With a great deal of the increased tax burden shifted to low-income individuals, and with these same individuals suffering from rising living costs, we feel that it is essential now to give these individuals adequate and proper tax relief. This should be done by increasing exemptions, not by $100 as is proposed in H. R. 4790 but by a considerably larger sum. Exemptions for individuals should be $1,500 a person and $500 for each dependent. We estimate that if this provision were enacted into law, it would decrease Federal revenue by approximately 6.5 billion dollars and remove from the taxrolls about 20,000,000 taxpayers. However, we make one further stipulationthat this increased exemption should apply only to those individuals earning less than $5,000 a year. The precedent for this move rests in the Revenue Act of 1921. In addition to granting tax relief to low-income individuals through increasing exemptions, serious consideration should be given to excise taxes. Last year we specifically recommended that the wartime increase in excise taxes be eliminated and that as quickly as revenue requirements permitted, all excise taxes, not regulatory in character, be eliminated. Carrying out these recommendations as they affect the individual means a loss in Federal revenue, but we also believe that Now is the time also to maintain Federal revenue at a high enough level to cover the necessary expenditures of the Federal Government In order to carry through this recommendation, we suggest, as we did last year, that an excess-profits tax upon corporations, along with a form of an undistributed-profits tax, be enacted. For the specific recommendations in this field I make reference only to the statement presented on behalf of the CIO last year to the Senate Finance Committee. We feel that any reduction in revenue resulting from relief to low-income individuals should be compensated for by increased taxation on corporations and eliminating loopholes in other phases of our tax structure, such as capital gains, estates and gifts, exempt securities, etc. In periods of high national income and gross national product, it is essential that Federal revenue be sufficient to balance the budget and meet obligations on the public debt. In periods of low national income it will be necessary to increase Federal expenditures, reduce Federal taxes, and have deficit financing. However, we feel that over a cycle in our economy, the budget should be balanced. Unless we follow this procedure, our national debt will go even higher than it is today if we run into a serious economic recession. Now is the time to shift some of the burden of taxation from the shoulders of individuals to the shoulders of Americans corporations The shift in our Federal tax structure has been quite drastic in the past 8 years. In fiscal 1940 individual income taxes and taxes upon corporations made up an equal part of the Federal revenue, each contributed about one-fourth of the total receipts. During the war years, a great share of the revenue was borne by both individuals and corporations, that is, in fiscal 1945 individuals paid about two-fifths of the Federal revenue while corporations paid a little over one-third. However, after VJ-day the excess-profits tax was eliminated and individual income taxes were reduced only slightly. As a result, in the coming fiscal year 1949, if no changes are made in our tax structure this year, individuals will pay over one-half of the total revenue while corporations will have their share dropped to less than one-fourth. The share maintained by corporations will be lower relatively than their share in 1940, while the share borne by individuals will be more than doubled. With this drastic shift in the burden of taxes onto the shoulders of individuals and off the shoulders of corporations, a serious shift in the incidence of taxation has occurred. It is, therefore, with this thought in mind that we recommend that some of the tax burden be shifted from the shoulders of individuals over to the shoulders of corporations. There are some who argue that a shift in taxes to corporations will destroy incentive and initiative and prevent the adequate development of venture capital. Let me say in this connection that corporate profits in 1929 were 8.5 billion dollars, 12.5 billion dollars in 1946, and 17 billion dollars in 1947-the highest level of profits in our entire history. Corporations were also paying out more in dividends in 1947 than ever before on record, they were retaining more earnings after payments of dividends than ever before on record, they were making larger investments in business and production than ever before on record, and with their retained earnings paid for a higher share of that investment than ever before on record. Therefore, I cannot see how the claim can be made that the tax structure will destroy initiative and prevent the free flow of the necessary venture capital. Tax relief now to low income individuals is not inflationary We say that tax relief to low income individuals is not inflationary. Tax relief to low income individuals is essential to enable them to provide themselves with an adequate standard of living. Tax relief to low income individuals would permit these people to maintain a little better standard of living and would permit them to purchase many of the necessities of life which current income does not permit them to buy. This can be inflationary only if the total supply of goods available is less than what all income levels are demanding. If this is the case, it is far wiser to properly allocate and ration these commodities equitably to individuals of all income levels rather than to deprive the low income individuals of tax relief. In other words, if purchases of the basic necessities of life by low income individuals contributes to influation, it is not because these individuals' incomes are too high but because the supply of goods available is not enough to go around, or that the supply of goods is being adequately distributed. It is essential therefore that we take steps to see to it that the available supply of goods is equitably distributed amongst all income levels rather than to take steps to prevent adequate tax relief to the low income individuals. DISCUSSION OF H. R. 4790 I should now like to devote the rest of my time to the discussion of the bill on taxation currently being considered, H. R. 4790, better known as the Knutson bill. This bill is only a slight improvement upon last year's H. R. 1. However, the CIO still maintains the same position that it did last year, and that is the low income individuals are not prepared to accept what little tax relief is granted under this bill as long as such relief is granted at the expense of very substantial relief to the high income individuals. I should like first to discuss the over-all effect of H. R. 4790. An analysis of the total tax reduction of 6.2 billion dollars which this bill grants shows, beyond a question of a doubt, that the major tax relief is given the wealthy and high-income individuals and only minor relief is given the lower-income individuals. The 26.5 million taxpayers, over one-half of the total who have net incomes of less than $2,000, receive under this bill a total tax relief of $1,400,000,000, or 23 percent of the total tax relief. On the other side of the incometax ladder, 24 million taxpayers, who constitute only 4 percent of the total, have net incomes of more than $5,000 and they receive $2,100,000,000 in tax relief or over one-third of the total. In other words, 24 million well-to-do taxpayers will receive 50 percent more tax relief than the 26.5 million low-income taxpayers. This is neither fair nor equitable. The over-all effects of this bill are shown for all their worth by a comparison of the tax reduction received by those individuals receiving net incomes of less than $2,000 as compared to those receiving incomes of $25,000 or more. 26.5 million taxpayers with net incomes of less than $2,000 receive, on the average, a tax cut of $53 a year, the equivalent of a little less than 2.5 cents an hour, if we assume that these workers are fully employed for 52 weeks a year for 40 hours. On the other hand the 212,000 taxpayers with net incomes of more than $25,000 a year will receive a tax cut, on the average, of $4,562 a year or the equivalent of $2,20 an hour increase, if we make the same assumptions we did with the individuals making $2,000 a year. In other words those individuals with net incomes of $25,000 or more get the equivalent of almost 90 times as much increase in their hourly take as the individuals with net incomes of less than $2,000 a year. The Knutson bill is grossly discriminatory against the low-income individuals of this country. I should like to compare the effect this bill would have on the tax obligations of three types of families, each having two children, the first earning $3,000, the second $25,000, and the third $50,000. The individual head of the family earning $3,000 a year will get $110 in tax relief, or 30 cents a day, not even enough to buy the family its daily quota of milk. On the other hand a $25,000 a year man will receive a tax cut of $3,322 a year. He receives a tax cut which is equivalent to what more than 57 percent of our American families earned last year. The $50,000 a year man will receive a tax cut of $8,125. This tax cut is equivalent to what more than 93 percent of our American families earned last year. Clearly and unequivocally H. R. 4790 is a tax steal for the wealthy and a stab in the back for the poor. I should like to call your attention to the table below which shows the comparison of income after taxes under the present law and under H. R. 4790 for a married individual with two dependents at various income levels. As can be seen from the table, an individual with net income before personal exemptions of $3,000 has his spendable income increased 3.9 percent while an individual with an income of $25,000 has his spendable income increased by 20.2 percent. The individual earning $500,000 a year has his spendable income increased by more than two-thirds. Comparison of income after tax under present law and H. R. 4790 (married, 2 dependents) Source: Statement of Secretary Snyder before House Ways and Means Committee, Jan. 16, 1948. It is clear that the CIO is emphatically opposed to H. R. 4790 for the many reasons already stated. I should like now to refer briefly to each of the major provisions contained in the bill. First of all the bill increases exemptions from $500 to $600 a year. While this is good in itself and would thus remove from the tax rolls over 6,000,000 taxpayers, it is insignificant when related to the basic need. The second major provision of the bill reduces tax rates by 30 percent on incomes of $1,000 or less, 20 percent on incomes up to $4,000 and 10 percent on all others. This is an improvement over last year's approach which started out to have a flat percentage increase for all income levels, and then as it later emerged, with a graduated 30-, 20-, and 10-percent tax cut, but the 20-percent tax cut affected individuals with incomes up to $76,000. In spite of this change, which we do not consider too great an improvement, we maintain our basic position that the most important tax relief to be granted now is to increase the basic exemptions to levels of $1,500 for each adult and $500 for each dependent. If tax rates as such are to be reduced, we think the reduction ought to be not on a percentage basis but on a point basis. This is more consistent with retaining the progressivity of our tax structure. The third major provision of the bill permits married couples to split their income, This provision was not contained in last year's bill. The Treasury has, since 1921, been recommending to the Congress that the community-property privilege maintained by the community-property States be eliminated. The proposal took the form generally of requiring that families' income be filed in joint returns. This requirement not only closes the loopholes of the communityproperty States but closes other loopholes existing in the income-tax laws of other States. The inclusion of splitting of income provisions in the present bill is in direct opposition to requiring mandatory joint returns. This splitting of income provision benefits mainly the middle and high income individuals. Less than 3 percent of the total tax relief derived from this one provision would go to individuals with incomes of less than $5,000 while more than 97 percent would go to individuals with incomes of over $5,000 and 89 percent would go to those with incomes of over $10,000 a year. For example, this tax splitting proposal gives a married individual earning $25,000 per year a tax cut of $3,000 while it gives nothing at all to a man and his family whose total income is only $3,000. In other words, a married individual earning $25,000 a year under this income-splitting provision gets tax relief amounting to more than the income earned by approximately three-fifths of the American people. This provision clearly gives relief to the wealthy with absolutely no relief to the low and moderate income individuals. The CIO strongly urges this committee to recommend that families be required to file mandatory joint returns where the income is earned solely by the head of the family instead of proposing income splitting. The community property privileges now existing in 12 States should be eliminated just as they were eliminated in 1942 for estate- and gift-tax purposes. It cannot be claimed by anyone that it is unconstitutional to eliminate the community-property privileges from those States now enjoying them, because in this connection the 1942 law which did terminate the community-property privilege for estate purposes has been upheld in the Supreme Court of the United States. On the floor of the House of Representatives an amendment was proposed and accepted to repeal provisions of the 1942 tax law which eliminated the community-property privilege. We strongly urge this committee not to accept this amendment to the 1942 tax law. We further urge this committee not to adopt the income-splitting provisions which gives all the tax relief to the wealthy. The adoption of a splitting of income provision would throw our tax structure out of kilter. Splitting of income: (1) Discriminates against heads of families who are neither married or do not have spouses present in the household. (2) Discriminates against the low-bracket taxpayer, whether married or not, in all States, as he receives no benefit under this provision. (3) Discriminates against single individuals who receive no benefit. The passage of the provision to split incomes would create many discrepancies in our tax structure. With all of the force and vigor of the CIO we urge this committee to reject not only the income-splitting provision of the Knutson bill, not only the provision repealing the amendment to the 1942 tax law which eliminated the community-property provision, but to reject the Knutson bill as a whole. The Knutson bill, H. R. 4790 is unjust and discriminatory in favor of the wealthy at the expense of the poor. The working people of America will not be deceived by this bill and will not be baited into accepting the scant tax relief this gives them while enormous relief is dished out to those individuals who are best able to pay. Mr. RUTTENBERG. I should just like to briefly summarize the position we take in this statement. Before I do, I would like to say I am happy once again to be before your committee and have an opportunity to present the views of the Congress of Industrial Organizations on this all-important matter of taxation. Last year, when I appeared for the CIO, we presented an extensive tax program for tax revision. We also, of course, opposed H. R. 1. Those tax recommendations which we made last year, I shall not go into any detail on here today, except to call your attention to last year's record and say that what we had to say on tax revision last year we feel even more strongly on this year. We stand by what we said last year on long-range tax revision. 1. Now is the time for proper and adequate tax relief to low-income individuals. 2. Now is the time also to maintain Federal revenue at a high enough level to cover the necessary expenditures of the Federal Government. 3. Now is the time to shift some of the burden of taxation from the shoulders of low-income individuals to the excessively high profits of American corporations. 4. Tax relief now to low income individuals is not inflationary. 5. The present bill, H. R. 4790, now being considered by your committee is only slightly better than last year's H. R. 1, which we then described in President Roosevelt's terms that it was "tax relief for the greedy and not for the needy." Those are the five basic points which I should like to make today. I think, as Mr. Nixon has so ably pointed out, now is the time for tax relief to low income individuals. The tax burden which they are bearing today is greater than in all history. Certainly, Federal revenues have increased from a level of 4 and 5 billion dollars in prewar days to the present level of 38 and 39 and 40 billion, and even possibly 45 billion, for the coming fiscal year. The revenues are highly needed and highly necessary, and we are not proposing before this committee that the amount of Federal revenue be reduced. On the contrary, we are proposing to this committee that what tax relief results from a reduction in the tax burden on low income individuals be made up for by the imposition of taxes in other fields. Most specifically, that is an excess-profits tax upon corporations; and undistributed-profits tax such as we discussed before the committee last year; a closing of the loopholes in tax-exempt bonds and capital gains, and closing the loopholes in the estate and gift taxes. Unfortunately, in that latter category this committee is broadening the loopholes in the estate and gift taxes by the repeal of the 1942 amendment. I do not want to take up too much time of the committee. I should just like to direct attention for the time being to the basic question about adequate tax relief for low-income individuals. The present exemptions for a family with four is $2,000. The exemptions in 1940 for a family of four were considerably higher than that level. Not only have exemptions in the past 8 years been greatly increased upon low-income individuals, but the tax rates have been greatly increased upon the first bracket tax as well as upon all other bracket taxes. So that presently over one-half of the total individual income tax is borne by individuals with incomes of less than $5,000 a year, while in 1939, only one-tenth, or 10 percent of the burden was borne by those individuals. The major increase in revenue during war years has come from increasing the tax burden upon the low-income individuals. When the war ended following VJ-day, the first move made by the Congress was to eliminate the excess profits tax, which also, by the way, was imposed during the war and was an additional burden upon corporations, but little or no relief at that time was given to the low income individuals. Oh, yes, a 5-percent reduction and elimination of the shift in the method of computing taxes. It amounted to a total change of 5-percent reduction in all income-tax rates. 72605-48-26 |