Evening star., 1942-08-25
RumI Tax Plan
Sharpens Interest
In nPay-as-You-Go
Treasury Insists on Levy
At Source, Only Portiol
lo41 Cancellation


Continued From First Page)
change without having two years
taxes fall due In one year, Mr.. Rum
proposed that the l94l levies bt
forgotten, and the payments being
made this year treated as the tax or
1912 income.
The House made start toward
enabling the citizen to pay part
of his income tax as he earns 1t, by
providing that after January l en-
ployers would collect for the Treas
ury per cent of each employees
wages after making allowance for
personal exemptions and estimated
deductions. This tax also would ap-
ply to dividends and bond interest.
Drawbacks to House Plan.
There are two drawbacks to the
House proposal, however. First, it
would mean double taxation next
year, since the individual would have
to pay his 1942 tax in lump sum
or quarterly during 1943 at the
same time that he was having part
OF his 1943 tax deducted at the
source; secondly, the per cent
paid at the source would still leave
him lump sum tax to pay in 1914,
since the combined normal and sur
tax rate in the lowest bracket for
1943 would be 10 per cent
Under the House bill, the with
holding rate at the source would
become 10 per cent out of current
earnings in 1914, but this again
would leave the average taxpayer
with some lump-sum payment to
make in 1945 on 1914 income.
Undoubtedly, this double taxation
feature in the House bill is one of
the reasons why Mr.. Ruml caught
the popular fancy when he went be-
fore the Senate committee a few
weeks later with his novel sugges-
tion that one years tax be dropped
from the picture to get the individ-
ual on current basis.
In his statement last night Treas
ury Counsel Paul did not wholly
condemn the Ruml plan. In fact.
he said its objective 'has deservedly
met widespread public approval" /"
At the same time. he hastened to
make 1t clear his statement did not
imply Treasury approval of the
plan, but an effort to indicate modi-
flcations the Treasury believes
should be made If the plan is en-
braced by Congress.
Senator Clark pointed out yester-
day that the Ruml principle of pay
ing taxes currently instead of year
late could be adopted with or with
out the system of collection at the
source on pay days. He believes the
ideal solution would be to combine 1t
with collection at the source, pro-
vided the latter feature can be made
workable. He is not yet convinced
the House method of collection at
the source Is workable.
Analysis Of Ruml Plan.
Here Is an analysis of the Ruml
plan, which has attracted wider in
terest than any other proposal ad-
vanced In this years tax bill:
Under the proposal, the tax clock
would be set ahead year, with the
result that hereafter you would pay
your Federal taxes in the year dur
Ing which the income subject to tax
Is earned and not, as at present, on
your last years earnings. Taxpay-
ers thus would be shifted automati-
cally to current basis.
just as the Nation lost an hour
when daylight saving was put into
effect as a war measure, 50 the
Treasury, In theory, would lose q
years tax receipts. The loss, how
ever, would be merely bookkeeping
deficiency, for every taxpayer would
continue to pay his income tax
every year, and the actual collec-
tions OF the Treasury would remain
about the same as under the pres
ent system.
How can you tell, early in the
year, exactly what your taxable in
come for the 12-month period will
be? The answer is, you can't. Te
meet this initial difficulty in shift
ing taxpayers to a current basis
Mr.. Ruml proposes that taxes on
1o41 incomes, which were paid on
March Is, or are being paid quar-
terly through the year, be treated
as current payments on 1912 in
come. and that each taxpayer next
March file tentative return for
l943, measured by 1912 income, and
computed according to the rates
and exemptions applicable to this
years income.
Provides for Adjustments.
At the end of 1943 you may find
that you have paid too little, OF
too much, on your income for the
year. The Ruml plan provides foi
adjustments on March IS, 1914
and every March Is thereafter-fol
over or under payments.
Here is an example of how the
propasal would work out in prac-
tice: In 1912, Jones has an income
OF IS 900. Next March, he will make
out q tentative tax return, based or
his actual 1912 income. If at the
end Of the year, he finds that hi.
income is again $5,000-and assum.
ing he has paid the amount of the
liability set forth in his tentative
return filed in March-he owes tn,
Government nothing
II at the end of 1943, however
he discovers that his income wa
$500, he would be obligated to tn,
Government for a tax on the addi
tional $500. This tax would be pay
able in March, 1914. If he find
that his l943 income is only $4,5O(
instead OF $1,000, the Treasur