hands of this great section of the public in relation to a limited supply of goods. This is no plea to relieve the well to do from their just taxation. It is merely a recitation of the facts in regard to the limited taxpaying ability of corporations and those with better-than-average earnings. A very substantial part of large incomes now goes into Government coffers. There is general acceptance in and out of Government that present heavy rates on the upper brackets have long since passed the point of diminishing returns. We recognize that through hidden taxes the average person is already contributing a sizable percentage of his income to Government and we would not here advocate any increase in this present tax burden if the tremendous sums required by national defense could be soundly raised without calling for sacrifice on the part of every person in the United States. (See chart No. 7a.) A relatively small contribution from the great number of average Americans will help produce the great additional tax revenue the armament program demands, and at the same time the people will have a better appreciation of how the Government requires their support. A sounder tax bill.-The tax bill now before you may be substantially improved in two major ways: 1. By a broadening of the tax base and a lowering of exemptions for the purpose of the normal tax upon individual incomes. (See chart No. 8.) 2. By the enactment of a general sales tax as a major source of Federal revenue and as an effective means of spreading the cost of national defense over the great body of our people. We commend the retention in the new tax bill of the two yardsticks for measurement of excess-profits taxes. This optional method is required by the basically unsound nature of excess-profits taxation in its application to our intricate and sensitive structure of business. The excess-profits tax should aim at profits derived from the defense program. It should not be used as a vehicle of business control of social reform. Although we approve the suggested increase to 30 percent of the corporation normal tax in this emergency, we are of the opinion that the present excess-profits-tax rates are now about as high as they should go. As a matter of basic principle, we consider the proposed method of computing excess-profits taxes without giving effect to normal taxes as unsound, because this method will consider as "excess" earnings which are actually normal. The proposed new method also is a subterfuge by which the effective rates of tax upon so-called excess earnings are increased. In the present intensive search for Government revenue matters of long-standing tax inequity have received scant attention. However, we ask leave to submit for the record a list of suggested amendments to the law which will be constructive and in the long run tend to bring in a greater amount of revenue to the Government. Among the most unsound features of our corporate-tax structure are the capital-stock and related declared-value excess-profits tax. They do not belong in an equitable tax structure under any circumstances. As a matter of common fairness, if they are not repealed, and particularly in view of the proposed increase in the capital-stock tax, provision should be made to allow an annual declaration of stock value. Public willing to share costs.-A poll of public opinion released the other day by Dr. Gallup's American Institute of Public Opinion shows that the general public would favor a tax bill with rates in the upper brackets lower than now imposed and with a definite contribution from people in the lower brackets who are now not called upon to pay direct taxes for defense. (See chart No. 9.) For example, the public thinks that $55 is a fair tax on a married man with two children earning $2,000 a year. Under the proposed bill this man would pay no tax at all. Other surveys of public opinion show clearly that the American public is willing to accept sales taxation as an easy way to pay as you go in amounts which will not be greatly missed from day to day, but which might be difficult to produce in a lump sum on income-tax day-two and a half months after the taxable year. The wealthy, the middle class, and the corporations must pay their full share of defense costs. But no matter how heavily they are taxed, the great mass of American people must also be counted upon to help sustain the very costly building of naval, air, and military strength. General sales taxation should be considered as a comparatively easy way of footing our greatest tax bill and to implement a small direct Federal tax on the average American. We appreciate this opportunity to present our views on the broad aspects of financing the national-defense program. We wish to emphasize that economy in nondefense spending is as effective a method of financing the defense activity as raising additional revenue through taxation. Congress has a very definite responsibility in both. RECOMMENDED CONSTRUCTIVE CHANGES IN THE TAX LAW 1. Eliminate multiple taxation of intercorporate dividends. 2. Permit consolidated returns for normal tax purposes. 3. Provide general extension for filing returns wherever required, conditioned on filing tentative return and payment of one-fourth estimated tax. 4. Extend 2-year loss carry-over provision to 5 years. 5. Relieve individuals from normal tax on dividends received. 6. Equitable changes in the excess-profits-tax provisions. (a) In addition to existing methods, allow additional option to compute excess profits on basis of percentage increases over credit base. (6) Eliminate present 5-percent reduction in average-earnings base. (c) Allow the use of any 3 out of 4 years in establishing base-period earnings and divide by 3. (d) Include borrowed capital fully in establishing the invested-capital base. (e) Change the law with respect to the daily computation of admissible and inadmissible assets to conform with the present regulations. (f) Change the present arbitrary restriction on the use of the growth factor in the relief formula, now set at May 31, 1940, to run to the end of the company's actual fiscal year in 1940. (g) Add to specific abnormalities to be relieved by appropriate treatment the amount of credits of American taxpayers frozen and restricted in foreign countries. Senator VANDENBERG. Can we have these charts somewhere where they will be available to us? Mr. HOUSTON. There is one more thing. May I ask that the charts be included in the record? The CHAIRMAN. Well, sir, if we can. Senator VANDENBERG. At any rate, let us have them where they will be able to be consulted. Mr. HOUSTON. Senator, everybody has a copy with the statement. (The charts submitted by Mr. Houston are as follows:) UPWARD SWING OF GOVERNMENT SPENDING 35,000 IN MILLIONS OF DOLLARS 1914 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 |