Senator JOHNSON. The question is: Is it just? Mr. RUTTENBERG. No, sir. Senator JOHNSON. We ought to determine it on the basis of whether it is right or whether it is wrong. Mr. RUTTENBERG. I say, sir, it is wrong to give to 36 States what 12 States now have just because 12 States happen to have the provision now. Senator JOHNSON. How can you take it away from the 12? You cannot take it away from the 12; we have tried that. Mr. RUTTENBERG. The 1942 tax amendment which deals with the estate and gift-tax provisions has been.upheld by the Supreme Court of the United States. Its constitutionality has been upheld. It is perfectly constitutional for the Congress to pass a law to take away the community-property privileges of those 12 States, and at that time it was only 8 States. The Supreme Court has upheld it. The basic question which this committee is faced with is, there are so many complications involved in taking away from the 12 States. Let us forget about those complications and let us give it to all 48 States. Senator JOHNSON. You have got to do one or the other. Mr. RUTTENBERG. That is right, and I think it is far more equitable, far more just, far more reasonable, to take it away from the 12 than it is to give to the 36, particularly when the major tax relief goes to those individuals with incomes of more than $5,000 a year, and actually 87 percent of the tax relief goes to those individuals with incomes of more than $10,000 a year. I say that is the issue there. The CHAIRMAN. How many working women have you on your working force now? Mr. RUTTENBERG. About 25 percent of the total workers are women, roughly. The CHAIRMAN. The women are great income producers now; are they not? Mr. RUTTENBERG. Great income producers, yes, sir. The CHAIRMAN. Do you oppose the economic independence which they have? Mr. RUTTENBERG. Not at all. The CHAIRMAN. Would you deprive them of the privilege of carrying their own weight as far as taxes are concerned if they wish to? Mr. RUTTENBERG. Not at all. We would propose, if you have a mandatory joint return, provision should be made where income personally earned-that is, earned income-individual returns are permitted. Where income is not earned but transferred for tax purposes, it ought to be on the joint return. The CHAIRMAN. In the community States, you would compel uniformity by compelling joint returns in the community-property States? Mr. RUTTENBERG. Where the income is earned by one of the spouses. The CHAIRMAN. Despite the fact they operate on an entirely different system than the common-law States? Mr. RUTTENBERG. Yes. The CHAIRMAN. The ownership of the husband and wife in that community property, I suggest, is not a fancy. If you believe it is, just watch what happens when there is a divorce or death. In other words, for the benefit of splitting that income, they have to assume some burdens. Mr. RUTTENBERG. That is right. The CHAIRMAN. You would deny them the benefit that flows from the split and fasten the burden on them? Mr. RUTTENBERG. Put the argument in reverse, sir. You are doing just that thing for the 36 States—giving them a benefit without assuming the responsibilities of community law. The CHAIRMAN. That is entirely right. Mr. RUTTENBERG. Is that fair and equitable and just? The CHAIRMAN. You are entirely right. We are talking about equalizing. If you start to impose the joint return on communityproperty States, you are not equalizing and are not doing justice. You reverse that and say by giving the rest of the States the right to split when they do not assume the burden of community-property States, that is an injustice. I suggest the rapid extension of the community-property States makes this more or less of a theory, and I believe the Federal Government can take a practical look at it and say, "Let's get this done." Mr. RUTTENBERG. I am sorry to see the tradition of Congress in considering this thing ever since 1921 is now being reversed. Since 1921, the Congress has been considering the problem of requiring mandatory joint returns, and in various revenue acts have attempted to do it. As a matter of fact, in 1942 they tried to do it and lost by 1 vote in the committee. If I am not mistaken, Senator George, you were chairman of the committee then. Senator GEORGE. It was a very close vote. Mr. RUTTENBERG. I say the tradition is being changed now, and why is it being changed at this point? The change means tax relief to the high-income individuals who are most able to pay. I say it is unfortunate the shift has been made in that regard. The CHAIRMAN. Do you mind if I put something in the record here about the justice of this thing? Mr. RUTTENBERG. Certainly. The CHAIRMAN. Let us test the relation of income taxes paid per dollar of income by taxpayers in different brackets. I am talking about a single person with no dependents, with net income before exemption. The $5,000-income man pays 10 times as much as the $1,000. The $10,000-income man pays 25 times as much as the $1,000 man. The $10,000 man pays 3 times as much as the $5,000 man. Mr. RUTTENBERG. It raises only one question in my mind and that is as to the progressivity of our tax structure. I think when Congress originally adopted the individual incometaxes they did it on the progressive theory-that those most able to pay should pay. The CHAIRMAN. That is the result, and it is a very sharp, harsh result, is it not? Mr. RUTTENBERG. My heart does not bleed for the many individuals in America who have the kind of incomes that pay 669 times what the man earning $1,000 pays. The CHAIRMAN. In a word, you think that is fair-what I have read to you? Mr. RUTTENBERG. I think it is, sir. I should like to enter into the committee's concern just three points on the splitting of income. The splitting of income 1. Discriminates against heads of families who are either unmarried 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. What, in effect, splitting of income provision does is to have a separate kind of tax structure for married individuals, another kind for single individuals, and another kind of tax structure for those married individuals whose wives die and they have another individual in the household. I say that is not fair. I say if you want to extend community-property privileges to all States in the United States, it ought to be done in such a way-I do not say it should be done-if you do it, to take into consideration that these individuals receive no benefit. Senator GEORGE. You are right about that, but would we not be making a good deal of progress if we got the equality of it from between the States, then tried to remedy it as to the individuals? We have to take one step at a time, and I have been very much interested in what you are saying, but under this bill which you do not like there would be 6.5 million taxpayers in the very low brackets, who would be entirely relieved of any taxes. Then under the increase in exemptions for the aged taxpayers, there would be 1,400,000, very close to 8,000,000 taxpayers who would be relieved entirely. Do you not think that is worth starting on? Do you not think that adds something to the purchasing power of those groups? Mr. RUTTENBERG. I think it does, unquestionably, sir, but I think it is a principled matter at this point, whether the low-income individual should accept tax relief at the expense of seeing tremendous relief to those in high brackets who at this precise moment should not be receiving it. Senator GEORGE. That is not all. Above those entirely exempted, there is some relief that goes to the low-income taxpayers. It might not be in the proportion you wish to do it, but if any relief is to be given to those above, outside of the split-income provision, which I regard really as an effort to iron out an inequity, and which for a long time I had hoped to iron out the other way around-but we had no chance of getting it, of doing away with the community property as a basis of taxation simply by saying that for Federal tax purposes all of it should be considered as being earned by the earner whoever he was. Mr. RUTTENBERG. I wish you were still continuing to fight for that. Senator GEORGE. Well, we lost that fight. Mr. RUTTENBERG. And you put up an able one. Senator GEORGE. Now, the question is whether we can iron out this inequality between the States which has become so acute in the instance of a State, for instance, joined on three sides by noncommon law, or community-property States. It is a pretty bad case. Mr. RUTTENBERG. Arkansas is in bad shape. Senator GEORGE. Arkansas is that particular State. It is faced on three fronts by the community-property States and it is a very great burden. It is a very great immediate direct burden on its citizens. Of course, the same burden is on people down in my State, or some other remote State, but they do not feel it so much because they are not adjacent to a community-property State. I think that we ought to look at this bill as an effort to try to iron out that inequity, although we may not be doing it in the very best way, because admittedly our tax rates are high now and will be high after this bill. I agree with you this bill will not add a lot of cash reserves that will go into equity financing, if that is due, or influenced even in part by our tax structure, because we are not going to give them so much. These fellows in the higher brackets will not have so much when it is all over. Mr. RUTTENBERG. They will have a little. Senator GEORGE. That is right, they will have a little. Mr. RUTTENBERG. I do not say that, you will take Senator Millikin's argument away from him. Senator GEORGE. Senator Millikin, as well as anybody, knows this bill is simply a step, and a pretty feeble step, possibly, toward getting very much money into places where you can replenish your investment in these things that must be carried on in this country. I know you have studied the history of England. Of course, there were plenty of reasons why England did not make investments in her plants and did not keep them modernized. She had the wars and had everything else. She had more than we had, I mean, but after all, England did not do it. While England has managed to keep an hourly wage fairly high, production so fell off and conditions were so tough there they were not able to keep their plant, their machine going and operating. I might be mistaken, but we have to approach these things as best we can to see if we cannot really do something in the right direction in this bill. I think you would agree that there would be some benefit coming even to the low taxpayers. Mr. RUTTENBERG. Yes; there will, certainly. Senator GEORGE. I appreciate your position that we are paying too high a price for that and ought not to do it, but I think you would agree there will be some benefits coming to the low income group, the low taxpayers, the lowest taxpayers, certainly, who are in the greatest need. Mr. RUTTENBERG. I can only say this, sir. I just got back last evening from Minneapolis where I attended an education conference of the Textile Workers Union. There were over 400 people at that meeting, and I presented to them this one question, just this question of this bill, and I tried to present it as objectively and impartially as I could, as to the amount of relief it gives to low income individuals as against high-income individuals. The overwhelming majority of those people who would receive some benefits under this bill said to me that the position which I was taking was sound. "We agree with it. We do not want to accept minor relief if we get it at the expense of the kind of relief given to other individuals." The CHAIRMAN. Then, is it your position, if we did not accept your theory of a bill, that a bill following the structure of the Knutson bill, reduced in amount but preserving roughly the distribution between lower and higher incomes, were advanced, you would rather not have that? Mr. RUTTENBERG. That, sir, is my general position. It is a difficult one to take and one mainly based upon principle. The CHAIRMAN. For our guidance, is it your theory or not? Mr. RUTTENBERG. I would prefer not to answer the question that way, sir. We had that argument last year. I answered in the negative last year. The CHAIRMAN. Mr. Nixon has said the need of your people is greater at this time than it was a year ago. Therefore, the merit of giving them 70 percent rather than nothing is 70 times better than nothing, and I hoped you would reluctantly say you would rather have that than nothing. Mr. RUTTENBERG. I say again it is a matter of principle. I have enjoyed very much being here. The CHAIRMAN. Thank you for coming, Mr. Ruttenberg. We are always pleased to have you. We will recess until 10 o'clock tomorrow morning. (Whereupon, at 4:45 p. m., the committee recessed until Tuesday, March 9, 1948, at 10 a. m.) |