SCHEDULE A.-Personal income tax comparisons for years 1929, 1937, 1941, and

Under present law: Income-tax rates aggregate a surtax and normal tax of 19 percent on first $2,000. Thereafter, surtax rates increase, so that normal and surtax on income in excess of $200,000 is 861⁄2 percent. Limitation on total tax cannot exceed 852 percent of net income. Personal exemptions, $500 for each dependent.

SCHEDULE B.-Statistical information on U. S. Government finances

1 The National debt as of the fiscal year ended June 30, 1947 was $258,000,000,000. mated debor the fiscal year 1948, as per Daily Statement of U. S. Treasury Department, March 4, 1948, is $254,162,595,772 SCHEDULE C.-Comparative taxes under present and increased exemptions

Mr. FOOSANER. May I thank you very kindly.

The CHAIRMAN. Thank you very much for coming.
We will recess until 2 o'clock.

(Whereupon, at 12:30 p. m., the hearing was recessed until 2 p. m. of the same day.)

AFTER RECESS

(The committee reconvened at 2 p. m., upon the expiration of the recess.)

The CHAIRMAN. Is Mr. Silberstein here?

Mr. SILBERSTEIN. Yes, sir.

The CHAIRMAN. We will proceed with the hearing. I am sorry there are not more Senators here but we are having a foreign affairs debate upstairs. Three of our members are members of the Foreign Affairs Committee.

Will you state your name, residence, and occupation?

STATEMENT OF ROBERT J. SILBERSTEIN, ATTORNEY, EXECUTIVE SECRETARY OF THE NATIONAL LAWYERS GUILD, WASHINGTON, D. C.

Mr. SILBERSTEIN. I am Robert J. Silberstein. The address is 902 Twentieth Street NW., Washington, D. C. I am a lawyer, and the executive secretary of the National Lawyers Guild, in whose behalf I testify.

This statement, sir, was prepared by our national committee on taxation, which is composed largely of lawyers who are tax specialists, and the views expressed in the statement were approved by our national convention in Chicago on February 21.

The tax legislation to be adopted by Congress at its current session can play an important role in staving off or mitigating the precipitous economic collapse which may follow the current inflationary boom. The tax policies to be adopted will also leave their impact on the standard of living of the American people. Both the administration and the Republican leadership recognize the vital importance of the tax policy on economic events.

H. R. 4790, in our view, will neither contribute substantially to curbing inflation nor to safeguarding the standard of living of the American people. It is offered under the guise of giving proportionately greater tax reduction to the lower-income-bracket taxpayers than to the higher-income levels. In fact, however, it favors the higherincome levels over the lower-income levels. Thus, a married man with two dependents, earning $3,000 a year, will have his tax cut by $110; and his take-home pay will be increased by 4 percent. If he earns $10,000, his tax will be cut by $652, and his take-home pay will be increased by 8 percent.

The CHAIRMAN. How much tax does a $10,000 man pay?

Mr. SILBERSTEIN. I cannot tell you that exactly.

The CHAIRMAN. How much does a $3,000 man pay?

Mr. SILBERSTEIN. Certainly the $10,000 man pays more tax. The point we are making here is that the percentage of saving which goes to the higher-bracket taxpayer is very much larger than the percentage saving which goes to the lower-income taxpayer.

The CHAIRMAN. Would you not say that the amount of tax paid by the two different persons mentioned by you would have some bearing on that?

Mr. SILBERSTEIN. It would have some bearing, of course. But it seems to us that a primary consideration in the question of income tax is what is best for our economy and where is tax relief most needed.

It is our view that it is the lowest income-tax payer whose standard of living is declining under a period of inflation and uncontrolled. prices and that the greatest relief is needed in that area.

The CHAIRMAN. Mr. Silberstein, where you are on a progressive income-tax system, you would not argue that the dollar savings per person in each bracket should be exactly the same, would you?

Mr. SILBERSTEIN. No, sir. And I have not made that point. I have made the point that as you go up, the percentage is increasing. If, for instance, one with a $10,000 income receives a 4-percent reduction, just as a taxpayer in the $3,000 bracket receives a 4-percent reduction, obviously the first will receive more money.

The CHAIRMAN. Is it not true. Mr. Silberstein, that starting afresh, with a new income-tax system which is on a progressive rate, is not the percentage of savings of those in the higher progressive rates substantially less percentagewise than those in the lower progressive rates? Mr. SILBERSTEIN. I think that if you were starting afresh, if you were starting afresh you would not have any question of saving.

The CHAIRMAN. Of course you have a question of saving. Where do your savings originate? They originate out of your take-home pay, whether it is your worker's take-home pay or your investor's takehome pay. Is that not correct?

Mr. SILBERSTEIN. Yes, sir.

The CHAIRMAN. And in a progressive tax system where you are starting afresh if you have a progressive income-tax system do you not necessarily decrease the percentage of savings as you go up?

Mr. SILBERSTEIN. I think, sir, that you increase the percentage of savings as you go up.

The CHAIRMAN. No. You decrease them. You are bound to.

If the lowest man has 98 percent disposable income, as a result of a progressive income-tax system and the highest man has 20 percent disposal income, have you not, in the establishment of that system, reduced the savings of your top man?

Mr. SILBERSTEIN. I am afraid I do not understand the question, sir. The CHAIRMAN. We will hang on this if it takes all day.

Mr. SILBERSTEIN. Very good.

The CHAIRMAN. We establish today a progressive income-tax system. We fix the rates so that the man in the lowest bracket retains 98 percent of his income. We fix it so that the man at the top retains 20 percent of his income. Have you not, percentagewise, cut the savings of the man at the top more, percentagewise, than the man at the bottom?

Mr. SILBERSTEIN. Yes. I must acknowledge that.

The CHAIRMAN. Then does it not follow that when you are reducing you must necessarily reverse the process?

Mr. SILBERSTEIN. No, sir.

The CHAIRMAN. Then that would be a heads I win and tails

game, would it not?

Mr. SILBERSTEIN. No, sir. Our position on what we mean by progressive taxation is taxation on the basis of ability to pay and the main basis of the statement we present is that the taxpayer, with a wife and two children, must have an income of approximately $4,000 to current cost of living in order to be able to maintain his family at a minimum standard of decency.

And we say that a sound progressive system of taxation will not tax that man at all if it is possible to avoid it and meet the necessities of Government.

The CHAIRMAN. Where would you get the taxes necessary to meet the other necessities of Government?

Mr. SILBERSTEIN. In the present situation we have, according to the view of the Congress, as I understand it, a certain amount of money which can be allowed in tax reduction. Obviously we have that sum which can be allowed. We also have certain other proposals for increasing the income from taxes in other areas where it can be afforded and where it will, in our view, be more equitable to obtain the necessary additional income.

The CHAIRMAN. You agree to the system as it goes up, but you say as we reach a point where taxes can be reduced that we should not adhere to the same system in reduction?

Mr. SILBERSTEIN. That is right, sir.

The CHAIRMAN. All right. Go ahead.

Mr. SILBERSTEIN. If he earns $20,000, his tax will be cut by $2,233, and his take-home earnings after taxes will be increased by 16 percent; and if he earns $100,000, his tax will be cut by $18,076, and his earnings after taxes will rise by 48 percent.

A married couple with two children, if they are living in a typical large American city need approximately $4,000 a year to maintain a minimum standard of decent living, according to the authoritative cost of living studies of the Heller Committee of the University of California. Yet, this family is called upon under the proposed bill to pay $1.50 a week, or $80 a year, in Federal income taxes, and the married couple without children $2 a week, or $106 a year. These families are the victims of uncontrolled prices; their standard of living and health are threatened. It is highly inequitable and a violation of the basic democratic principle of taxation according to ability to pay to levy any peacetime income taxes on these inadequate incomes, while at the same time reducing the tax on persons with substantially higher incomes. The proposal to allow husbands and wives to split up their income for tax purposes is a particularly shocking piece of tax "relief” granted exclusively to the higher income levels. For years ingenious tax lawyers have wracked their brains to create family trusts, family partnerships, family corporations, and a whole myriad of schemes to split family incomes, all designed to reduce surtaxes and still keep income within the family.

The Treasury, after years of struggle in the courts and in Congress, has finally succeeded in defeating most of these tax-avoidance schemes. Now, it is proposed to undo these years of struggle against tax avoidance and in one fell swoop allow husbands and wives to split their incomes for tax purposes.

Thus, a man who has a net income of $10,000 to $12,000 is subject to a top surtax under present rates of approximately 36 percent. If the

community-property provision becomes effective, he would report $5,000 and his wife $5,000 and their top surtax bracket would be approximately 25 percent. At $30,000 the surtax bracket is about 59 percent, but by splitting the income between husband and wife for tax purposes, the top surtax rate would be reduced to about 45 percent. No married couple, without children with an income under $3,300 would receive the slightest benefit from this proposal; and no man and wife with two children would receive the slightest benefit from this proposal unless their incomes exceed $4,000 under present rates. That is because whether the income is reported by the husband alone or is split between the husband and wife, their incomes would still be in the first surtax bracket.

The significance of these figures is indicated by the fact that the Treasury estimates that approximately 70 percent of all taxpayers will have incomes of $4,000 or less. Government figures disclose that 97.5 percent of the $800,000,000 tax reduction growing out of the community-income proposal will go to the 20.9 percent of these families with incomes over $5,000.

The CHAIRMAN. Have you made an analysis of the percentage of the reduction that would go to taxpayers with less than $5,000 a year as contrasted with those above $5,000 under the Knutson bill?

Mr. SILBERSTEIN. My understanding is that a larger percentage of it would go to the lower income bracket.

The CHAIRMAN. Would you increase the percentage in the upper brackets?

Mr. SILBERSTEIN. We would in some situations.

The CHAIRMAN. What are they?

Mr. SILBERSTEIN. We have concrete proposals here. We propose, for instance, a-you mean in relation to individual incomes? I believe that we do not make that proposal. We do in relation to corporate incomes propose that corporate taxes also be levied on a progressive basis, instead of a single rate.

The CHAIRMAN. If your theory of greater relief for those in the lower brackets were to obtain, where would the revenue come from to make that good?

Mr. SILBERSTEIN. The revenue would come by allowing less to those in the upper brackets.

The CHAIRMAN. Then that is what I was getting at. The upper brackets.

You feel that that is just and equitable?

Mr. SILBERSTEIN. We do feel that that is just and equitable, sir. And I want to say, in relation to the question of stimulus for further investment, for capital accumulation about which we heard so much this morning, that it is our view that with the highest income practically we have ever had in terms of profits in history, amounting to some $18,000,000,000, and a net return to corporations of approximately 912 percent of net invested capital, there is certainly ample inducement for equity investment.

If, however, there is a shortage, it is our view that this is due to the feeling on the part of potential investors-and I may say I am included among them-that our economic situation is unstable, that we are likely in the near future to run into a economic depression, and therefore people are waiting.