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(3) A married person with no dependents filing a separate return and claiming an exemption for himself and his spouse; and

(4) A husband and wife with no dependents filing a joint return.

Under H. R. 4790, however, the tax liability for the first three classes of returns is the same, but this liability differs from the tax liability for the last class of returns, necessitating two Supplement T tables instead of one table as at present. A comparison of the Supplement T tax table from page 4 of the present Form 1040 with the two tables required under H. R. 4790 is shown in exhibit C.

The additional Supplement T tax table prescribes a smaller tax in the case of joint returns with incomes of $2,450 or more and two exemptions; $3,100 or more and three exemptions; $3,800 or more and four exemptions; and $4,450 or more and five exemptions. Dividing the first surtax bracket into three parts is responsible for the slight differential at the $2,450 income level. If the present $2,000 bracket were retained, no differences would occur below $3,500.

The Bureau and the taxpayers have had no actual experience with a tax return form that incorporated more than one Supplement T tax table. You will recall, however, that the Revenue Act of 1943 prescribed multiple Supplement T tables. At that time the Bureau conducted tests with a number of forms carrying these tables. These tests and our general experience with taxpayer problems give me ample reason to fear the consequences of such a form.

Problem of differentiating as between joint and separate returns: As you know, there is a technical distinction between:

(a) A separate return of a husband who claims an exemption for his wife who has no income or deductions; and

(6) A joint return of husband and wife where the wife has no income.

In the former case, only the husband signs and is liable for the tax. In the latter case, both spouses sign and they are jointly and severally liable for the tax.

Since in our present law there is no tax differential as between the two types of returns, it is not customary in the case of returns with only one income earner for both husband and wife to sign. Since under H. R. 4790 split-income benefits are restricted to "joint” returns, requiring the signature of both husband and wife, it becomes a matter of importance that the signature be correctly affixed. Based on present practice there is not much question but that hundreds of thousands of returns will be filed without the proper signature and much correspondence and taxpayer irritation will result.

The two supplement T tables and the problems concerned with signatures are particularly disturbing in connection with Form W-2 returns. These are the returns on which the collectors compute the tax for the taxpayers. There are roughly 24,000,000 returns filed on Form W-2 each year.

The method of determining the tax on these forms is largely a matter of sorting the returns by number of exemptions and by amount of adjusted cross income, the tax on each common group of returns being the same.

Under H. R. 4790, however, an additional classification of returns will have to be made, namely, the joint returns will have to be determined from the separate supplement T table. While this problem is by no means small, the problem which concerns me most is the

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distinction as between a “ joint return” and a "separate return of husband or wife showing exemptions for both spouses where one spouse has no income.” Technically the matter of signatures creates two important differences:

First, it determines which tax table will be used in computing the tax; thus, the tax on a joint return, signed by both, will in many cases be less than the tax on a separate return.

Second, it determines whether the tax liability applies to one spouse only or is joint and several, and whether the refund check or bill would be addressed to both husband and wire or to only the person signing the return.

If we take the statute literally and compute the tax for all separate returns from the separate return table, we undoubtedly will be depriving some taxpayers of certain tax benefits to which they are entitled. The alternative to this is to send these unsigned returns back to taxpayers and invite the wife's—or husband's--signature. As previously indicated, this will impose considerable burden upon the collectors' offices and create taxpayer irritation.

If this were a problem affecting only a few hundred or even a few thousand cases, I would not have burdened you with a discussion of it. But since it is a problem involving literally millions, I feel obliged to point out that in this respect H. R. 4790 would create a serious administrative situation.

The problems of withholding: Under present law withholding by either the table or percentage method is carried through two surtax rates, or $4,000 of surtax net income. This means that for surtax net income of less than $2,000 employers using the percentage method need apply only one withholding rate, while for surtax net incomes of more than $2,000 two rates are used.

Under H. R. 4790, however, three rates are prescribed in the percentage method. As compared with one under present law for surtax net incomes between $1,000 and $1,395.85, H. R. 4790 prescribes two; as compared with one under present law for surtax net incomes between $1,395.85 and $2,000, H. R. 4790 prescribes three; as compared with two under present law for surtax net incomes above $2,000, H. R. 4790 prescribes three. See exhibit D for a comparison of the percentage method of withholding under present law and under H. R. 4790.

Despite the prescription of as many as three separate withholding rates, as compared with a maximum of two under present law, H. R. 4790 does not provide as much correlation between withholding and liability as does present law. That is, withholding under H. R. 4790 is carried at full liability rates only through $2,000 surtax net income, since withholding through $4,000 would require four distinct rates in the percentage method and would be to complex. Above $2,000 surtax net income, under withholding occurs for single persons and married persons filing separate returns, resulting in balances of tax to be paid at time of filing. The balances which may result from not carrying withholding at full liability rates through $4,000 can be as much as $30.

On the other hand, since it would be very burdensome for the employer if provision for split income is made in the withholding system and is added to the problem of three rates, married persons will not get the benefit of split income in their withholding, and overwithholding of as much as 14 percent for such persons occurs for surtax net incomes

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between $1,000 and $2,791. Above $2,791 the effects of the elimination of the fourth rate and of disregarding income splitting for withholding purposes are more or less compensating.

Under H. R. 4790, a greater amount of overwithholding will occur for single as well as married persons in the case of wages fluctuating between surtax brackets, since the income level at which graduation begins is lowered from $2,000 surtax net income to $1,000.

Simplification measures: Our joint record in the furtherance of simplified tax forms is a good one. This is evidenced by the Individual Income Tax Act of 1944 in which certain major simplification devices were adopted; namely, the per capital exemption system, the standard deduction, and improved Supplement T tax tables.

Much of the over-all progress that has been made will be undone as a result of the bill before you for the reason that the first bracket is being broken in three parts, which, when coupled with the splitincome provisions, results in two Supplement T tax tables rather than the present one; results in three witholding rates rather than the present two; and results in the collectors being faced with the ramification of the split-income provisions in connection with the computation of the tax for the taxpayers on Form W-2.

Every effort should be made to achieve further simplification rather than further complication, especially for the taxpayers in the lower groups, as a means of encouraging rather than discouraging voluntary compliance with the tax laws.

I earnestly urge that consideration be given the provisions which I have pointed out as responsible for these difficulties before this bill is passed.

In this connection I would like to assure you that now, as at all times, our technicians stand ready to assist you and your staff in any manner possible to further our joint simplification interests.

(The exhibits referred to are as follows:)

EXHIBIT A

Present Tax Computation Schedule from Page 3 of Form 1040

TAX COMPUTATION--FOR PERSONS NOT USING TAX TABLE ON PAGE 4

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1. Enter amount shown in item 6, page 1. This is your Adjusted Gross Income.
2. Enter DEDUCTIONS (if deductions are itemized above, enter the total of such deduc-

tions; if adjusted gross income (line 1, above) is $5,000 or more and deductions are not

itemized, enter the standard deduction of $500). 3. Subtract line 2 from line 1. Enter the difference here. This is your Net Income4. Enter your exemptions ($500 for each person whose name is listed in item 1, page 1) 5. Subtract line 4 from line 3. Enter the difference here. 6. Use the tax rates in instruction sheet to figure your combined tentative normal tax and sur

tax on amount entered on line 5. Enter the tentative tax here. (If line 3, above, in

cludes partially tax-exempt interest, see Tax Computation Instructions).
7. Enter here 5 percent of amount entered on line 6. above
8. Subtract line 7 from line 6. Enter the difference here. This is your combined normal tax

and surtax. (If alternative tax computation is made on separate Schedule D, enter here
tax from line 12 of Schedule D).

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IF YOU USED THE $500 STANDARD DEDUCTION IN LINE 2, DISRECARD LINES 9, 10,

AND 11, AND COPY ON LINE 12 THE SAME FICURE YOU ENTERED ON LINE 8

9. Enter here any income tax payments to a foreign country or U. S. possession

(attach Form 1116)-10. Enter here any income tax paid at source on tax-free covenant bond interest.. 11. Add the figures on lines 9 and 10 and enter the total here. 12. Subtract line 11 from line 8. Enter the difference here and in item 7, page 1. This is your

tax.

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Tax Computation Schedule Required under H. R. 4790
TAX COMPUTATION-FOR PERSONS NOT USING TAX TABLES ON PAGE 4

1. Enter amount shown in item 6, page 1. This is your Adjusted Gross Income
2. Enter DEDUCTIONS (if deductions are itemized above, enter the total of such deduc-

tions; if adjusted gross income (line 1, above) is $5,000 or more and deductions are not

itemized, enter the standard deduction-See Tax Computation Instructions) 3. Subtract line 2 from line 1. Enter the difference here. This is your Net Income. 4. Enter your exemptions ($600 for each exemption claimed in item 1, page 1). 5. Subtract line 4 from line 3. Enter the difference here Lines 6,7, and 8 should be filled in ONLY by a single person or a married person making a sepa

rate return 6. Use the tax rates in instruction sheet to figure your combined tentative normal tax and

surtax on amount on line 5. Enter the tentative tax here (If line 3, above, includes

partially tax-exempt interest, see Tax Computation Instructions).
7. (a) If amount entered on line 6 is not over $200, enter 337 % of that amount here.

(b) If amount entered on line 6 is over $200 but not over $279.17, enter $67 here.
(c) If amount entered on line 6 is over $279.17 but not over $840, enter 24% of that amount

here
(d) If amount entered on line 6 is over $840, enter $201.60 plus 1472% of the excess over

$840 here 8. Subtract line 7 from line 6. Enter the difference here

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Lines 9 to 13 should be filled in ONLY if this is a joint return of husband and wise
9. Enter here one-half of amount on line 5, above.
10. Use the tax rates in instruction sheet to figure your combined tentative normal tax and

surtax on amount on line 9. Enter the tentative tax here (If line 3, above, includes

partially tax-exempt interest, see Tax Computation Instructions).
11. (a) If amount entered on line 10 is not over $200, enter 3312% of that amount here.

(b) If amount entered on line 10 is over $200 but not over $279.17, enter $67 here..
(c) If amount entered on line 10 is over $279.17 but not over $840, enter 24% of that amount

here..

$. $.

(d) If amount entered on line 10 is over $840, enter $201.60 plus 1412% of the excess over

$840 here.

12. Subtract line 11 from line 10. Enter the difference here
13. Multiply amount on line 12 by two. Enter the result here.

IF YOU USED THE STANDARD DEDUCTION IN LINE 2, DISREGARD LINES 14, 15, AND 16, AND

COPY ON LINE 17 THE SAME FIGURE YOU ENTERED ON LINE 8 OR 13

14. Enter here any income tax payments to a foreign country or U. S. possession

(attach Form 1116) 15. Enter here any income tax paid at source on tax-free covenant bond interest.

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16. Add the figures on lines 14 and 15 and enter the total here.
17. Subtract line 16 from line 8 or line 13, whichever is applicable.

and in item 7, page 1. This is your tax..

Enter the difference here

EXHIBIT B Rate and Computation Schedules if Reduction Formulae Under H. R. 4790 Are

Shown on Form

RATE SCHEDULE If the amount on line 5 is:

Enter on line 6 or line 10: Not over $2,000..

20 percent of the amount on line 5. Over $2,000 but not over $4,000.

$400, plus 22 percent of excess over $2,000. Over $4,000 but not over $6,000.

$840, plus 26 percent of excess over $4,000. Over $6,000 but not over $8,000..

$1,360, plus 30 percent of excess over $6,000. Over $8,000 but not over $10,000.

$1,960, plus 34 percent of excess over $8,000. Over $10,000 but not over $12,000.

$2,640, plus 38 percent of excess over $10,000. Over $12,000 but not over $14,000.

$3,400, plus 43 percent of excess over $12,000. Over $14,000 but not over $16,000.

$4,260, plus percent of excess over $14,000. Over $16,000 but not over $18,000.

$5,200, plus 50 percent of excess over $16,000. Over $18,000 but not over $20,000.

$6,200, plus 53 percent of excess over $18,000. Over $20,000 but not over $22,000.

$7,260, plus 56 percent of excess over $20,000. Over $22,000 but not over $26,000.

$8,380, plus 59 percent of excess over $22,000. Over $26,000 but not over $32,000.

$10,740, plus 62 percent of excess over $26,000. Over $32,000 but not over $38,000.

$14,460, plus 65 percent of excess over $32,000. Over $38,000 but not over $44,000.

$18,360, plus 69 percent of excess over $38,000. Over $44,000 but not over $50,000

$22,500, plus 72 percent of excess over $44,000. Over $50,000 but not over $60,000.

$26,820, plus 75 percent of excess over $50,000. Over $60,000 but not over $70,000.

$34,320, plus 78 percent of excess over $60,000. Over $70,000 but not over $80,000.

$42,120, plus 81 percent of excess over $70,000. Over $80,000 but not over $90,000.

$50,220, plus 84 percent of excess over $80,000. Over $90,000 but not over $100.000.

$58,620, plus 87 percent of excess over $90,000. Over $100,000 but not over $150,000.

$67,320, plus 89 percent of excess over $100,000. Over $150,000 but not over $200,000.

$111,820, plus 99 percent of excess over $150,000. Over $200,000.

$156,820, plus 91 percent of excess over $200,000.

COMPUTATION SCHEDULE

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5. Subtract line 4 from line 3. Enter the difference here..
Lines 6,7, and 8 should be filled in ONLY by a single person or a married person making a separate

return
6. Use the tax rates in instruction sheet to figure your combined tentative normal tax and

surtax on amount in line 5. Enter the tentative tax here. (If line 3, above, includes

partially tax-exempt interest, see Tax Computation Instructions).
7. (a) If amount entered on line 6 is not over $200, enter 33:2% of that amount here.

(b) If amount entered on line 6 is over $200 but not over $279.17, enter $67 here.
(c) If amount entered on line 6 is over $279.17 but not over $840 enter 24% of that amount

here
(d) If amount entered on line 6 is over $840, enter $201.60 plus 1412% of the excess over $840

here 8. Subtract line 7 from line 6. Enter the difference here. Lines 9 to 13 should be filled in ONLY if this is a joint return of husband and wife 9. Enter here one-half of amount on line 5, above. 10. Use the tax rates in instruction sheet to figure your combined tentative normal tax and

surtax on amount on line 9. Enter the tentative tax here. (If line 3, above, includes

partially tax-exempt interest, see Tax Computation Instructions).
11. (a) If amount entered on line 10 is not over $200, enter 3312% of that amount here.

(b) If amount entered on line 10 is over $200 but not over $279.17, enter $67 here.
(c) If amount entered on line 10 is over $279.17 but not over $840, enter 24% of that amount

here.
(d) Ifamount entered on line 10 is over $840, enter $201.60 plus 1442% of the excess over $840

here. 12. Subtract line 11 from line 10. Enter the difference here. 13. Multiply amount on line 12 by two. Enter the result here.

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Rate and Computation Schedules if Reduction is Integrated With Rate Schedule

RATE SCHEDULE

If the amount on line 5 is:
Not over $1,000.-
Over $1,000 but not over $1,395.85.
Over $1,395.85 but not over $2,000.
Over $2,000 but not over $4,000.
Over $4,000 but not over $6,000.
Over $6,000 but not over $8,000.
Over $8,000 but not over $10,000
Over $10,000 but not over $12,000.
Over $12,000 but not over $14,000.
Over $14,000 but not over $16,000
Over $16,000 but not over $18,000.
Over $18,000 but not over $20,000.
Over $20,000 but not over $22,000
Over $22,000 but not over $26,000
Over $26,000 but not over $32,000.
Over $32,000 but not over $38,000.
Over $38,000 but not over $44,000.
Over $44,000 but not over $50,000
Over $50,000 but not over $60,000.
Over $60,000 but not over $70,000.
Over $70,000 but not over $80,000.
Over $80,000 but not over $90,000
Over $90,000 but not over $100,000
Over $100,000 but not over $150,000.
Over $150,000 but not over $200,000.
Over $200,000.

Enter on line 6 or line 8: 13.3 percent of the surtax net income. $133.00, plus 20 percent of excess over $1,000. 15.2 percent of the surtax net income. $304.00, plus 16.72 percent of excess over $2,000. $638.40, plus 22.23 percent of excess over $4,000. $1,083.00, plus 25.65 percent of excess over $6,000. $1,596.00, plus 29.07 percent of excess over $8,000. $2,177.40, plus 32.49 percent of excess over $10,000. $2,827.20, plus 36.705 percent of excess over $12,000. $3,562.50, plus 40.185 percent of excess over $14,000. $4,366.20, plus 42.75 percent of excess over $16,000. $5,221.20, plus 45.315 percent of excess over $18,000. $6,127.50, plus 47.88 percent of excess over $20,000. $7,085.10, plus 50.445 percent of excess over $22,000. $9,102.90, plus 53.01 percent of excess over $26,000. $12,283.50, plus 55.575 percent of excess over $32,000. $15,618.00, plus 58.995 percent of excess over $38,000. $19,157.70, plus 61.56 percent of excess over $44,000. $22,851.30, plus 64.125 percent of excess over $50,000. $29,263.80, plus 66.69 percent of excess over $60,000. $35,932.80, plus 69.255 percent of excess over $70,000. $42,858.30, plus 71.82 percent of excess over $80,000. $50,040.30, plus 74.385 percent of excess over $95,000. $57,478.80, plus 76.095 percent of excess over $100,000. $95,526.30, plus 76.95 percent of excess over $150,000. $134,001.30, plus 77.805 percent of excess over $200,000.

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COMPUTATION SCHEDULE 5. Subtract line 4 from line 3. Enter the difference here.. Line 6 should be filled in ONLY by a single person or a married person making a separate return 6. Use the tax rates in instruction sheet to figure your combined normal tax and surtax on

amount entered on line 5. Enter the tax here. (If line 3, above, includes partially tax

exempt interest, see Tax Computation Instructions) Lines 7, 8, and 9 should be filled in ONLY if this is a joint return of husband and wife 7. Enter here one-half of amount on line 5, above. 8. Use the tax rates in instruction sheet to figure your combined normal tax and surtax on

amount entered on line 7. Enter the tax here. (If line 3, above, includes partially tax

exempt, see Tax Computati n Instructions) 9. Multiply amount on life 8 by two. Enter the result here.

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