol - ---.. - (h) Sparing . (c) Otlier -----------------

(a) Still wines: tl.der i percent alcohol

10 cents per gallon-_ 1.5 cents ler gallonh.f. cenis pier gallon-- 60 celi Is per pailon $2 pr gaillin 1 per valo- .
5 ceLits

Millions Of
dollars

10 cents per half pidt . pater half pain-

1i5 cents lper hltm pint 10 i.ce.ts per half lsilat

NI. 0

The consumption of wine in 194.3 is running cornsidvral)ly above 1942. An increase ill coislmpI)tion is inl(licaltePl evnviiwit he increase(dl tax. This tax also is imposed at, the ianufact urer's level an(l it may in most cases b(e necessary to allow Some niltrlk-lip on thle 111louritt of the tax, result ing in a slightly heai ierbIilldell ol tilhe collliner.
,LECTRIC LIMIT BlUL'B'S

NI) A 'NDTlBES

5 to 25 percent of the mnaimfacturer's sales price will results ill inc( reaiSed das revenue of $20,000,000. -hince thle tax is nivile(ti(l a percent of Inaniifactul rer's sales price it is; not 1eleved that ti s rlte \\ill result in

Increasing tim present tax on1 electriic light l)uhI)s an11(1 tubes from

il anly SU)Stuantial ilncrense ill reit prices. I]1 casPS wilere 1)1ull)s nre luse(I in stores n1(I fnetoines- t liw tax will I)e reflected as an a(d(de(l I)llsineSs cost b)u1t it was felt t latr thlii would be negligil)le ill the whole p)icture (of bUSilleSS exp)enIses.
J EWELRY

Increasing the tax on jewelry from 10 to 20 percent of tlle retail price is estimated to bring in $72,500,000 in nf(i(itiomlitl reCNVI('nu, after allowance for the exemption for silver)Rt ted flatware. While it was p felt that most jewelry was a luxury an(l t II at ill Illany cases ill(Iividuflls

Table: [No Caption]

28
were

THE REVENUE BILL OF 1943

investing in jewelry as an inflation hedge, nevertheless some items classed as jewelry are actually utility articles. Since it appears adlministratively impracticable, except in the case of silver plated flatware, to separate various items sold in jewelry stores, a lower rate wits adopted. The tax is levied at the retail level.
FURS AND FUR-TRIMMED ARTICLES

Increasing the tax on furs and fur-trimmed articles from 10 to 25 percent. of the retail price is expected to bring an additional $54,800,000 hi revenue. Tlie increased in sales of expensive furs an(1 fur coats in the past. year h1as been phenomenall and demand promises to continue well ahead of the dealers' ability to get furs. On these articles the tax will b)e passed along to consumers. On cheaper fur coats and furtrinmmed coats, which compete with tax-free cloth coats some of the tax might have to be absorbed, or shifted to the wholesalers.
LUGGAGE, HANDBAGS, WALLETS, ETC.

It is proposed that the tax on luggage be increased from 10 to 25 percent. and thlat it be measured against the retail price instead of against the manufacturers' sales price as at present. In addition to this the bill ext('n(1s the, tax to various related articles including wallets, and handbags. Together, these changes will result in increased revenue of $.53,400,000. Shifting the tax on luggage to the higher retail base at a 25 percent rate is the equivalent, on the average, of raising thev rate to 45 percent on the manufacturer's price.
TOILET PRElPARATIONS

toilet preplalations, nlainlly cosmetic, aind perfumes. The suggested increase(' to 25 percent will add $51,400,000 in new revenue. The main limiiitation onl the supply of most cosmetics is a scarcity of containers, and on the whole the sales will not be affected appreciably by the tUx.
'TELEPHONE,

At present there, is a tax of 10 percent of the retail price of certain

TEI.E(GRAPI1, RAD1)10, ETC.

lowillg rates:

'Dixes,

Olo

various

communications services arc proposed at the folPresent tax

ProposJed tax

Estimated revenue

(millions)
15 percent of charge (a) Local tclel)ion .--.-..-.10 percent of charge() 1log-distancQe telephone------- 20 percent of charge 25 perceiit of Cllarge (c) Telegiap~h, radio, and cable - 15 PI-ernt of charge (do- .do .10 percent of charge (Inter- 15 percent of charge

$48. 9
,

natlonlal).

48.8

d wires, etc . 15 .. (#1) l percent -idi)lre and equiprnint service ... 6 percent ofofcharge------- 20 percent ofofcharge ..for ... U pesreent charge for 7 charge

service,

service.

THE REVEiNL9 BILL OF 1943

9 29

It is generally recognized that the telephone lines are at the. present time overburdened. XWhile these rates will probably iiot re(lduc nonessential use materially, this (loes appear to be a desiraible source of revenue. To thie extent, that these taxes represent bIsiness expenses they are (ledluctible for income-tax lpuiposesC- The tax ol leased(l wires is necessary since thlley a're ill competition with telegraph services. All of these taxes are levied directlyy 011 COllSUmerlS.
TRANSPORTATION OF PERSONS

The wartime increase ill transportation hlas been far beyond( that retired for essential uses. Since much railroad travel is necessary in view of gasoline restrictions, it would bet unwise to impose a tax at sufficiently high rates to cut substantially civilian travel. It would, nevei tieless, seen desirable to make those that (do travel pay extra, for the privilege. ,The )rOp)OSed increase, of the rate from 10 to 15 percent would increase revenues l)y $75,000,000. This tax is levied directly ol in(livi(luals while servicemen on furlough or being transferred, are specifically exempt while traveling in coaches. W\re have also provided that this tax should be paid with respect to official travel by employees of the Federal Government, out of funds specifically approp)riat.e(d for such purpose. The bill authorizes such appropriations and further directss all disbursing officers of thte Government to make quarterly reports to thel Comptroller Ggeneral setting forth the names of officials or employees traveling oln official business, the dIato of each trip and (destiation points, and tie total amount of eXpIeHse allowance for (nealc trip. rTlhiese provisions also apply in the Ccase of persons other than officials and employees travelinir at. tle expense. of the Federal Government. This information shall be furnished to tile Congress inI the annual report of the Comptroller General. Your committee is convince(d that there is a conisreral)le amount of unnecessary travel by officials aind employees of tile Government. It, is believed theat by requiring this information to b) furnished thle Congress much of the present al)use anld waste' of thle tax)aye(ls' money will be eliminated, and those whlo mlulst travel oi essential business will lie afforded a greater opportunity to seculr sulitale)4(. accommno(lations to (10 so.
TRANSPORTATION OF PROPERTY

The tax of 3 percent on. the transportation of property imposed ill the Revenue, Act of 1942 has worked satisfactorily. Trlle taK imposes only a slight burden on a particular article while reit rmming it net revenue of $170,300,000. While it did not seem advisable to increase this tax the committee felt that it should be mliadel applicable to fourth-class mail or parcel post. The proposal to extend this tax to parcel post will account for an increase in revenue of $4,500,000. This is necessary to restore the previous competitive situation.
GENERAL ADMISSIONS

An increase In the general a(lmissions tax from 1 to 2 cents per 10 cents or fraction thereof of the price of the ticket, will raise additional

30

THE REXRENTUE BILL OF 1943

revenue of $163,500,000. Most types of amusemeilt are greatly profiting from the expanded national income. The 2-cent rate appeared to our committee to be desirable in order to secure additional revenue and which would create no great hardship. On lease-d boxes, an(l sales of tickets outside of the box office, the tax is raised from 11 to 20 percent of thel charge.
CABARETS

Tnereeasing the cfdaret tax from .5 to 30 percent of the total bill would yiel(l an increase of $91,300,000 in revenue. With the exception of a few roadlhouses that have lbeen hurt by the gasoline shortage, cabarets hiave been experiencing an unprecedenteddemandd for their entertainment services. It is felt that this is mniore of a luxury than those services which are subject to the general admissions tax which is a minimuimii of 20 1)ercCInt.
CLUB DUES AND INITIATION FEES

It is proposed to as to apjuly similar and entertainment present 11 percent

raise the tax on club dues and initiation fees so rates to the various services in the amiuseleent field. The rate of 20 percent in place of the will account for $5,100,000 additional revenue. It is not-contermplated that this tax will affect, the use of clutb facilities.
BOWLING ALLEYS, BILLIARD
AND

POOL.

TABLES

For bowling alleys, it is recommended that the present taInal license tax of $10 per alley be converted into a tax of 20 perceeit of the charge. For pool aind billiards, since recorcls of charges are very aseconImenlle(l that the license, inade(plete in tilst C"t,111)liSnients, it is tax be increase(l fromi $10 to $20 per tll)le. Tlese two changes will provi(le $27,000,000 in now revenue. These recreations ai're in a general wray in competition with amusements subject to the admissions tax. For thlisIreason, tll(h bowling alley t ax was shifted to a percentage basis comparable wilit the general adniissiols tax. This waIs not practical for 1)ool an(l billiards.
POSTAGE RATES

increases in postage rat (s, especially in view of the fact that the ComlmIittee on thie lost Oflicee tInd Post Roads exl)ect at an early date to consider the (lesiralility of making a(ljustrnients in post age rates. The connnitftee tiloiilg)t tlmt it wfas desiral)le to proti(le for this additional rev(enuile at thlis tine and adjust time rates later, especially since the Post OffIce D)epartnient, continues to operate most of its services at a loss Mlid('I' p)I'rSelet rates despitee the heavy voliue of wartime malin gs. Th'le Cost, Aseertaiinleint RWport for 1942 of thet Post Office apartmenttslihowsthiat while first-class nail service was operate(l at. a profit of $163,000,000 during thie, fiscal year 1942, all other classes of mail Serviceop1erate(d, in the aggregate, at a loss of $172,000)000. A similar over-all situation has existed with respect to postal Services for years.

to WeTrII~e it not for thle great lack ofitsources not which the committee could tuirn for additional reventie, would recommnen(l

Table: Table 14.- Comparison of postage rates under present law and under com it e bil

Thel following table shows, for the' postage rates dealt with in the committee bill, the rates under present law and the modifications adopted by the committee, together with the estimates of additional
revenue.
TABLE 14.-Compari8on of postage rates under present law and under committee bil
Article or service
Present base and rate
_

_
17.

Postage:. I class ..-First

Air ilxail
-- -

Thllir(d class-Money or(Iers --

_~ _

THE REVENTUE

B1IL (OF 1943

31

Proposed base and rate

Estimated ad dtittonal revo'ill0 under preoposed base and

rate
-______-

___ I___

2 cents per otnee, local de-

I dependting! up151n ainount. Registered mail-1.5 etits to $1 per article 4. 4 20 cents to $1.35 per article. I' Insured mail - - --5 to .s5 cenxts per article. 1) to 70 cents p'er article . C. 0. 1). mail -12 cents to $1.20 per article. 2.1 cents to $2.10 per artlcle6 Total postage --.8 .

.i cents per ounrceo . I and 1j cIents for each 2 ounces, to 22 cenls per order,

livery.

3 cents per ounce

8 cents per ounce.

.
-1
-

.7Millions of dollar

44. 00

2 an(l 3 cents for each 2 ounces. 10 to 37 cent-ts.

Ii. I) 71. 1
21.0 .

slEsinlattes of addi itonal revenue are for a fumll year of operation 1n(ld are bIas(e(d upn the t 1 citvd in thld Cot Assertaitlilment iteiport for 1912, reluaed bytiel P sl Olflice D)cit, Imiment.

revenue figures

P'llARI-IIT l'lo,l WA.:GEMS, The introduction of i h'dei'al taX o0n1 the total wagers at pari-mllutuel racetllclks ait 5 1)(t1'eelt, would raise $27,500,0()0 ill re{relltlu. AS i result of iliglh N~vatilne ilColflies bet tiig at thle isl'ge nIwetitl-acks il Om1( past yeali' ilas been glrea ter' tiiall ever b)efor'e. 'tlb is tax WOII(1 be paid by those who can afford to bet. TtnMtNl A'l'ION OF CERTWAIN GOV.EIRN'1lN'MNAL Excisi,, T.x EXIXN1;-rTI(oNS In a letter to YOur' cOmiitt(ee, dated August. 1, 1943, the President recomnenC(led that legislat ion be eniacte(. which. would terminate IlulIl'ouIs excIse' tax e.\e'Ill)tio1iS conlferlred( by existing law with respect to articles sold for the use o-f, anl services renolered to, the Federal Government. In supl)p)Ort of his recominenaltioin, thle President stated: "1 propose this step for the p)urPOSe of saving the very considerable mantpowver utilized both inside111(1 oiitsidle the GoverIlinent for tie administration of these exemlptions, and for tite further .reason that, the miaiipower' aIL( exp)ei(iture dlc\ot(e(l to such. adininistration results ill no benefit to the Government. Stated otherwise, the, termination of the exemption will not operate to the (disa(lvantage of the Gov('rnlmen1t ilismntic('h as the expenclliture inle'llurl by thie Glovei'nl'Ilent itl the paymnelnt of the taxes in questionn will be recovere(l inl the collection of those taxes." rro give( effect to tile Presi(lent's recom end(lation, therefore, the bill remnov0es mnly excise-tax exceptionss llOW existing with respect to articles sokl, or services ril(ldee(l, to thie Uniteol States. In general, the taxes thl)us affected by the bill are the retailers' excise taxes, the ma1nullfacturers' excise taxes, an(l the taxes applicable to telegraph, telephone, radio, an(l cable facilities, And the tranlspo1'tation of persons and property. Except in the case of the manufacturers' excise taxes

32

THE REVENUE

BILL OF 1943

to sales of pistols and revolvers, firearms, shells and and radio receiving sets, phonographs, phonograph records, cartridges, and nusical instruments, thle taxes will become applicable. to articles s8l(1, or services ren(lelre(, to the Unitel States approxuinately 3 months after the date of enactment of the act. This perioIl&has been allowed to permit the various governmental ag(eceies to'toake tany necessary changes in their contracting J)ractic(es andl policies. The application of the manufacturers' excise taxes oIn sales of pistols and revolvers, firearms, shlells and cartridges, and radio receiving sets, pIhollographls, phollograph reCor(ls, an(d Iniusical instruments is postpolled 6 itil approximately 6 months after thle termination of hostilities in the present war, The d(iffereCleC in thle treatment accorded the Iplixes onr the sales of pistols and revolvers, firearlmls, shlls and cartridges is justified by tile fact that Uldl( J)re(SCnlt cOTn(litiOns nearly thle entire outtput of these articles is nowI)(einig sol(l to the War or Navy U Department or other lieleral goverrnl ent t titagencies directlyy Concerned hi tile prosecution of the war and the administration of thle exemption. is not,, accordingly, attended by the salm (lithiifutlties that, exist inl tlheC caseI of OtheU taXeS. The' (liffelerlnce, in thle treatment accorde(l ralio receiving sets, etc., procee(Is from (liffieCilties which would be(' involved iln (letermllilling the taxal)ility of certaill ra(lio e(ll)Imllnt p)urclallsedl by the ,Iarmied forces. P1e section 11wi ullich poses the talx on radio receiivmg sets also imposes taxesOni p1)ollOgraJ)1iS, I)lio1glrapli R'e'('01(s, andl niisical instruments. Administrative Coniveniienice makes it airlv~sal)l that th(' exemption With respect, to atll taxes inllpose(l by the} sect io) 1.)e temI~illated at the Samlie timle.

app)licable

(1)

(e) MI4SCEILILAN EOUS P)ROVISIoNS TRUSTS FOR BEN'FIT OF' 'MINORS AND OTHERS LEGALLY D17EPENDE:NT
UPON GRANTOR

committee lifave given careftil collsi(leratioll to tile decision of thle Slulpellle Couirt in thie case of R. Douiglas Stuart (317 U. S. 154) nhel tim t a faitller, Who created tal irrevoca l)le trlust Contaillilng wlli( Il a 1)rovisionl that the income thereof might, ill tlhe discretion of flie trltste(es, I)e u1sed for the sI)l)olt anlald nmalint enalee or e(lucat ion of llis taxale 0iltOe -trst ilncolmle eCven though it wa1s mllnor (cildiremi, wsts not actually used for stchl maintenance, e(duLtion0 o0 stip)port but. wvas accum11 ida1 ted ill the trlust. Priomr to thle decision of thel Suipreme Coturt in tle Stuart canse, the Bulrmcau of Interial Revenue, Thie Tax Couirt of thle U:J"nited States and tI ie lower courts had held th.at. where the tl'ust income, or a portion thereof might, in the (discretioni of the trustees, hlave, been used( to sulpl)oIt mlinor children of the grantor, onlly thle amioulnt of tle trust illcone actliiully (listril)bute(l for tle sllup)por)lt anS1 maintenanllce of such beneficiaries wsS taXalble to tihe granto0r'. YIour committee believes that the rule in effect prior to the Stuart caNc is a sotuin( rule an (1 has inserted a provision inl the bill to restore the ol0( rlle. tilder. the bill, income of a trust is not taxable to th'e grantor merely because Suich income, in th(e discretion of another person or the trustee mray be applied or distritbuted for the support of; m111finmteiatice of a beneficiary whom the grantor i legally obligated to sl11i)pO't ot' maintain, except to the extent that such income is so applied
YCotiI

THE 9t1VENEUE BW1L OF 19 4 3

33

or distributed. The amendment is made retroactive tb all taxable years where proper consent are filed so that all taxes which would have been payable if this amendment had been in effect, will be paid.
(2) BACK PAY OF INDIVIDUALS TheI taxes on back pay received by an individual because of an alleged unfair labor practice under the NationablLabor Relations Act, or a violation of the Fair Labor Standards Act, oI a retroactive wage increase approved lby tlhe National War LaI)or Board, are linit.e(d t.o suich taxes as would be paabl)le if the back pay were received in the years for whiiclh ptid. TI is illindeIt is 1made(le efTective witl respect to taxable years beginning after Deceinber 31, 1940.
(3) PERCENTAGE DEPLETION

Percentage d el)let ion is exte(lend to flake graj)hite, vermicul it e, potash, beryl, feldspart, micla, lepidolite, and spo(dmIiene, in addition to tliose minnerals presently receiving it, and (liscovery depletion is conse(uIlently terIninat e( wit I'resp)ect to these minerals,. Tlie exteIlsion to flake graphite applies to years beginning after Decemnber 31, 1942, but the extensions Ina(le by this bil and the Rbvenue Act of 1942 are limited to the (luration of tlhe war.
(4) STRATEGIC MINERALS Fluorspar, flake graphite, an(1 vermiculite a-re added to the list of strategic minerals exempt from the excess-profits tax.

(5) EXCESS-PROFITS TAX TREATMENT OF TIMB3ER, COAL, AND NATURAL

GAS

The present excess-profits tax treatment given certain excess output and bonus income for mineral and timber property is extended to nber lessors of mineral property or a tim block, new coal and iron mines anid timber blocksInot in operation (luring the base period, andl certain natural gas companies. Trhe amendments with respect to lessors of Property in operation (luring the base period and with respect to natural gas companies are Ina(le retroactive to years beginning after December 31, 1941.
(6) VALUATION OF CLOSELY HELD CORPORATIONS UNDER ESTATE TAX An aimen(lnent to the estate tax provides that in certain instances the value of unfflisted stock and securities shafll be deterinined( taking into consideration, in addition to all other factors, the value of stock or securities of coflparable corporations which are listed on an exchange. (7) GIFT TAX

A gift tax amendmnent provides that in certain instances the appointment of a Oew trustee, the vesting of disci-etion in a trustee or the

exercise by a trustee of discretion shall not be a taxable gift.

02237-48---8

34

THE B6VERNTJE BILL OF 1948

(8> COMMISSIONERS-TAX COURT OF UNITED STATES Provision is made permitting The Tax Court of the United States to use commissioners in particular cases.

(9) CREDIT FOR STATE UNEMPLOYMENT TAXES The present restriction limiting the credit against Federal unemployment tax for contributions made to a State unemployment fund to contributions made before June 30 next following the due date, for the Federal tax return is lifted, and provisions are made with respect to the operation of this credit for the years from 1936 to 1942. Your committee was not able to give full consideration to the problem of reserves for post-war conversion; that is, reserves to convert factories engaged in war production back to peacetime production andl prevent unemployment. This matter will be given early consideration by your committee. RENEGOTIATION OF WAR CONTRACTS (Sec. 701 of the bill) -GENERAL STATEMENT .The prevention of excessive profits out of war has long been a sleepp concern of the Congress. During the last World War, intensive studlies were condlucte(l and reports made thereon. In an address to the joint session of Congress, May 27, 1918, the Presi(lent said, "The profiteering that cannot be got at by the restraints of conscience and love of country, (an be got at by taxation." Following the war, a report was ma(le by the Federal Trade Commission dated June 25, 1924, onl wartime profits and costs in the steel industry, in which Chairman IH uston Thompson stated(: Capable managermenit, or good fortune in investment and operation, were apparently the, major factors in deternijmirig the rate of i)rofit, and they, rather thanl mere size, were the characteristic elements of business success. A War Policies Commission was established by joint resolution of Congress, approved Junet 27, 1930, to report to the Presidlent methods of sulch prevention. Its purpose was stated as Pi plan to moi)iliize (frectiv(ely the resources of tlhe, Nationi for war which shall eliminated war pJ'Ofiteering, prevent warti me inflation, and equalize wartime bur(ldes. Trpel. commission was composed of four Members of thel IHlouseI atil four Members of the Senate,, an(l the Secretaries of War, Navy, Agriculture, Commnterce, Labor, and the Attorney General. Its report was sul)mitted onl Deceliber 4, 1931. It nmade (lefifit e recontuinendations of procedures for the (control of profits in wartinie. It recogniized the part of industry in the prosecution of war. Mr. B'ern.11ard 1311arl(c1, testifying b)eforle the Commissionl, q uoted Field Marshial Voti Ii)(llet)urg'sI statement as to the United States s1 anl(l its Wr 111itdustry in Uhlich1 he a i(I, ''Her brilliant, if pitiless war ln(lllstry hd(I entere(l the se-vices of patriotism an(d haId not failed P it. ) The (control of war profits during the last World War was left mainly to taxation an(1 price control.

THE

R'EVRNME BrLL OF 1943

35

In the years prior to the present World War, the provisions of the Vinson-Trarum eli Act, the result of searching studlies by the Comnmittee on Naval Affairs utndel the able direction of Chairmani Vilnson, sought to limit profit l)y certain limiting provisions as to contracts for naval vessels aid aircraft. In 1940, on the recomnmen(lationl of the departments, the provisions of these acts were sus)en(led alnd there was enacted( the excess profits tix on corporations seeking to control war profits. An amendment limiting profits was prol)osed by Representative Case of South Dakota in connection with the sxth supplemental national defense alvpropriationi bill. Subsequently, a provislo was adopted as section 403 of su Ih appropria-tioni act. This provision directly the Secretary of each department, concerniel (1) -to insert in contracts for amounts ini excess of $100,000 a provision for reinegotiation of the contract price at n time wheni thel profits could be determined with reasonable certainty, and (2) a provisions for the relenlltioii or recovery of excessive profits by thle. Governlielntt. In the Revenue Act of 1942 the Committee on Finiance of the Senate reported al(l the( Senlate adOl)te(l anmei(lInenits recominended by the departments concenied, which weret limited to implementing the practices and( proce(lures of such departments uider section 403 as enacted. In thel conference elrport oni the revenue bill of 1942 the managers oIn the part of the House inserte(l the following statlelment:
The committee of conference (loes not feel that the amendments which are mniade by the bill to the renegotiation law contain all the changes anl( iml)rovemlents Which it might be desirable to make. No attempt has been ma(lc to stu(ly and reexamine all the possil)le methods for dealing with excessive profits realized on war contracts. The bill merely attenl)ts to remove some of the more p)ressiIlg objections to the present law an1s to make the law aIininist ratively workable. It, is anticipated that the Ways and Meanis Commnittee will stu(dY section 403 in connection with matters now pending before the committee with an eye to a more general revision than is contained in the 1942 revenue b)ill.

reniegotiatioin. A sul)coniiitttee of the Ways anld I'leans Comlitilittee w'Ias appointed in July which conducted studies on the subject. Public lhearinigs were held before the flil committee which started on September 9 and lasted for a period of 12 days. Thes(e hearings were in addition to those( co(lucte(l by the House (Naval Affairs Comillittee whUi(ch started on Junet 10, 1943, adI covered at 1.4-day l)period(l. r1 subcommittee, as a result of its studies, mna(le a report, to thel full z-oiiii-iittee oni November 8, 1943. After considlering the ('xcellelnt, report of the stibcotniitttee, the atnd coiilittve, reports of the sNaval Affatirs Comiiiiiittee,the the-, Truima the i l the suggestion of the (lt() t'IeIits It t.estimIonIy of I tiI(sses al)l)earilng at the pulb)lic hearings of b)oth ourm committee, an(l the' Naval Affairs Committee, your committee reached the following coniclusionls: First, that the reniegotiatioll law Shouldb1o)(n ointiled, w0ith am1enl(delln tls, until after the terninationi of hostilitie.1. Second, that there is ,lust groui(l for coIlm)lailnt about the existinlg r(lie(rotiationl laW aI(l tile Ile miner of its i-(Iihiisi;tratioin, 1)ai1ticulairly fas )plie(l to the simill contract or. 'MIh'd( that certainn (chatiges iti thlie r(eTn(otliit ioll law, sh1ou1(lde mlU(Io to make it niore workable ind equitabple in its ap)pliclttioni.

Your committee has (devote(l consi(lerable study to the problem of

36.

THE REVENUE -ILL OF 1943

It is believed that the changes recommended admittedly .will materially improve the situation. The following is a summary of the principal changes recommended by your committee:
PRINCIPAL CHANGES RECOMMENDED IN RENEGOTIATION LAW

1. In lieu of the existing provision, exempting contracts or subcontracts of $100,000 or less, it is provided that contracts or subcontracts shall be exempt from renegotiation for a particular year if the aggregate of the. amounts received or accrued during the fiscal year does not exceed $500,000. This change is being made at the suggestion of the Departments, 2. The definition of subcontract has been rewritten to include only subcontracts for the article, work, services, building, structure, inprovement or facility contracted for under the prine contract or for articles to be incorporated in the item contracted for under the prime contract. 3. Contracts or subcontracts for agricultural commodities, such as grains of all kinds, vegetables, cotton, tobacco, cattle, hogs, wool, eggs, milk and cream, including canned, bottled, or packed fruits or vegetables or their juices, are exempt from renegotiation. 4. The bill grants discretionary authority in the War. Contracts Price Adjustment Board (a new Board hereafter discussed) to exempt from renegotiation standard commercial articles, if in its opinion normal competitive conditions exist affecting the sale of such articles. 5. The bill also exempts from renegotiation contracts or subContracts with religious, charitable, or educational organizations if such organizations are exempt from income tax. 6. Your committee has set forth in the bill certain factors to be taken into consideration in determining excessive profits. These factors are as follows: (a) Efficiency of contractor, with particular regard to fattainment of quantity and quality production, reduction of costs, and economy in the use of raw materials, facilities and manpower; (b) Reasonableness of costs and profits, with particular regard to volume of production and normal pre-war earnings; (c) Amount and source of public and private capital employedand net worth; (d) Extent of risk assumed, including the risk incident to

assistance; (f) Character of business, including complexity of manufacturing technique, character and extent of subcontracting, rate of. turn-over; (g) Such other factors the consideration of which the public interest andl fair and equitable dealing may require. Your committee( believes that in computing excessive profits, consilcreation slioul(l be given to the financial problems in connection with reconversion in applying factor (g). 7. In computing profits, costs are determined in accordance with the method of cost accounting regularly employed by the contractor or

reasonable pricing policies; (e) Nature and extent of contribution to the war effort, including inventive and (ldevelol)mental contribution and cooperation with the Government and other contractors in supplying technical

THE REVrDINIU

3 BELL OF 1943

37

subcontractor in keeping his books. All items of the character allowed as deductions and exclusions for income and excess profits tax plirposes, including the currently de(luctible annual amortizationI al owance, are allowed as items of cost to the extent allocable to contracts with the departmentss and subcontracts. 8. State income taxes are allowed only with resl)ect t.o income. after eliminating excessive profits upon renegotiation, and thenC only to the extent allocable to tla renegotiable business. 9. Credit is allowed against excessive profits for income and excess profits tax pai(l with respect to such profits. 10. The present system of.futture or forward repricing is continued un(ler the bill. However, the 1)ill gives the contractor or sulcon.tractor the right to petition The Tax Court of the United States in case hie is dissatisfied with the price as refixed by thle Secretary. 11. A central board called the War Contracts Price Adjustment Board, is created to have charge of renegotiation. This Board is to consist of five members, selected from the departments. Though the Board may delegate its powers of renegotiation, every contractor or subcontractor is entitled, upon request, to l)ave his case reviewed by thle Board. 12. The contractor or subcontractor is required to file with the War Contracts Price Adjuistmnent Board a statement of actual costs of production and such other financial statements as the Board may by regulations prescribe unless the aggregate of the amounts receive(l in the fiscal year by the contractor or subcontractor (lo(s not exceed $500,000. 13. The War Contracts Price Adjustment Board is require(l to determine excessive plrOfits with respect to the aggregate amounts received or accrued during the fiscal year by a contractor or subcontractor and not separately. However, at the request of tihe contractor or subcontractor, the Board may make such determiniination with respect to the amounts received under any one or more seI)arate
14. If the War Contracts Price Adjustment Board finds that the amounts receive(l llnder the contracts with the Departmenit and the subcontracts may reflect excessive profits, thea Board is riequire(l to give to the contractor or sul)contractor reasonable notice of the time and place for a coisferenice. TPhis notice is required to be sent to the contractor by registered mail and constitutes the coinunencenment of
con tracts.

the renegotiation. proceedings. 15. The, War Contracts Price Adjustment Board is require(l tQ furnish, upon request of thle contractor or subcontra ' a statement of actor its d(etermination, of the facts use(d as a l)asis therefore, and of the iensons for such (letermination. 16. The contractor or sul)contractor is given the right to have his excessive profits determinedly l)y The Tax Court of the United States in a de novo proceeding, in case he is unable to reach an agreement with the War Contracts Price Adjustment Board. 17. If the contractor or subcontractors is aggrieved( l)y a (determnination of the, Secretary imade prior to th(e einactmlient of this act with respect to a fiscal year ending l)efore July 1, 1 943, whether or not such determination is embodied in an agreeni(Int, he is also entitled to have a determination in a do novo procee(dinlg before Thle Tax Court of the United States.

;3

THE RIMVEUIJE BILL OF 1943

18. Proceedings must be commenced by the Board within 1 year after the close of the fiscal year in which the excessive profits were received or accrued, or within 1 year after financial statements are filed by the contractor or subcontractor, whichever is the later; otherwise, liabilities for the excessive profits for such fiscal year will be discharged. 19. I-n order to expedite the disposition of the case, after a procee(ling has been commenced, the bill provides that the liabilities for excessive profits with respect to which such proceeding was commenced, will be discharge(l if a determination by agreement or order is not made within 1 year following the, commencement of the renegotiation procee(lings. This limitation does not apply to a review by the Board of an order by the Secretary. The 1-year period of limitation may also be extemled by agreement between the parties. 20. Your committee continued the provisions of existing law as to war contract brokers, who are subject to renegotiation if the aggregate of the amounts received by such broker for the fiscal year exceeds $25,000. This provision was further strengthened by disallowing as costs to the prime contractor any commission, percentage, brokerage, or contingent fee paid or payable to any person for, or in connection with, the soliciting or securing by such person of a contract with a department, unless such person is a bona fide established commercial or selling agency maintained by the contractor for the purpose of securing business. 21. The bill provides for closing agreements. Such agreements, according to their terms, in the absence of fraud or willful misrepresenitation, cannot be reopened, so far as the determination of excessive profits is concerned. 22. The renegotiation provisions of the bill are terminated with respect to contracts or subcontracts made after the date proclaimed by the President as the termination of hostilities, or such earlier date as may be specified in a concurrent resolution of Congress. 23. The bill applies to fiscal years ending after June 30, 1943. Exceptions are made with respect to the exemption for agricultural commo(lities which is effective as of April 28, 1942, and the right to petition The Tax Court of the United States which applies to fiscal years endIing before July 1, 1943, as well as fiscal years ending on or after that (late. 24. All amounts of excessive profits, whether recovered by repayment, withholding, or credit, shall be covered into the Treasury as miscellaneous receipts. 25. The War Shipping Administration was not specifically named in the Renegotiation Act as originally adopted. However, the War Shipping Administration derives substantially all of its powers from the Maritime Commission, and has been one of the renegotiating agencies puirsuant to Executive order. The amendnen ts continue the War Shipping Administration as one of the renegotiating agencies,' since under the amendments all of the renegotiating agencies (including the War Shipping Administration) are specifically naned. 26. It is the ojxinion of your committee that under the existing renegotiation law, or such law as amended by this bill, there is no authority to renueotlate the profits accruing to a company by reason of the increment in value of its long inventories (i. e., inventories over and above its normal requirements to fulfill existing contracts).

DETAILED DISCUSSION OF THE TECHNICAL PROVISIONS OF THE BILL

TITLE I-INDIVIDUAL AND CORPORATION INCOME TAXES AND WITHHOLDING OF TAX AT SOURCE ON WAGES
PART I-INDIVIDUAL AND CORPORATION INCOME TAXES

SECTION 101. TAXABLE YEARS TO WHICH AMENDMENTS APPLICABLE This section provides that except where otherwise expressly indicated the amendments made by title I shall be applicable only with respect to taxable years beginning after December 31, 1943.
SECTION 102. NORMAL TAX ON INDIVIDUALS Section 11 of the Internal Revenue Code imposes upon individuals .a normal tax of 6 percent of the net income in excess of the credits provided in section 25 of the code for interest on certain Government obligations, earned income, personal exelnption, and dependents. Section 102 of the bill amends section 11 to increase the normal tax rate to 10 percent and to impose such tax upon the net income in excess of thle credits provided in section 25 (a) for interest on certain Government obligations and the credit provided in section 25 (b) as amended by section 106 of the bill, relating to the personal exemption and credit for dependents. Section 11 is also amended by the addition of subsection (b) to impose a minimum tax of 3 percent of the net income in excess of thle credits for interest on certain Government obligations and a personal exemption and credit for dependents provided in section 25 (c) of the code, as added by section 100 of the bill. The minimum tax imposed by the new sul)section (b) of section 11 is effective in any case in which such tax is greater than the combined normal tax and surtax imposed by sections 11 (a) and 12. Under the, amendments, the. 10 percent normal tax and the 3 percent minimum tax will not be applicable to interest on Government obligations whiidi under existing law is subject only to surtax. The minirnum tax will take reflect at varying levels of income depen(ling upon thle status of the i)(Iividual, the number of dependents, and whether joint or separate returns are filed. A cross-refere.,nce to the alternative tax imposed by section 400 for individuals having gross income from certain sources of $3,000 or less, is redesignated subsection (c).
SECTION 103. SURTAX ON INDIVIDUALS This section amends section 12 (b) of the code relating to the rates of surtax on individuals. Under the amendments the rates on surtax niet income between $6,000 and $12,000 are slightly lowered and on 39

40

ITHE REVENUE BILL OF 1943

all amounts of surtax net income over $38,000 the rates are slightly increased. SECTION 104. ALTERNATIVE TAX ON INDIVIDUALS WITH GROSS INCOMEL FROM CERTAIN SOURCES OF $3,000 OR LESS Subsection (a) of this section amends section 400 (supplement T) of the code to conform the table of taxes on specified amounts of gross income with the changes made in section 11 relating to the normal tax and section 25 relating to the credits against net income for normal tax purposes. Under the proposed amendment, the normal tax, the surtax, and the minimum tax are combined into one table which sets forth the specific amount of the tax at varying income levels depending upon the status of the individual as single, married, or head of a family, and the number of his dependents. Subsection (b) of section 104 amends section 404 of the code, relating to taxpayers who are ineligible to determine their tax under supplement T, to deny to citizens of the United States entitled to the benefits of section 251 of the code the right to make a return under supplement T. Such citizens are subject to tax only on gross income from sources within the United States, and are not entitled to the same exemptions and credits allowed to citizens generally. Inasmuch as the tax imposed under section 400 takes into account the personal exemption, credits and reductionss ordinarily allowable for income tax purposes, the use of supplement T by persons entitled to the benefits of section 251 would operate further to reduce the taxes paid by such individuals an(l confer additional benefits to which they would not otherwise be entitled.
SECTION 105. REPEAL OF VICTORY TAX This section provides for the repeal of the Victory tax and contains several technical amendments necessitated by such repeal. Subsection (a) repeals subchapter D of chapter 1, relating to the Victory tax on in(Iividuals. The repeal of part I of subchapter D is, by section 101 of the bill, made effective for taxable years beginning after December 31, 1943. By subsection (d) of this section the repeal of part II of subchapter D, relating to collection of tax at source on wages, is made effective only with respect to wages paid on or after January 1, 1944. Thus the provisions of part II of 'subehapter D continue in effect with respect to wages paid during 1943 for pay-roll perio(ls beginning oil or before June 30, 1943. Subsection (b) of this section adds to the code a new section, designatel as section 16, which is in sulbstance similar to section 456 of the present law. Section 456 provides in effect that the Victory tax shall in no case cause the total tax under chapter I (excluding increases under section 6 of the Current Tax Payment Act of 1943 and compute(l without regar(l to cre(lits against the tax) to exceed 90 percent of thle net, incomes of an individual. Subsection (a) repeals this section to,!etlier withl till tfle otler sections contained in subclhapter D of chapter 1. I n N iew of the fact that section 102 of the bill provides for the integration of the Victory tax with the normal tax, it was (lE'in(d(l adlNi .zl)l(e to retainl the un(lerlying principle set forth in sectioni 456. 'Theimfore, this new section provides that in case the tax

THE REVENUE HILL OF' 1943

4 41

imposed by chapter I, computed without regard to the limitation provided in this section an(I without regar(I to the credits for foreign taxes provided in section 31, to the credits for takes withheld at the source provided in section 32, and to the credits for taxes withheld onl wages provided in section 35, exceeds 90 perceflt of the net income of an individual for any taxable year, the tax, before the allowance of such credits, shall be reduced by the amount of such excess. This limitation is applicable also to estates and trusts. Subsection (c) of section 105 of the bill contains 13 technical amendments necessitated by the repeal of the Victory tax. These amendments eliminate references in other sections of the cole to the provisions of the code relating to the Victory tax. In appropriate instafnces they replace the reference eliminated with a reference to the credit provided in section 35 of the code with respect to the ta.* withheld on wages under chapter !9. The sections of the code affected by these amen(dments are: 3, 34, 56 (f), 58 (a) (2) (B), 58 (b) (1) and

and 322 (e).

(2), 103,

131

(a),

131

(i),

145

(e),

291

(b),

294

(a) (5),

322

(a) (2),

SECTION 106. PERSONAL EXEMPTION AND CREDIT FOR DEPENDENTS This section amends several provisions of the code relating to the amount and computation of the personal exemption allowed in the case of individuals (including estates and trusts), and also provides for personal exemptions and credit for dependents for the purpose of the minimum tax provided under the amendmIent, to section 11 made by sOction 102 of the bill. Under existing law a single pl'eSOn or a married person not living with husband or wife is allowed a personal exemption of $500; and the head of a family or a marriekl persons living with husband or wife is allowed a personal exemption of $1,200. If married, persons living together make separate returns the personal exemption of $1,200 may be taken by either husbaln(l or wife or divided between them in any proportion. In adl(Iition to the personal exemption, section 25 (b) (2) of the code provi(les a cre(lit of $350 for each person (other than husband or wife) dependent upon an(l receiving his chief support from the taxpayer if such dependent person is under 18 years of age or is incapable of self-support because in mentally or physically defective. If the taxpayer's status with respect to personal exemption and credit for dependents changes during the taxable year, section 25 (b) (3) of the code provides that such exemption and credit shall be apportioned in accordance with the number of months before and after sulch change. Subsection (a) of section 106 amends section 25 (b) (1) of the code to provide for the purposes of the regular normal and surtax as (listinguished hom the minimum tax, personal exemptions as follows: (l) a single person (not the head of a familyy, $500; (2) the head of a family (not a married person living with husband or wife), $1,200; (3) a married person not living with husband or wife (not the head of a family), $500; (4) a married person living with husband or wife: if a ioint return is filed or if one spouse has no gross income, $1,200; and if each has gross income n(d no joint return is filled, $500. The effect of the amen(lments, therefore, is to natike no change from existing law with respect to the amount of the personal exemption in the case of a singlelperson, a head of a family, or married persons

42

THE REVENUE BILL OF 1943

filing a joint return. Where, however, married persons report their incowwe on separate returns, the amendments elintinate the election existing under present law to divide the married persons' exemption between the spouses as they choose. Under the amendments each spouse is allowed only the. amount of personal exemption to which a single person would be entitled. No change is made in the credit for dependents for the purpose of the normal tax under section 11 (a) and the surtax. Section 106 (b) of the bill amends section 25 (b) of the code by striking out paragraph (3), providing for the apportionment of personal exemption and credit for dependents. In lieu thereof section 106 (c) a(1(ls new subsection (d) to section 25 to provi(le that for the purposes of the personal exemption and credit for dependents the status of the'taxpayer shall be determined as of July 1 of the taxable year. If the taxable year does not include July 1, the status shall be determinesd as of the last day of such taxable year. If a change in the status of the taxpayer occurs on the date fixed as the status deterinination (lite for the taxable vear, the taxpayer would be entitled to claim the status which is most advantageous for the purpose of the personal exemption. For instance, persons marrying on July 1 would be entitled to the exemption allowed married persons if such date is their status (determination (late. Moreover, if prior to marriage on such date one of such persons occupied the status of the head of a family he would be entitled to claim the exemption allowed the head of a family in his separate return for the taxable year. If, however, the spous8ks make a joint return under the provisions of section 51 (b), as amended by section 107 of the bill, they would be entitled to the exemption allowed married persons making a joint return. With respect to the credit for dependents if the age of the person for whomn credit is claimed is a. factor, it is contemplated that the allowance of the cre(lit be determine(l by reference to the birthday of the (lependlent. Thus if the status determination date of the taxpayer is July 1 of the taxable year, the credit would be allowed for a cli 1(l born upon such (late. If, however, the eighteenth birthday of a dependent child Occullrs on July 1 of the taxable year, the credit for depjel(Ients in respect of such child is not allowed. Similar principles are applicable where the status determination (late is the last (lay of the taxable year. TIhel(, status determination -date of July 1 conforms with the rule applied for the purposes of the alternative tax on the short form of retain, and will (eliminate the cOmplleXities and (lifficulties occa.sione(l by the present provisions of the law requiring apportionment. In connection with the amndlltlments ma(le to section 2F, fixing July I as the status (ldeternitnation (late for the purposes of the personal exehI})tiolI, consideration was given to the provisionsII of section 58 (a) of thle code, ansid it is the opinion of your committee that no change is required in the rule provided by existing law. In computing the amount of the (estimated( tax, however, the taxl)ayer's personal exemrption should be based upon hiis anticIp)ate(l status as of July 1, or the last (lay of his taxal)l( yeair if it does not include July 1. Subsection (c) also adds to section 25 of the code a new subsection designated (e) to provi(le a cre(lit in the form of a personal exemption an(l a credit for (dfpen(leints for the purpose of the minimum tax under section 11 (b). 'Thie exemptions provided are as follows: (1) Single person (not the bead of a family), $500; (2) head of a family (not a

THE REVENUE BILL OF 1943

43

married person living with husband or wvife), $700; (3) married person not living with husband or wife (not tile head of a family), $500; (4) married person living with husband or wife: if a, joillt return is filed or if one spouse has no gross income, $700; or if each has gross income and no joint return is filed, $500. A credit for each dependent is provi(edl in the amount of $100, exclirding in. thie case of tle head of a family one dependent if the taxpayer is the hlead of a family only because of (lepen(lents for whiom he is otherwise entitle(I to c-redit. Subsection (d) of section 106 repeals section 47 (e) of the code, relating to reduction of personal exemption an(l creditt for dIependlents in the case of a short taxable year. The effect of this amendmentdis to provi(le for an undiminished personal exemption annl cre(lit for dependents inl the case of the return of a (eced(lent for a short taxable year, such exemption and cre(Iit (dependling upon the status of tile decedent as of July 1 of such taxable year or if his taxable year (Ioes not include July 1, his status as of tlel date of deatli. In ad(lition, this amenIdment wouId( allow the cre(lits prov'i(e(1 in section 163 (a) (1) in the case of an estate or trust toreinain undliminishedl by reason of a short taxable year. Subsection (e) of section 106 amiends section 163 (a) (1) of the code to provide in the case of an estate the samne personal exemption alloweil to single persons under section 25 (b) (1) and (c) (1) as ainende(l in this b)ill an(l to insure that in thie case of a trust the credit of $100 provi(led in section 163 (a) (1) shall be in lieu of the, personal exemptions Irovidle(l under section 25 (b) (1) and (c) (1) of the code. Subsection (f) of section 106 is a technical amendment to conform the provisions of section 214 relating to credits against net income( in thle case of nonresident alien inldividuals and section 251 (f), relating to cre(lits against net income in the case of citizens of the United States receiving income from souirce(- within the possessions of the United States, with thle clhanges ina(le iii section 25 nll the case of

citizens.
SECTION 107. RETURNS
OF

INCOIME

Under existing law the requirement for filing returns in the case of individuals is basedU1pon specified amounts of grossinCOellC equivalent to thlepersonal exemption allowed the individual occupying the status indicated. Thus section 51 (a) of the code requires a return from an in(liVi(lual who is single or married an(l not living wNith usband or h wife ifhis gross income is $500 or over and from a married individual living withi husband or wife if his gross income is $1,200 or over, or if the aggregate gross income of husband an(l wife is $1,200orOver. FI r the purpose of the return requirement, tile statute ignores the status of "head of a family." Section 455 of the codle sets out addlitional return requirements for the Victory tax. This section is repealed by section 105 of the bill. Section 107 amen(ls section, 51 (a) of the code to conform thle return requirements with the new exemnlptions provided for the purp)os0s of theminiminium tax amnd to fix thle (late forthled(t(ermiination of status for thepUI'poSeS of such section as of July 1 of thle taxable Year, or the last day of the taxalnle year, ifthe taxal)le year(lo(es not included

July 1. Under the amendments a retrn is r feuired of(evry ifidividual 'having for the year a gross of$5500
taxable
income
or

more

unless

THE REVENUE BILL OF 1943 44 such individual (1) .is married, and living with husband or wife on the status determination date, (2) is permitted to make a joint return with his spouse under the provisions of section 51 (b), a amended by this section, and (3) the aggregate gross income of such husband and .wife is less than $700. Under thie provisions of the present section 51 (b) of the code a husband and wife living together on the last day of the taxable year may include their income in a single return made by them jointly and compute the tax on the aggregate income. In view of the proposed(lchanges fixing the status determination date as of July 1 for the purI)oses of thte personal exemption and the return requirenbelnts, section 51 (b) would authorize joint returns in the case of individuals married and living together on July 1 of the taxable year, or if the taxable year does not include July 1, on the last day of the taxable year. Under existing law, joint returns are not authorized if husband and wife have different taxable years or if they are not living together on the last day of the taxable year. Hence, if one spouse dies prior to the last day of the taxable year, the surviving spouse may not include the income of the deceased spouse in a joint return for such taxal)le year. It is not intended that the change in the status determination date should effect any change in the rules applicable to cases involving different taxable years whether or not occasioned by the death of a spouse prior to the last day of the taxable year. Accordingly, to remove, any doubt as to the rule applicable in such cases, section 51 (b) is amended to provide that no joint return may be made if husband and wife have different taxable years. Since the return of a decedent who dies prior to the last day of the.taxable year is a return for a short period and thus dliffels from the taxable year of the surviving spouse, the latter may not include the income of the deceased spouse in a joint return even though death occurred after July 1 of the taxable year. Subsection (c) of section 107 of the bill amends section 142 of the code relating to the requirement of fiduciary returns. Paragraph (1) of sub)section (c) nmen(ls section 142 (a), relating to the requirement of returns by fiduciaries acting on behalf of individuals, to require a return in the case of every individual having a gross income -for the taxable year of $500 or more without regard to marital status. Paraugraph (2) of subsection (c) is a technical amendment redesignating p)aragraphs (3), (4), and (5) of section 142 (a) as paragraphs (2), (3), and (4). SECTION 108. REPEAL OF EARNED INCOME CREDIT Stissection (a) of section 108 of the bill repeals several provisions of the codle to eliminate the earned income credit. These are section 25 (ai) (3) and (4), relating to earned income credit for normal tax p)urI'l)os('s, section 185, relating to computation of earned income in the case of the meml)ers of a p)artllershlip, and section 47 (d), relating to comiputation of earned income in the case of a return for a period of less thlla twelve months. The elimination of the earne(l income credit is effective for ttixabl)e y(ars beginning after December 31, 1943. Subject to ((rtainn conlit iot's set forth th-erein, section 116 (a) of existing liw l)provi(des anl exehI)tioti from tax for earned income derived from sources without the Uniited States in the case of citizens of the

THE REVENUE BILL OF

194k

45 45S

United States who are bona fide residents of a foreign country during thle entire taxable year. Except as otherwise provided in section 1 16 (a), earned income is determined by reference to the definition of earned income contained ifP section 25 (a). As a consequence of the repeal of section 25 (a) (3) and (4), subsection (b) of section. 108 of the bill amends section 116 (a1) (1) and (2) of the code to eliminate the references to section 25 (at). The definition of earned income previolusly conltaine(l in section 25 (a) (4) is inserted as paragrap)h1 (3) of amendment iuthorizing the Commissioner 'with section 116 (a.) withl all the approval of the Secretary to plrescril)e hy regulations appropriate rules for the (letermilat ion, of ear'ne(l income in tile case of a taxpayer engaged ill a tra(de or business in which both j)ersonal services and, capital are material income producing factors. SECTION 109. CEIRTAIN FIscmI YEAiR TAXPAYERS Section 108 of the code, as added by section 140 of the Revenue Act of 1942, contains special rules for thle corlnplltationl of the tax under sections 11, 12, 13, 14, and 15, of the code for a taxable year beginning ill 1941 n(l end(ling after June, 30, 1942. Such tax is the sum of the l)rorated portions of two tentative taxes. Tlhe first tenltative tax is computed under the law applicable to a taxable year begiIning in 1941 (without regabr(d to sec. 108) and at the rates prescril)cd for such a taxtable year. The second tentative tax is coInputed under the law applicable to a. taxable year beginning in 1941, with certain ino(ifi(ntions relating to certain (ledlictions and credits ill thle case of corl)orations, Ivut at the rates specifiedi for a taxable year beginning ill 1942. Th second tentative tax is to be computed }e without regard to section 108 excel)t as celtalil l)provisions of the co(le aIre Inadle specifically appllicable ill such ComplItatioln by such Section. Under the law apl)lictlele to taxablle years beginning ill 1941 (other .t~hanl sec. 108) use(l ill coInl)uting the first tentative tax of a corporation, the excess profits tax iInpose(1 by subclhapter E of chapter 2 is a deduction in computing net income. Unde r thle law applicable in computing the second(I tentative tax, the income subject to the excess profits tax is a cre(lit in comI)liting normal tax net income and surtax lnet income. The (computation of thlie excess profits tax, ind(ler subclapter E of chapter 2, of corl)orations w*iose taxable year began ill 1941 and ended after June 30, 1942, is l)rescril)ed in at manner similar to the coml)utation uii(ler sectioui 108 of the co(de, by section 710 (a) (3) of the codle, as a(d(le(l l)y section 203 of the Revenue Act of 1942. As in section 108, t lhe sllml of the prorated 1)ortions of two tentative taxes constitutes tile tax..

It was initende(l that the tentative tax (cOlll|)ltations inl the case of corporations, both Un(er section 1 08 and section. 710 (a) (3) be computed upon a parallel basis. Thllthsie excess p)r'ofits tax to l)C dleducted in comiputiilg net income for tlhe ipirposes of the first tentative tax under section, 108 (at) (l) (A) should be the first tentative excess profits tax compuited under section 710 (a) (3) (A). The ilccome sul)ject to excess profits tax to be c(re(lite(l in computing normal tax net income and surtax n('et income for teie purpose of the second tentative tax compute(l under section. 108 (a) (1) (B3) should be the income subject to excess profits tax colnpluted for the purpose

46

THE REVENUE BILL OF 1943

of the second tentative excess profits tax determined under section 710 (a) (3) (B). Through a technical inadvertence, however, section 108 (a) (1) (A) did not exclude consideration of section 710 (a.) (3) in the computation of the first tentative tax. It thus appeared that the excess profits tax to be deducted in computing normal tax net income for such computation might be the total excess profits tax computed under section 710 (a) (3) rather than the first tentative excess profits tax computed under section 710 (a) (3) (A). Moreover, in the computation of the second tentative tax under section -108 (a) (1) (B), reference to the increased excess profits tax rates and certain other technical changes in the base for computing the tax was inadvertently omitted. The regulations promulgated by the Commissioner under section 108 give full force and effect to the method of computation intended under section 108 (a) (1) and section 710 (a) (3). Inasmuch as an amendment to section 108 to relate to taxable years beginning in 1943 and ending in 1944 was required in any event, your committee has made an exception to the decision to postpone to next year clarifying changes required as a result of the provisions added by the Revenue Act of 1942, and has therefore amended section 108 (a) (1) and section 710 (a) (3) retroactively so as to remove any technical ambiguity which might have inhered in such sections as added by the Revenue Act of 1942, to clarify their provisions, and to give express statutory approval to the regulations issued by the Commissioner. Section 109 of the bill also adds a new subsection to section 108 of the code.to provide for the computation of the tax imposed by sections 11, 12, 13, 14, and 15 in the case of taxable years beginning in 1943 and ending in 1944. It provides that in the case of a corporation or an individual the tax shall be in an amount equal to the sum of (a) that portion of the tentative tax (computed as if the law applicable to taxabYle years beginning oin January 1, 1943, were applicable to such taxable year) which tile number of days in such taxable year prior to January 1, 1944, 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, 1944, were applicable to such taxable year) which the number of days in s;uch taxable year after Decemnber 31, 1943, bears to the total number o(f days in such taxable year. Inl section 109 of the bill, as in section 108 sf-the code, insurance companies subject to thle provisions in Supplement G, investment companies subject to the provisions of Supplemient Q, and Western flernispliher trade corporations, as defined in section 109 of the code, ire speeifically exempted from section 108. In adl(lition, this section n1ot apply to individuals who pay their taxes under Supplement T.

-los

SDECTION 110. DENIAL OF DEDUCTION FOR FEDERAL EXCISE TAXES NOT DEDUCTIBLE UNDER SECTION 23 (a) This section amen(ds section 23 (c) (1) of thie cO(e which allows a deduction in computing net income for taxes paid or accrued during Lhe taxable year. A new subparagraph is added to section 23 (c) (1) disallowing a deduction enr(ler this paragraph of the code for Federal import duties and Federal excise and stamp taxes. It is stated, however, that subsection ((c) of section 23 shall not prevent such duties and

THE REVENUE

BILL OF

1943

4 47

taxes from being dedlucted under subsection (fl) relating to deductions for trade or business expenses and, in the ease of an indivii(luaIal, nontrade, or nonbusiness expenses paid or incurred for the production or collection of income or for the management, conservation, or maintenance of property held for the production of incoiel. In limiting the allowance of deductions for these taxes to subsection 2.3 (a) the amendlmeiit makes no change in the law iespecting the taxable year for which these taxes are deductible.
SECrION 111. SPECIAL DEDUCTIONS FOR 13LIND This section, which ad(ls a neIIW subsection 23 (y) to the1 code, provides that in the comnpJutation of neti income a special de(luction of $500 froml gross income shall be allowed all blind in(lividuals. For thepurposes of this deduction, the tler'l blind individual" means an individual whose central visual acuity (loes not exceedl 20/200 in the better eye with correcting lenses, or whose V;isual acuity iS greater. than 20/200 but is accompanied by a limitation in tlhe fields of vision such that the widest dianmeter of the visual field subten(ls an angle no greater than 200. This (definition cOrrespon(ls to that a(lopte(l by tile Social Security Board for the purpose of carrying out title X of the Social Security Act, as amended, relating to grants to States for aid to the blind. A person who is blind at any tine on thie status (letermination (late for the taxable year will be entitled to this (e(dliction for such taxable year. SECTION 112. RETURNS BY ORGIANIZATIONS EXEMvPr 1FiRoM TAXATION This section of the bill anmeii(s section154 l)y a(lding a niew sil)section. (f), requiring organizations exempt from taxation un(ler section 101 to file annual returns of their income, r1ec(ipts, an(l (lisbursenients, and to keelp such records' and report whatever other information may be required by the Commissioner, with the approval of time Secretary. The amendment specifically exempts certain of such exempt organizfations fromt the annual return re-quirenient of the sll)bsection. These 1 include religious organizations which the, Commissioner 1as specifically ruled are Oexem(pt from taxation uinder )aragrUi)hl (6) of section 101 wid organizations similarly ruled to be exvni)t unler sc paragraph SIIl which are ol)erate(l, sll)pervise(1, or controlled I)y or in connwetion with suchl religious organizations; e(lucational institim tions also exeil)t e(l by rolling of thfe Commissioner un(ler suich paragraplh, whlich lnlaintna a regiularly organized faculty,.cti rriculuni, aend student b)o(ly in attend(lance at th(e places where their educational activities tre regularly Cmmisalliedd on1; clharital)le organizations, likewise rule(l l)y the(o sione1r to 1)0 exempt un(ler paragraph (6), which are su)porte(I, whiolly or partially, by Federal or State funds or whlicl) are Sll)port ed priW nanily 1)y contril)utions of the general public, as (listillilgish(It fromn at few contributors or donorss or from related or aisso(iited persons. Tito insertion of this siibsectionm, as wvell 2it dile exclusion of these organizations from tlhe operation of thwe sul)se('tion, so far ts it relates to thie filing of annuall re-turns, does not imnpair the p)owvrs tie Comimnissioner now exercises or otherwise hats wvith respect to requiring such returns, by (Itily prescribed aInd a l)pprmed regtulattions. This Itew su bsectiois md apphica ble to all ta,2xable years beginning after December 31, 1942.

48

THE REVENUE BILL OF 1943

SECTION 113. BACK PAY ATTRIBUTABLE TO PRIOR YEARS As a result of fnl alleged unfair labor practice of his employer under the National Labor Relations Act, an alleged violation of section 6 or 7 of the Fair Labor Standards Act of 1938, or a retroactive wage increase provided for by the National War Labor Board, an individual tfaxpayer may receive during the taxable year back pay which is in part attributable to one or wiore prior years. In this event the back pay may be sUbject to a greater income tax than if it had been received in the years from which it arises. Section 113 of the bill adds a new section 110 to the code to limit the tax in this event. Under the new section, the tax oh such back pay is limited to the aggregate of thle taxes which would be attributable to tIhat pay if tile portions of the pay attributable to 1)rior years were inclu(Ie(d in gross income for those years according to the amount arising from each such year for which payment is made. The C(ommissioner, with the approval of the Seeretary of the Treasury, is to lerescribe regulations for determining, the portions of such pay Which mrlay be attributable to years prior to the taxable year. This new section is na(le applicable to all taxable years beginning after DeCeInber 31, 1940. SECTION 1.14. PEJCENTAGEI DIEPLETION FOR FLAKE GRAPHITE, VEIRMICULITE, POTASH, BEHYL, FELDSPAR, MICA, LEPI)DOLITE, ANI) SPODIJMENE Subsection (a) of this section anmenlds the heading fn(d the first sentence, of S(etion 114 (b) (4), relating to percentage (lepletion for coal, fluorsl)ar, hall aind sagger clay, rock asphalt, an1( metal mines, and sull)hur, SO as to include among the mines or deposits entitled to percentage depletion flake graphite, vermniculite, beryl, feldspar, mica, lepidollite, spod urnene, and(l potash. In the case of flake graphite, veriniculite, beryl, feldspar, mica, lepidolite, and spodueliene mines, the allowance, for (leJ)letion shall be 15 percent, an(l in the case, of potash miines or deposits, the allowance for depletionn shall be 23 percent, of thel gross income from the )roperty (luring the taxable year, excluding fronm such gross income an amount equaAl to any rents or royalties paid or incurredl by the taxpayer in respect of the property. Tp1is allowance( is sul)ject to the, further limitations contained in the existing provisions of section 114 (b) (4). Subsection (t) amends section 114 (b) (2) relating to oliscovery value of ((rtainnil inines, so as to (del)ar thie( use of the dliscovery villue as the basis for (depletion ill nthle case of flake grapl)ite, vermiculite, beryl, miica, lepidolite, s)poduniene, and l)otashl miines. feldsparr, Subsection (c) p)rovi(les that thle allen(3ldments made by sU1)sections (t) uhl(l (b)), insofair as they ap)ly to flake graphite nines, shall )0 1taXIl)le years b)eginnhling after D)ece-inbe, 31, 1942. al)l)li('al)le to (d) proVI(les that th1e amiendnments ma(le by subsections ISubetion (a) aind (b)) and tile anmendmients mi-ade to section 114 of the co(li by section 145 of the Revenue Act of 1942, providing p)erv(entage (Iel)pletion for fl orsp)ar, ball. and sagger clay, 1111(1 rock asphalt, shall not be II)plicalI toIal) y taXt )le YT(IeIr begi telling ol 01 tlafter thle (dIte of the
tA1l

Illatiol

of lostil titles.

T:HE REVENUE BILL OF 1943

4 49

To AVOID INCOME OR EXCESS PROFITS TAX This section adds a new section 129 to chapter I of the code providing that in the case of acquisitions on or after October 8, 1940, of an interest in or control of corporations or property which the Commissioner finds to be principally motivated by or availed of for the avoidance of
SECTION

115O. ACQUISITIONS

established by judicial decisions, having the effect of prreventing the avoidance of taxes. (Soe I. R. C., secs. 45, 102, 112, 115, and 337; Gregory v. Heliveing, 293 U. S. 465; Griffith8 v. Connutissoner, :308 U. S. 355 -Higgis8 V. Smith, 308 U. S. 473; IJ. S. v. Joliet & Chicago R. Co., 315 {J. S. 44; Mfoline Properties v. Commissioner, 319 U. S. 436 Interstate Transit Lines v. Commissioner, 63 Sup. Ct. 1279; J. i. & A. B. Spreckels Co. v. 6o-nmissiower, 41 B. T. A. 370.) Subsection (a) provides for thoe disallowance in its entirety of the tax benefit sought by the tax-avoidlance devico, but. in or(ler that. the disallowance m`ay bo consistent with the purpose anid appropriate scope of the section, subsection (b) authorize.s thme allowance of such
02237-43----4

income or excess profits tax by securing the benefit of a deduction, credit, or other allowance, then the tax benefits are to be disallowed or allowed only in part in a manner consistent with the prevention of tax avoidance. This section is designed to put an end promptly to any market for, or dealings in, interests in corporations or property which have as their objective the reduction through artifice of the income or excess profits tax liability. The crux of the devices which have come to the attention of your committee has been some form of acquisition on or after the effective date of the Second Revenue Act of 1940, but the devices take many forms. Thus, the acquisition may be an acquisition of the shares of a corp oration, or it may be an acquisition which follows by operation of law in the case of a corporation resulting from a statutory merger or consolidation. The person, or persons, making the acquisition likewise vary, as do the forms or methods of utilization under which tax avoidance is sought. Likewise, the tax benefits sought may be one or more of several deductions or credits, including the utilization of excess profits cre(lits, carry-overs and carry-backs of losses or unused excess profits credits, and antlcipate(l expensleS or other deductions. In the light of these considlerations, the section has not confined itself to a description of any particular metho(Is for carrying out such tax avoidance schemes but has. included within its scope these devices in whatever form they may appear. For similar reasons, the scope of the terms used in the section is to.be found in the objective of the section, namely, to prevent the tax.liability fromn being reduced through the distorLion or perversion effected through tax avoidance devices. The term "Federal income or excess profits tax" refers to anly Federal tax imposed by Congress upon ail income base. The term "deduction, credit or allowance" has reference to any provision which has the effect of diminishing the tax liability resulting. from the gross amount of any item of Income or the aggregate of thle gross anlouits of any or all items thereof. Since the objective of the section is to prevent the distortion through tax avoidance of the deduction, credit, and allowance provisions, the section (loes not abrogate or delimit, but supplements andi exten(1s the present provisions of the codes, and the principles

50

THE REVENUE BILD OF 1943

or allowance as will not result in tho avoidance of the taxes sought by the acquisition or its utilization. It also contains authority permitting the allocation or distribution of any (deduction, cre(lit, or allowance between or among the corporations or properties involved. ILuC to the COll0leCX and varied form in whi(ch transactions of this character imay be cast, the apl)ortionment problems nvolve(l will require the specialized knowledge and experience of the Commissioner and his stalf. Accordingly, section 129 (b) grants the Commlrl-issionelr broad authority (of the same kind as that 11ow exercised 1)y himi under sees. 45 and 141) commensurate with the tnsk of determining such proper allowance. Thus thle consideration passing upon the acquisition or the income of the corporations or proI)ertiles involved may, in appropriate cases, bo an important factor in determlhining a proper credit, d(leduction, or allowance. To prevent any implication that section 45 was or is intended in a narrower sellS(n than the new section 129, the amendment made by subsectioi) (b) of this section 115 conforms the phrase use(l ini section 45 to thiat used ill section 129 (seC. 115 (a) of the bill). It is believed that thle ameneidrnent makes no change in existing law. .l)SubsectiOln (c) of this section makes the provisions of this section applical)le to taxable years beginning after December 31, 19:39. Under the apI))licability clauses in chapter 2 (such as sees. 508, 6083, 702, anid 729), 1the provisions of the section become applicable to eache of the taxes imp)ose(d uIn(der chapter 2, including, of course, the excessp)rofits tax. Sic'IcroNx 116. TiU-m'S FOR M'IAINTENANCE OR SuIrr0owir OF Cliu'r.;lN B EN EFICIARI ES Qul)section (a) of this section adl(ls a new sub)sectiOn (c) to section 167 of the code, relating to trust income wrli(fll is attriblute(l to thle( galia tor. Under existing law the income of a trust which is create(l in o(ler to maintain or sull)port a b1eineficiary w0homll the grantor is legally obligated to maintain or supl)port is taxal)le to the grantor (Douglas v. Iillcuts, 2U,36 U. S. 1 (1935)). In accordance With the settled l)rincilhe of i)ovglas v. 11 illcuts it has been field that if income of a trlust 111y, ill tile discretion of persons lackiing a substantial a(lverse interest, h1e apl)lied in dlischarge of the some obligation, the income is taxable to the girantor regardless of whether or not it is actually so applied (ielreriny v. S'uart, 317 U. S. 154 (1942)). Trlis decisionn has, ill effect, overriiled (G. C. M. 18972, C. 13. 1937-2, page 231, which for reasons of a(dlilistrative convenience hil a(lol)ted the rule' that ill Cases of sluch (liscretiollilly trusts the income is taxable to thie grantor only to the extent, that it is actually applied in (lischargin g his ol)ligation of m11ailntenlalnce' 01o supIl)ort. In view of various a(fininistrative (lifticuIlitieS ceate(l bt a strict applicatioIn of tile decision in vleie ing v. Stuart, yoiir coimnitt ee has (deenied it (lesiral)le to return to the rule al))prov(d(I ill (. C. M1. 18972 and has aln dIed section 167 ill order to acc(l(| pf1I)Ijh~l thi resti l(IIt. New sul)sectioi (c) provides that income slhall not be taxable to the granit.or li(l(er SectioII 167 (a) of the code ot' any other plovrision of chapter. 1 thereof merely b)ecallse such ineonie-, in the discretion of allother person or the trutstee, mlay be al))lied or distributed for the suI)l)ort or miain te(Jiance of a beneficiary, such as the wife or child of

part of the (leduction, crellit,

THE REVENUE BILL OF 1943

51

the grantor, whom he is legally obligated to Sup)ort, except to the extent that such income is actually so applied or distributed. It is further provided that in those cases where' the amounts so applied or distributed are paiid out of corpus or out of other than income, such amounts are to be considered paid out of income to the extent that they do not exceed thle income of thle trust for such taxable year which is not paild, credited, or distributed under section 162 of the. codee. Thus, if the trust provides for the annual payhwent of income to the grantor's adult SoIn whom hle is no longer legally obligated to support in an amount not exceeding $10,000, and the application of the remaining income or principal, in the trustee's discretion, to the support of the grantor's minor daughter, and if out of the entire income for the taxable year aggregating $12,000 the trustee pays $10,000 to the soI, and applies the other $2,000 as well as principal inothe sum of $1,000 to the support of the daughter, the grantor is taxable with respect to $2,000 of trust income. Subsection (c) is not applicable if dhiscretion to apply or distributee the trust income for support, mainte-. nlance, or ed(iation rests solely in the grantor or in the grantor in conjunction with other persons unless the grantor has such discretionn as trustee. Subsection (c) does not affect the present scope of sections 22 (k) and 171 of the code. Nor does subsection (c) alter the principles governing the taxability of trust income to the grantor under some other provision of law. For example, trust income remains taxable to the grantor under section 22 (a) of the code if the terms of the trust, not exclu(ling the discretionary power to apply trust, income, and all the chircumstances attendant on its creation an(l operation indicate that the grantor has retained a control of the trust so coInplete that he is still, in practical effect, the owner of its income. The grantor of af trust continues to be taxable under section 167 with respect, to such income as may, in the discretion of persons lacking a substantial adverse interest, be applied in discharge -pf his obligations other than his o1)ligation of sul)port ind maintenance falling within the amendments mnadle by subsection (c). Thus if the grantor creates a trust the income of which may, ini the discretionn of a l)erson lacking t. s11l)stantial adverse interest, bc al)plied in tde payment of his (lebts, such income is taxal)le to the grantor regardless of whether it is actually SO applied. ThLe Treasury Departmielnt has already provided in I. T. 3609 that thEe decision in the Stuart case will not be a)plied retroactively l)ecalise of difficulties which would otherwise arise. While this action adequately provides for prior years, since any limitation of the anmendmentsr made by your committee to future years mioight calls(e soeIC niisuinderstanding as to the tax liability for prior years, it has accordingly providled in subsection (b) of this section for thle retroactive application of the-amien(lments. Subsection (b) (1) of this section provides that the amendments made by subsection (a) shall be applicable with respect to taxable years beginning after December 31, 1942, unless a taxable year of the trust beginning in 1942 ends within a taxable year of the grantor beginning in 1943, in which case (except as provided in sul)section (b) (2)) the amendments shall not be applicable to such taxable yeat of the grantor. Thus, if the trust is on a fiscal year ending June 30, and the grantor is on a calendar year, the amendmrlents will be) effective with

52

THE REVENUE BILL OF 1943

respect to the trust commencing with its fiscal year beginning July 1, 1943. Since, the grantor's return for thle calendar year 1943 includes the income of the trust's fiscal year beginning on July 1, 1942, and en(ling on JutIe 30, 1943, the amend(ments will first be applicable, Witil respect t to thle grantor, to his calendar year 1944. Paragr aph (2) of subsection (b) provides that the amendments mnade by subsection (a) shall apply retroactively if there areo filed with the Commissioner (in accordance with regulations prescribed by hlim withl' thle approval of the Secretary) at such time and by such p(rsons as may b)e prescribed Ul)1er such regulations, signed coI1sents tlhat there slhall be paid, at such timne as thle. Commiissioner mnay p)rescril)e, all of thie taxes ld(ler chapter I of the Internal Reveniue CQd(e, or uneldler the corresponlding provisiomis of prior revenue, laws which wojki liavo( b)een pai(l for the taxable years concerned if such aeinn(ldnients had beeii a. part of thie revenue laws applicable to suclh taxal)le years. I'aagraplh (3) of sulbsection (b) provi(les thlat sluch su1bsectioll does llot echaiige anly provision or rule of law limitin-g thme allowanlce of refllund or Cr(edit withl rleSpet to overpayinents of the gralltor. However, if conlsenlts are filed withill tle )eriod in whihll i claim fo' credit or refund may be filed by thle gralntor, the period within which such claim for credit or refund maiy be filel, or credit or refund allowe(l or mliadle if nio claim is filed, with respect to any overlpaymlent by thle grantor resulting from the con1senlts shall i0cilude 011(on year immediately after the (late of the filing of tHe consents. It is further d proviI ed tallt with resI)eCt to anlly efficiencyy resulting from1 COn1Se'Its filed, Othe Period of limitations for making assessment and tlhe beginill)ng of (listraint or a, proceedinig ill court for collection shall include o0ne year immediately after tle (late suichl consents a(re filed, andi suchl assessmient anld collection mav In( lmae not-witlhstanid(ing any provision of the ilterlnal revenue laws or any rule of law wxlsi}l btars such idjust,menlt (Stich ans n prior judicial (ldetermination of thlle tax for the tnxa;l)l period of tlhe persoii signing the (consent). No initer(est is to be) alo ;paid lOY(1 OI l) onlany reful(l or credit to the grantor, and(1 nlo i1telrest shall be assessed onl aily (deficiency, restultilng from thlie filillg of the
conlsenl ts.

SECTION 117. ITREATY OBILIGATIONS Trhis section p1rovid(es th1at ameni(ment made by title, I of thle bill slhall apply in any case where its application would be contrary to anlly treaty obligations of the United States. PA wI'r 11--WITIHIOI) .\NC AT SOURCE ON WAGES SECTION 150. YE,',ARS TO WHICH APPLICABLE, This section provi(ldes that tile amen(lments made Part II of th1e jl)y bill slhall be applicable with respect to wages paid on or after January 1, 1944, except that such amendments shall not apply to wages paid (luring th1e( calendar year 1944 with respect to l)aY-roll p)erio(ds begininli1g beforeC Jal1ary 1, 1944. Wages paid in 1944 with respect to paY-roll per'io(ds 1)(bginiii)g 1)efOre 1944 will bO subject to thO withho I(litg 1)1p0roisiolls o(f the present, law.
no

THE REVENUE BILL OF 1943

53

SECTION 151. DEFINITIONS The exemptions allowed for the purposes of determining the amount of tax to be withheld at the source are based roughly on the amount of the personal exemption allowed for income tax purposes under section 25 of the code. Hence, the determination of the withholding exemption or the wage bracket table applicable in a specific case is dependent upon the status of the individual as single, married, etc., and in the case of married persons where both spouses are employed, the amount of the withholding exemption claimed by each spouse. The status of the individual for the purposes of withholding is (etermined upon the basis of the information set forth in the with holding exemption certificate required to be furnished to the employer by the employee. The definitions relating to status for purposes of withholding are contained in section 1621 .of the code. Under existing law if husband and wife are both employed, each may claim one-half of the withholding exemption allowed a married person or they may. agree to allow one spouse to claim all of the withholding exem)tion and the other spouse to claim none of the withholding exemption. The (lefinitions relating to the status of married persons for purposes of withholding of tax at the source are contained in section 1621 (g), (h), and (i) of the code. These definitions recognize three classes of malTiedi persons: (1) Married person claiming all of personal exemption for withholding; (2) married person claiming half of personal exemption for withholding; and (3) married person claiming none of the personal exemption for withholding. Under existing law the aggregate amount of the personal exemption allowed a married couple is the same whether joint or separate returns are filed, and a similar principle was applied for withholding tax purposes in the case of married persons where both spouses are employed. However, under the provisions of section 106 of the bill, married persons filing a joint return are allowed a personal exemption of $1,200, whereas married persons filing separate returns are allowed an aggregate maximum exemption of $1,000. In conformity with these changes in the personal exemption made by reason of the integration of the Victory tax and the imposition of a minimum tax, the withholding exemption schedules and the wage bracket tables have been revised. Under the revised schedules and tables if a husband and wife are both employed and both claim withholding exemption, the exemption of each is the same as the exemption allowed a single person, and hence the aggregate of the exemptions allowed dloes not equal the exemption allowed where one spouse claims the entire exemption for withholding tax- purposes. Accordingly, subsections (g), (h), and (i) of section 1621, relating to the status of married persons for withholding exemption purposes, are, amende(dl by section 151 (a) of the bill to conform with these changes and to -define, respectively, (1) married person claiming a personal exemption for Withholding whose spouse claims none; (2) married person claiming a personal exemption for withholding whose spouse claims a personal exeInlPtion for withholding; aInd (3) married p)(erSon1 claiming no personal exemption for withholding. Section 151 (b) amends section 1621 (k) of the CO(le, relating to t1h definitioCi of the term dependentt for the purposes of withholding

54

THE HEVENUE BILL OF 1943

under the provisions of sectiOnl 1622. Under existing law, the withliolding exemll)tion selie(ilCle provi(Ies for the elimination of one de(1of peidl(enit in the case the headl of a family. Likewise, the wage bracket tables applicable ini the case of thle head of a family having-a specified number of deei ideniCsi take into account all but one of such dependents. The rule thus -,rovi(edl represents all attempt to simplify for withholding tax ptiu loses thie rule set forth in section 25 (b) (2) (B) relative to the crc(dit for (dep("1(ledets for income tax purposes. This latter rule denies thte credit for one depl)endent ill thie case of the head of a family if thle taxpayer occupies the status of head of a family solely by reasonl of dependents for whom tile credit is claimed. It is the opinion of youir coinmnittee that the ruile applied for illCOI11 tax plIi)OSCS should likewise be followed for the plillposo of comptuting thle tax to be This is accoiwithhel(l under the provisions of section 1(622. in. the definition plished I.)y amendingfor thle exclusionofasdependent contained case.section of thel al dependent inl tile 1t621 (k) to plrovi(le head ofit family onle' who WouIld be ex(cluded under section 25 (b) (2) (B) for incolmel tax purposes an(l l)y ('oIplellientaI'y Changes ill tilhe N'ithillolding C~enil)tiOnl ScIle(l'les and the wage bracket tables al)l)licllabe to thle head of a family.
I

SECTION 152. XYITHIIO-1LDING OF TAX AT SOURCE' ON WAGE'S Subl)sectioni (a) of section, 152 coiitains technical amendmients changing the refer'ence inl section 1622 (a) (1) from ''family status withhOldilng, eXenll)tion' to ''normal tax and Surtax withholding exempli)tion,' aind changing thle reference in section 1622 (a) (2) from 'Victory tax xvi6thholding exemption' to ''illininlill tax withhold ing exemp)tion." Section 152 (b) amends section. 1622 (b) (1) (A) to change the referenlle. to ''miormnal tax and surl-tax withholding exemption' from 'I'faiily status withholding exemption," and to provide anmexw schedule. for Stuch wN4ithioliling exeml)tiOl ill Order to Conform with the challges resulting from thle integration of thle Victory tax and the conseq(uent, changes ill exemptions for income-tax puml')oses. Section. 152 (C) amends se(cotion 1622 (b) (1) (B) to change the reference to minimum tax wtithililding exeml)tion from Victory tax withholding (exemption, and to ploviide a schedule for thle minimum tax withhlolding exemption ill lietu of thle Victory tax wit-hho1dinq exeniptions. 'T'hle new sclledule is 1)ased lupon the l)ersonal (exemptions an11d credit for (del)en(lents allowed for pUrj)oSeS of thle millimIuM tax and unlike the Victory tax withholding exempl)tions is dependent upon the Status of tdie iIl( ivi(llal involved. Section 1 52 (d) amnens(S Section 1(22 (c) of the code rel'ating to wage bIracket Uwithholding to provide a new series of tables in lieu of those ('contained in) existing law. The revised tables take into accolint tile changes made in' exemptions as thle result of the integration of the Victory Itaxai 1(1 the sul)stitution of the minimum tax and also the (chanil(ges made with respect to thle credit for (lepenldents ill tile case of the hea d of a family. Tlle rlles relating to the application of the tables to specific typ)es of cases tare the saIme as those inlder existing law. Siil)section (e) of section 152 amends section 1622 (h) of the code, relating to withholding exempl)tion certificates, in order to conform that

THE REVENUE

RIfLL

OF 1943

55

section with the changes made by section 106, relative to the status determination date for -the purposes of the personal exemption provided in section 25 .(b). Section 1622 (h) of existing law provides that a withholding exemption certificate furnished by reason of a change of status shall take effect not later than the first paymnent of wages made on or after the first status determination date occurring at least 30 days after the certificate is furnished. At the election of the employer, however, such certificate may be given effect with respect to any payment of wages made on or after the (late the certificate is furnished. Status determination date is defined as January 1 or July 1 of the taxable year. In view of the elimination of the requirement for proration of the personal exemption in the case of a change of status during the taxal)le year, and1 the substitution therefor of a fixed date, July 1, to govern the allowance of the personal exeminption, section 1622 (h) (1) is amende(l so as to permit an employer to give immediate effect only with respect to changes of status occur ring on or before July 1. Where a withholding exemption certificate is furnished on account of a change of states occurring after.July 1 such change shall not be given effect until the first payment of wages male on or after January I of the succeeding calendar year.

'TITLE II-EXCESS PROFITS TAX

PART I-EXCESS PROFITS TAX AMENDMENTS

SECTION 201. TAXABLE YEARS TO WHIcH AMEND)MENTS APPLICABLE This section provides that the excess profits tax amendments made by this title of the bill shall be applical)le only with respect to taxable years beginning after December 31, 1943, except as otherwise expressly provided.

SECTION 202. INCREASE IN EXCESS PROFITS TAX RATE} Suibsection (a) of this section amends section 710 (a) (1) (A) of the code by increasing the 90 percent rate specified therein to 95 percent. Subsection (b) amends section 26 (e) of the code, which provi(les for the credit for income sld)ject to excess profits tax to be used in the computation of normal tax net income an(l corporation surtax net income, by providing that in the case of any corporation Which compuites its excess profits tax in(der section 721 (relating to abnormalities in income in the taxable period), section 726 (relating to corporations completing contracts under the Merchant Marine Act of 1936), seetionl 731 (relating to corporations engaged in mining strategic minerals), or section 736 (b) (relating to corporations with income from long-term contracts), the credit for income subject to the excess profits tax shall be the amount of which tax imposed by subchapter E of chapter 2 is 95 percent, instead of 90 percent. SECTION 203. CERTAIN FISCAL YEAR TAXPAYERS Section 710 (a) (3), as added by section 203 of the Revenue Act of 1942 contains special rules for the computation of the excess profits tax under subchapter E of chapter 2 in the ca,1se of taxable years beginning in 1941 and ending after June 30, 1942. This tax is the sum of

56

THE REVENUE BILL OF 1943

the prorated portions of two tentative taxes. The first tentative tax is computed under the law applicable to the taxable year beginning in 1941 and at the rates (or in the amounts of tax) specified for such a taxable year but without regard to the provisions of section 710 (a) (3). The second tentative tax is computed under the law applicable to the taxable year beginning in 1941, but with certain modifications relating to certain deductions and credits in the base for computing the tax, and at thie rates (or in the amounts of tax) specified for a taxable year beginning in 1942. Thie secon(l tentative tax is to be computed without regard to the provisions of section 710 (a) (3), except insofar as certain provisions of the code are, made applicable by such section. In compJuting the second tentative excess profits tax under section 710 (a) (3) (B) the 80 percent limitation provided by section 710 (a) (1) (B) might be applicable. Under this limitation the excess profits tax cannot exceed an amount whiich wheln a(lled to the tax imposed under chapter I equals 80 percent of the corporation surtax net income (computed without regard to tlhe credit provided in section 26 (e) relating to income subject to excess profits tax imj)ose(d by subelapter E of chapter 2). If such limitation is applicable, it becomes necessary to ascertain the amount of the tax un(ler chapter 1 for tlhc taxable year. It was the intentioII that in computing tile secoLId tentative excess profits tax under section 710 (a) (3) (B) the amount of th(e tax under chapter 1 to be used in computing the 80 percent limitation shloull le the second tentative normal and surtax computedtunder subparagrapl (B) of section 108 (a) (1). That section provides for a tax conpi)titation similar to that of section 710 (a) (3) in computing normal tax and surtax. Itowever, because of a technical ina(lvertence, no specific provision was inserted in section 710 (a) (3) providing that the total tax comn)puted under section 108 (a) (1) should be disregarded, and that only the second tentative tax compultecl under section 108 (a) (1) (B) should be used in the computation of the 80 percent limitation. Moreover, this technlical omission might give risei, to a circular compuitation in cases in wlichi the 80 percent limitation is applicable since tho first tentative normaial anl surtax to le used in compJuting thle total normal tax and surtax under section 108 (a) (1) (A) is based( uJpOl thfe allowance of the excess profits tax as a, (lcleuction in conll)uting neti income, and since thie portion of such excess profits tax under the 80 percent limitation could not be ascertained until tlhe total normal tax andi surtax had been first computed undei, 108 (a) (1) (A). Tlhe regulations promulgated( by th'e Commissioner under section 710 (a) (3) give eXpression to the computation intended to 1)c prescrilbe(d I)y section 710 (a) (3) whiich] would require a parallel compuitan tion of the first tentative excess profits tax undler section 710 (a) (3) (A) an(l tlhe first. tentative normal tax and surtax under section 108 (a) (1 ) (A), and a parallel computatioll of the -secon~d tentative excess l)rofits tax uider section 710 (a) (3) (I3) and thle second tentative normal tax andl Surtax inder section 108 (a) (1) (B). Inasmuch as an aniendm( n(ient to section 710 to relate to taxable years beginning in 194:3 and selling in 1944 was req(uire(l in any event, your committee has made an excel)tion to thle (lecislon to )ostpone to next year clarifying cjiaunges req llirdl (s at result of the provisiolls ad(l(ld I)y the Revenue a Act of 1942, taned lits tlierefore amended section 710 (a) 3) and section 108 (a) (1), retroactively, so ats to remiovo any technical ambiguity which might h)ave inhliered ini suich sections as added by the Revenue

THE REVENUE B.LLL OF 1943

r7

Act of 1942, to clarify their provisions, and to give express statutory approval to the regulations issued by the Comm liss:oner. This section also adds a new paragraph (6) 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 1943 and ending in 1944. This computation is similar to that provided with respect to the comnputation of normal and surtax under section 108 (b), as amended by section 109 of this bill. The new paragraph provides that in the case of a taxable year beginning in 1943 and ending in 1944, the excess profits tax imposed by subchapter E of chapter 2 shall be an amount equal to the sum of (a) that portion of a tentative tax (computed as if the law applicable to taxable years beginning on January 1, 1943, were applicable to such taxable year) which the number of days in such taxable year prior to January 1, 1944, 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, 1944, were applicable to such taxable year) ws71hich the number of days in such taxable year after December 31, 1943, bears to the total number of days in such taxable year.
SECTION 204. INCREASE IN SPECIFIC EXEMPTION This section amends section 710 (b) (1) (relating to specific exeinption), section 729 (b) (2) (relating to excess profits tax return requirement), and section 141 (c) (relating to the computation of tax in case consolidated returns are filed), to increase the specific exemption applicable in the computation of adjusted excess profits tax net income from $5,000 to $10,000.
SECTION 205. REDUCTION OF EXCESS PROFITS CREDIT BASED ON INVESTED CAPITAL IN CERTAIN BRACKETS This section amends section 714 of the code, relating to the excessprofits credit based on invested capital by reducing by 1 percent the existing percentages of invested capital taken as the investe(l capital credit with respect to amounts of investe(L capital over $5,000,000. Under existing law the invested capital credit is comlp)uted as 8 percent of the first $5,000,000 of invested capital, 7 pj)CrcC(t of the next $5 000,000, 6 percent of the next $190,000,000, and 5 percent of the baiance over $200,000,000. This amendment provides for a credit determined as 8 percent of the first $5,000,000 of invested capital, 6 percent of the next $5 000,000, 5 percent of the next $190,000,000, and 4 percent of the balance over $200,000,000.

SECTION 206. PUBLICITY OF RELIEF GRANTED UNDER Sl.CTION 722 This section adds a new subsection (g) to section 722 to provide for publicity of certain salient facts with respect to relief granllte(l un(ler section 722 of the code. The amendment provides that thle Commllissioner shall compile for each fiscal year a list, arranged alphabetically and according to internal revenue districts, of all ca('s.s in which relief has been allowed pursuant to section 722 (dring suchl year either by the Commissioner or The Tax Court of thle Lnited States. This compilation shall contain the name and address of eaclh taxpayer to

58

THE REVENUE BIIL OF 1943

which relief h)as been allowed(l, the b)uisilless in 'Which the taxpayer is engaged, the amount of tle ex ess profits cre(lit of the taxpayer before such allowance, the increase in slucll CXCCSS profits credit claimed and the increase iti such credit allowed, and the amount of the gross reduction in the excess profits tax an(d of the gross increase in the tax under chapter 1, which results from the operation of section 722. In the case of relief allowed by The Tax Court the Commissioner shall also set forth the (lata previously reported pursuant to this subsection with respect to relief previously allowed in such case by the Commissioner. This compilation shalll be published in the Federal Register. SECTION 207. STRATEGIC MINERAL.S This section amends section 731 of the code relating to the exemption froml excess )rofits tax of the portion of the adjusted excess in the profits net income attributable to the mining benefitsUnited States of of such section certain strategic minerals so as to exten(l the to corl)orations mining fluorspar, flake gral)lhite, and vermiculite. SECTION 208. NONTAXAI3IE INCO-ME OF CEIRTAIN INDUSTRIIES WITH D)E'PIETA ILE RESOURtCES sections 711 Thi6s section amen(1ssection 735 (a) to (I), 711from excess and (a) (2) (K), (1) various p)aragrahl)ls of so as profits exempt tax a certain portion of the income of a lessor of muimieral property or n timbelr block, of new coal andl iron mines andl tinll)er blocks not in operation (tluling the base period, and of certain natural gas companies. Unde(jr existing law a, lessor is not include(l within thel definition of a producer of minerals or a pro(llucer of logs or lum11ITlber fi'onI a timber block which is entitled to exclu(le from its excess profits net income thle amount, of nontaxal)le income froim exempt excess Output. Sections 711 (a) (1) (I), 711 (a) (2) (K), and 735 (a) (1) are amended b)y this section to permllit at lessor to exclu(le from excess profits Ilet inCO Ill(? Ioltxl e income from exemil)t excess output as (dCfilne(l in section 735 (b). The'term'"lessor" has been define(l to mn(?nll a corporation which owns an (economic interest in a mineral property or ' a tillw)e block, an(l is l)aid in accord(Iane with the num1llhber of mineral units or timber units recovered therefrom by the pro(iucer to which sueh1 property or0 block is leased by thel lessor. Section 711 (a) (1) (1) an(1 (at) (2) (K) are amended so a1s not to authorize a lessorI to exclude from excess profits net inconmCe any amounts of royalties which could 1)e (Incln(led to represellt a (Iistriulution by tile lessee producer of I1011tbolnus playments made by anly taxabl~e 1)on1s illcomle derived from gency of the 1United States Government p)ursulant to section 735 (c). 'lle p)resei lt, )rovisionlS of section 735 exten(l no relief to coal mining or' ir-oIl mailing properties Or' tillb)el' blocks which were nlot ill Operation (duing the base period. Subsection (c) of this section of the bill (I(ds aL new pilragral)h to section 735 (b) which provides that for any taxable year, thle nontaxfll)le income from exeInp)t excess outl)ut of a coal inillinl, or iron mining property or a timber block, which was not in op1ra t ion (Il r;ing the base period, shall be an amount equal to onle-sixt b of tlie n(et ilncomne for such taxable year (computed with thle allowance for (elI)letion) from the coal miniiig or irmon miningr prol)erty or fromi Ile timbler block, as the case may be.

THE REVENUE BILL OF 1948

59

59

Section 735 (a) (8) (relating to Rbe definition of "timber block") has also been amended so as to strike out the prohibition that an operation unit acquired after December 31, 1941, would not be included in the composition of a timber block. In addition, this section of the bill extends to natural gas companies relief similar to the relief wanted under the present law with respect to coal mining and iron mining properties and timber blocks. However, in the case of natural gas companies, the nontaxable income, fr6m exempt excess output is to be computed with respect to net income derived from withdrawal, storage, and transportation by pipe line, of natural gas, but is not to include any income attributable to the distribution of such gas. It is understood that the transportation by pipe line of natural gas ends at the point where the distribution system begins, for example, the city gate in the case of natural gas brought to a city for local distribution. Transportation by pipe line does not include the process of distributing the gas to the ultimate consumer. The relief extended to a natural gas company is available only if the whole or any part of its natural gas property was in operation during the base period as defined in section 735. Therefore section 711 (a) (1) (I) and (a) (2) (K) is amended to include natural gas companies within tile scope of those corporations entitled to exclude nontaxable income from exempt excess output in the computation of excess profits net income. Section 735 (a) (1) is amended by including the term "natural gas company" which means a corporation engaged in the withdrawal, or transportation by pipe line, of natural gas. Section 735 *(a) (2) find (3) (relating to the definition of "mineral unit" and "timber unit") are consolidated into section 735 (a) (2) anid this section is expanded to include the term "natural gas unit" which means a unit of natural gas sold by a natural gas company. Section. 735 -(a) (4) (relating to the definition of "excess output") is renumbered section 735 (a.) (3) and is amended to include "Inatural as Ullit." Section 735 (a) (5) (relating to the definition of "norimnaloutput") is renumbered section 735 (a) (4) and is amended to include the (letem'mination of normal output in the case of a. natural gas company. In such case the term normall output" means the average annual natural gas units sold in taxable years beginning after December 31, 1935, and not beginning after December 31, 1939 (hereinafter called "base period"), of the person owning the natural gas property (whether or not the taxpayer). The remaining provisions of section 735 (a) (5) are amended to include, along with mineral units and timber units an(d mineral property and timber blocks, natural gas units and natural gas property. A new paragraph (5) is added to section 7.35 (a) to define the term ''natural gas property" which means the property of a natural gas company used for the witlhdrawal; storage, afl(l transportation by pipe line, of natural gas, excluding any part of such property which is anl emergency facility within the provisions of section 124. Section 735 (Ai) (12) (relating to time definition of "unit net income") is amended to provide that in respect of a natural gas property, the term "unit net income" means the amount ascertairre(l by dividing the net income, computed in accor(lance with regulations prescribed by the Commissioner with the approval of the Secretary, from such property during the taxable year by the number of natural ga units sold in such year. It is contemmplate(I that the Conmmissioner with the

60

THE REVENUE BI:LL

OF 1943

ti|x fo( det( i( fofl() Iise3 Ij))WNI

Ii I i
I I I
I

deductions which are also attrilblital)le to the natural gas property or which would efrec(t a reduction ill the income, fronm suich property. A new paragraph (5) has been adde1d to section 735 (b) to provide for the coIlmutation. of nontaxable income from exemlplt excess output ill the(cas(e of natural gas property. It prescri)es that ill the,(case of a lnatullral gas company, any part of the natural gas proJ)erty of which was in ol)opeatioln luringg the baSe perio(l, the ilottaxab Ci'icome from (exceSs output for any ttxable year shall be ailn amount equil to the excess Outpuilt for stlc yearmIulti)liedl lby onte-lialf of the unit net. i ncome for such year. 'I'The alflenl(lmelits contained in this sectio 'of the bill fire ma(l( only to taxal)le years; beginning after Deember, 31, 194:3, except that theafinele(illenits, to the extent that they affect lessors of mineral )1 ()ro eti(s I p iichi were ill opera tion i'i tel base p)e rio(l, (Ili1i lessors of timber blocks (is (lefie(l i sec. 735 (a) (8) prior to thie anlnll(ldml(nlt made thereto b)y this sect ion of thbe bill) which were i operation(1turing tle b)aSe period, and natural gas ('omIpanies, shall be to taxableyears beginning after )ecember:31, 1941. 1) IPART IREU:N'D' F'sXC,',S PIROF'ITS TAX SECTrION 250. PosT-WAR RFUvhrND oF' 1EXcEJbS Pii{lOF'I'S TAX This sect ion11111(lS sections 780 I7 78 1 of the lii( erl Rev(enue Code, relating to post-warll refunds of excess pl)ofitstax inJose(l l)y I Sub)Cliipteri E of cluiiil)ter 2 of the cod(. UJinerexist ng law the Seer(etary of the Tre(asury is aithIorizted and( ( (ditPee ted to ('st 1)1 i pl)Ost-warl. credit., for (each ofc(eitlain specifie(d th X lyer Sul) eC t t(o I(le ess arPS, to te c j profits t iix. lit eliela I, thep)oS t-wiar. Cred it is eq nal to 10 p)e'('('I t of theeXePss)profi ts tax ip)OS(e(d for the taxable year, t it Silb)j( et, to l is b)l limit at ions iiolei' which it, not excv(Id the almount by which the1 e 1i1iotlint, of thlie txi(l (Il-s thea1o1111ntOf of tax thatwOulde paypXi if Such IX wee e(li l ll) y 10p) elcelitt . Bond( s of the Ot i ted St rates it) thI e n11111o t f thlie iost -wil P cedi( lae r'equlid( to IeU. inl ' issued tbe 111111e 1f .11 (wi he axjIm r geI iciIY IywithI];:u 31101t'l st'lt thlie eX c(j)p iol oif bo nl 1 942) l1(1ds ' it I)IiX mbl e yem( Ieginni ng 01(1 o1r jl1(1 lIfter the is paiid ilifull. Si(e(J( the po st-war credi'(it is tentatively ( m 111 1( on i l sis of h ex ess profits ax shown oil theIretur o )V ii( II ) I' Vis ol l is 1 l( e I11d( ljl s t m n t's of (t hur ' oS t*i waX crol t, an ( IMMi S inl of' lIIIu((Jli t (IfJ((d ficieil y ill r'('spectl of theo( xcess profits 1 aix for it t bley('ai' for which Iit post-wi'l cr(edit, is provided, arold OlowniwiIIl laljuIstrin(Ji ts of post)-war' cr'eot nd bonds in ' the li ( c se at efun d or, is l(iel t of I le(eX cess p fii l ) w 1O.dit, is id( ed tltx for at i fo 1'hI iih t post-w ill' l' ; p0 Su ) of ( issection of tw i 1i m m Is section 780 ) of thle I he ((( code, relating to the (, M 1(tid atui'i y of the bonds.poreoso t to 'i'ho

for thle of any duplication Ienefits iniglhtincoille from elimination section this section forofallowable the application of result pi'-QNiding for lOnIltaxa)Ic anily Other provi(ling

approval the Secretary will issue, under this section appropriate regulationsofprQvi(ling rules for the allocation of items of inCOme, costs) expIelises, fandl other (leductil)le amounts between the natural gas prOpelrty an(l the other property (or activities) of the natipral gas ('Qnpaniy, and

whlich1

eXe(lm)pt applicable

applicable

OT()s'r-WVAll

xal)l( '('y

Xisl

aible,

;(iy
O

almxI foI credit( oerpOlip rJ axa1)1( (;f (I(; ye(i' bsectjio al t,, (

r'ofitt

THE REVENUE BILL OF 19 43

61

section 780 (c) provides, in part, that the bonds shall not be transferable by sale, exchange, assignment, pledge, hypothecation, or in the otherwise, on or before the date of cessation of hostilitiestransferpresent of the war. The effect of the amendment is to permit the to the date of cessation of hostilities inthle present war, bonds, successor of the prior the the to the taxpayerill such cases as the.Secretary ofmay authorize. Thus, Secretary by regulations Treasury may transfer of the bonds to a uccessor of the taxpayer s authorize the in connection with certain liquidations, dissolutions, or reorganof law, where of certain izations, or in case appear not transfers by operation of the general to violate the purpose transfer would the of that the bonds are provision of hostilities. The not to be transferable before the of the cessation prohibition oIn thle tran'sferability a corcredit or permitted to prevent, bondsshould not beconsolidation, reolrgallizatiol post-war , porate liquidation, dissolution, or other similar change in corporate structure which is of realizing oin thle ost-war credit p in good faith and not for or bonds so thatthe.)roceeds thereof nay be used prior to the date of m cessation of hostilities in the1)reselit war. of that the. The present section 780 (d) of the code the 1)o0s(15 upon re(leplntion shall not be included(l in gross income. Subsection (b) of section 250 aniendsseetiont 780 (d) so as to limit

datte

merger

theopurpose

consulnlnat-e(l
)roceeds

provides

subsections (f) and (g) to Subsection (c) of this section tion 780 of the Internal Revenue Code. Subsection (f) provides that subject to, and to the extent provided in, regulations prescribed taxpayer Treasury, a of the by the Secretary of the and liabilitiessuccessor of the under shall taxpayer all the rights succeed to of subehapter E of chapter 2 of the cod(e, comprising sections 780 to authorizes regul783, inclusive. Among other things, tehis subsectionwell as the bonds, war credit, ats lations under which transfer of the proper cases. The rights of the willbeh safeguardedin in those cases where transfers tire by can be the successor the liabilities of thle taxpayer to the extent in)osing to Subsection (lefines the (lirectly (leelled necessary. orpersons who(g)succeed, eithertermi or through mean such, person or more other o11ethe Secretary ofpersons, to ownership of property of the taxpayer, the Treasury may as regulations the Secretary will satisfied ofregullhltiolns Revenue by regulations prescribed 1)y the Comnmissioner of Internal iln approsuibsection (f) with the approval of the Secretairy. L'UIder priate ('aseS the tax exeml)ti{)n accorde(l the taxpayer r111n(l section a successor of ((d) iiitiy (d) of this by 78()Subsection be e-xtede(lSection of the billtoamiends sections 78 1 (b) of tlhe CI(Iit or Internal Revenue Code, relating to the efect onI the of a refund or cre(lit of all overpaynent, of tbe excess profits bonds, Under tax for a tauxalle year for which al post-war credit is of the credit ill the existing to post-warlinl Att is first, Iredlice(l 1)y the 11imiollilt of of thme excess talx; which cllseisthe outst mindimig tlle overpayment it requ e1(d to post-war cre(lit is less thal thme anioun t by or if there is i)o such credit ex'istillg ill favolr of the mlixreduced, aioun t. of the oull tst audil payor, the excess of suecl amount ov(er

taxlp)yer. this exemption to the

addns

sec-

plart IIl

perlinitte(l on1

post.

Govoerinment permitted(

requliiremlloent

l)y l)res(ril)e(d )y

"succe-ssor" l)rescri)o. TPlo b)e

regulations

tle taxpayer.

aIW

ouatstn(ling plost.-wVilI th11e

ptofits

nil(l crIe(Iit ribtitlaele be 'Ilir

p)ost-Warll' piroi(ded. taxl)ayer favot'

the

62T62THE REVENUE J11.T,

OF 1 943

Inl ('s(' t lie reduction in the. amount. of the cre(lit or refun(l of the litl O( 'v1'l)Yi* ('lit, for 1( Yer for w a post-'a cI'e(l is p)r(crit t1axb1e ( vi(d(v is1ili(le tifter t lihe matli it'y(dat 1 of the bonds forsuc(hlyearl, such redt(ticiou will, for t lie puri'pose of(ompu1)1 tinmg tile interestol1 thme0vi's 1 as of the liltce of p)av,'il(llet,, be ll(1(' that, o)eceniberthlieina turity of thle bonds. For in ( :31, 1943,the taxpayer' over'pays ('xatml1)1e, 1iSS1iniiuig ('X('ess p)r'OfitstIax for th len('l11 year 1 942 by $ 100; tle bondIs for its eidar' 1 942imaturt(' l)(Dvemub'm :31,1947; the overpl)atyml('lt is refund edoil D) ecimber:31, 1948; at tIit, ti)(etlie) t axp)ayerlhas no outtst a nd inhg 1nladc available for ad(ljumstpost -witr credit foi 1942; 111d1 11o bonds are illet(it; the 11oiutioit,ofr i('ti(rfmtl(l is $119.40, ,oIllptte(l as, follows: $24, beimg the iit('lrest onl Ilie o\'e1'p)aymlenlt of $100 tit 6 p)e'('clvt' fron l D)ecemu ber' :31, 1948, to I)Decemiber3'1, 1947 (tile matu'ity atee of the
Ol
}

CveJ'PHynl('1l

if no such subsequent, post-war credit is made ill favor of the taxpayer', the taxpayer is required to p)ay the ainount of such Charge to t le ULnite(l Silttes o0 tlh(e,- amount of the bonIds previously issUe(d to thle taXp)ay(e is 1'e(luCe(l iby the amount of such charge. Thlle amend(ment p)rovi(des thilat inl case of anI overpayment of tle exceSs l)p'OfitS tax for any taxable year for which n)ost-wafll credit is p)rOvi(led(, the outa. stand(ling post-war creditit fom' such taxable year ill favor of the tatxpayer shall be reduced b)y aln amount equal to the post-war credit attril)titablle to such overl)Hyrient; nid that if th(e outstanl(ling postwar credit fom' such tIaxal)le year is less than the aniounlt by which it is required to be. redulice(d, or if there is no such p)ost-war Cr'C(lit existing ini favor of the taxpayer, the excess of such amount over the amount, of such post-war credit, if ally, slhall constitute a charge, aga-inst the taxpayer to be appI)lie(d ill re(llction of tle anmounit of tihe bonds respect to such ta.xalele year; thle P1evioltsly issue' to not talxpayerl witlh for that purpose or the amount ma(le available cr, if sluchl b)ond(ls are of' such bonds so made available is Ie.SS than tihe amount of stuch charge, s Such (charlIg-' or tile exces? of sulcl clharge oOver time amount of such bonds so mna(lde aytilable, fas the case may be, shall l)e applied tit the tfimne of thl( cred(lit or refund (or as Of the timle of the mnat urity of the bonds with I'reS)sp't to such taxal)le yeall, if that tilme is earlier') ill reductliOll of the amount of the (cred(it or refund of the overpayment of thre excess profits tax. If such re(luction in the amount of the cl'e(lit or refun(l of the oveil)aymient for a taxable year for which a post-xN'ar credit is provided is efectedl onl or before tbhe maturity (late of the b)on1(ds for such year, the interest on the overp)aymIent is to l)e com)u(ted on] tlCe aloullnt of the overpayment.t beforee such amount is reducedl)y the charge attributable to such overpayment. 1F'or examnle)l, assuming that on 1)ecenmber 15, 1943, the taxpayer overpays its excess profits tax for the calendar year 1942 l)y $100; the bonds for 1942 iinature onl Decembir :31, 1947; te ovr('1'l)aymeilt is refunded ) on, D)(en.-er IF, 1944; tit tbhat time thlie taxpayer has 110 outst andinig post-wm creditit for 1942; and 10l)obl(ls are1111de available for d(lj ustIn'tt; tile amotin t of thlie refund( is $96, comnputed(l as follows: overpayrnlilet of $ 1 00 p)lts intr(''('st, t h er'eon for on1(1 year' ait 6 percent, iMking a totlil of $106, mllinus $10, tleI ChargC attl'ibtUtable to tlhe
t.

pdost-war cre(lit, if any, is carried forward as a charge against the taxp)ayer' to be applied( ill reduction of a subl)se(uent post-war credit; atnd

THE REVENU'E BILL OF 1943

3 63

bonds for the taxable year), and $5.40, being the interest on $90 (overpayment of $100 less charge of $10) at 6 -percent from l)ecembnher 31, 1947, to the date of the refund, plus $90, being the amount of the overpayment of $100 less the charge of $10. Subsection (e) amends section 781 (1) (which relates to limitation on the post-war credit of excess profits tax) first by chlanging thle limitation on the amount of the post-war credit to give effect to the increase in excess profits tax rate from 90 to 95 -percent. andl, second, by adding additional rules for the computation of the limitations upon the post-war credit in the case of certain taxable years beginning in 1943 and ending in 1944, the excess profits tax for which will be computed under section 710 (a) (6), as added by section 203 of this bill. In the case of taxal)le years begTinn1ing in 1943 and ending in 1944, the excess profits tax is the sumn of the prorated portions of two tentative excess profits taxes computed under section 710 (a) (6). The amount of thGe pOst-war credit is the sum of the prorate(l portions of each of the credits which would be computed upoIn the basis of each of the tentative (ecess profits taxes provided by section 710 (a) (6) (A) and (B). Thus, in the case of a taxable year beginning in 1943 and ending in 1944, the post-war cre(lit shall be not greater than the excess of the excess profits tax paid to the United States for such taxable year (and not credited or refunded under the intei'nal revenue laws) over the ftmolmnt which would be paylble to the United States if (a.) in the computation of the first tentative excess profits tax under section 710 (a) (6) (A), the excess, profits tax rate were 81 percent, or if the 80 percent limitation of section 710 (a) (1) (B) is applicable, if the amount determite(l under section 710 (a) (1) (13) were reduced by 10 percent; and (b) in the computation of the second excess profits tax under section 710 (a) (6) (13) the excvss profits tax rate were 85Y2 percerlt, or if the 80 percent limitation of section 710 (at) (1) (B) is applicable if the amount determined undIer section 710 (a) (1) (B) were reduced by 10 percent t. Subsection (f) provides that the amendments made by subsections (a), (b)), (c), and (d) shall be effective its if made by section 250 of the Revenue Act of 1942 and that the amenidiment made by subsectioni (e) inserting a niew patragragph (2) of section 781 (d) shall be applicable with respect to taxable years beginniing in 1943 and ending in 1944. TITLE I1I---EXCISE TAXES SECTION 301. EmAFIXcT I DATrE oi, THIs TITLFE Section 301 fixes the effective date of title III, which relates to excise taxes. Since the excise taxes ire I)aid monthly and covered by monthly returns, it is desirable that changes with respect thereto shall take effect on the first (lay of a. selected month. It is also desirable that there shall be reasonable opportunity for preparation by taxpayers, as well as by theo Bureau of Internal Revenues, for compliance, with the nlew requirements. Accordingly section 301 provides that title III shall take effect Oll the first (lay of the first month which begins more thaei 10 (lays after the date of enactment of the act.

Table: [No Caption]

64

THE REVENUE BILL OF

1948

SECTION 302. INCREASES IN RATES Section 302 (a) amends chapter 9A of the code to increase the rates of various excise taxes, impose certain new excise taxes, and make various administrative provisions relative thereto. The several sections of chapter 9A, thus amended, are as follows: Section 1650 of the code, as amended, increases the rates of various existing excise taxes as follows:
as

Descripttion of tax
~ ~

Old rate
~

|War tax rate

_ __

Inorease
PTreenI
100

AdmissIons -----.-----

I cent for each 10 cents or fraction thereof.

11 percent-

Initiation fees. JewelryFurs

Sales of tickets outside box officeCabarets, roof gardens, etc D)ues or membership fees

Permanent

use

or lease of boxes or

seats

5 perreeint11 perecnt, l

.-.doo

2 cents for each 10 cents or fraction thereof. 20 percent

.,--

30 pereent ----20 percent ---.

do

82 82
500

82 82

-do

10 percent-

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

$6 per gallon.--do Tril )orte(1 l)erfurnes containing (listilled sp)irits Still wines: 10 cents per gallon (I) Not over 14 percent of alcohol (2) Over 14 i)ercent and not over 21 percent of 40 cents per gallon

'I'olIet preparations D)istilled sp)irits

do .do

25 l)Crcent
do

1CO
150

$9 per gallon15 cents per.gallon. 60 cents per gallon

150 50 50
50 50
100

(3) Over 21 percent and not over 24 percent of $1 per gallon nl(ohol. Sparkling wines, liqueurs, and cordials: 10 cents iwr hall(1) Champagne or sparkling w In-e pint or traction thereof. -I 5 cents per half(2) ArtifIcially carbonated w"Ine pint or fraction
thereof.
do

aleoliol

$2 per gallon15 cents per half-

pint

or

fraction
half-

10

thereof.

or fraction thereof.
do

pint

cents per

10(
100 14 100

(3) Liqueurs, cor(lials, etc Formente(d nalt lItiuors

Billiard and

--

pool tables

$7 per barrel---- $3 per barrel $10 per year per $20 per year per
table.

25 percentElectric light bulbs and tubes-5 perce 20 pere cent Telephone, long-distanceTelegraIph, cable, or radio dispatchess: .do (I) )onestic --------- --------- 15 pere ent10 pere 15 percent-. (2) 1ntornational15 pere 20) percent.-. Lease(d wires, etc6 perce en titt 7 percentWire an(I equipment sorvie--15 percentLocal telephone service Ao -(10o Transportation of -----ro. Seats, berths, etcdo

table.

400
67

25

enst

--

33 40
50

5(

pore

persons-(1. ----. ...

*-

-do .

60

The increased rates, except as otherwise provided by section 302 (b) of the bill, are applicable with respect to the period bleginning with the, effective date of title III of thel bill; as fixed l)y section 301, and continuiinig umtil the first (lay of tle first month beginning 6 months or more after tle (late of tenriniation of hostilities in the present war. Section 1651, added to thie co(le, imposes a tax oin enumerated articles of the general class of travelers' luggage, purses, wallets, key oases, toilet cases, a(l other containers 1(ol1 at retail. The rate of tax is 25 percent of the sale price. Tlhe present. tax on luggage sold by the manufacturer, pro(lucer, or importer, imposed by Section 3406 (a) (2) of the co(le is suspended bly section 304 of the bill. Section 1652, added to the code, imposes a tax equivalent to-20 percent of all aimounts paid for tbe privileges of bowling at any bowling alley. Sections 305 of the bill amenls section 3268 of the code to make ina)plicaible to the period beginniniig .July 1, 1944, and ending with thEt on whicli the tax inlI)osed under section 1652 terminates, the

THE REVENUE BIL OF 1943

6 65

tax of $10 per annum on the operation of each bowling alley imposed by section 3268. Section 1653, added to the code, imposes a tax on the conducting of parimutuel or totalizator wagering on any racing or sporting event. The rate of tax is 5 percent of the gross amount wagered or received into the parimutuel, or totalizator pool before deductions for State taxes, the percentage going to the operators, or any other deductions. The tax is to be paid by the person conducting pr having control of the pool. Section 1654, added to the code, relates to the taxability of installment payments made under leases, contracts of sale, conditional sales, etc., made prior to the effective date of the title. The effect of the section is to confer exemption from the retailers' excise tax, or from increases in rates of existing manufacturers' and retailers' excise taxes, imposed by the bill in those cases in which the taxes are within the scope of sections 2405 and 3441 (c) of the code, with respect to installment payments made on or after the effective date of the title under contracts made prior to such date. The section also contains an existing contracts provision applicable to the excise tax imposed by section 1651 (on luggage, etc., sold at retail) and the increased rates of excise taxes imposed by section 1650 on sales of various articles. The provision is in all respects comparable to that set forth in section 553 of the Revenue Act of 1941 (section 3453 of the code). Liability for the tax or the increased rate of tax is shifted from the vendor to the vendee, in the case of sales made pursuant to contracts executed before the effective date of the title, but consummated after that date, where the contract does not provide for the addition by tile vendor to the sales. price of the new tax or increased rate of tax but does not, however, prohibit such addition. Section 1655, added to the code, deals with the situation of an article classifiable under more than one section of the code taxing articles sold at retail, namely, sections 2400, 2401, and 2402 of chapter 19, relating respectively to jewelry, furs, and toilet preparations, and section 1651 of chapter 9A added by section 302 (a) of the bill, relating to luggage. Section 1655 provides that if in such a case the rates of tax differ, tie highest shall prevail. This rule is applicable to fittings and accessories sold on or in connection with the sale of the principal article, even though physically separated from the principal article, and even though they otherwise would fall within another classification. For exanp e, a fitted traveling case containing an article classifiable as jewelry under section 2400 would be taxable in its entirety at the 25-percent rate even though the article of j evelry would otherwise be taxable at a 20-percent rate. Thus, the principal taxable article and the fittings and accessories are always subject to the same rate of tax. Section 1656, added to the code, provides that the taxes imposed by section 1651 (relating to luggage, etc.), section 1652 (relating to bowling), and section 1653 (relating to parimutuel wagering) shall not apply with respect to the period commencing on the first day of the first month beginning 6 months or more after the termination of hostilities in the present war. Section 1657, added to the code, defines the termi "date of the termination of hostilities in tile present war," as used in sections 1650 and
92237-43--- -5

66

THE EVENUE BILL OF 1943

1656, added to the code, as meaning thc date proclaimed by the President as the date of such termination, or the date specified in a concurrent resolution of thle two Houses of Congress, as the (late of such termination, whichever is the earlier. Section 302 (b) of the, bill makes exceptions from the general rule established by section 301 relative to the effective (late of the new taxes and increases of taxes imposed l)y section 302 (a). The increase in thle cabaret tax becomes applicable at 10:00( a. m., prevailing local time, on the first day of the first month which begins more than 10 (lays after the date of enactment of the act. The increase in the tax imposed by section 3268 of the code with respect to billiard and pool tables becomes applicable with the year beginning July 1, 1944. The increases in the taxes imposed by section 3465 (a) (1) with respect to telephone toll calls and telegraph, cable, or radio (ispatches or messages are alppliCable to amounts paid for services ren(lered on or after the eflfective date of the title. The increases in the taxes imposed by section 3465 (a) (2) and (3) with respect to leased wires, wire equipment service, and local telephone service are applicable only to amounts paid pursuant to bills rendered on or after the effective (late of the title for services for which no previous bill wvas rendered. Where bills rendered on or after the effective date of the title include charges for services previously rendered, the increased rates do not apply to such services as were rendered more than 2 months before the effective date of the title.

SECTION 303. FURS This section amends-section 2401 of the Interna Revenue Code to meet a practice which has become somewhat prevalent whereby ai person desiring to have a taxable fur article made for his own use procures an(l provides the fur himself, and thus avoids the tax on the article Inade from the fur. To put a check on tax avoidance by such means, it is provided that where a person who is engaged in the business of dressing or dyeing fur skiins, or manufacturing, selling, or repairing fur articles, p)roduces a taxable fur article for the use of "a t-he hide or pelt furnished, directly or indirectly, customer fiom fur on by the customer, thle transaction shall be (leeme(l to be a sale at retail anid the. person producing thel article shall be deemed to be the person selling the article, at retail for the puiIrposes of the tax. The tax is, in this case, to be, coml)ute(l ani(l pai(l by suich. person upon the fair retail market value, as (letermiined l)y $he Commissioner, of the finishe(l article.
MANUFACTURERs' ExcIsE TAX ON LUGGAG E This section amends section 3406 (a) (2) of the Internal Revenue Code, which imposes a tax oIn luggage sold by the manufacturer, pIodueer, or importer, to suspen(l such tax (luring the period of appli(ation of the, tax imposed by sectioil 1651, adl(leld to the code by section 302 (a) of the bill, on luggage, etc., sold at retail.
OF

FICTION 304. SUSPENSION

THE REVENUE BILL OF 1943

67

SECTION 305. SUSPENSION OF SPECIAL TAX WITii RESPECT TO BOWLING ALLEYS This section amends section 3268, which imposes a special tax with respect to the operation of bowling alleys, to suspend such tax during the period beginning July 1, 1944, and ending with the date on which is terminated the tax with respect to amounts paid for the privilege of bowling at any bowling alley imposed by section 1652, added to the code by section 302 (a) of the bill.

SECTION 306. TECHNICAL AMlENDMENT OF MANyJFAC'rURERS' EXCISE TAX ON TIRES AND INNER TUBES This section amends section 3400 of the code which taxes tires and inner tubes made wholly or in part of rubber, to define "rubber" as including synthetic or substitute rubber. This is to insure that the tax shall be applicable to tires and tubes~ made entirely without natural rubber. SECTION 307. TERMINATION OF CERTAIN GOVERNMENTAL EXCISE TAX EXEMPTIONS Section 307 removes many excise tax exemptions now existing with respect to articles sold or services rendered to the United States. In general, the taxes affected by the section are the retailers' excise taxes, the manufacturers' excise taxes, and the taxes applicable to telegraph, telephone,, radio and cable facilities, and the transportation of persons and property. The result of the section will be that these taxes shall apply with respect to articles sold or services rendered to the United States. As explained below, certain of the taxes will become applicable to such articles and services in the near future, while the application of others is postponed until approximately 6 months after the t.(rmination of hostilities in the present war. Thle present, exemptions are continued, however, with respect to articles sold to the United States pursuant to contracts entered into prior to the dates on which sales of such articles to the United States become taxable. The section also provides that a credit or refund otherwise allowable under section 3443 (a) (1) (A) (i) of the Internal Revenue Code to a manufacturer, producer, or importer, with respect to anl article resold by any person to the United States, shall continue, to be allowable with res )ect to a sale made to the United States prior to the date oin which sales of the article to the United States become taxable or pursuant to a contract entered into prior to such date. The exemptions are terminated and the taxes will, accordingly, apply with respect to articles sold (except those sold under preexisting contracts as above noted) and services rendered to the United States as follows: (a) In the case of tlhe retailers' and manufacturers' excise taxes (except the manufacturers' excise taxes applicable to sales of pistols and revolvers, firearms, shells and cartridges, and radio receiving sets, phlonograplhs, pholiograph records, and musical instruments), to sales made oil or after the first (lay of the

68

THE REVENUE HILL OF 1943

first month which begins three months or more after the date of the, enactment of the Act. (b) In the case of the manufacturers' excise taxes applicable to sales of pistols and revolvers, firearms, shells and cartridges, radio receiving sets, phonographs, phonograph records, and musical instruments, to sales made on or after the first day of the first month which begins six niontlis or more after the date of the termination of hostilities in the present war. (c) In the case of the taxes applicable to telephone toll calls and telegraph, cable, or radio dispatches or messages, to calls, messages, and dispatches originating on or after the first day of the first month which begins three months or more after the date of the enactment of the Act. (d) In the case of the taxes applicable to leased wires, wire and equipment service, and local telephone service, to amounts paid pursuant to bills rendered on or after the first day of the first month which begins three months or more after the date of enactment of the Act for service for which no previous bill was rendered. (e) In the case of the taxes applicable to the transportation of persons and property, to amounts paid on or after the first day of the first month which begins three months or more after the date of enactmeint of the Act.
SECTION 308. FLOOR-STOCKS TAXES Section 308 amends sections 2800 and 3150 of the code and adds section 3194 to the code so as to impose equalizing floor-stocks taxes on tax-paid distilled spirits and tax-paid wines held for sale or for use in the manufacture of any article intended for sale on the date the increased rates become effective, and on all tax-paid fermented malt liquors held for sale on the date the increased rate becomes effective. Provisions similar to those contained in the Revenue Act of 1942 are made for the filing of floor-stocks tax returns and for the payment of the taxes.

SECTIOii 309. DRAW-BACK OF INTERNAL REVENUE TAXES ON DISTILLED SPIRITS Subsection (a) of Section 309 amends section 2887 of the code, which provides or the allowance of draw-back (refund) of taxes paid in respect of distilled spirits which are exported. The section provides at the present time that the rate of draw-back which is allowed shall equal the rate of tax paid, but contains a limitation that such drawback shall not exceed the rate of $6 per proof gallon. This rate in the limitation has been raised from time to time as the rate on the distilled spirits has been increased so that if the taxpayer pays the higher rate of tax he may recover it. The limitation in figures representing a motley value serves no good purpose, since the section already provides that only the rate paid may be allowed in draw-back. Therefore, the limitation has been stricken out. Subsection (b) increases the rate of draw-back authorized by section 3250 (1) (5) of the code. This section of the code authorizes the allowance of draw-back of distilled spirits taxes, under certain circumstances, to persons who use fully tax-paid distilled spirits of domestic

THE REVENUE BiLL OF 1943

69

production in the manufacture of certain nonbeverage products which are sold or otherwise transferred for use for other than intoxicating beverage purposes. The rate of draw-back under existing law is $3.75. Subsection (b) raises this rate to $5 with respect to the period in which the wvar tax rates specified by section 1650 of the Tnternal Revenue Code are in effect. Under the subsection the draw-back will revert to the rate of $3.75 immediately upon the expiration of .6 full calendar months following the termination of hostilities in the present war. Subsection (c) provides that the amount of tax per proof gallon paid on the (listille(l spirits covere(l by timely claims under section 3250 (1) (5) of the code shall govern the rate of draw-back; i. e,., if the tax was properly paid at only the $6 rate the draw-back shall be at the $3.75 rate, and if the tax was properly pai(l at the $9 Iate (basic tax of $9 or present tax of $6 plus floor stocks tax of $3) the draw-back shlall be at the $5 rate.
SECTION 310. EXEAiPTION OF SILVER-PLATED FLATWARIE FROM TAX ON JEWLERY Section 310 amends section 2400 of the code so as to exempt silverplated flatware from the tax on jewelry.
I

TITLE IX-POSTAL RATES

SECTION 401. EFFECTIVE DATE This section provides that the increase(l postal rates provided by title IV hall take effect on the thirtieth clay after the date-of the enactment of the act. SECTION 402. iFIRST CLASS MAIL Section 402 increases the rate of postage on all mail matter of the first class mailed for local delivery or for delivery wholly within a county which is entirely within a corporate city and the population of which exceeds 1,000,000 (except postal cards and private mailing or post cards, and except other first class matter on which the rate of postage under existing law is 1 cent for each ounce or fraction thereof) by 1 cent for each ounce or fraction thereof. This section also increases the rate of postage on air mail by 2 cents for each ounce or fraction thereof.
I

SECTION 403. TIjiRD CLASS MAIL Section 403 increases the rate of postage on all mail matter of tht third class by an amount equal to the rate provided by existing law.
SECTION 404. FOURTH CLASS MAIL This section. increases the rate of postage on all mail matter of the fourth class by an amount equal to 3 percent of the rate provided by existing law, or by 1 cent, whichever is the greater. It is further provided that if the additional 3 percent amount results in a fractional part of a cent, such fractional part shall be disregarded unless'it

70

THE REVERUE BILL OF 1943

amounts to one-half cent or more, in which case it shall be increased to 1 cent.

SECTION 405. MONEY ORDERS Section 405 increases the fees for domestic money orders by 66% percent, com puted in each case, if the amount of such increase is not a multiple of 1 cent, to the nearest multiple of 1 cent above such amount. SECTION 406. REGISTERED MAIL

Section 406 increases the registry fees for registered mail by 333 percent, computed in each case to the nearest multiple of 5 cents, and the additional fees for registered mail by 33% percent, computed in each case, if the amount of such increase is not a multiple of 1 cent, to the multiple of 1 cent next above such amount.
SECTION 407. INSURED MAIL Section 407 increases the fees for insurance on mail matter in each case by an amount equal to the fee provided by existing Iaw. SECTION 408. RECEIPTS ON REGISTERED MIAIL AND INSURED MAIL
7 Section 408 increases the fees for

mail and insured mail in each case by 33% percent, computed in each case, if the amount of such increase is not a multiple of 1 cent, to the multiple of 1 cent next above such amount.

obtaining receipts for'registered

provided by existing law. Subsection (c) increases the demurrage charges on collect-on-delivery parcels in each case by anl amount equal to the charge provided by existing law.

SECTION 40(. COLLECT-ON-DELIVERY SERVICE Subsection (a) of section 409 increases the fees for collect-on-delive service with respect to domestic third and fourth class mail in each case by an amount equal to the fee provided by existing law. Subsection (b) increases the fee for services in effecting delivery of collect-on-delivery mail upon terms differing from those originally stipulated at the time of mailing by anl amount equal to the fee

SECTION 410. ADDITIONAL FEE FOR DELIVERY OF REGISTERED, INSURED, AND COLLECT-ON-DELIVERY MAIL rTo ADDRESSEE ONLY Section 410 increases the additional fee for effecting the delivery of domestic registered, insured, and collect-on-delivery mail, the delivery of which is restricted to the addressee only, or to the addressee or order, by anl amount equal to the fee provided by existing law.
SECTION 411. TERMINATION OF INCREASES Subsection (a) of section 411 provides that the increases in the postal rates, fees, and charges made by the title shall cease to be in effect on and after the first day of the first month which begins at least 6 months after the termination of hostilities in the present war.

THE REVENUE BILL OF 1943

7 71

Subsection (b) defines the term "termination of hostilities in the present war" as used in subsection (a) of this section as meaning the date proclaimed by the President as the date of such termination, or the date specified in a concurrent resolution of the two Houses of Congress as the date of such termination, whichever is the earlier.
TITLE V-MISCELLANEOUS ESTATE TAX AND GIFT TAX AMENDMENTS, AND OTHER MISCELLANEOUS AMENDMENTS AND PROVISIONS
SECTION 501. VALUATION OF UNLISTED STOCK AND SECURITIES FOR ESTATE TAX PURPOSES This section amends section 811 of the code by adding a new subsection (k), providing that in the case of stock and securities of a corporation the value of which by reason of their not being listed on an exchange and by reason of the absence of sales thereof cannot be determined with reference to bid and asked prices or with reference to sales prices, the value thereof shall be determined taking into consideration, in addition to all other factors, the value of stock or securities of comparable corporations which are listed on an exchange. The effect of this section is to clarify the consideration by the Commissioner, along with other evidentiiary factors, of the value of listed stock or securities of comparable corporations. The Commissioner retains his present authority under the law to determine the weight to be accorded all pertinent factors depending on the facts of each case. SECTION 502. APPOINTMENT OF NEW TRUSTEE OF CERTAIN DISCRETIONARY TRUSTS NOT TRANSFER SUBJECT TO GIFT TAX This section, which adds a new subsection (e) to section 1000 of the code, relates to any trust created prior to September 1, 1943, on which a gift tax wais paid if created after the effective date of the gift tax, or if created prior to the effective date of the gift tax, would have been subject to a gift tax had such trust been created after the effective( ate of the gift tax, of which the grantor is not a named bened ficiary and no part of the net income of which is, under section 166 of the code, includible in computing the net income of the grantor. The section provides that in the case of any suhCl trust no gift tax shall be imposed by reason of (1) the appointment, prior to January 1, 1945, of one or more new, successor, or additional trustees, or (2) the vesting, prior to such date, in the trustee or trustees of discretion as to the selection of beneficiaries or the distribution of the corpus or income of the trust, or (3) the exercise by the trustee or trustees of any such discretion prior to such date. SECTION 503. USE OF COMMISSIONERS IN CASES BEFORE THE TAX COURT OF THE UNITED STATES This section amends section 1114 by adding a new subsection (b), to permit the appointment of commissioners in cases before The Tax Court of the IUnited States. Such commissioners are to be attorneys from the legal staff of the court, designated to act in particular cases, by written order of the presiding judge. Commissioners so designated

THE REVENUE BILL OF 1943 72 shall proceed under-such rules and regulations as may be promulgated by the court. They shall be entitled to receive the same travel and subsistence allowance as may be received by commissioners of the Court of Claims.

SECTION 504. AUTHORIZATION OF APPROPRIATIONS To PAY CERTAIN ExcisE TAXES WITH RESPECT TO WHICH GOVERNMENT EXEiPTION TERMINATED This section of the bill authorizes the appropriation of sums necessary to pay those excise taxes with respect to which Government exemption has been terminated, and requires certain reports to be filed pertaining to one of such taxes. Subsection (a) authorizes the appropriation of sums required to be paid by the United States, in each fiscal year, as taxes, under section 3465 (relating to telephone, telegraph, radio, and cable services, facilities, and equipment), section 3469 (relating to transportation of persons) and section 3475 (relating to transportation of property). Subsection (b) specifically requires that sums paid with respect to the tax imposed by section 3469, for the transportation of persons, in seats or berths, be paid only out of the funds specifically appropriate(d for that purpose. Under subsection (c) each disbursing officer of the United States is required to file quarterly reports with the Comptroller General of the. United States setting forth each payment by him of the tax imposed by section 3469 during any period following the effective date of the section which is not covered by a previous such report. Such reports shall also set forth the name of each person with respect to whom such payments were made (exclusive of members of the armed forces traveling under orders from one post of duty to another), the dates of travel by such named persons, their destination points, the total transportation charges (exclusive of the tax) paid for such travel of each such person, and the total amounts of the subsistence payments for each such person in connection with such travel. The information contained in these reports is to be included in the annual report to Congress by the Comptroller General.

TITLE VI-FEDERAL UNEMPLOYMENT TAXES

SECTION 601. CREDITS AGAINST FEDERAL UNEMPLOYMENT TAXES This section amends section 1601 of the code, relating to credits against the Federal unemployment tax for the calendar year 1939 and subsequent calendar years. The present section 1601 permits full credit against the Federal tax for contributions with respect to the taxable year paid into a State unemployment fund on or before the due date of the Federal return for such year. Credit is also permitted under existing law for contributions paid after the due date of the. Federal return but on or before June 30 next following the due date, but this credit is not to exceed 90 percent of the amount which would have been allowable as credit on account of such contributions had they been paid on or before the due date of the Federal return. Under the present section 1601 no credit, except in special cases, is permitted

THE RRVENUE BILL. OF 1943

7 73

against the Federal tax for a taxable year for contributions paid after June 30 next following the due date of the Federal return for such year. The amendment to section 1601 (a) (3), inade by subsection (a) of this section, removes the time limitation for payment of State contributions but preserves the 90 percent limitation on the amount of the credit applicable under existing law to contributions paid to a State fund after the due date of the Federal return. However, the allowance of the refund or credit of the Federal tax, which has been collected but with respect to which credit is allowable under section 1601 of the code, is subject to the 4-year period of limitation prescribed by section 3313 of the code. The special rule under existing law applicable to those cases where the assets of the taxpayer are in the custody or control of a court at any time beginning with the due date of the Federal return and ending with the next following June 30, both dates inclusive, had been eliminated. With the removal of the time limitation for payment of State contributions, this special rule does not appear to be warranted except as to past taxable years. Subsection (b) of section 601 repeals the present section 1601 (a) (5). of the code, relating to refunds of the Federal tax based on any credit allowable under section 1601 of the code. The provisions of the present section 1601 (a) (5) are incorporated in the new section 1601 (d). Section 1601 (d) of the code, as added by subsection (c) of section 601, provides for refund or credit of the Federal tax which has been collected but with respect to which the credit allowable under section 1601 of the code has not been taken. The law (including statutes of limitations or other time limitations) applicable in the case of erroneous or illegal collection of the tax will apply to such refunds or credits. Thus, all claims for refund or credit of the Federal tax, based on any credit allowable under section 1601, must be filed within 4 years next after the payment of the tax. In addition, the amount of the refund or credit of the Federal tax (including penalty and interest, if any), based on any credit allowable under section 1601, will be limited to the portion of the tax, penalty, or interest paid during the 4 years mimediately preceding the filing of the claim for refund or credit, or if no claim was filed, then during the 4 years immediately preceding the allowance of the refund or credit. No interest will be paid on any such refund or credit.
SECTION 602. CREDIT AGAINST FEDERAL UNEMPLOYMENT TAXES FOR YEARS 1936 TO 1942 This section liberalizes the conditions of allowance of credit against the Federal unemployment tax imposed by title IX of the Social Security Act for the calendar years 1936, 1937, and 1938. It also continues without curtailment, for purposes of credit against the tax uinposed by the Federal Unemployment Tax Act for the calendar years 19-9 to 1942, both inclusive, the special treatment accorded under existing law in those cases where the assets of the taxpayer were in the custody or control of a court during the specified periods. Under subsection (a), paragraph (1), credit is allowable agist the tax for 1936, 1937, or 1938, imposed by title IX of the Social Security Act, for contributions paid into a State unemployment fund at any time, subject in the case of a refund or credit of the tax to the 4-year

1601 (a) (3), as amended by section 601 of the bill, contains comparable provisions with respect to the tax for the calendar year 1939 and subsequent calendar years. If the contributions are paid after December 6, 1940, the credit against the tax for 1936, 1937, or 1938 on account of such contributions is limited to 90 percent of the amount which would have been allowable if they had been paid before the due date of the Federal return. Paragraphs (2) and (3) of subsection (a) provide in special cases for the allowance of credit, which is not subject to the foregoing limitation. These paragraphs continue without curtailment the relief heretofore granted in these cases by section 902 (a) (2) and (3) of the Social Security Act Amendments of 1939, section 701 (a) (2) and (3) of the Second Revenue Act of 1940, and section 701 (a) (2) and (3) of the Revenue Act of 1941. The existing law provides, with respect to the credit against the tax imposed by the Federal Unemployment Tax Act for the. calendar year 1939 and subsequent calendar years, that in those cases where the assets of the taxpayer are in the custody or control of a court during the periods specified in the present section 1601 (a) (3) of the code and section 701 (b) (2) of the Revenue Act of 1941 the taxpayer may pay the contributions to the State at any time and obtain full credit against the tax for such years. The allowance of refund or credit of the tax in such cases is subject to the 4-year period of limitation prescribed by section 3313 of the code. Subsection (b) continues this special treatment without curtailment for the calendar years 1939 to 1942, both inclusive. Subsection (c), paragraph (1), provides for refunds and credits, without interest, based on the cre(hit allowable under subsections (a) and (b). Trhe law (including statutes of limitations or other time limitations) applicable in the case of erroneous or illegal collection of *the tax will apply to such refunds or credits. Paragraph (2) of subsection (c) permits refunds and credits of the tax imposed by section 901 of the Social Security Act or section 1600 of the Federal Unemployment Tax Act, based on credit for contributions allowable under this section or section 1601 of the Federal Unemployment Tax Act, as amended, in those cases where by virtue of the disallowance of a claiin for refund or credit prior to the date of the enactment of this act the allowance of such claimn would otherwise be considered erroneous under section 3774 (b) or 3775 (b) of the code at the time such claim is allowed. No interest will be allowed or paid on the amount of any such credit or refund. Paragraph (3) of subsection (c) permits refunds, credits, and abatements, without interest, based on the credit allowable under this section or section 1601 of the Federal Unemployment Tax Act, as amended,'in those cases where an offer in compromise with respect to the tax (or penalty or interest ill connection therewith) imposed by section 901 of the Social Security Act or section 1600 of the Federal Unemployment Tax Act has been accepted prior to the date of the enactment of this act. This provision permits the reopening of cases compromised prior to the above-mentioned date so as to allow refunds, credits,' and abatements based on credit allowable under the new

THE REVEWIJ BILL OF 1943 74 period of limitation prescribed by section 3313 of the code. Section

mise offer was accepted. The law (including statutes of limitations or other time limitations) applicable in the case of erroneous or illegal collection of the tax will apply to such refunds or credits. Under paragraph (3) the amount of the refund, credit, or abatement will be determined as though an offer in compromise had not been accepted, except that any amount paid by the taxpayer under the compromise agreement will be treated as a payment on account of the tax (including penalty and interest in connection therewith, if any). Paragraph (4) of subsection (c) provides that on and after the date of the enactment of this act no refund, credit, or abatement shall be allowed which is based on any credit allowable under prior relief legislation, that is, section 701 of the Revenue Act of 1941. The reief granted under such legislation is continued without curtailment by this section and section 1601 of the code, as amended by section 601 of this bill. DETAILED DISCUSSION OF THE TECHNICAL PROVISIONS OF RENEGOTIATION A. WAR CONTRACTS PRICE ADJUSTMENT BOARD The bill establishes a War Contracts Price Adjustment Board, to be composed of five members, one of whom shall be the Chairman, who shall be elected by the other members. Membership.-Its members are to be officials or employees of the departments concerned with the renegotiation, one to be appointed by the Secretary of War, one by the Secretary of the Navy, one by the Secretary of the Treasury, one jointly by the Chairman of the Maritime Commission and the Administrator of the War Shipping Administration, and one by the chairman of the board of directors of the Reconstruction Finance Corporation. It is to have an official seal which shall he judicially noticed. Location.-Phe principal office is to be in Washington, and it ma establish field offices for the purpose of carrying on its work with which contractors may deal without the necessity of coming to Washington. Subject to the civil-service laws and the Classification Act it may appoint necessary employees and fix their compensation; and with the consent of the heads of departments or agencies concerned with renegotiation, may utilize the services of officers or employees of the departments 'anl make reimbursement for such services. It is contemplated bv the bill that this board will utilize the same machinery which is now being used for the purpose of renegotiation. In fact, representatives of the. departments have, indicated that this is their contemplated action. A central board was recently set up by the departments concerned but its principal purpose is restricted to effecting a more uniform policy in the determination of excessive profits. Duties to renegotiate contracts.-It shall be the duty of the Board whenever in its opinion amounts received or accrued under war contracts or subcontracts may reflect excessive profits to initiate renegotiation by giving contractors or subcontractors reasonable notice by registered mail of a time and place for a conference. At the conference the Board is to endeavor to reach an agreement with the

75 law which was not allowable under the law in force when the comproTEE REVENUE BILL OF 104 3 4

76

THE REVENUE B1IL OF 1943

coutractor with respect to the elimfilation of excessive profits which have been realized or are likely to he realized, and other matters havi i regard to the standards set up in the bill. If it is unable to reach such an agreement, the Board may determine 'r order (unilaterally) the amount. Upon entering into an agreement with the contractor, or the making of a unilateral determination, the Board shall notify the Secretary or head of the department concerned, and the head of tile department is authorized an(d directed l)y the bill to eliminate the excessive profits s0 found, either l)y reductions in tile amounts oftherwise payal)1e or revision of the terms of a contract; l)y withhol.in(g from amouits otherwise due; l)y directing the contractor to withhold from amounts due subcontractors; by recovery through repahylent, credit, or suit; or by any combination of these methods whieh the head of the department deems desirable. As to these amounts the lea(l of the de-partment concerned mlay bring actions in thle appropriate courts of the United States to recover' tihe excessive profits (letermine(l if not wit hheld or eliminated by some other method. The $urety on a contract or sulb-ontract is not to be liable for repayment of any excessive p)rQfits. Contractors andl subcontractors are indemniified by thel (.ovv'nnllent against claii is by any sul)contractor as to amounts withlield. Tho Board is to renegotiate, witlh respect to the aggregate of the amount received or accrued Un(ler the contracts or subcontracts during the fiscal year of the contractor or subcontractor, and not Nvith respect to amounts received or accused und(ler separate contracts or subcontracts with the (departmellts, except that at thre request of the contractor or subcontractor the Board(I mlay exercise' its polweIr' separately with respect to the amounts received or accrued under one or more separate, contracts or subcontracts or with resl)ect to classes of contracts or subcontracts prescribe(d by regulations by thle Board. ,S'tateinent to be furn'i8led coitdractor.-'The bill provides that in Inakmg a determination with resp5)ect to excessive profits, whether the determination is bilatellar or unilateral, the Board shall, if requested hy tile contractor or subIcontractor, finish a statement as to such determination, setting out the facts use(l as a basis for the deterinination, and tire BoardY's reasons for its findings. However, the statement thus furnished is not to be allowed in evidence or considered by the tax courts of the United States (which another provision of the iiZl provides shall make a determination (1( novo undIer certain conditions).
B. RliJIT OF1 J)ETERHMINATION
B'

THE T.\x C(OuIT

OF THE

UNIT'ED

STATES

Under exist ing law there is no right of appeal or review whereby the contractor mlay hav C the question of his excessive profits redefterinined. Your committee bill estal)lishes this right both as to renegotiation adj ustmnents altidy 111(l+e, and1 treniegotiation adIjustmlent in contracts ontere(d into after June 30, 1943, thie effective dato of renegotiation procedure under the newly (Ostablislkc(1 War Contracts I'Price Adjustmont Board. The proceeding before The Tax Court shall be a procetding (de novo, and not a review of the Board's determination. Any contractor or subc-ontractor who fpels aggriev(e by an order of the Board (a ulilateral dettermination) determining nll amount of

THE IZA'W17E BRL OF 1943

77r

excessive profits received or accrued by the contractor or subcontractor, or by such an order of the Secretary in determining a fair price, within 90 days after the entry of such order or unilateral determination, may file a petition with The Tax Court of the United States for a redetermination of such profits. That court will have exclusive jurisdiction, by an order, to make a final determination as to whether excessive profits have been received or accrued, or whether a fair price has been determined, and The Tax Court's determination may not be reviewed or redetermined by any other court or agency. The court may determine an amount less than the amount determined by the Board or by the Secretary, as the case may be, or equal to or' greater than the amount so determined. The proceeding before The Tax Court shall not be treated as a proceeding to review the determination of the Board or Secretary, but shall be a proceeding de novo, Thus the, court may adduce any evidence which it sees fit in making its determination.' It is provided that the contractor or subcontractor, as the case may be, is to have the burden of going forward with the evidence, whether as to the existence of excessive profits or as to the amount thereof. The burden of the proof, however, may be upon the Government or the contractor or subcontractor according to the court's determination. It is provided that the court shall have the same powers and duties, insofar as is applicable in respect to the contractor, the subcontractor, the Board, the Secretary, the attendance of witnesses,. the production of papers, notice of hearings, hearings before divisions, review by The Tax Court of decisions of divisions, and reports of proceedixxgs, and such other powers as the court has under the applicable sections of the Internal Rievenue Code with respect to a proceeding to determine a deficiency in income tax. The filing of a petition with the court does not operate to stay the execution of an order of the Board or Secretary with respect to excessive profits or fair price. As to determinations by the Secretary made prior to the enactment of the Revenue Act of 1943, with respect to a fiscal year ending before July 1, 1943, as to excessive profits, whether or not the determination. is embodied in an agreement, the contractor or subcontractor by filing a petition with Thoe Tax Court, may obtain a redetermination with respect to the excessive profits or as to tthe determination of the Secretary made on or after the (late of thle enactment of the Revenue Act of 1943, with respect to a fiscal year en(ling before July 1, 1943. If the determination of the Secretary is by an agreement with the (contractorI or sul)contractor neither the agreement nor the amount of excessive profits. agreed UPOn, may be taken into consideration by the court in its determination of the amount. The Tax Court of the United States is peculiarly fitted to determine what is fair price and what is fair profit, having long been engaged in the determination of similar questions and being thoroughly equippecd for this purpose. Moreover a determination before The Tax Court will be of great convenience to contractors or subcontractors by reason of the fact that the Roard sits through its divisions in various localities all over the United States. Thus it will not be necessary for an arieved contractor to come to Washington to obtain a determinationbylTbe Tax Court.

78

THE REVENUE BILL OF 1943

I.REDUCTION OF THE AREA OF RENEGOTIATION The amendments proposed in your committee bill to the existing statute governing renegotiation of war contracts considerably reduce the area of renegotiability. 1. INCREASE OF THE SPECIFIC EXEMPTION TO $500,OOO Of the amendments reducing the area of renegotiation, the one increasing the existing specific exemption of $100,000 to $500,000 is of major importance. If the aggregate of the amounts received or accrued in the fiscal year of the contractor or subcontractor and persons under their control does not exceed $500,000, such amounts are exempt from renegotiation. The existing specific exemption of $25,000 relating to so-called war contract brokers remains unchanged in the bill. 2. DEFINITION OF SUBCONTRACT The field of operation of the renegotiation statute is further reduced by the definitionn of "sub)contract" in the bill. Undleir the bill, the term "subcontract" means any purchase order o1 agreement (other than a contract with a department) to mnake or fUrnish or perform any part of the work reqluired for the making or fu'rlishing of a contract item or a coinmponent article, A contractt item'".is (defined to mean any article, work, services, building, structure, iml)rovement, or facility contracte(l fot b)y at (ldlartrl ent and a ''comxnponent article" is (Iined(l to inean any article which is to be incorporated in or as a part of at contract item. The termi "article" is defined to mean any material, part, assembly, machinery, equipment, or other personal property. For example, un(ler the( al)ove( definition, suppose the War Departmont contracts with X for 1,000 airplanes. X, finding he Camnot produce 1,000 planes in the ti.ciriequirccl, subcontracts with Y to furnish 500 of the airplancrs complete for delivery which X delivers, as produced by Y, to the XVar Department. Y's subcontract is reliegotia)le ats a contract item. [nlder the new definitionn of subcontract, factory supplies such as tools or equipment, typewriters, business inachines, etc., are exempt from renegotiation. '1 he following exampl)le will illustrate the scope of the articles coming within the new definition of component article. Assume that the W~ar Department contracts with A for the purchase of a General Sherman tank. A contracts with B to furnish thle plates and with C to furnish the motors. 1B contracts with D to furnish the steel and C contracts with E to furnish the carburetors for the motors. C also contracts with F for the aluminumroducts to be used in the p construction of the motors. SubContracts for the purchase of all of these articles are subject to renegotiation because they are incorporateC( in or as a part of the contract item which is the General Sherman tank. If C, who has contracted to furnish the motors, contracts with G for lathies to be used in making parts of the, motor, C's contract with G is not renogotiable, for the reason that it is not a contract for an article to be incorporated in or as a part of a cOntract item. For the same reason, if G contracts

THE REVENUE BIML ON 1943

79

with H for some steel for the lathes, G's contract with H is not renegotiable. Also, if B, who contracts to furnish steel plates to A, contracts with I for typewriters and business machines, that contract is not subject to renegotiation. In other words, only an end product or products which will enter into an end product will be subject to renegotiation. The chart below will illustrate the above example:
General Sherman tank

t1silhHess ,lnachinles,i

Pla tes

Motors

Lathem

LZeI

IleCrburtors

products

NOTE.-Inclosed portion indicates the contracts and subcontracts subject to renegotiation; articles, etc., not Iniclosed, the subcontracts which are not subject to renegotiation,

8. SU13CONTRACTS UNDER EXEMPT PRIME COLThRACTS OR SUBCONTRACTS

Under existing law, considerable confusion results from the fact that a subcontract inay be sUI)jeCt to renegotiation (WvCl though, thle C primecontract or' ally initerm'eiidiatel St)bcOnltilct Imlay not-be so subject. The bill exelnl)ts such subconitlracts as arc directly or indir'ect~ly under an exempt contract or subcontract.
4. CONTRACTS WITH ORGANIZATIONS EXEMPT FROM INCOME TAX

There are some instances of contracts or subcontract. with religious charitable, educational, and other organizations of the type described in section 101 (6) of the Internal Revenue Code, which enumerates the organizations exempt from income tax under that section. The bill specifically exempts contracts and subcontracts with such organize tions from the operation of the renegotiation provisions.
B. EXE MPTION OF AGRICULTURAL COMMODITIES

The existing law provides for no exemption from renegotiation of agricultural commodities ds such. Trihe bill expressly makes the amended provisions inapplicable to contracts or subcontracts for such commodities in their raw or natural state or (in the case of commodities not customarily sold or having an established 'market in their raw or natural state) in the first form or state beyond the raw or natural. The definition of ag ricultuiral commodities in the bill is broad, incluldinlg not only prod itts of'thel cultivation of the soil but also saps .uind gums of trees; animals such as cattle hogs, poultry and sleep; fish and marine life; and the prodllucts of live animals suchle as ,wool, eggs, milk, and cream. Canned, bottled, or packed fresh fruits and vegetables (or their juices) which are customarily canned, bottled, or packed in the season of their harvest are also exempted.

80

THE REVENUE MLL OF 1943

price.

or under the act of October 2, 1942, entitled 'Ain act to amend the Emergency Price Control Act of 1942, to aid in preventing inflation, and for other purposes,' or which is sold at a price not in excess of January 1, 1941, selling price." AIn article made in whole or in part of substitute materials but otherwise identical in every material respect with the article with which it is compared under subparagraphs (2) and (3) is to be considered as identical in every material respect with such article with which it is so compared. 7: DISCRETIONARY EXEMPTION OF OTHER ARTICLES Discretionary authority is also given the Board to exempt contracts or subcontracts for other than standard commercial articles if, in the opinion of the Board, competitive conditions affecting the making of such contract or subcontract are such as are likely to result in effective competition with respect to the contract or subcontract.

6. EXEMPTION OF STANDARD COMMERCIAL ARTICLES The Board is authorized in its discretion to exempt any contract or subcontract for the making or furnishing of a standard commercial article if, in its opinion, normal competitive conditions affecting the sale of such article exist. A "standard commercial article" is defined in the bill as an article(1) "Which is not specially made to specifications furnished by a department or by another contractor or subcontractor;" (2) "Which is identical in every material respect with an article which was manufactured and sold, and in general civilian, industrial, or commercial use prior to January 1, 1940;" (3) "Which is identical in every material respect with an article which is manufactured and sold as a competitive product, by more than one manufacturer, or whici is an article of the same kind and having the, same use or uses as an article manufactured an( sold, as a competitive product, by more than op.3 manufacturer, and" (4) "For which a maximum price, has been established and is in effect under the Emergency Price Control Act of 1942, as amended,

gotiable business.

8. SUBCONTRACTS WHERE PROFITS OTHERWISE RUENEXOTIABLE CANNOT HE SEGREGATED Discretionary authority is also given the Board to exempt any subcontract or group of subcontracts not otherwise exempt from renegotiation if, in its opinion, it is not administratively feasible to segregate the profits attributable. thereto from profits attributable to nonrene-

II, DETERMINATION OF EXCESSIVE PROFITS 1. MANDATORY STATEMENTS OF COSTS The bill requires every contractor and subcontractor holding contraets or subcontracts subject to the provisions of the statute to file with the Board, at such time or times and in such form and detail

THE RXV'E"E BILL OF 1943

81

as the Board may by regulations prescribe, statements of actual costs of production and such other financial statements as it may by regulations prescribe. The willful failure or refusal to furnish such a statement or the filing of a false or fraudulent statement incurs liability to a fine of not more than $10,000 or imprisonment for not more than 2 years, or both.
2. PROFITS

War contract profits are defined by the bill to mean the excess of the amount received or accrued under such contracts over thy costs paid or incurred with respect thereto. Costs that are unreasonable or not properly chargeable to the contract or subcontract, in the opinio iof the Board or of The Tax Court of the United States, as the case may be, are disallowed. Subject to these qualifications, items of the character allowed as deductions or exclusions in computing not income for income tax purposes are, with the exception of taxes measured by income, allowable to the extent that they are allocable to such contracts or subcontracts. All items of the character allowed as deductions and exclusions for income and excess profits taxes (including the current amortization deduction), to the extent allocable to such contracts and subcontracts allowed as items of cost, Federal taxes are not allowable as items of cost. After the excessive profits have been determined, however, credit is allowed for any income and excess profits taxes paid with respect thereto. State income taxes likewise are disallowed as an item of cost but the bill provides for a proper adjustment, in determining the amount. of excessive profits to be elimsinated for such taxes attributable to the nonexcessive portion of profits. TFor example, if the amount due on a contract is $1,000 and the cost, exclusive of State or Federal income tax, $800, the profit would be $200. Suppose it should be determined that of the $200 profit $100 was excessive, and $100 not excessive. In determining the aunount of excessive profit to be eliminated it is provided that proper adjustment shall be made for the State incomes tax excluded as an item of cost which is attributable to the $100 not excessive. If in this case the State income tax on the $106 of fair profit is $10, then this $10 attributable to the $100 of fair profit would be credited against the $100 determined to be excessive profit reducing the amount to be eliminated to $90. Any commission, percentage, brokerage, or contingent fee paid or payable to any person for or in connection with the soliciting or securing by any such person of a contract, with a department, unless such person is a bona fide established commercial or selling agency maintained by the contractor for the purpose of securing business is expressly disallowed as cost on any contract with a department.
8. COSTS ALLOWED TO CERTAIN PROCESSORS

To insure the equitable treatment of contractors or subcontractors producing minerals, oil or gas, or timber, and who process, refine, or treat such products to or beyond the first form or state suitable for
.42237-43-6

THE REVENUE BIAL OF 1943 82 industrial use, or who produce agricultural products and process, refine, or treat, them to or beyond the first form or state in which they are customarily sold or in whiich they have an established market, the Board is requiredi to prescribe such regulations as may be necessary to give the contractor or subcontractor a cost allowance substantially equivalent to the amount which would have been reali,.el by him if he had sol0( such products in their first forni or state.
4. AGOMREGCATION OF CONTRACTS

The bill provides for the aggregation of all renegotiable amounts receive(l or accrued by a contractor or subcontractor under contracts or subcontracts during his fEsal year for the purpose of determining whether they may reflect excessive profits. Upon 'the request of the contractor or subcontractor, however, the Board may (leternlhine such excessive profits with respect to each contract or subcontract, separately, or by groups.
6. STANDARDS

The definition of excessive profits contained in the bill sets forth certain factors to be takln into consideration in thel determination of excessive profits. Trle stntir(Ilrds prescrilbe(l are: Efficiency, with particular regflard to (quiantity taned quality of production, re(luction of costs, an(l ecoioiy inI the uIse of raw mnaterials, facilities, and manpower; reasonalleness of costs anId profits, with particular regard to volume of prodluction and normal pre-war earnings; amount, and source of public and private capital employed and net worth; risk assumed, including the risk incident to reasonable pricing policies; contribution to the war effort, including inventive and developmental contribution and cooperation in supplying technical assistance to the Government and to other contractors; character of business, including complexity of manufaeturing technique, character and extent of ando rate of turn-over; annc such other factors the subcontrlting, consideration of which the public interest and fair and equitable dealing mnay require.
6. APPLICATION OF THEI SECOND WAR POWERS ACT, 1943

The, Boar(l is granted by the bill, for the purposes of renegotiation, the sanec powers with respect to any contractor or sl contraII tor that any agency (designate(l by the President to exercise the power-s conXlI1 forred by titled of the Second War P'owers Aet, 1942, hlas withI respect to any contractor to whoom that title is applicable. The title cite(d confers uipon the, Chiirinan of the War Producltion Boatrd, or any governm(ental agency or officer (lesignate(l by the Presi(lent, powers to inspect the plant ani(l nau(lit the books of any contractor with whom a defense contract has been placed at any timne after the (leclaratioli of emergency on September 8, 1939, and before the termination of the present war. A defensee contract is there defined to mean.n any conItract, subcontr'act, or ordIer placed in ftirtlheranco, of the defense or war effort.

THE REVENUE BIL OF 1943

83

III. RENEGOTIATION PROCEDURE 1. RENEGOTIATION AND UEPRICING DEFINED "Renegotiate" and "renegotiation."-These terms are given now definition in the l)ill and mean theleterminflation by agreement or d ordor of the amount, of profits consi(lere(l to be excessive. In other words the terms indicate (as is set forth in detail in later sections of the bifi) that a (Ieterlnination may he by way of a bilateral agreement between the Government an(l the contractor or, in case suich an agreewent cannot be reached, a unilatteral deternination of the amount of excessivea profts may be made by order. tems are newly defined in the "Repriee" andl " bill. They include determination by agreement or order of a fair price for performance under a contract or subcontract.
2. NOTICE OF CONFERENCE The renegotiation proceeding begins with a notice of conference given the contractor or subcontractor by the Board. Such a notice is to be given whenever, in the opinion of the Board, amounts received or accrued under contracts or subcontracts may reflect excessive profits. The mailing of the notice by registered mail constitutes the commencement of thle renegotiation proceeding.

8. AGREEMENT OR ORDER OF THE BOARD The conference between the contractor or subcontractor and the Board is for the purpose of arriving at a final or other agreement between them with respect to the amount, if any, of excessive, profits. In the event an agreement is not arrived at, the Board is authorized to determine the atrount of the excess-profits taxes, if any, by order. If the determination is by order, the Boar(1 must forthwith give notice thereof by registered mail to the contractor or subcontractor. Agreements of the Board with a contractor or subcontractor may cover such past and future periods, may apply to such contract or contracts, and may contain such terms and conditions as the Board deems advisable. Any such agreement is conclusive according to its terms and in the absence of fraund or mnalfeasance or a willful misrepresentation of a material fact shall not be reopened or modified by the Government or be Iof(lifie(l or set aside in any suit, action, or proceeding. 4. STATEMENT OF THE DETERMINATION Upon a determinationn of the Board, either by agreement or order, of the amount of excessive profits, the Boar(l is required, at the request of the contractor or subcontractor, ats the case may be, to prepare and furnish a statement of the determination, of the facts used as a basis therefor, and of the reasons underlying it.

6. ELIMINATION OF EXCESSIVE PROFITS The next step in the renegotiation proceeding is the authorization and direction by the Board to the Secretary to eliminate the excessive profits by reducing the amounts otherwise playable to the- contractor,

84

THE RZVE}UE BILL OF 1943

desirable. In the event the determination is made by the Tax Court, the same method is followed by the Secretary Din eliminating the excessive profits determined.
6. CURRENT PRICING

by withholding amounts otherwise due the contractor, by directin a contractor to withhold from a subcontractor amounts otherwise Sue him, by recovery from the contractor or subcontractor through repy ment, credit, or suit, or by any combination of these methods thought

Whenever the price under any contract or subcontract exceeds a fair price, in the opinion of the Secretary of the contracting department interested, the Secretary may require negotiation to fix a fair price. If no agreement is reached, the Secretary may by order fix the price which he determines to be fair for performance under the contract or subcontract after the date of the order, The agreement or order may prescribe the period during which the price fixed thereby shall be effective and may contain such other terms and conditions as the Secretary deems appropriate. In determining the fair price, the Secretary is required to take into consideration the same factors as are required to be considered in determining excessive profits and the determination may be effectuated by withholding by or for the account bf the United States from amounts otherwise payable to the contractor or subcontractor. This pricing authority may be exercised with respect to contracts and subcontracts separately or as a group.
7. REVIEW BY THE 1OARD

Any contractor aggrieved by the decision of a division of the Board or of any officer or agency to whom it has delegated its powers functions, or duties, is entitled to a review thereof by the Board upon request therefor made within a period to be specified by regulation of the Board. The Board is empowered to delegate any of its powers, functions, or duties to the Secretary of a department, who in turn may delegate to such officers or agencies of the United States as he may designate; successive redeleg ations of such powers, functions, and duties are also authorized. The Board may also, on its own motion, review a decision of any division, officer, or agency to whom delegation has been made.
IV. REDETERMINATION
BY THE

TAX COURT

1. DETERMINATIONS OF THE BOARD OR OF A SECRETARY WITH RESPECT TO FISCAL YEARS ENDING AFTER JUNE 30, 1943

Any contractor or subcontractor aggrieved by an order of the Board determining the amount of his excessive profits or by an order of the Secretary determining a fair price with respect to a fiscal year ending after June 30, 1943, is permitted by the bill to file a petition for a redetermination with The Tax Court of the United States within 90' days after the entry of the order. The court is given exclusive jurisdiction to determine the amount of the excessive profits or the

3 THE REVENUE BILL OF 1943

85

fair price, as the case may be, and its determination is not to be subject to review or redetermination by any court or agency, The court may determine an amount of excessive profits less than equal to, or greater than the amount determined by the Board, and the same latitude is given the court with respect to its determination of fair price. The bill expressly provides that the proceeding before the court shall not be treated as a proceeding to review the determination of the Board or the Secretary but as a proceeding de novo. The powers and duties of the court are, in general, the same as those possessed by it in the case of a proceeding to redetermine a tax deficiencyr The fi ing of a petition with the court does not operate to stay the execution of an order of the Board determining the amount of excessive profits or ual order of a Secretary fixing a fair price,
2. DETERMINATIONS OF A SECRETARY PRIOR TO ENACTMENT OF THE BILL AND WITH RESPECT TO FISCAL YEARS ENDING BEFORE JULY 1, 1948

Any contractor or subcontractor aggrieved by a determination of a Secretary made prior to the date of their enactment of the bill with respect to any fiscal year en(ling before July 1, 1943, as to the existence of excessive profits, whether or not the determination has been agreed to by him, may, within 90 days after the enactment of the bill, file a petition with the court for a redetermination thereof. In the case of a determination Iy a Secretary on or after the.enactment of the bill, with respect to the existence of excessive profits for any fiscal year ending before July 1, 1943, any contractor or subeontractor aggrieved thereby and who has not agreed thereto may file a petition with the court for a redetermination. Trle jurisdiction, powers, and duties of the court in either case are subject to the same provisions as in the case of a petition fled, with the ourt in respect of a fiscal year governed by the statute as proposed to be amen(lcd (namely, fiscal years ending after June 30, 1943), except that the other amendments made by the bill are not to be applicable. In the event the determination of the Secretary has been agreed to by the contractor, neither the agreement nor the amount of excessive profits agreed upon is to be taken into consideration by the court in its determination of excessive profits,
V. PERIODS OF LIMITATION
1. ON COMMENCEMENT OF PROCEEDING

The bill prohibits the commencement of any proceeding by the Board to determine the amount of excessive profits more than 1 year after the close of the fiscal year in which such profits were received or accrued or more than 1 year after the statements of costs of production and other financial statements required from the contractor or subcontractor have been filed with the Board, whichever date is the later, and if the proceeding is not commenced within that period all liabilities of the contractor or subcontractor for excessive profits received or accrued during the fiscal year in question are thereupon discharged.

86

THE REVENUE BILL OF 194 3

2. ON DETERMINATION OF EXCESSIVE PROFITS If an agreement or order determining the amount of excessive profits is not made within.1 year following the commencement of the renegotiation proceeding, all liabilities of the contractor for excessive proftsB with respect to which the proceeding was commenced are thereupon discharged, except that if an order is made within such 1 year by the Secretary or by an officer or agency designated by him pursuant to his authority to delegate, such 1-year limitation shall not apply to review of the order by the Board. Provision is made, further, for the extension of the 1-year period by mutual agreement between the Board and the contractor, VI. DISPOSITION OF PROCEEDS OF RENEGOTIATION 1. EXCESSIVE PROFITS RECOVERED As un(ler existing law all moneys recovered by way of repayment or suit are to be covered into the Treasury as miscellaneous receipts. 2. EXCESSIVE PROFITS WITHHEJLD OR CREDITED The bill provides that upoU the withholding of any amount of excessive profits or thle crediting of any amount thereof against amounts otherwise due a contractor thle amount so withheld or credited is to be transferred to the Treasury to the credit of miscellaneous receipts, thus reducing the appropriations respectively available for the contracts in question. S. CREDIT FOR FEDERAL INCOME AND EXCESS PROFITS TAXES As under existing law, credit is to be allowed the contractor against any excessive profits to be recovered from him for taxes paid or accrued thereon. VII. ADMINISTRATION 1. ESTABLISHMENT OF THfE WAR CONTRACTS PRICE ADJUSTMENT BOARD A new Board namen( the War Contracts Price Adjustment Board is created by the bill. It is to consist of five members of whom one is to be an officer or employeeT of the War Department, one of the Navy Department, one of the Ireasury, one of the. United States Maritime Commission or the War Slhippiing Administration, and one of the Reconstruction Finance Corporation. The Chairman of the Board is to he elected from among its members and the Board is to have a seal which shlall be ju(licially poticedi. Tile principal office of thei Board will be in the District of Columbia but the Board or any of its divisions may meet and exercise its powers at any other place within the United States. Such number of field offices as it may (teem necessary to expedite its work may be established by the Board. 0 2. DELEGATION BY THE BOARD OF ITS POWERS, FUNCTIONS, AND DUTIES The Board is authorized to delegate ill whole or in part any of its powers, functions, or duties (except to review determinations of excessive profits) to the Secretary of a Department, and any such power,

TH

RZVEMU1 BML OF 1943

87

function, or duty, may be delegated in whole or in part by him to such officers or agencies of the United States as he may designate. The Secretary may also authorize successive redelegations.
8. DIVISIONS OF THE BOARD

The Board may be divided by its Chairman into divisions of one or more members and in case a division is of more than one, the Chairman is to designate the chief of it. The Board is also empowered to determine the character of cases to be heard and decided initially by the Board through an officer of or utilized by it, the character of cases to be heard and decided initially by the various officers and agencies authorized to exercise its powers, the character of cases to be heard and decided initially by the various divisions of the Board and the character of cases to be heard and decided initially by the full Board.
4. REVIEW BY THE BOARD OF THE ORDERS OF A DIVISION, OFFICER, OR AGENCY Any contractor aggrieved by a decision of an officer, agency or division of the Board, may request a review by the full Board. The Board may also review such a decision on its own motion or may provide, by regulations, that in the absence of a request for review within the time prescribed, the decision of the officer, agency, or division shall be deemed the decision of the Board.

VIII. CONTRACT OBILIGATION FOR RENEGOTIATION The bill authorizes and directs the Secretary of each department to insert in each contract, made by it 30 days or more after the (late of enactment of the bill, a provision under which the contractor agrees to repricing and to the elimination of excessive profits through renegotiation; also to the retention by the United States from amounts otherwise due him or for the repayment to the United States, if paid to him, of any excessive profits; also that he will insert similar provisions in each subcontract made by him. Th is provision may be incorporated by reference in any contract or subcontract but whether or not the contract contains such a provision it shall be construed to have been made subject to it. Although such provision is required to be inserted in every contract and subcontract, the contractor or subcontractor will be bound thereby only if in any fiscid year the aggregate amounts received or accrued total the applicable specific exemption. IX. EFFECTIVE DATES OF AMENDMENTS The bill applies to fiscal years ending after June 30, 1943. Exceptions are macde with respect to the exemption of agricultural commo(lities, which is effective as of April 28, 1942, an(l the right to petition The Tax Court of the United States, which applies to fiscal years ending before July 1, 1943, as well as fiscal years ending on or after that date.

888THE REVENUE B3LL OF 1943

X. TERMINATION OF RENEGOTIATION Under existing law the renegotiation section will remain in force during the present war and for 3 years after the end thereof. The termination date under the bill is the date of the termination of hostilities in the present war or the date specified in a current resolution of Congress as the date ending the war, whichever is the earlier. XI. TECHNICAL AMENDMENTS 1. PROSECUTION OF CLAIMS AGAINST THE UNITED STATES The bill liberalizes the existing prohibition upon any person leaving the employ of the Government from acting as counsel, agent, or attorney for prosecuting any claim against the United States. The existing prohibition goes to the prosecution of any claimnarising from any matter directly connected with which the person is employed or to such prosecution during the period such person is engaged in intermittent and temporary employment in a Department. The new provision changes the period mentioned in the second test to the period during which the person is employed in a Department. The bill also adds a new subsection providing that nothing in the section shall be construed to limit or restrict any authority or discretion of a Scretary of a Department under the provisions of any other law or with resl)ect to the making of agreements or amendment or modification thereof by mutual agreement or in accordance with their terlms. 2. CREDIT FOR DECLARED VALUE EXCESS PROFITS TAXES The bill amends these paragraphs by inserting the words "chapter 2B" after the words "chapter 2A" wherever they appear therein. The effect of the amendment is to include declared value excess-profits taxes paid with those in respect of which a credit is allowed against recoverable excessive profits. 8. AMENDMENT TO INTERNAL REVENUE CODE 3806 (A) (1) (B), (C) The amendment striking out the words "by the Revenue Act of 1942" from this subparagraph has the effect of extending the application of the definition of the term "excessive profits" to a renegotiation section as amended by the bill. 4. SHORT TITLE The bill provides that the renegotiation section may be cited as the Renegotiation Act. The purpose of this amendment is to obviate the necessity of the long citation now necessary in documents pertaining to renegotiation; namely, section 403 of the Sixth Supplemental National Defense Appropriation Act, 1942.

Table: Outline of Changes Made in Existing Statute by the Ways and Means Com it e Bil , November 18, 1943

RENEGOTIATION OF WAR CONTRACTS

OUTLINE OF CHANGES MADE IN EXISTING STATUTE B3Y THE WAYS AND AIMANS COMMiTTEE BILL, NOVEMBER 18, 1943
Renegotiation Act, 1. REDUCTION OF TIHE AREA OF RENEGOTIATION PA" &ction 408 115 c) 1. Increase of the specific exemption to $500,000 -,-(0) 104 a) (5) 2. Definition of subcontract ---() (1) (E) 3. Subcontracts under exempt prime contracts or subcon126 tracts i) (1) 126 4. Contracts with organizations exempt from income tax 126 i 5. Exemption of agricultural commoditiC) . 1 4 D) 127 6. Exemption of standard commercial articles 1 (4 E) 127 7. Exemption of con petitively priced articles generally --8. Exemption of subcontracts where profits otherwise 1) (4) (F) 128 reliegotiablecannot be segregated
-

II. DETERMINATION OF EXCESSIVE PROFITS

(A)

1i)

3) 1)

4)

(B)

1. 2. 3. 4, 5.

Mandatory statements of costs _-_-__-_- ___-__-_ Allowable costs Costs allowed to certain processors Aggregation of contracts Standards 6. Application of the Second War Powers Act, 1942.
III. RENEGOTIATION PROCEDURE

114 103 126 110 102 116

101 109 113 111 111

(a) (3) (A) (B) 1. Renegotiate and Renegotiation; Reprice apd Repricing defined(1 C)1 1 (4) c) e) 2 (1) 2. 3 F5, 6, 7.

(6)

Notice of conference .Final agreement or order of the Board -109, Statement of the determination .-. Elimination of excessive profitsCurrent pricingRleview by the Board.
IV, REDETERMINATION BY THlE TAX COURT

122 119

(e) (1) (e) (2)

1. Determinations of the Board or of a Secretary with respect to fiscal years ending after June 30, 1943...2. DeterminatJons of a Secretary prior to enactment of the bill and with respect to fiscal years ending before July 1, 1943 -V. PERIODS OF LIMITATION

119

121

(c) (3) : (3)

(4)
()

1, On commencement of proceedings 2, On determination of excessive profitsVI. DISPOSITION OF PROCEEDS OF RENECOTIATION

112 113

(4! (41)

1. Excessive profits recovered2. Excessive profits withhold or credited3. Credit for Federal income anid excess profits taxes
89

112 112 112

90

TH E REVEtNUE BILL OF 1943

VII. ADMINISTRATION Renegotiation Act.8, Section 403 Page 1. Establishment of the War Contracts Price Adjustment (d) (1) 116 Board 2. Delegation by the Board of its powers, functions, and (d) (4) 118 duties 3. Divisions of the Board.. 118 (d) (5) 4. Review by the Board of the orders of a division, officer, or d) (5) 119 agency 107 - (b) VIII. CONTRACT OBLIGATION FOR RENEGOTIATION -__
-

IX. EFFECTIVE DATES OF AMENDMENTS

Bill-section 701 (d) 701 (d)

(c) (a)

701 (d) 701 (c) 701 701 701 (C) 701 (d)

1. Renegotiation of profits received or accrued in fiscal years ending after June 30, 1943 2. Determinations of the Board or orders of a Secretary with respect to fiscal years ending after June 30, 1943 3. Determinations of a Secretary prior to enactment of the bill and with respect to fiscal years ending before July 1, 1943 4. Contract obligation for renegotiation 5. Current pricing. 6. Exemption of ikgriculttural commodities7. Clerical amendment to I. R. C. 3806 (a) (1) (B), (C) 8. Credit for declared value excess profits taxes 9. Short title ----------X. TERMINATION OF RENEGOTIATION--.._-------------_
XI. TECHNICAL AND CLERICAL AMENDMENTS

115 129

129 129 129 129 129 129

(h)
(2) (1)

124 128 129 129 129

1. Prosecution of claims against the United States . 2. Credit for declared value excess profits taxes 3. Amendments to 1. R. C. 3806 (a) (1) (B), (C) -------------------------------4. Short title --

Table: Table 16.- Amount of unforgiven tax (as uming no change in net income)

APPENDIX
TABLE 16.-Amount of unforgiven tax (assuming no change in net income)
Total unforgiven tax

Amount payable in 1044 and in 194

Neo Income before pers \nal exemption

Married, no Single person

person

dependents

Married, 2 dependents

Single
person

den 2 ents ~~~~~~~~~ depend ~~~~pendents

o
-

Married,

Married

- -$2.20---------- -----$1.10------ --:$800-------2 25 .--------1-l1.13 --$1,000-. 31. 45 - 18-. 73 $1,200.-.-.-.-. 22.63 - ...-.. 45.25 $1S0-o 0----.-.-.-.-.$12.90 $25.80 - 29.63 69.05 $1,800. ...... ...... 34.13 35.00 17.60 . $2,000 ---- -68.25 29.00 46.63 $1 .38 $24.75 68.00 $2,600.., --- .----91.26 23.88 69.00 118.00 81.00 47.76 40. 60 $3,(00.94.60 66.50 47.25 -85.75 171.60 133.00 $4,000 74.0 148.00 93.25 116.00 186. bO 230.00 $5,000.---*101.25 202.60 140.75 124.00 248.00 293.80 .$6,000 . -- 133.00 181.00 362.00 311. 60 20. 00 155.75 .. $7,000 ..--... 165. 25 217.75 191. 6o 435.60 383.00 330. 60 $8,000 404.00 228.25 202.00 4OW.60 257.00 514.00 $9,000 - 638. 00 269. 00 239.25 478.60 298.75 & $10,000. ..-..... 697. 646.76 60.60 469.75 939.80 013.00 -1,-091 6 1, -$15,000 60 761.00 $20,000 ---852.00 80. 1,613.00 1, 622.00 1, 704. 00 25 --000 -----------1, 101.75 2,203.60 1,20X. 25 1,152.50 2, 305. 00 2,406. -A) 1,172. 13 2,944.25 3,051.00 3000 .... 3,167. 75 1,678.88 - 1, 25. 60 $4(,000 2, 376. 13 2,267.88 2, 31B. 50 4,750. 25 4, 815. 76 4, 633. 00 3 226. 38 3 166.00 6,211.25 3,106.63 6, 452. 75 6,332.00 . $5O'00 .--4,124. 50 4,061. 60 7,997.00 3, "8. 50 8,249.00 8,123.00 60,000-.- 4, 92& 88 9,857.76 5,0O 13 4,994.60 10, 120.25 .0. 9,,989.00 $70,00 -11,90).00 6, 965. 00 6, 86. 76 6,033.25 11,793. 60 12,066. 60 $80,000 .-6,902.13 7,043 88 13, P4. 25 6,973.00 13,94. 00 $90,00W ---- -14,087.75 16 015.00 8,080.13 * 8,007. 50 15,89.76 7,934.88 $100,0oo .16,160. 25 26, 634. 00 26,485. 25 13,391.38 13,317.00 13,242.63 26,782.75 $150,000 37, 655. 25 37,603.00 37,30. 75 18,827.63 18,761.60 1200.00018,673. 38 24,173.00 48, 346.00 24, 327.00 24,260.00 48, B00.00 -48,651.00 $250,00 --0. 00 61,750.00 61,673.00 103,346.00 61,827.00 103, $W00,0 103,654.00 00 79,173.00 168,346. 0 79,327.00 79,250.00 168, 80. 00 -.. 158, 64. 0 $760:000 ......213, 65. 213,346.00 10687. 00 106,750.00 106,673. 00 $1,000, --------213, 0o. 00 2,W.),000 .... 433, 5. 00 . 433, 600. 00 433,340.00 216, 827. W 216, 760.03 216, 673.0 1,093,654.00 1,093,80 00 1,093,310.00 6, 827. 00 64., 760.00 5, 673. 00 56,000,000 .
_--

. . $760-

..

......

91

Table: Table 17.- Existing income-tax burden for 194 and 1945, including net Victory tax and one-half of unforgiven 1942 tax (as uming no change in net income). Single person, no dependents

Table: Table 18.- Existing income tax burden for 194 and 1945, including net Victory tax and one-half of unforgiven 1942 tax (as uming no change in net income)

92

THE REVENUE BILL OF 1943

TABLE 17.-Existing income-tax burden for 1944 and 1945, including net Victory tax and one-half of unforgiven 1942 tax (assuming no change in net income). Single person, no dependents
Income, net Net income Victory, and Effecbeforee personal one-half tive rate exemption unforgiven
tax I

Income remaining after tax

Income, net Net income Victory, and Effecon c-half before personal tive unforgiven rate exemption 1 tax

Income remaining after tax

$750 .-------$800...

$600.

...

$1,200 . $1,500-----$1,800. $2,000 -.---$2,600 . p,000 . ,0(10 $6,000 . $7,000 . $8.000 _----_-__-_--_$9,(-000 . $10,000.
.........

115,000.
I Net

Percent 2.833 50. 85 6. 780 63. 23 7. 903 118.40 11.840 168. 13 14.010 242. 73 16. 182 317.33 17.629 367.96 18. 353 491. 40 19, 656 632. 0. 21, 096 915.01 22,875 1,219.93 24, 398 1,547.35 25. ,789 1,897.27 27.103 2, 269. 68 28.371 2, 6. 60 29. WO 3, 082. 02 0. 820 $17.00
5,513.35 3. 755

3,084.99 3, 780.07 4,452.5

$583. 00 609, 15 736.77 881. 60 1,031.87 1, 2.57. 27 1,482. 67 1, 632. 94 2,008,60 2, 367. 40

5, 102.73 5,730. 32 6,335.40 6, 917.98 9, 486.65

$250,000 ..-. $500000-0 $750,000 .... $1,00,000.. $2,000,000 -.

$25,000 . $30,000 .. *40,000 ----.*t50.000..$60,000. $70,000 . $80,000 --.---$00,000 .-.-. t60,000 - -- -- -- 200,O .
.
-----

$20,000-,

$8, 477.93 11 847.52 15, 43q. 48 23,067. 16 31,283.96 39 922.63 48,898.82 58,212.49

Percent 42. 389

$5,000,00U-

128,324.51 180,028. 64 232,300. 69 493,689.68 753,827.00 1,006, 327.00 2,016,327.00 5,046,327.00

67,863, 6 77 745.49

$11, 522.07 47. 390 13, 152. 48 61. 454 14, .563. 52 67. 867 16,932.85 62. 667 18, 716.04 66. 637 20,077. 37 69.855 21, lOt. 18 72. 75 21, 787. 51 22, 136,32 75.404 22, 254 51 77. 745 85. 49 21,676. 49 90.014 19,971. 4 17 699. 31 92.920 6,310.42 98.737 100. 510 -3,827,00 100. 632 -6,327.00 100. 816 -16, 327. 00 100.926 -46,327.00

Victory tax computed on a gross income equal to 1% of net income,

TABLE 18.-Existing income tax burdenfor 1944 and 1945, including net Victory tax and one-half of unforgiven 1942 tax assumingg no change in net income) Married person, 2 dependents
Income, net Net Income Victory, and Effecbefore personal tive one-l1alf unforgi ven rate exemption
tax I

Income remaining
after tax

Income, net Net income Victory, and Effec- Income tive remaining one-half before personal after tax unforgiven rate exemption
tax I

$600 ...--.. $750 ---. .-.-.. $800 .-----$1,000.----$1,200 ..... 1,600. 1,#800 .$2,000 . $2,5600 ... $3,000 $4,0(00. . $5(,00 .... $6,000 ..--..
-

$7,000.$9,00

$10000 $15,000
I

$1. 10 5.86 7.41 13.64 19.86 29.19 38.53 57.75 171. 69 290.74 632. 22 804.08 1,080.44 1,397.31 1, 718.66 2, (80. 53 2, 446. 89 4, 670. 94

Percent 0.198 .781 , 926 1. 364

2.887 6.867 9.691 13. 305 16.081 18. 007 19.961 21.483 23. 11l 24.468 31.170
1.f65 1.946 2.140

$6598.81 744. 14 792. 9 986.36 1, 180. 14 1, 470.81 1. 761. 47 1,942.25 2,328.31 2,709.26 3, 47.78 4,195.92 4,919.66 5, 602.69 6,281.34 6,919.47 7, 553.11 10, 323.06

10, 676.06 14. 164.99 21, 547.85 21 $0000.... 29, 497. 63 $50,000 _-..38,088. 47,017.57 $70,000 . 50, 283.9 W.000 ._-._----$000 65, 887.93 76,738. 24 100,000. 160,000 -.----126, 285.76 177, 958.29 $200,000 . $250,000 .... 230, 214. 69 491, 603.58 $500,000. $750,000. . 752,973.00 $1,000,000. 1,005,473.00 2,015,473.00 $2,000,000. .$5o,000000 5, 045, 473. 00

0 $30,00 . . $ 000 .1 ...

$7, 453.76 37.2068

Percent 42.704 47.216 B3.869 58.994 63.'481 67. 167 70,354

$12, 646.25 14,323.94 16,836.01 18, 462. 16 20,602.79 21, 911.37 22,982.43 23, 716.01 73.208 24, 112.07 75.738 24, 261. 76 84.190 23, 714.24 88.979 22,041.71 92. 08 19,785.31 98. 320 8,396.42 100.396 -2, 973.00 - 5. 473. 00 100. 547 100.773 -15,473.00 100.90 -45, 473.00

Net Victory tax compute(d on a gross ineonie equal to 10/9 of net Income.

Table: Table 19.- Comparison of individual income tax rates and exemptions, taxable years 1936-43 and under com it e bil

THE REVENIUE BILL OIF 1943

93
1943

TABLE 19.-Comipari8on of individual income tax rate and exemptions, taxable years 1986-43 and under committee bill
Personal exemption
-. Single person . Married person ---------Each dependent ..............
----------Normal taxSurtax rates

1936-9

1941
$800 2,000400

1941

1942

Committee Bill

$1,000
2,60
400

1,600 400

$750

$600 1,200

350
6

1, 200
350

$500
6

Percent
.

Percent

Percent

Percent

Percent

$m0 1,200 350 Percent 10

Exceeding

Not exceeding
---

$0 -$2,000 4,000 $2,000 ----$4,000 -6,000 .. .$8,000 8,000 10,000 $8S,000 $10,000 -12,000 14,000 $12,000 .....,,,. $14,000 ------16,000 18,000 $16,000 . , $18,00020,000 22,000 $20,000 ,, $22,000 26,000 $26,000 -32,000 $32,000-38,000 44,000 $38,000 ,000 $44,000. .60. 56,000 $50,000 60,000 $56,000 ........... $60.000-.---62,000 $62,000 -68,000 $68,000-70,000 74,000 $70,000 *$74,000 ......... 80,000

4 6

$200,000 250,000 $2.50,000---300,000 $300,000 400,000 $400,000 .500,000 750,000 $500,000---------$750,000 ---------- 1,000,000 $1,000000-. 2,000,000 $2,000,000 5,000,000 Over . -.. 5,000,000
---------

$80,000 -------$90,000 --------$100,000.. $150,000 ..........

200,000

90, 000 100,000 160.000

8 7 8 9 11 13 15 17 19 21 24 27 31 35 35 39 43 43 47 51 55 68 60 62 64 66 68 70 72 73 74 75

4 6 8 10 12
15

18 21 24 27 30 33 36 40 44 44 47 47 47 50 50 63
58 60 62 64 66

6 9 13 17 21 25 29 32 35 38 41 44 47 57 57 69 59 69 61 61 63 64 65 66 67 69 71

32 36 40 43 46 49
61 63

13 16 20 24 28

60 63 65

58

52 65

20 24 28 32 36 40 43 46 49 61 63 66 66 69 69 69 72 72 75 77
81 82 82 82 82

13 16

52 56 68

66
69 69 69 72

66

56

76 77 79 81
82 82 82 82 82 82

72

79

82 82

62 55 a8 62 -5 08 08 71 71 71 74 74 77 80 82 83 84 84
84 84 84 84 84 84 84

46 49

36 40 43

31

16 20 23 27

13

70 72 73 74

68

75

76 76
77

72 73 74

82

82 82 82 82
82

I For 1940 tax increased by 10 percent, but not more than 10 percent of the amount by which the net income exceeds such tax. I For 193 a Victory tax of 5 percent on gross income in excess of $624, with post-war credits alowed.

Table: Table 20.- Comparison of individual income tax- Taxable years 1936-4 , and increases in tax since 1939

SINGLE PERSON, NO DEPENDENTS TABLE 20.-Conzparison of individual income tax-Taxable years 1936-44, and increases in tax since 1939
Tax payable in taxable years Net income before personal exemption
I

1936-39

$6O

-----

_________

_.

$1,000
$1, $1,50

.--

--

-. .-----

$3. 14.00 24. 80

20

$4.40 12.32
24.20

$2,000 .-----

$2,5W 00..$3,000 0..-

36). 08 44.00

50.00
.
-

68.00
104.00

63.80

$5,000 .. $7,-000.
$8,000.

$6,000 .---

216.00
292. 00

140.00

123.20 171.fO 255.20 343.20

83.60

$9 ,000
$1 0,00

...---

_-

$15.000----.
$25.'.# 0.
O ---.-u-..

1, 104.00
2,

464.00 56. 00
S04. 00

378.00

1,834.00

3,914.00

6,fi384.00 9,334.00
19 914.00

17,134.00
22,034. 00

27,494.00

64,32:4.00
$2

33.354

00

.w ---.---

6304. 00

78,350.80 11, 890.80

147,576.40

25,537.60 31,451.20 37,694.80 44, 268. 40

2,666.40 4, 254 C60) 6,063.20 10,080.40 14,709.20 19, 95.00

1, 476. 20

448.80 558.80 686.40

33,251.50 39,73tM.50 46,421.50

87,706.50
53,214.00

20,881.50 26, 966.50

2,994. 00 4,929.00 7,224.00 % 721.50 15,076.50

1,246.50 1.492.50

1,030.50Z

346.50 482.50 648.50 824.50

165.00 220.5o

3$3.00 21.00 40.20 69.00 97.0 117.00

.~
125.80

Amount of increase in tax 1940 over

1936-39

Existing law 1992 19431 j 1944 2

.....1..

1941 over
1940

1942 over
1941

1913 over 1
1919};

1913 over

193i339 1

1944 over

1936-39 1

$15.40 I
43.00 52.20 83.00

236.20 273. 00 35. 00 472.00 6S6. 00 920.00 1,174.00 1,448.00 1,742.00

2,056.00

181.00

2,390.00
4. 36. 00

12,631.00
19,001.00

9.62;.00

6,816.00

$000,000

$:C0.0 ZO

-----

---------

7-33,139.00 854,616.00 718,404.40 81.450,14.00 1.511.397.2,0 1,523,131.50 1,734,616.00 3,9,1A 3,917,3W.00 3,923 124.00 4,374.616.00
I

305,224. 00 490,204.00 MI 14.00 Ix

129,2S4.00

33W 933.20 522,418. 80

122,699. 00 158,191.50 345. 654. 00 538,146.50

56,351.00 64,641.00 107,131.00 150,621.00 194,616.00 414,616.00

25,811.00 32, 6. 00 40,481.00 48,266.00

631,616.00

Includes W. Thchules net Victory tax.

27.88 26.60 10.20 44.80 206.10 242173 39.10 11. 2 287.80 317.33 61.72 263.00 13g. 40 51.60 12.00 156. 00 332.93 73.00 300.93 3437.06 59.93 4141.40 445. 77 101.20 13.80 200.00 80.77 395.77 632.60 5.3. 60 251.50 15. 60 136.90 505.60 101. 60 564.00 915.01 89. 16 339.50 19.20 223.30 143.26 725.26 1, 079. 93 811.01 1,104.93 1,219.93 31.60 310.90 437.50 184.93 964. 93 39. 20 1,400.60 1, .547.35 525. 50 393. 30 1,184. 60 226. 60 1,331.35 51.20 1, 716.27 481.30 1,8937.27 623.50 268. 27 1,424.27 1, (6. 27 2:051.93 2,269.68 70. 80 581.70 309.93 1,673.93 711.50 1,891.68 2,407.60 2,664.60 94.80 687.70 2.200.60 809. 50 351. 60 1,943.60 2, 783.27 3, 08202 806.10 126 40 393.27 2,223.27 897.50 2,522.02 4,967. 60 372...0 1.517.80 5,513.35 601. W 1.372.00 3. 863.60 7,625.93 832.40 8,477j.93 2,262.60 1,887.00 809. 93 5.79L93 4,409.35 6.643.93 10,.27 11.847.52 1,448.(0 2,971.40 2.402.00 1. 018.27 7. 840.27 9,043.52 13, 57. 60 15,436.48 2,149.20 3, 65. 30 2.90. 50 1, 2>6.60 9,943.60 11,522.48 20,692.02 23.,037.15 4996. 10 3, 696. 40 3,924.50 1,691.02 14,303.02 16.683.15 28,057.58 31,283.9G 5.375. 20 6.172.30 4,929.50 2,246.58 18.723.58 21,949.96 35, 79. 13 6.029.50 182. 13 22,884.13 SO) 39,922.63 70,040.O 7 43,838.69 3. 357. 69 26,704.69 27,008.63 48.898.82 8,403.0 7713.90 7. 229. 50 31.764,82 52, 179.24 58.212.49 9,417.10 '8285.30 8: 529. 50 3,913.24 30, 145.24 36, 178.49 8 726.70 8,929.50 4, 4Q8. 08 3.3.325.80 40, 369. 68 60.819.80 67,853.68 10, 69,665. 36 77,745.49 10,914. 41) 8,945.60 11.427.00 5. 024. 36 36,311L36 44.391.49 114,933. 13 9. 355. 70 19.424.50 128,324.51 14. 02j. S.d 7.802.13 50. 609. 13 161,200.91 9. S08. 20 27,922.00 10.579.91 64.896.91 64,000.51 180,028.54 16. 5s6. 207,973.69 232.301.69 18,292.4( 10.615.10 36,424.50 13, 357. 69 78.689.69 10l3,016.69 441.8S2.58 493.683.5 25,703. 2 14,.20.80 68. 962. 00 2 7, 246. 5$ 135,638.58 183,465.58 674,500.00 753,827.00 32,214.80 1, 727.7-0 96, 469.50 39, 88C 00 184,296.0 263, 623. 00 899,500.00 1, 003. 32. 00 38,20.40 14,734.60 121.4ee. 00 44,884.00 219, 31.00 i 326,143.00 1,799,500.00 2, 016. 327.00 61,223.26 11.73t.30 211.484 50 64,SS4.00 349,328.00 56, 153.00 4,499,50. 00 5,046,327.00 127, 22&. 5,734.00 451, 492. O 124,884. 00 709,330.00 1,2'6,163.00 2 jnoq4.s 12% Percent of udorgivea ax. '111C1114es 12. percent of unforgiven .ax.
152.40

$1,.00 S0.85 62.13 107.27

$17.00 50.85

=
.-----

220.10

118.40 la 13

3. 23

$4.40

$3.00

9. 12

16.60

$15.40 43.00 49.20 68.00 85.60 11i00

$1. 60
7.85

18.27

9.93

$17.00 50.85

. $17.00

10. 27 149.20

62.13

50.85 63.23 118.40 164.93 228.73 292. 53 335.06 441.40

qi
M2
Mi

PC Mi

7,012.50

200.90 &

183,72t.54

Table: Table 21.- Comparison of individual income tax- Taxable years 1936-4 , and increases in tax since 1939

MARRIED PERSON, NO DEPENDENTS TABLE: 21.-Comparison of individual income tax-Taxable years 1936-44, and increases in tax since 1939
Tax payable in taxable years Net income before personal exemption
Amount of increase in tax

Existing law
1936-39 1940
1941
1942

1943'1
$60-O---------------

1442
$1.28 6.28
79.28 157.38 205.45 325.61 445.78 713.11 987.20 1,297. 28 1,616.36 1,971.44 2 335.53 2,735.62 5,039.78 7,906.45 11. 187. 11 14,710.78 22.163.11 30, 240.58 38.855.63 47,80.19 57,0 98.24 0 66,725.80 76.591.86 127.155.13 178.843.41 231,107.6) 492,496. 58 753, 250. 00 1.005. 750. 00 2, 015, 750. 00
21.28

1940 over 1936-39

1941 over 1940

1942 over 1941

1943 over

19V I

19943 1936-1939'
over

1944 over 1936-39 2

$750--------------$1,000.

57.000-172.00 $8,000 248.00 329. 00 $9,000----------415.00 510.000 -924.00 $15,00 -$20,000 1, 589.00 $25.000 ---------i2, 489. 00 3, 539.00 $30.000 ---------540.000 - 5,979. 00 550.000 - 8, 869. 00
560000- -

$1, 500s8. $1.800 $2,000 $2,500-------------53.000------$8.00 4000 44.00 $50 --80.00 116.00 $6,000-

$1,200-

-----

- - - - - - - !- - - - - - -------------------------------------------------------

- - - - - - - I- - - - $811. 00
149.60 233.20 316.80

*s O.Ct

70.40 110.00

30.80

S70.000

$150,000_- -_ 63.,.4.00 S200,00--------- 95,344.00 128,294.00 $250,000-$500.000 - - 304. 144. 00 330.155.60 521. 6f19.60 48'). 094.00 $750.000 51.000.000 -679.044.O0 717,5.3.60 1449,019.00 1,510,565.60 $2.000.000-- 3, 788 ,994.00 3,916,547.60 t5,000,000-

S9,000 ---------5100.000-

s.0os

12,329. 00 16,449.00 21: 269. 00 26.669.00

3 469.00

422.40 528.00 1,258.40 2,;36. 40 3,843.40 5.614.40 9.55 40 14, 128.40 19,320.40 24. 864.40 30,738.40 36.94 40 43,476.40 77. 532.40 112,19.60 146, 86. 60

7,099.95 6,864.00 10. 0(34.61 9, 339. 00 13.185.28 14. 649. 00? 19,846. 61 20,t439.10 27.074.58 26.5. 00 3-i.794.13 32. 779. 00 42 813.69 39.249.00 51.133. 24 45.919.00 59,752.83 52,704.00 69. 584.36 87, 189.00 113. 838. 13 122, 1 74.00 160. 091.91 157,659.00 06, 857. 69 345,081.00 440.746 58 537, 6. 00 674.090.00 732, 554.00 89. 000. 00 1,522,539.00 1, 734. 000. 00 1,799,000.00 3,92Z524.00 4,374,000.00 4,499,000.00 5,045,750.00

2,7I39.00 4,614.00

1,079.00 1,305.00

249. 0 375.00 521.00 687.00 87.3. 00

9W.00 1.38.00

42.00

$48.00 103.20 140.00 23 00 324.00 .532. 00 746.00 992.00 1.246.00 1, 53 00 1,826.00 2,1500 4,052.00 6,45.00 9.220.00 12 204.00 18, 532.00 2.5,328.00 32,492.00 39. 956. 00 47.720 00 55481 00 61,060.00 106. 536. 00 150,012.00 194,00. 00 414,000.00 63 000. 00 854 000. 00

2,107.28 2,466.62

187.95 296.61 405. 28 646.61 893.95 1,173.28 1,460.61 1,779.94

$1.28 6.&2 7.94 14.62 21.28 79.28 144.48

------------1$1.28
.-----------. -----------I----------------------

14.62,
$22.80 42.00 79.00 107.20 178.60 265.00 371.40 453.80

7.94

$48.00 80.40

4,533.28

334.40 747.40 1, 354. 40 2.04.5.40 3. 573.40 5,259.40 6. 991. 40 8.415.40 ,4(19. 40 10,273.40 11, 007.40
14,138.40

$11.00 22.8&0 2ff.40 30.0oO 33.60 61.20 93.40 113.00

142.00 186.040 283.00 371.00 471.00

98.00

127,553.60

16.855.60 18, 569.60 10.795 40 26,011.60O 14,928 40 32, 525.60 15,949.40 *38, 539. 60 14,970.40 81, 548. 60O 11,973.40 211,461.00
5,97-6.40 451, 476.00
of unforgiven

1,480.60 277. 60 3,020.60 3, 724 64 5,096.60 6,310.60 7. 188.60 7,914.60 B 510. 60 8,976.60 9,227.60 9,656.60 9.974.40

556.20 656.60 777.00

9,865 00 11,356.00 19,347.00 27. 838 00 36,341.00 68,918.00 96,431.00 121, 446.00

4,889.00 5,983.00 7. 177.00 8,471.00

1,313.03 ]:838.00 2.356 00 2,865.03 3,83. 00

659.00 747.00 847.00

559.00

6.28 7.94 14. 62 21. 28 31.28 41. 28 47.95 64 61 81.28 114.61 147.95 181.28 214. 61 247.94 281.28 314.62

$1.28 6.28 7.94

14.62 21.28
144.48 187.95

$1.28

79.28

125,000.00

4,524.36 7,302.13 10,079.91 12.857.6 26.746.58. 40,000.00 45. 000.00 85. 000. 00

1,746.58 2,857.69 3 413.24 3:9rS. 80

1,314.61

647.95 814.61 981.28

481.28

2.302. 13

1,778.28 2 051. 62 3,60. 28 5,510.95 6,317.45 8,698.11 7,545.61 11, 141.78 9,616.28 13,867.61 16, 184. 11 21,371.58 18,205.58 26, 526.63 22, 465.13 26,364.69 31,39. 19 29,804.24 35,82.24 .33 083. 80 40,056.80 36,115.36 44,122.86 63,761 13 30,444.13 6, 747.91 83,499.41 78. .563.69 102, 813. 69 136.602 .38 188,352 58 184,906.00 264,156. 00 210,956.00 326,706.00 349,981.00 1. 56, 731.00 710,006-00 1,256,756.00

397. 28 602.61 813.95 1,057.28 1,288.61 1,531.94

296.61

79.28 157.38 20& 45 325. 61

7.94 14.62 21.28

8.28

3
r M LQ I
W

1,181.28 1,444.36 1,723.44 2,006.53 2, 320. 62 4. 115. 78

907.220

437. 78 669. 11

P C0-

I Includes net Victory tax. 'Includes net 'Victory tax.

'Includes 12.4 2 Tncludes I-,)%

percent percent of unforgiven tax.

tax.

cn

Table: Table 2 .- Comparison of individual income tax- Taxable years 1936-4 , and increases in tax since 1939

MARRIED PERSON, 2 DEPENDENTS TABLE 22.-Comparison of individual income ta-Taxable years 1936-44, and increases in tax since 1939
Tax payable in taxable years
Net income before j)&soniIl exemption

Amount of increase in tax

Existing law

1940 over

1936439

1941 over

1940

1942 over 1941

1943 over 19421

1943 over

1936491

1944 over

1936-392

$60$

S1.19

$1

$75-

- _--__ -- --__ ______-- -_______'__-- - ___-_-___-_-7.41 $1,000 -13.4 ,200 -19.86

$8-00--_----_---

5.86

19-$1.19 $1.-19 8 5.865.

7.
-------

19

7.41

7.41

7.41

&86 7.411
13.64
19. 86

13.64

13.64

13.64

_ _ -Lw _ _ ___-_-__--,800
-00
$35.20

29.19
38 Q

29.19
57. 75

19.86
38. 53

-19.86

19.86

219
60.31

29.19
>~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~3.53
57.75

$13.00 U 0 -------- ---------S--------------99. 00 -12.00 $2,500

%. S

29.19
38.53
57.75

57.75

159.31
266.86
48(97

171.69
290.74
532.22

$1
$23.20

-$13.00 00

44.75

87.00

159.31
266.86
472.97

171.69
2.

$3,000
$4,00 -$12.00
$

191.00
378.00

-58.00
80

133.00
224 00

75.86
IC6.97

74

154.00

-,000-_-

48.00
00

$6,000 -----8-

74.80 114l40
162.80

271.00
397.00

592.00
810.00

730. 08
979.19

804 08
1,080.44

26.80
30.40

196.20
282.60 20

321.00
413.00

138.08
169.19

682.08
895.19

7,000-

120.00

$15,000 -_--831.00
$20,000
1,469.00

184.00 $8,000-_--_ $2,000 .----260.00 343.00 ___ $10w000

25,000--2------ ,

24& 40
334.40 440.00 1,117.60
2,142.80

65L 00 717.00
911.00

1,064.00 1,322.00

1, 264.31

1,117.00 2,475 00
00 6, 8,931.00 202. 00 14,
19,967.00
26.021.00

1,616.00 1,914.00 3,758.00

6,08 800

1,553.41 1, 87&53

24207.64 4, 207.19

1,397.31 1, 718.66 2,080.53 2,446.89

42.80

388

513.00

200.31

4,676.94
7,453.75

62.40 74.40 97.00 286.60

673.80

470.60
576.60

605.00
705.00 797.00

231.41
262.53 293.64

677.00 1,357.40
2,144.20

1,144.31 1,369.41 1, 61&53 86 64

1,

1, 283.0
1, 801.0

449.19
604.75

3,376.19
5,223.75

56D 22 756.08 9&944 1,277.31 1,534.66 1, 820. 53 2,103.89 3,845.94

5,98
75

327. 00 3.385.00 $30,000-___ $40,000-5, 779. 00

$80,000 -20,86L 00

3,570.60 5,315.20
9,228.80 13,741.20
18, 8.00

4,287.00 4.

6.62 75

8, 814. 11,777.00 18,063.00

24,845.00
31,988.00

9,574.31 12, 69286 19,289.97

26,391. 58
34,090.13

S50000 -8,621.00 -12,017.00 $0 S, -16.105.00 O000

-000

10,676.06 14,164.99 21,547.85 29,497.21

38,
63

1,243.60 1,930.20
3,447.80 5,120.20
6,881-00

2,909.40 3,615.80 4,975.20

6,225.80
7,123.00

2,334.00
2,846.00

3,861.
4,878.00
5,967.00

760.31 915.86 1,226.97

1,546.58
2,102.13

7,247.31 9,307.86 13,510.97

17,770.58
22,073.13

8,349.06 10,779.99 15,768 85

20, 876. 21
26,071 63

s t

$100,00-31,997.00

$90,000-

26,229.00

S150,000-62898.00
488,502.00

24.415.4G0 30,263.20 36,440.80 42, 948.40 76.86.S0

111,738.80 146,388.40 329,637.20 521,086.80 717,036.40

32,275.00

38,729. 00

39,431.00 47,174.00
55,217.00

42,088.69

47,017.57

8,310.60

7,859.40

7,156.00

50,387.24
58,985.80

56,283.99
65

9,402.20
10,951.40 14,08. 80
16,906 80

32,000.000 $5,000,000-

$750,D0 $1,000,0-.

$200,000-94,832.00 $250,000-12 766. 00 $500.000 -303, 58 00

52,160.00 86,637.00 121,614.00 157.091.00 344,476.00 536,953.00 1,521,907.00 3,o21,8800

731, 930. 00

45,383.00

887.93

63,479.00
105,941.00 149,403.00 193,384.00 413 384. 00

67,803.36 113,043.13
156,282.91

75,738.24
126,285.76

10,211.80

8,465.80 8,942.20 9, 211.60

9,650.20 9,875.20

8,445.00
9,834.00

2,657.69 3,213.24
3.768.80

25,983.69

30,912.57

29,526.24 35,8

11 319. 00 19,304.00
27,789.00

4,32( 36
7,102.13 9,879.91

32,756.80 . 36-

1,448,403.00
3,78370.00

678,436.00

2,915,%86.00

1,510.011.20

230,214.69 18,622.40 206,041.69 439,930.58 491,603.58 26,069.20 633,384.00 673, 800. 00 752,973.00 32.584.80 853,384. 00 898, 800. 00 1,005,473.00 38,600.40 1.733,384.100 1,798,800.00 2,015,473.00 61,608.20 4,373,3400 4,498,800.00 5,045,473.00 127,616.00
'Includes 2

177,958.29

50,145.13 64,450.91

35,422.99 39,658.93 43, 74L 24 a3 387.76

83, 126.29

10,702.60 14, 838 80

11,895.80 5,898.00
percent

15,866.20 14,893.60

12.657.69 78,275.69 102, 448.69 26,546.58 136,362.58 188,035.58 40,416.00 185,298.00 264,471.00 45,416.00 220.364.00 327. 037.00 211,477.00 65,416.00 350.397.00 567,070.00 451,500.00, 125,416.00 710,430.00 1,257,103.00
36,293.00 68,908.00 96,431.00 121,454.00

3 Includes 'Includes net Victory tax. Vietory

Includes 12 percent of unforgiven tax. 12.j

of unforgiven

INDIVIDUAL VIEWS OF REPRESENTATIVE

WESLEY E. DISNEY
In recent years there has been much discussion of economy in government. Important economies have been accomplished. The present bill provides no legislative means of operation to improve the governmental machinery in the direction of economy. Up to the time of the War between the States, the Ways and Means Committee was the tax-raising and money-spending committee of the House. It levied the taxes and took the appropriation bills to the House. At that time the Appropriations Committee was created, and since then each committee has gone its way. The Ways and Means Committee has been the revenue committee of the House and the Appropriations Committee has presented the appropriations bills to the House. Neither had had power or jurisdiction over the other, In the legislative branch of the Government there is no committee or organization which deals with the subject matter of the over-all budget or the over-all revenues. The Bureau of the Budget, now in the arm of the executive branch, performs this function that is entirely separate and apart from the Congress. The Comptroller General in the main looks to the legality of expenditures. It is therefore necessary for a Member of Congress, if he desires to 'get the over-all -picture of expenditures and receipts, to go to the Bureau of the Budget, which has no legislative authority Under the rules, procedure, and traditions of both Houses, the Ways and Means Committee and the House Appropriations Committee are independent of each other on this subject, as are the Senate Finance Committee (the revenue committee of the Senate) and the Senate Appropriations Committee. 1Iproposed in the Ways and Means Committee a provision to be inserted in instant H. R. 3687 which would require the President to furnish the Congress an estimate of expenses to be furnished to a newly created Joint Committee on the Budget, composed of five members of the Ways and Means Committee, five from the House Appropriations Committee, five from the Senate Finance Committee, and five from the Senate Appropriations Committee. This committee would be required to make a joint report to the two Houses, which, upon the a(loption by each House, would create a statutory ceiling for appropriations for each department or establishment of the Government. This statutory ceiling coul(l not be exceeded except by two-thirds of the votes of each House on a yea-and-nay vote and any individual Member could raise the} question on a point of order. As a part of these views the provision is offered as follows: 97
92237-4&----7

98

THE REVELUE BILL OF 1943

TITLE II-BUDGET AND REVENUE CONTROL

PART 1 1. The President shall transmit to the two Houses of Congress, on or before June 1 of each year, a report showing: (a) His estimate of the total revenues and receipts of the Government for the calendar year next succeeding. (b) His estimate of the total of the expenditures by departments and independent establishments of the Government under obligations to be incurred during the fiscal year beginning on the 1st of July of the calendar year next succeeding. (c) If the total of his estimates of expenditures under (b) exceed the total of his estimates of revenues and receipts under (a), he shall recommend to the Congress in said report the manner in which the revenues and receipts shall be increased so that the total of such revenues and receipts, as estimated, shall equal or exceed the total of the obligations, as estimated. (d) Upon receipt of said report from the President, it shall be referred forthwith to the Joint Committee on the Budget created by part 2 hereofI and such reference by either body to such joint committee shall confer jurisdiction to consider and report as provided in part 2 hereof.
PART 2

This part is enacted by the Congress, with complete reservation of the constitutional rights of each House thereof, as follows: (a) There is hereby created a joint committee of Congress to be known as the Joint Committee on the Budget, hereinafter referred to as "the Budget Committee." The Budget Committee shall consist of ten Members of the Senate, to be appointed by the President of the Senate (consisting of three members of the majority party and two members of the minority party from each of the committees on Appropriations and Finance); and ten Members of the House, to be appointed by the Speaker of the House (consisting of three members of the majority party and two members of the minority party from each of the committees on Appropriations and Ways and Means). The chairman shall be designated by the Speaker of the House. (b) On or before June 15 of each year, following the transmission of the President's report as herein provided, the Budget Conmittee shall report its recomnmendations thereon to the respective Houses of Congress. Such report shall be accompanied by a joint resolution or bill with the customary resolving or enacting' clause and the body thereof in following form: "That the Budget submitted by the President for the fiscal year beginning July 1 of the calendar year next succeeding, shall not exceed a grand total, for all purposes, of $ -. The said total sum shall include all appropriations of every kind whatsoever-regular, annual appropriations, permanent appropriations, reappropriations, indefinite appropriations, and authorizations to contract or commit, the amounts for which, if indefinite, shall be estimated." The total of the estimated' appropriations for each department or establishment shall constitute the statutory ceiling of appropriations for such department or establishment. (c) Consideration of the report of the Budget Committee shall be first on the part of the House. (d) If the Budget Committee fails to make a report within the time specified herein, it shall be in order for anyvMember of the House to present the resolution or bill set forth in (b) hereof and to call up the same for consideration at the earliest date; if said resolution or bill has not been considered, it shall after three days be considered as unfinished business of the highest privilege. (e) Consideration of said resolution or bill shall not exceed ten hours in either House, the control of which shall be equally divided in either House among the chairmen and ranking minority members of the two committees of each of such Houses from which the members of the Budget Committee are chosen. Upon completion of consideration the resolution or bill shall be moved to final passage with no intervening motion, except that amendments may be offered to change, without qualification, the total amount. (f) Upon passage by the House, the resolution or bill shall be transmitted forthwith to the Senate, where it shall be considered at the earliest date and after three calendar days shall be considered unfinished business of the highest privilege. (g) Consideration by either House of Senate amendments to such bill or resolution, or of conference reports thereon, shall likewise be of the highest privilege.

THE REVENUE BILL OIF 1943

99

(h) Whenever any appropriation bill for any department or other establishment, the ceiling for whose total appropriation is fixed pursuant to this Act, reaches a final vote in either House, if the total of such bill when moved to final passage is in excess of such ceiling, each such vote shall be by yeas and nays, and shall require a two-thirds vote for passage. If the bill shall have failed to receive a two-thirds vote, it shall be considered as having been recommitted with instructions to report the same back with each item proportionately reduced, to bring the total of the bill within the statutory ceiling. (i) Whenever any appropriation bill for any department or other establishment the ceiling for whose total appropriation is fixed pursuant to this Act, has passed the Senate with Senate amendments the net total of which will increase or further increase the total of such bill above such statutory ceiling, concurrence in the amendments to the extent which increases the total of the bill above the statutory ceiling, or adoption of any conference report the net effect of which is to increase or further increase the total of such bill above the statutory ceiling, shall require a two-thirds vote.

In my judgment, it is unfortunate that this provision was not adopted as a part of H. R. 3687. It would be a special move in the direction of governmental economy. Our appropriations have risen since 1913 from $700,000,000, when we had a population of 90,000,000, to nearly $8,000,000,000 in 1940, when our population had only increased to 130,000,000. In my judgment, oui4 economy cannot continue to function with such tremendous increases in expenditures and consequent high rates of taxes.
WESLEY E. DISNEY.

78TH CONGRusS) HOUSE OF REPRESENTATIVES j REPT. 871 f 1st &S8s8o Part 2

THE REVENUE BILL OF 1943

NOVEMBIER
18, 1943.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. KNUTSON, from the Committee on Ways and Means, submitted the following

SUPPLEMENTAL VIEWS
[To accompany H. R. 3687]

The members of the Republican minority of the Ways and Means Committee subscribe in general, to the report submitted by Chairman Doughton for the fuli committee. The following statement is simply submitted in amplification of our views.

I. PROPOSED TAX INCREASES

A. GENERAL STATEMENT The pending bill is the seventeenth major tax measure since 1933 and the third since Pearl Harbor. As a consequence of the past 16 measures, most of which were enacted in a hopeless effort to keep pace with the extravagant and wasteful spending of the past decade, Federal taxes have been increased twentyfold-from 2 billions annually to more than 40

billions. To this staggering and unprecedented burden now borne by the American people, the administration is insisting upon the addition of a further load of 104 billions, largely through sharp increases in the already heavy personal income tax. Though it is obvious that the Treasury needs every dollar of revenue that can possibly be raised, in order to minimize the portion of the war costs which must unavoidably be financed by borrowing upon the public credit, the fact nevertheless remains that there is a limit to the amount which can safely be taken from the people in taxes, even in wartime.. We believe that this limit has substantially been reachedcertainly so far as existing sources of revenue are concerned.
92237-43
1

THE

REVENUE BILL OF

1943

Furthermore, we desire to point out that recent developments indicate that the Budget will be brought within the Treasury's goal of $1 of receipts for each $2 of expenditure without the imposition of a single dollar of additional taxes. The Administration has obviously overestimated probable expenditures for the current year, since they are running at the rate of 90 billions as compared with the 104 billions estimated. The action of the War Department in turning back some 13 billions of its appropriations is abundant evidence of the fact that the Government cannot spend the amount previously estimated. On the other hand, it appears thft HE probable tax receipts for the year have been underestimated, and will more likely come closer to 45 billions than 40 billions. On this basis, it is clear that the 1 to 2 ratio of taxes to expenditures will be achieved without additional taxation of any kind. Having unanimously opposed the drastic tax program advocated by the administration, we are pleased to say that it is not embraced in the revenue bill as reported to the House, which provides only for certain limited tax increases involving a total of 2 billions, or one-fifth the amount of the administration's request. Some may attempt to belittle the amount carried in the bill, but we do not believe that the time has yet come when 2 billions of increased taxes can be regarded as inconsequential, even in these days of astronomical spending. The increase represents $2 for every minute since the dawn of the Christian Era. While we of the Republican minority have cooperated with the majority on a strictly nonpartisan basis in the preparation of the pending bill, we believe that the time has come when henceforth the administration, instead of insisting upon squeezing more and more taxes out of the public, should at long last be giving some concern to the elimination of unnecessary and wasteful expenditures. We shall insist upon such action before we shall be willing to consider the imposition of further taxes upon the people and upon business. For too long the overburdened taxpayer has been the "forgotten man." For- too long the watchword has been, "spenA~aud spend, tax and tax." In opposing the administration's 10Y2-billion-dollar tax program, and in unanimously contributing to its (lefefat in committee, we took the position that a tax increase of this magnitude would impose entirely too great a burden on taxpayers generally, and that it would threaten the liquidation of the middle class in America, discourage maximum production for the war effort, and unldermine the ability of private enterprise to provide jobs in the post-war period for the tens of millions of persons now temporarily engaged in war activity, both on the battle fronts and the home front. It is it short-sighted an(l dangierolls policy to "kill the goose" to get a few more "tax eggs" now, flnd thereby destroy its future pro(luctivity, but this would he. the practical effect of putting the administration's tax proposals into operation. The great Chief Justice, John M.Narshall, long ago pointed out that the power to tax is the power to destroy. With this admonition in mind, and in view of the tremendous tax load the people generally, and business enterprises, are already called upon to bear, we are of the

THE REVENUE BfLL OF 1943

opinion that the Congress should go exceedingly slow, and exercise discriminating judgment, in imposing further taxes. The administration's program to increase taxes on the American people by an additional 10Y billions, if enacted, would become a prime factor in the destruction of all that our armed forces are now battling throughout the world to preserve and maintain. Congress is the steward of America's welfare and destiny. As minority members, we believe we would be false to our trust were we to saddle this heavy additional burden on the backs of taxpayers already heavily burdened. It is our duty to contribute to the preservation of free enterprise and opportunity in America, not to their destruction, as would result from the excessive taxation proposed by the administration. W'Ve cannot do less for our fighting men than to make sure the America to which they will return when the war ends is the same land of liberty and opportunity from which they departed. In proposing and insisting upon its 10'S-billion-dollar tax program, the administration has either failed to give recognition to, or deliberately ignored, these facts: 1. That Federal taxes are already at an all-time high, being roughly eight times the greatest annual amount collected during the First World War. 2. That in addition to the more than 40 billions of Federal taxes taxpayers must pay annually nearly 10 billions in State and local taxes. 3. That per capita taxes in the United States now exceed those levied in other countries, being $357 for every man, woman, and child, as compared with $291 in the United Kingdom, which has always been regarded as having the highest levies. 4. That under existing law, there will be two very substantial irxcreases in taxes next year, namely: (a) Most individuals subject to income tax will have to pay in 1944, in addition to their regular income tax for that year, 1234 percent of their 1942 assessment, and will also have to make a like payment in 1945; (b) beginning January 1, 1944, the present 1 percent p ay-roll tax under the Social Security Act will be doubled on both employers and employees. 5. That under the operation of the 125 percent carry-over abovementioned, it will 1)e impossible for any person, regardless of how great his income, to have.more than $24,000 left after taxes in 1944 and 1945, and that in the highest. I)rackelts taxpayers will have to pay to the Treasury even more than their total income for these 2 years. 6. That, as Chairman Doughton has so aptly said, "You can shear a sheep indelfinitely but you cal skin it but once." We arc reminded that it took only one straw to finally break the camel's back. Yet the administration, instead of diminishing its demands for additional revenue as the tax load has been approaching the limit, has in recent years virtually doubled each new request over the previous one. For example, in 1940, Congress was asked to raise $1,000,000,000 under the so-called defense tax bill. In 1941, the Treasury's request was for 3y' billions additional. Last year, it-was for 7.6 billions. This time, the ante has been raised to 104 billions. In other words, the more the American taxpayer has become burdened with increasing taxes, the more the administration has sought to pile on ever greater increases.

Table: [No Caption]

THE REVENUE BILL OF 14 3

Since 1940, Federal tax collections have risen approximately 700 percent, as shown in the following table:
Total tu collckti Fiscal year ending June 301940 -$5,925,000,000 1941 -8,268,000,000 13,668,000,000 1942 -..23,384,000,000 1943-. 40,350,000,000 1944 -.

It is apparent from the foregoing figures that the recent increases have b)Cen sharp and substantial. Taxpayers have not had time to adjust themselves to one increase before another even greater one has been imposed, and it is no wonder that they have become, "groggy"

under the load.

B. THE NEED FOR ECONONiY

Thle tremendous increase in taxes in recent years, coupled -with the extension of the income tax to the great masses of the people, has resulte-d in increasc(I interest on the part of the public in Government spending. Heretofore, the average Person has been led to believe that he need have no concern with how much the Government was spending, since the "other fellow" was paying the bill. Now he knows how cruelly he has been deceived. Ife is justifiably resentful when hle sees his hard-earned tax money wasted on every hand by the administration, which has refused to concern itself with trying to eliminate unnecessary expenditures, and has continued to spend and spend as if there were no bottom to the bin. After the President had failed to act in the matter of economizing on noninilitary expenditures, the Congress itself, upon recoininendations made by the Byrd Economy Conmmrittee, made a number of substantial reductions. That committee, which was created under the Revenue Act of 1941, is continuing its good work. Only recently, it pointed out that of the 3,000,000 Federal employees now on the Federal pay roll, of whom 55 percent are said to be engaged in nonmilitary activity, a minimum of 300,000 could easily be removed from tfie rolls without in any way inipairing governmental functions. There is no excuse for the adnministration's failure to take such action, which it has full power to do under existing law. From that source alone there would be a saving of close to $1,000,000,000 annually. At the same time the manpower shortage would thereby be greatly relieved. During the early days of our country's participation in the present war, military appropriations had to be male quickly and on faith, in whatever amounts requested by the military authorities. The total war program has now reached the staggering sum of 345 billions, or approxinately the amount of this country's entire national wealth. It is inevitable that in the expenditure of any such amount tremendous waste and extravagance will occur. This country's experience in the last World War proved this to be true. We believe that from now on war expenditures should be examined with more care by the Budget Bureau and by Congress, with a view to eliminating all unnecessary outlays and al wasteful expenditures. Even if at saving of only 10 percent could be made in the total war program, it would result in lightening the future burden of American taxpayers by approximately $35,000,000,000, which is no small amount.

THIE RKW2EMUE BFLL OF 1948

We feel that a would be money well spent if the Congress were to equip itself with an adequate staff to make the necessary inquiry into all Federal expenditures in order to establish their justification. We further feel that it would be desirable for Congress to take such steps as may be necessary to bring about the fullest possible coordination between the spending and revenue-raising committees of each branch. Both these suggested changes in procedure would be in the interest of sound fiscal policy and economy and of distinct benefit to the American taxpayer.
C. COMMENTS ON SPECIFIC TAX PROVISIONS

1. Individual income tax.-Under the bill as reported, the individual income tax burden is left unchanged, except for such incidental increases or decreases as may result from the integration of the present Victory tax with the regular income tax. The freezing of the individual income tax rates and exemptions at the existing level is in accord with the position taken by the Republican minority at the outset of the committee's deliberations, when we publicly announced that we were opposed to further increases in the personal income tax. In taking this stand, we were not unmindful of the fact that many persons are enjoying high wartime incomes and possibly are in a position to pay even higher taxes than are now levied. However, we recognize that any general increase in the income tax would also fall heavily on that large group whose incomes have not increased as a result of the war, and which in many cases have actually decreased. They are being ground between the upper millstone of rising living costs and the nether millstone of unprecedentedly high taxes, in the face of unchanged or lowered income out of which fixed commitments, such as payIhients on the home, life-insurance premiums, and similar outlays must also be met. To impose a general increase in. the income tax would unduly oppress this group, who probably make uip a third to a half of the total number of income recipients. It includes pensioners, so-called white-collar workers, school teachers, businessmen adversely affected by wartime restrictions on the production of consumer goods, and others too numerous to mention. It should be stated that the Ways and Means Committee gave serious consideration to the imposition of a special wartime tax on increased income, but after careful study this method of attempting to reach swollen war incomes without burdening those who have enjoyed no such benefits was found to be administratively impracticable and to involve many insurmountable inequities as between taxpayers. The administration's case for increasing the individual income tax by 6Y2 billions was based almost entirely on the alleged need for absorbing through taxation the so-called excess purchasing power of the people as a means of helping to combat the threat of inflation. The Treasury, however, in setting up its program, completely ignored the fact that such excess purchasing power as may exist is not equally distributed among all the people. Furthermore, its sincerity in putting forward the anti-inflation argument as a justification for increased personal income taxes became immediately questionable when it developed that its tax proposals were not aimed at reaching this so-called excess purchasing power in the hands of those who axe

inflation control. The Treasury's argument in favor of the use of the income tax for anti-inflatiou purposes suggests this question: "After Congress has increased personal income taxes to the limit of the people's ability to pay irt order to meet currently as much as possible of the war cost, is there a still higher limit to their ability to pay taxes for purposes of preventing inflation?" We think not. All tax dollars come out of the same pocket, whether levied for one purpose or another. If the administration is really sincere in wanting to tax the so-called excess purchasing power away from those who have it, then let it have the courage to come forward with a tax proposal which will meet effectively this specific problem, rather than continue to play politics with the tax question as it has done ever since it has been in power. The Congress and the country may wonder why a general consumption tax was not included in the bill as a "last ditch" war measure. There is need for plain speaking with regard to this matter. The fact is that the administration flatly advised the committee that it would rather have the bill fall short of the total requested than to have a tax of this character included. There was even a suggestion of a Presidential veto. The committee had to face the practical situation that it would be impossible to secure the enactment of such a tax in the face of determined administration opposition. Furthermore, there are honest differences of opinion among the committee members, without regard to party, over the merits and demerits of general consumption taxes, even as a war measure. In addition, the committee was faced with the fact that it would take considerable time to draft such a levy so as to make it practical of administration, which time was not available for that purpose in view of the need for enacting the new bill by the end of the year, to make the proposed income tax readjustments effective January 1. It appears that if further taxes are to be imposed, beyond those carried in the pending bill, theuee is no place to which the Congress can turn except to the field of general consumption taxes. This fact must be faced, whether one is opposed to, or in favor of, such a levy. 2. Corporation taxes.-The bill makes no increase in the rate of tax on normal corporate profits, which now stands at a maximum of 40 percent, but does increase the excess profits rate from 90 to 95 percent, and makes a reduction in the invested capital credit in the case of larger corporations. The impact of the proposed 95 percent excessprofits rate as applied to smaller corporations is cushioned to some extent by increasing the specific exemption under the excess profits tax from $5,000 to $10,000. In our joint statement issued at the outset of the committee's deliberations, we pointed ouit that in view of the already high corporate rates, any drastic increase would threaten the future solvency of business and irmpair its ability to provide peacetime jobs to returning servicemen and unemployed war workers. The retention of the niaximum rate of 40 pere eit on normal corporate income is ill accord with our previously announced position. If any increase is to be made in corporate taxes, it is desirable that it be confined to excess profits, although even in such case it is possible to go Ibeyond the point of diminishing returns. While some may feel that a 100-percent excess profits tax would be justified in time of war,

RSLENE B1ILL OF 1948 known to enjoy the great bulk of it. Hence, even if enacted, the Treasury tax program would make little, if any, contribution to

THE

TM R EVIUE ByL

OFl9 43

the fact is that the War and Navy Departments are vigorously opposed to any such rate for the reason that it would not only discourage pro. duction for the war effort but would also result in increased cost of war materials to the Government as a result of taking away all incentive to hold down production costs: Thus the proposed 95-percent rate is the absolute maximum to which Congress should go in the interest of maximum production and minimum costs. 3. Estate and gift taxes.-No change is made in the rates or exemptions under the estate and gift taxes. The estate tax now reaches a maximum of 77 percent, which is perhaps as high as Congress can go without bordering on actual confiscation of property through taxation, which is a policy that is totally foreign to fundamental American principles, although it has been embraced-to a considerable extent by the present administration. It must not be forgotten that the States, too, make use of this form of taxation, and after all, they have sole control, under the American form of government, of the right of devolution of property at death. 4. Excise taxes.-Having different viewpoints among ourselves as to the proposed increases in excise taxes under the bill, we refrain from making any comment on these levies in this report.
D. THE NEED FOR REVISION OF THE WHOLE FEDERAL TAX, STRUCTURE

The Federal tax system, like Topsy, just "growed" up. One tax law has been piled on another until we now have a veritable hodgepodge which is steadily becoming more complex and incomprehensible. The need for a thorough overhauling of our tax system has long been acknowledged but nothing has ever been accomplished along this line. It is one of our most pressing national problems, particularly if, in the post-war period, we are to realize maximum revenues consistent with the greatest encouragement to business and individual enterprise. We should develop as soon as possible a long-range, integrated, wellbalanced, equitable, and simplified scheme of taxation, and we of the Republican minority propose to do all in our power to bring about Such a plan. Aside from other shortcomings of the present tax system, there has in recent years grown up a tendency to use taxes for other than revenue purposes. Under the present administration, the taxing power has been availed of for punitive purposes, for social experimentation, and for effectuating otherwise unconstitutional Federal controls over the people. This practice cannot be too severely condemned, It is entirely contrary to the intent and purpose of the Constitution in granting Congress the power to levy taxes solely for the raising of revenue for the support of government. Any worth-while revision of the tax laws must necessarily embrace a return to sound principles of taxation, including taxation for revenue purposes only. When the war ends, Congress will be faced with the problem of financing a post-war budget which may exceed $20,000,000,000 annually. It is essential to the Maintenance of sound fiscal policy, including national solvency, that Federal revenues and expenditures be brought into balance as soon as possible after peace comes. This can only be done if the national income is maintained at a high level. The adoption of a wise tax policy will have more to do than anything else with whether that high level of national income is maintained

THE REVENRE Bald OF 1943

since the responsibility will rest primarily on private business enterprise for its realization. Government spending will not do the job, but on the contrary will only take the country further along the road to national bankruptcy. .If a sound, healthy, and expanding national economy is to be achieved, Congress must not only permit American business to exist until the war ends, but it must permit the setting aside of sufficient funds to carry through the reconversion period. Moreover, if the many potential new industries made possible by war developments are to become a reality, every encouragement must be offered under our tax laws and other Government policies to so-called venture capital. As no one knows when the day of peace may come, it would be the part of wisdom to prepare now to put into effect immediately upon the cessation of hostilities whatever tax reforms may be necessary or desirable. We, therefore, advocate prompt action in dealing with this all-important problem, and shall do our part to be ready to meet it. IL. REVISiON OF THIE LAW RELATING TO THE RENEGOTIATION OF WAR CONTRACTS It is not our purpose, in this report, to go into any extended discussion of the proposed amendments to the law relating to the renegotiation of war contracts. It is the settled policy of Congress, in which we join, that no one should be permitted to make excessive profits out of the war. The proposed amendments are in keeping with that purpose. There are at present on the statute books a number of laws which are intended to limit and control the making of war profits. As heretofore stated, we have an excess-profits tax running up to 90 percent, which it is now proposed to increase to 95 percent, and a tax on individual incomes which reaches a maximum of 90 percent. Then there is a wage and salary stabilization act which prevents the skyrocketing of corporate salaries. Also, we have a war-contract-renegotiation law which permits the recovery of excessive profits on war contracts. Moreover, both the Bureau of Internal Revenue and the renegotiation authorities have the power to disallow unreasonable salary allowances. Thus Congress has made every possible effort to control war profits, and to recapture them if realized. In granting power to the various war agencies to renegotiate war contracts when excessive profits are found to exist, Congress gave these agencies broad and virtually unlimited authority. As a result of public hearings on this subject, both before the Naval Affairs Committee and the Ways and Means Committee, it has developed that there is need for limiting this authority in some respects. The testimony before both committees is replete with instances where those administering the renegotiation law have been arrogant, high-handed and even tyrannical in dealing with contractors and subcontractors. The powers given them have, in a number of instances, been abused. They have discriminated as between different contractors, allowing one a greater percentage of profit than another under the same or similar circumstances. Also they have used duress, direct and implied, in order to secure the submission of contractors and subcontractors to their findings. No review of their decisions by the courts has been permitted. Countless numbers of contractors have been harassed,

THE RBFVENIUE BML OF 1943

and their war work interfered with, by having to go through the renegotiation process only to be given a clearance in the end, though at considerable expense to themselves. The proposed changes in the renegotiation law as carried in the bill are intended to correct these abuses and assure contractors and subcontractors the fundamental American right to appeal to the courts from the decisions of the renegotiation authorities. Some of the proposed changes, including the right of appeal, and the exemption of contracts up to $500,000, are concurTed in by the departments. Others are not. The renegotiation provisions of the bill, as presented to the House, represent the coifposite'judgment of the committee. Some members of the committee felt that the revisions made do not go far enough. In order to agree upon any modifications at all, opposing viewpoints had to be compromised. We dare say that neither side is fully satisfied with the renegotiation provisions of the bill, but in view of all the circumstances they are the best that could be agreed upon. Respectfully submitted. ALLEN T. TREADWAY, HAROLD KNUTSON DANIEL A. REEDS RoY 0. WOODRUFF, THOMAS A. JENKINS, DONALDr H. MCLEAN, BERTRAND W. GEARHART, FRANK CARLSON, RICHARD M. SIMPSON, CHARLES S. D1 ,wEEY.

n)