Evening star., 1937-06-01


trusts for aged employees by provid-
ing corporations with special de-
duction on account of contributions
thereto and exempting the trust it.
self from tax. Recently this exemp-
tion has beer twisted into a means
Of tax avoidance by the creation OF
pension trusts which include as BEN
eficiaries only small groups of off,
GERS and directors who are in the high
income brackets In this fashion high
salaried of1icers seek to provide them
selves with generous retiring allow
ances, while at the same time the
corporation claims q deduction there
for, in the hope that the fund may
accumulate income free from tax.
Thus in one case $4,000 is an
nually appropriated by the corpora
ton to pension trust for the benefit
of Its two chief owners. One OF the
co-oWners will retire at the age of 65
with monthly pension OF sl,725, and
| the other will retire at so with 4
monthly pension OF $1,425.
Many Are Legal
But Highly Immoral.
These eight types Of tax avoidance
are Sufncient to show that there Is 4
well-def1ned purpose and practice on
the part Of some taxpayers to defeat
the intent OF Congress to tax incomes
in accordance with ability to pay. In
some cases, the Bureau of Internal
Revenue under existing law can estab-
lish liability or indeed proceed on
the ground of fraud; but many OF
these cases fall in the category OF q
legal though highly immoral avoid
ance OF the intent OF the law. 1t seems
therefore, that legislation should be
passed at this session OF Congress in
order to eliminate these loopholes
which our preliminary investigation
has proved; and that as a result OF
the further investigation this Summer
and Autumn the next session of the
Congress should finally close any fur
ther loopholes which may be dis
covered.
In addition to these cases OF moral
fraud. there are three other major
instances in which the law itself per-
| mlts individuals and corporations To
avoid their equitable share of the tai
| burden.
i. Percentage depletion.
This is perhaps the most plarinp
| loophole IN our present revenue law
since 1928 large Oil and mining cor
porations have been entitled to deduct
from to 27l2 per cent of their gross
| income as an allowance for the de-
pletlon of their mines or wells. and
the deduction may be taken even
though the cost of the property has
been completely recovered. Thus. in
1885, one mining company deducted
nearly 100000 under this provision
al'housh 1t had already completely re-
covered the cost Of its property. The
amount Of the deduction was a sheer
gilt from the United States to this
taxpayer and its stockholders, and the
revenue that we lost thereby was s8l8,-
oo0 Similar annual losses of revenue
IN the cases OF few other typical
companies are s584000: 1857 900.
$4,000; $4,000; s267 900; s2o2 900
and sl52,000. The estimated annual
loss Of revenue due to this source i.
| ABOUT $75,O00000. I recommended
IN 1888 that this provision be elini-
mated, but nothing was done at that
time; and 1t has since remained un-
changed.
Division Of Income
Causes \ Loss.
2 The division of income between
husband and wife in the eight COM
| munity property states.
This Is another major cause Of
revenue loss, which is unjustiflable
| because obtained at the expense Of
taxpayers In the 10 States which do
not nave community property laws
"A New York resident with a salary
OF 100000 pays about s32.525 Federal
income tax; a Californian with the
same salary may cause one-half tc
be reported by his wife and the Fed
eral income taxes payable by the
TWO will be only s18,626. The tota,
loss OF revenue due to this uniusti.
nable discrimination against the resi-.
cents OF the 40 States runs into the
millions.
3. Taxation of nonresident aliens
The 1886 act eliminated tho re.
qulFement that a nonresident alien
without United States office or busi.
ness should file return: fixed tn.
Wlthholdlng rate for individuals a
~ per cent; and freed the non-resi.
cent alien from taxation on American
capital gains. Since the total Fedora
TAX upon citizen or resident amount.
to 10 per cent Of his total net income
AT ABOUT SIS, 900 Gn the case OF a mar.
rled individual with no dependents)
the withholding rate has proved ir
practice to be too low as applied tc
wealthy nonresident aliens with lare,
incomes from American trusts or witt
Large American investments who's,
taxes have been cut to one-third q,
one-flfth OF what they paid unde,
the prior act.
Ihus, one American woman who
married an Englishman had an income
from this country in 1885 OF nearl,
100000. Her tax for 1896 will. there.
fore. be approximately 100000, a,
against over $4,000 under the prio,
law.
Another American woman who
married q Frenchman has an income
OF over sl50,0oO from American trusts
on which she paid a tax of abou,
$4,000 in 1895. Her tax is reduced
to about $4,000 by the 1896 law. AL.
though the tightening of the with.
holding provisions In 1886 will tenc
10 insure more revenue from non.
resident aliens in the lower incom,
brackets, the present taxing provision.
are not satisfactory as applied to non.