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TABLE 3.—Distribution of tax relief under H. R. 4790

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1 Including total exemption for 7,399,100 taxpayers under $5,000.
Source: H. Rept. 1274, 80th Cong., 2d sess. (report to accompany H. R. 4790, Jan. 27, 1948), p. 28.

TABLE 4.-Increase in spendable income under H. R. 4790 (married couple, 2


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Source: H. Rept. 1274, 80th Cong., 2d sess. (report to accompany H. R. 4790, Jan. 27, 1948), p. 17.

TABLE 5.Effects of income splitting (married couple, no dependents)

Net income before exemption

Tax payable

Saving with

split return Joint return Split return


$2,000. $2,500. $3,000 $4,000. $5,000. $6,000. $8,000 $10,000 $25,000. $50,000 $100,000. $230,000 $500,000.$1,000,000 $2,000,000.


1, 577
2, 185
24, 795
63, 128
148, 124
407, 465


1, 843
6, 460
18, 724
50, 274
383, 544

38 76 190

342 2,622 6,071 12, 854 21, 043 23,921 23. 921 23,921

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839, 715 1, 704, 215

815, 794 1,680, 294

Source: H. Rept. 1274, 80th Cong., 2d sess. (report to accompany H. R. 4790, Jan. 27, 1948), p. 22.

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Sources: Statistical Abstract of the United States, 1947, pp. 320, 322; House Committee on Ways and Means. hearing on H. R. 4790, Jan. 16 and 19, 1948, pp. 57, 61.

Mr. Nixon. First, Mr. Chairman, I would like to express my appreciation for the opportunity to appear again this year before the Senate Finance Committee on the tax question.

I appreciate the attendance of yourself, Senator George, and Senator Overton, at this testimony.

It has been about a year since Congress last discussed tax reduction and since I was here to testify.

In that year, we have had an experience of high inflation which has had an increasingly serious impact on the living standards of the American people and on the stability of our economy.

It has created what the previous witness referred to as humanitarian problems in terms of millions of American families.

It is our opinion that the developments of the past year have served to underline and emphasize the general point we made a year ago when we came before this committee to testify on what was then H. R. 1.

We feel that this is true because at that time we emphasized the very grave problem of the average American meeting his cost of living from his income and tax burden.

This, of course, has increased in difficulty as a result of the rise in prices in the last year.

In addition, a year ago, we emphasized the uncertain prospects of continued high production in the economy, the uncertainty on which our economy rested in terms of the future prosperity, and it is our feeling that we are even in a more dangerous position as the year has passed than we were a year ago, and these thoughts underline our general presentation.

It is our feeling that a sound tax measure at this time can do a great deal to grant relief from the high living costs that the average person is meeting, and to sustain consumption. There is no question that the present tax drains off too much purchasing power from the low-income people.

In the low incomes, taxation is making a definite impact on the healthy existence, on the minimum standard of living of millions of American families.

We feel that the readjustment of the tax program so as to provide this relief is the central issue in taxation today.

The simple issue is whether relief is to be granted exclusively to the victims of inflation, or whether such relief will be dissipated in the form of a hand-out to the beneficiaries of inflation.

This, we think, is the basic issue and one that must receive the attention of the entire committee.

In this respect, we feel that H. R. 4790 does not provide adequate relief where it is needed.

The basic criticism is H. R. 4790 provides relief in reverse ratio to the order in which the tax burden was extended during wartime.

As you know, during wartime, there was an extension, and necessarily so, an extension of the burden of taxation from the higher income brackets to the lower income brackets, with the result that in 1939, the incomes under $5,000, which paid less than 10 percent of the Federal income taxes, pay under the present law something like 55 percent. If

you also make adjustment for the increase in prizes which has occurred since that time, the conclusion is emphasized.

The group whose real income and living standards are measured today at $5,000 or less--and they are equivalent to those receiving $3,000 in 1939—is carrying over 10 times the share of Federal income taxes paid by the group with comparable living standards in 1939—55 percent compared with 5 percent.

I would like to emphasize that point and make sure it is understood.

I am making the point that the family with $5,000 now has about the same standard of living, given the rise in prices, as the family who had $3,000 in 1939, and I am comparing the shift in the burden of the taxes in those income groups—$3,000 in 1939 and $5,000 now—to get some guide to the shift in the relative burden of these income groups.

I make the point that under the law, as you have proposed it, the increased burden of the low-income families that arose during the war from approximately 5 percent to 55 percent is only very infinitesimally reduced,

and that under the law which you have before you as proposed-H. R. 4790—you would still have low-income people below $5,000 paying about 10 times the share that they carried in 1939—50 percent compared with 5 percent.

Our basic position is that the law in terms of the income-tax category should be so changed as to begin a significant reversal of this tendency back to the proportionate share that was carried by the lowincome people in 1939.

The CHAIRMAN. How much revenue were we raising in 1939 ? Mr. Nixon. Of course, you were raising a much smaller revenue with a much smaller national income, which applied to high incomes and to low incomes.

I am not saying, if you will notice, Senator Milliin, you can go back exactly to that 1939 situation, and you will find in our presentation we do not make that proposal.

I do not think it is practicable to go back to a 5-percent share.

The CHAIRMAN. Let us get one or two more basic facts into the record.

Under the bill which is before us, what percentage of the reduction goes to taxpayers of less than $5,000 ?

Mr. Nixon. Seventy-two percent.
The CHAIRMAN. Seventy-two percent.

Mr. Nixon. That is one estimate. There is some discrepancy, depending on national income.

The CHAIRMAN. You are not contending that the taxes which those taxpayers pay could be shifted to the brackets above $5,000 are you?



Mr. Nixon. No; I am suggesting that the 28-percent reduction that goes to those above $5,000 could better be allocated to those under $5,000, and in this way to make a significant step toward a reversal of the present proportionate share back toward the share of 1939.

It is a question of degree.

The CHAIRMAN. Of course, that all comes to the same thing, it seems to me.

If you have a given sum of money, out of which you can make a reduction, if you do not make it all the way along the line, obviously you are shifting the burden from one segment of the bracket to another segment of the bracket.

Mr. Nixon. I would put it, you are shifting the removal of the burden.

The CHAIRMAN. It comes to the same thing.

Mr. Nixon. I would not quarrel with you on that. I would remove the burden completely from the under $5,000 category.

The CHAIRMAN. Do you believe that the present rates above $5,000 are rates which are consistent with the maintenance of a dynamic economy in this country?

Mr. Nixon. Yes, I do, sir. I am coming to the question of venture capital in a short time. The CHAIRMAN. Go ahead.

Mr. Nixon. I only wanted to underline the point I have just made, that at specific income levels, the relief provided by H. R. 4790, would result in an increase of expendable income of 3 percent for a family of four at $2,500 a year income, and range up to 67 percent for a family of four at $500,000 income.

I am perfectly aware of the limitations that mathematics gives us in equalizing those figures.

What I am suggesting is that, by putting all the decrease in the category below $5,000, we could get a more equitable distribution of the tax reduction.

The CHAIRMAN. Whether equitable or not, your point is to take whatever reduction is possible and put that in the brackets below $5,000?

Mr. Nixon. That is right That is the point.
The CHAIRMAN. That is your point?
Mr. Nixon. Yes, sir.

The basic reason for that, which I have stressed before, before this committee, and do not intend to go into in great detail here, is that when you get into income levels of families of three or four thousand dollars or even below that, you are talking about people who are not being able, under their current income and current tax burden, to maintain minimum standards of living, such as has been scientifically determined both by our governmental agencies and by research agencies, professional institutions such as the University of California, the Heller Institute.

When we levy taxes on these low income brackets, we are in a very real sense, levying a tax on the basic consumption of the people.

We are in a sense levying a tax on whether or not a family has enough food to eat; whether or not a family has adequate clothing and medical care.

We are not levying a tax on a luxury, but on things that we, as Americans, would think are basic.

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The basic emphasis I want to put here is that we should move as quickly as possible toward a readjustment of our tax burden so as to not impinge on incomes of this group, lest the decrease them below the level adequate to meet the basic standard of living as it has been determined by the most scientific, careful evaluation of what a nutritional healthy budget for a family is.

I have emphasized this point before the committee before, and I want to emphasize it again, because I know that in the minds of millions of American people, this is the issue of taxation, and this is the humanitarian issue that we have to face when we make the difficult choice of which family carries the load.

I would like to say a word on the question of income-splitting for all States, and then on the question of estate and gift taxes.

I know you have been listening today to a group of men who are experts in discussing some of the technicalities of these two proposals.

I do not want to attempt to discuss the technicalities, but I want to make this point, that both the proposals to apply be mandatory joint returns in all States, or to preclude the mandatory joint return in all States, and to widen the loopholes in the estate and gift taxes, are regressive moves in our tax proposals.

The reason they are regressive is that the relief they would bring is concentrated exclusively in the upper-income brackets of our population.

As Secretary Synder testified before the House Ways and Means Committee, income splitting would result in a revenue loss of more than $803,000,000. Ninety-seven and one-half percent of that would go to individuals with net incomes above $5,000.

We submit that in economic circumstances such as we face today in this country to initiate a tax adjustment which is so completely to the benefit of the high-income brackets of our country is contrary to what is needed, both in terms of standards of living of the people and in the health of the economy.

The argument is often made that this needs to be done for purposes of equalization.

It is a curious approach to the problem of equalization. It is a problem of equalization in which the tail is being asked to wag the dog.

There are 35 non-community-property States, and the 35 are being asked to change in order to adjust to the condition in the 13. It would seem more logical from my point of view to ask the 13 to make the change if it is equalization we are interested in.

The CHAIRMAN. I might say that Congress has attempted that several times without success.

Mr. Nixon. Thus far, the reverse has been attempted as well as that also, and without success, and the problem still rests with the Congress—which way are you going to jump?

I have noticed with a good deal of concern the shift in the administration's emphasis, shall I say, on this particular question, because I know that for years, Mr. Morgenthau, when he was in Mr. Roosevelt's Cabinet, and his representatives, came here and argued vehemently for the retention of mandatory joint returns in all States.

I have been disturbed in the past year or so to see an apparent end of that positive position on the part of the administration, and an in

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