if you had covered in your brief what you regarded as the essential equities in making it retroactive.

Mr. DUNBAR. Senator George, I have attempted to as far as I could demonstrate that, and I would like to say this parenthetically about the 1942 situation.

As you know, the 1942 amendment was passed in executive session without a hearing, and if we had attempted to ask our Senators, or others, to fight this on the floor or anywhere, we would have asked them to do what seemed to be an unpatriotic thing at that time, because the bill was so comprehensive and involved so many taxes we would have been put in a position of allowing our selfish interests to defeat the war effort.

I think in fairness to us, it should be said that during normal times we would have been up here and asked Senator Overton and our friends to make such a fight, but under the circumstances we could not fairly do that.

Senator GEORGE. I might say, by way of exculpation for myself personally, we sometimes have people representing the Treasury up here whose philosophy I could never understand.

Mr. DUNBAR. If I may say so, I have never been able to understand the theory of that law. I can understand one theory at a time in the law but not all three of them applying at the same time.

Mr. Chairman, I appreciate the opportunity of testifying. The CHAIRMAN. Thank you. We are glad to have you here. Mr. DUNBAR. It was only to save your time that I have not elaborated a lot of points.

The CHAIRMAN. Our next witness is Mr. Pierson.

Will you state your name and residence and occupation?

STATEMENT OF CLINT L. PIERSON, ATTORNEY, BATON ROUGE, LA. Mr. PIERSON. Clint L. Pierson, Baton Rouge, La. I am a practicing attorney there.

I had an opportunity prior to this hearing, after I had asked an appearance here, to read Mr. Dunbar's brief, and I knew then that the subject matter was fully covered, and he gave me the benefit of his observations of the subject matter that would be covered by the preceding witnesses.

Therefore, I have decided I would only take a few moments of your time, because it has been fully discussed, and I think discussed in a very able manner.

I do not represent any of the community-property committees. I am not associated with them other than that I think the clients I do represent do subscribe to the Louisiana community-property taxpayers' league, or an association of which Mr. Dunbar and Mr. Wisdom are representatives.

The CHAIRMAN. We will be glad to have your views.

Mr. PIERSON. I am a practicing attorney of Baton Rouge, La., and happen to represent two or three successions which are affected by State taxes under the provisions of the 1942 amendments, and hence my appearance here today to urge the retroactive repeal of that legislation.

Since the bill as passed by the House of Representatives repeals the 1942 amendments, the remarks to follow will be based on the assumption that those amendments will be so repealed.

It appears to me that it would be manifestly and grossly unfair and inequitable to say that a widow, whose husband happened to pass away during the 1942-48 period, should have to pay estate taxes on her portion of the community estate, while other widows, whose husbands died either before the effective date of the 1942 amendments or after the effective date of the repealing statute, would be absolved from the payment of said statute. Certainly they have no control over the time of death, and it would be unpardonable to so penalize those widows because they were unfortunate enough to have lost their husbands during such a short given period of time.

I would like to give the committee the benefit of a direct example of the effect of these amendments on a widow whom I represent, which I believe will show that those amendments, aided and abetted by the ruling of the Internal Revenue Commissioner, 1947, and the provisions of other sections of the revenue act that were in existence prior to the 1942 amendment, regarding income taxes, are confiscatory, to say the least.

The CHAIRMAN. Is this a ruling in a case of your own or a general ruling?

Mr. PIERSON. No; it is a general ruling. I think it was issued in October 1947.

I very hurriedly wrote the memorandum last night and I did not have the benefit of that ruling number.

I heard an example given here this morning by Mr. Jackson which, I think, fits the case I am about to give you as a concrete example like a glove.

This widow was the owner, under Louisiana law, of one-half of all the property belonging to the community of acquests and gains existing between her and her deceased husband.

Among other property was an item of oil royalty and carried interest in lands in Erath Field, Vermilion Parish, La., which were valued at $200,000 for the widow's one-half interest therein.

In other words, it was worth $400,000 and her half was valued at $200,000.

She had other property, but we attributed to this property alone under the 1942 amendments her estate-tax liability approximately $100,000. It might have been a little under that, but we tried to break it down to see what it was.

The CHAIRMAN. That was a logical attribution; it was not an arbitrary attribution?

Mr. FIERSON. I tried to figure its worth against the whole estate, and her estate tax was $114,000, and we attributed a little under $100.000 to be derived from this property.

I have tried to isolate this property for purposes of illustration as to what would happen under the Commissioner's ruling.

Now, in order for her to raise the necessary funds with which to pay her estate-tax liability, it was necessary to sell these property rights, and she did so for the sum of $200,000.

Under the ruling of the Commissioner, her income-tax liability for the year in which she disposed of that property, profit or loss, would

be based upon adjusted cost basis and not the value on which her estatetax liability was computed, as would be the case in the instance of the heir or legatee.

The other half of the community that would actually be inherited by the children and legatees, on the other side of the picture, their basis would be the $200,000 figure placed on this property in succession proceedings and in computation of estate taxes.

By virtue of that ruling they would have to pay for that taxable year-I do not think the return is filed yet, because the tax is due March 15 for 1947-based on long-time capital gain and 25 percent imposed $50,000 additional on that sale of $200,000 piece of property.

This property, as I have pointed out in my written statement, was on the books of the community at practically nothing because as in the illustration, again, that Mr. Jackson gave, it arose by virtue of purchase of oil leases, taking of oil leases, and purchase of royalty in unproven fields.

And the cost basis to this widow's husband or community when he was living is practically nothing, so to speak.

Since then, it has been, since oil was discovered in there, communitized and combined with other producing royalties and major companies, the value has risen.

In other words, in that instance, it would take approximately $150,000 of that $200,000 of the property in order to dispose of her estate tax liability and ensuing income taxes based on the Commissioner's ruling of last fall.

By the time her returns are audited, it would not surprise me to see the Department contend that the sale was subject to an ordinary taxable gain, and then she would be in the hole on property.

The CHAIRMAN. Do you have estate tax down there, too?

Mr. PIERSON. Inheritance tax there, we call it.

The CHAIRMAN. Is it substantial?

Mr. PIERSON. Very nominal.

Gentlemen, these 1942 amendments are aimed solely at women survivors in community-property States. You will know that as a general rule the widows are least capable of earning a livelihood after the death of their spouse, and in most cases must live the remainder of their lives on the principal of their portion of the estate. They should not be put in the same category for estate-tax purposes as the children or legatees are put.

The children have a future earning capacity which the widow does not enjoy in most cases.

That is a humanitarian interest that is also involved.

I appreciate the opportunity of being able to appear here today and hope that my simple remarks will lead you to understand the inequities which would exist if you do not make this repeal retroactive. I am confident that you would not wish to penalize the unfortunate widows who so happened to lose their mates during this short time. The CHAIRMAN. Any questions, Senator Overton? Senator OVERTON. No questions.

The CHAIRMAN. Thank you very much for coming.

Mr. PIERSON. Thank you.

The CHAIRMAN. Mr. Nixon is our next witness.

Will you give your name and residence and occupation to the reporter?

STATEMENT OF RUSS NIXON, WASHINGTON REPRESENTATIVE OF THE UNITED ELECTRICAL RADIO AND MACHINE WORKERS OF AMERICA, CIO, WASHINGTON, D. C.

Mr. NIXON. Thank you, Senator Millikin.

I am Russ Nixon, the Washington representative of the United Electrical, Radio and Machine Workers of America, CIO.

The CHAIRMAN. Do you have a statement that you wish to read? Mr. NIXON. Yes, sir; I have a statement which is in the hands of the committee and the clerk, and I would like to submit that for the record, and I will summarize it extemporaneously, if that is satisfactory. The CHAIRMAN. That will be all right. (The statement is as follows :)

STATEMENT OF INDIVIDUAL INCOME TAX REDUCTION ACT OF 1948 BY RUSS NIXON, WASHINGTON REPRESENTATIVE, UNITED ELECTRICAL, RADIO & MACHINE WORKERS OF AMERICA, CIO, SUBMITTED TO SENATE FINANCE COMMITTEE, MARCH 8, 1948

INTRODUCTION: THE NEED FOR A SOUND ANTI-INFLATION TAX PROGRAM

Nearly a year has passed since the Congress discussed tax reduction. It has been a year of high inflation, eating away at the living standards of the American people and the stability of our economy. A year has been lost in which action might have been started to counteract these dangerous trends. It is all the more urgent that constructive measures be taken now to grant some relief from high living costs and to put consumption on a sound, long-range basis.

The recent break in commodity prices showed the unsoundness of the present economic situation. It showed that current levels of production, employment, and income are on a precarious basis. Regrettably it has been seized upon as a pretext to abandon talk of price controls, although the net effect upon living costs has been virtually zero. On the contrary, it should have served to warn the Congress that unless anti-inflation measures are speedily taken, the economy will become more and more vulnerable to severe contraction in sales, production, and employment.

A sound tax-reduction measure at this time can do much to grant relief from high-living costs and to sustain consumption. Present taxes drain off too much purchasing power from low incomes. That is the central issue in taxation today. It is the simple issue of whether you grant relief exclusively to the victims of inflation, or whether you dissipate much of the essential relief in the form of a hand-out to the beneficiaries of inflation. That is a simple issue, and the voters will judge in November how squarely you meet it.

H. R. 4790 DOES NOT PROVIDE ADEQUATE RELIEF WHERE IT IS NEEDED

H. R. 4790, the proposed Republican Revenue Act of 1948, does not meet the needs of the times. It is only a dressed-up version of H. R. 1, which twice failed of passage last year. The basic criticism which I made of H. R. 1 when I appeared before your committee last year applies to H. R. 4790. The bill provides relief in reverse ratio to the order in which the tax burden was extended in wartime. Under the misleading slogan of reducing the wartime tax burden, it leaves incomes under $5,000 carrying the major share of the tax burden they patriotically assumed in wartime, and five times the share of the income tax they paid in 1939. When the rise in living costs since 1939 is taken into account, the group whose real income and living standards are measured by $5,000 or less today is carrying 10 times the share of Federal income taxes paid by the group with comparable living standards in 1939.

The total Federal income-tax liability under present law, 21.3 billion dollars, is 23 times the 1939 income tax. The tax on incomes under $5,000-$12,000,000,000-is 132 times their 1939 tax of $91,000,000. Under H. R. 4790, incomes under $5,000 would still pay 80 times as much income tax as in 1939 (House report on H. R. 4790, p. 28).

Clearly, H. R. 4790 does not begin to reverse the wartime shift of the tax burden onto low incomes.

H. R. 4790 REPEALS ONLY A SMALL PART OF THE WARTIME SHIFT TO LOW INCOMES

In 1939, incomes under $5,000 paid about 10 percent of Federal income taxes. Under present law, they pay about 56 percent. Under H. R. 4790, they would still pay nearly 50 percent (table 1).

The shift of the tax burden to low-income groups is shown more sharply if we compare comparable levels of real income and purchasing power. In 1939, an income of $3,000 was worth as much in goods and services as an income of $5,000 today-due to the fact that consumer prices have subsequently risen more than 70 percent. In 1939, incomes under $3,000 paid less than 5 percent of Federal income taxes, while, under present law, incomes under $5,000 pay more than half of Federal income taxes. (The proportion of spending units falling under $3,000 in 1939 was about the same as the proportion falling under $5,000 in 1947about 90 percent.)

In 1939, there were 6.9 million persons with incomes under $5,000 on the Federal tax rolls. Under present law, there are about 52.3 million. Under H. R. 4790, the number of taxpayers under $5,000 is reduced to 44.9 million (table 2). Comparing equivalent real incomes, there were 5.4 million taxpayers under $3,000 in 1939, compared with 52,000,000 under $5,000 today.

GREATEST TAX RELIEF GIVEN TO LARGE INCOMES

The distribution of relief under H. R. 4790, though not as inequitable as that proposed under H. R. 1 last year, is still far from equitable. The 96 percent of taxpayers in the income group below $5,000 would get about 72 percent of the total relief, instead of 100 percent as their economic need requires.

(H. R. 1

gave them 60 percent of the total cut.) The average relief per taxpayer is steeply graded in favor of high incomes, starting at $61 for the income group under $2,000 and rising to an average of $4,740 for the income group over $25,000 (table 3).

At specific income levels, the relief provided by H. R. 4790 would result in an increase in spendable income of 3 percent for a family of four at $2,500, ranging up to 67 percent for a family of four at $500,000 (table 4).

FOUR CENTS AN HOUR FOR WORKER $16.40 AN HOUR FOR CORPORATION EXECUTIVE

If we take a worker with three dependents, earning $2,500 a year (which is close to average), the tax relief under H. R. 4790 is 4 cents an hour for a full year's work at 40 hours a week.

For an executive at $25,000 it is $1.60.

For an executive at $200,000 (which is about right for the top corporations of the electrical industry) the relief amounts to $16.40 per hour.

EXTENSION OF INCOME-SPLITTING TO ALL STATES IS STEP BACKWARD

One of the most inequitable provisions of H. R. 4790 is the proposal to extend to all common-law States the privilege of splitting family income. According to the National Industrial Conference Board study, this proposal would benefit about 5,000,000 couples in the 35 noncommunity property States. (NICB Business Record, January 1948, p. 8.) According to Secretary Snyder's testimony before the House Ways and Means Committee, income-splitting would result in a revenue loss of $803.5 million-97.5 percent of which would go to individuals with net incomes above $5,000. (Hearings on H. R. 4790, p. 23. In Mr. Knutson's report on H. R. 4790 the loss is calculated at $601.2 million, but this does not substantially alter the distribution of the relief.)

Income-splitting results in no significant saving for any income below $4,000. Even at $4,000 the saving is only $19. But at $10,000 it is $342, and at $100,000 it is $12,854 (table 5). In the income brackets between $13,000 and $100,000 the saving in 5 years is equal to a whole year's taxes.

Instead of leading the way toward further tax relief of this kind for the wealthy, Congress should require mandatory joint returns in all States. According to the NICB study, this would affect only 1.4 million couples but would increase Federal revenue by $542,000,000. This should be applied to reducing the Federal debt or to the financing of Federal housing and other welfare programs.

H. R. 4790 WIDENS THE LOOPHOLES IN ESTATE AND GIFT TAXES

As the minority report on H. R. 4790 points out, "the proposal for splitting of income between husbands and wives has given people residing in community