Evening star., 1936-04-30


ICES but two of his three suggestions.
The third was for the enactment of
processing taxes on q broader base, but
with lower rates than were in effect
under the agricultural adjustment act.
I call this potential source of addi-
tional revenue to your attention.
feel sure that the Department Of Agri-
culture stands ready to supply any in
formation you may desire on this
subject.
Equity Is Provided.
Turning from the revenue aspects
of the House bill, in which the Treas
ury is primarily interested. let us
consider also the two suggestions
made by the President. to which the
House bill gives effect, from the stand
point of equity in our tax system.
AS to the proposed unjust enrich
ment tax, I think there is little that
need be said. I have not heard the
justice of this tax very seriously ques-
toned. There is no doubt whatever
that the avoidance of payment of
processing taxes accrued prior to
January has resulted in unjust gains
to a limited number of persons and
corporations. 1t would be grossly un-
fair to the persons and corporations
who paid their processing taxes as
due up to the time of the Supreme
Courts decision and it would be un-
fair to the American consumer, who
ultimately bore the major burden of
the taxes, not to reduce this unjust en-
richment as much as We can by taxa
ton.
I take it for granted that an un-
just enrichment or "windfall" tax
will be enacted by the Congress. ]
assume, too, that you will give most
serious consideration to the matter
of the deficiency in the temporary
revenue for a three-year period ex-
pected from the House bill as COM
pared with the Presidents estimates
Of the need. I turn. therefore, to the
proposed tax on corporate income
Principle Well Established.
The principle of taxation according
to ability to pay Is now we'll estab-
lished, not merely by having been
written by amendment into the Con-
Stitution Of the United States and
supported by 20 years of application
in our tax structure, but by the un-
doubted and unquestioned indorse-
ment and support of the citizens of
this Nation. Through successive
changes in our tax laws, however. We
have departed most seriously from a
consistent and just application of
the principle. Under the existing law
we apply the principle to individual
incomes, whether they are obtained
from interest. rents or salaries, from
the profits of individual business en-
terprise or from partnership under
takings. We do not apply it to profits
gained from corporate enterprise. ex-
cept in a manner which taxes some
citizens at unfairly high rates and
gives to others the opportunity to
avoid taxation on a wholesale scale.
Where a corporation makes ap-
proximately full distribution OF its
current earnings, the stockholder
under present law first bears the
burden of three different corporation
taxes-the capital stock tax, the ex-
cess profits tax and the corporate in
come tax; second, he is required to
pay surtaxes on the dividends paid
to him. This stockholder thus pays
what is in effect normal tax Of about
Is to 16 per cent as compared to a
normal tax of 4 per cent paid by the
individual who derives his income
from other sources. On the other
hand, the present law permits stock
holders of large incomes to avoid the
payment of surtaxes which may run
to rates as high as IS per cent on
their share of corporate earnings
which are not distributed as dividends.
Estimate Tax Avoidance.
What are the dimensions of tax
avoidance with which we are dealing?
A few simple figures tell the story.
1t has been estimated by the Treasury
Department that under the present
tax law the income tax liability OF