Evening star., 1950-01-23

Would Replace Revenues.
I wish to make it very clear
that I could not approve excise
tax reductions unless they were
accompanied by provision for re-
placement of the revenue lost, be-
cause I am convinced that sound
fiscal policy will not permit a
weakening of our tax system at
this time. Under present condi-
tions we cannot afford to reduce
excise taxes first, in the hope that
action will be taken later to make
up for the loss in revenue.
Second, I recommend that the
Congress enact legislation to pro-
vide $1,000, 100000 in additional
revenue, by revising and improv-
ing the estate and gift tax ano
the corporation tax laws. I believe
that, under present economic
conditions, this amount of addi-
tional revenue represents a proper
balance between the objective Of
balancing the budget as soon as
possible and the objective of CO.
ordinating tax adjustments with
the requirements of continued
prosperity.
A substantial part of the addi-
tional revenue should be obtained
from revision of the estate and
gift tax laws.
The Revenue Act of 1948 re.
duced the yield of the estate ano
gift taxes by one-third. or nearly
$500, 100000. Even before that
act, estate and gift tax yields
were out Of line with other .reve-
nues and that act made the situa-
ton worse.
In originally enacting the
estate tax in 1916, the Congress
pointed out that "our revenue
system should be more evenly and
euuitably balanced and that q
larger portion of our necessary
revenues" should be collected
from the "inheritances of those
deriving most protection from the
Government" Our estate and
gift tax laws at present fall far
short Of this objective. They now
produce less than 2 per cent of
internal revenues, compared with
z per cent 10 years ago. To the
extent that these taxes remain
too low. the remainder of our
tax structure must bear a dis
proportionate load.
Calls Estate Taxes Weak.
The low yield from the estate
and gift taxes is due to serious
weaknesses in the present law.
These weaknesses include ex-
cessive exemptions, unduly low
effective rates on most estates,
and the fact that the law as writ
ten favors large estates over
smaller ones. and leaves substan-
tial amounts of wealth completely
beyond the reach of the tax laws.
Large fortunes may be transmit
ted from one generation to an
other free of estate or gift tax
through the use of life estates.
BY this means, vast accumulations
OF wealth may completely escape
tax over several generations.
Furthermore, the present law
affords excessive opportunities for
tax, reduction by splitting between
the, gift and" estate taxes the TO-
tai amount of wealth transferred
by an individual. This makes the
tax liability depend, not upon the
amount of wealth which an in
dividual leaves to his family, but
upon the manner in which he
arranges the disposition of his
wealth. If a man leaves his es-
tate Of 100000 at death, one
half to his wife and one-half to
his three children, an estate tax
Of $17,500 must be paid. If his
equally well-to-do neighbor gives
away $4,000 to his wife and
three children over a 5-year pc
riod and leaves them the other
$4,000 at death, no estate or
gift tax whatever is paid. This
difference in tax, whether it de-
pends upon fortuitous circum-
stances or the caliber of legal
counsel, is obviously mwarranted
To strengthen the estate and
gift tax laws, several steps are
necessary. The laws concerning
the taxation of transfers by gift
and by request, by outright dis
position and through life estates
need to be co-ordinated to pro-
vide uniform treatment and a
base for more effective taxation
In addition, the present exemp-
tions should be reduced and the
rates should be revised. These
changes will not only bring in
more revenue, but they will also
improve the fairness Of the es-
tate and gift tax laws and bring
these taxes nearer to their proper
long term place in our tax system
Calls For Increased Rates.
The rest Of the additional rev.
enue should be obtained from ad-
justments in the corporation in
come tax. At the same time, GER
tain Improvements should be made
in this tax.
I recommend a moderate in
crease in the tax rate applicable
to that part Of a corporations in
come which Is in excess Of $50,-
600. At the same time, recon-
mend that the tax rate on cor
porate income between $4,000
and $4,000, which is now taxed
at the excessively high notch
rate of So per cent, be reduced to
the same rate that applies above
$4,000.
These changes in the tax rate
structure would go far toward re-
moving the handicaps which the
present law places upon the ex-
pansion of small corporations.
The removal of the excessive
notch" rate would reduce the
taxes paid by medium sized cor
porations whose continued growth
is so essential to the dynamic ex-
pansion of our economy. The ex-
H. r