1921, graduated from 1 per cent on net income between $5,000 and $6,000 to 65 per cent on net income in excess of $1,000,000, 1922, graduated from 1 per cent on net income between $6,000 and $10,000 to 50 per cent on net income in excess of $200,000. 1924, graduated from 1 per cent on net income between $10,000 and $14,000 to 40 per cent on net income in excess of $500,000. 1926, graduated from 1 per cent on net income between $10,000 and $14,000 to 20 per cent on net income in excess of $100,000. 2. This is drastic modification in view of the fact that in operation the statute surtax rates are 'paper" rates, i. e. the actual surtax rates are much less. For instance, in 1923 when the surtax rate on incomes of $1,000,000 or more was 50 per cent the actual average rate for the 74 persons in this class was 23.53 per cent (Taxation Section, New Republic, November 4, 1925, by Professor Patterson, Wharton School of Finance); whereas the persons on the lower income levels rarely ever escape the full imposition of the normal rate. 3. Even before the war the surtax rates recognized a distinction in "the ability to pay" between persons having incomes of one or two hundred thousand dollars and incomes of a million or more dollars. Therefore the present surtax schedule, imposing on persons having incomes of $110,000 the same rate as on persons having $1,000,000 income is conspicuous and pertinent. If persons having incomes of a million or more dollars pay at the same rate as those having one hundred and ten thousand dollars income, then this favoritism is obviously absorbed through the rates paid by millions of smaller taxpayers. Moreover, the persons having very large incomes are so strategically placed that in creating their incomes they contemplate the shifting of a part of their taxes to the many millions of consumers. CONCLUSIONS 1. The average married man or head of the family now enjoys 130 per cent better position in the matter of exemptions than during the war and about 20 per cent better than before the war. 2. Surtaxes have been greatly modified, with especial favor to persons with . incomes near or above $1,000,000. 3. The excess-profits tax on corporations has been abolished. 4. But the exemption allowed single persons is only one half of what it was before the war-$1,500 now and $3,000 in 1913–1916. In terms of the purchasing power of a dollar, this present $1,500 exemption has a $750 value. 5. The injustice done single persons is emphasized by. the fact that the Treasury has each year unnecessarily collected about $600,000,000 over and above the Government's needs. 6. Most single persons contribute to the family support in some way. If several unmarried children are the sole support of the family none may claim the position as head of the family. A widowed mother with children may have difficulties in securing the exemption as head of the family because her children enjoy small inheritances. It costs more for a single person to maintain a home than for a married man to maintain a home, because a wife renders many services which the single person must pay some one to do. 7. Because most single persons are on the lower income levels, these levels should be considered in imposing income taxes. The analysis of persons having incomes in the United States is as follows (see "Incomes of the United States "): (a) Number of persons having income or wages, 42,000,000. (b) Two per cent of these persons receive incomes of $5,000 or above. (c) Four per cent of these persons receive incomes of $3,000 to $5,000. (d) Eight per cent of these persons receive incomes of $2,000 to $3,000. (e) Eighty-six per cent of these persons have incomes of $2,000 and under. It is the 4 per cent, 8 per cent, and 86 per cent groups, or 98 per cent of persons having incomes to whom is passed on, in the prices of goods, a part of the taxes paid by corporations and by persons having incomes greatly in excess of the amount indicated in the last surtax bracket under II. 8. Closely related to the facts of income is the purchasing power of the dollar. Actual retail (not wholesale) prices show the value of the dollar to be about 50 per cent of its pre-war value, so that the present exemption allowed single persons amounts to about $750. 73038-27-24 9. Obviously, fairness requires an increase to at least $3,500 in the credit allowed single persons. MARTHA L. CONNOLE, Chairman. CORNELIA ADAIR. MARY C. LOVE COLLINS. LENA M. PHILLIPS, President, member ex officio. Tax Committee of National Federation of Business and Professional Women's Clubs. BRIEF SUBMITTED BY GEO. C. WILLIAMS, NEW YORK CITY [Sec. 223] WHY NOT ELIMINATE ALL INDIVIDUAL INCOME-TAX RETURNS ON NET INCOMES UNDER $10,000 According to figures' recently made public by the Bureau of Internal Revenue the Treasury Department collected from 4,171,051 individual 1925 tax returns $734,555,183. Of this amount, $701,497,726, or 95.5 per cent, was collectible from 327,028 individuals, with net incomes in excess of $10,000. A comparison of these 327,028 persons with the estimated 1925 population of approximately 116,000,000 indicates that about twenty-eight one-hundredths of 1 per cen of the population carry 95.5 per cent of the total individual tax burden. A total net income of $21,894,576,403 was reported on the 4,171,051 tax returns. The 327,028 individuals with net incomes in excess of $10,000 reported $9,313,844,179, or 42.54 per cent of the total net income reported of $21,894,576,403. These 327,028 persons, although receiving only 42.54 per cent of the total net income, carried 95.5 per cent of the tax burden. Further analysis of these figures indicates that of the 4,171,051 tax returns filed 3,844,033, or 92.16 per cent, were returns by persons having net incomes of less than $10,000. These 3,844,033 persons paid a total tax of only $33,057,457, or 4.50 per cent of the total individual tax collectible of $734,555,183. At the present time the Joint Congressional Committee on Internal Revenue Taxation is studying the operation and effects of the present Federal internalrevenue system in an effort to simplify the present complicated tax laws and their administration. A study of the above figures indicates the possibility of simplifying the present tax laws without any loss of revenue to the Government in the following manner: (1) No tax returns to be required from persons with taxable net incomes of less than $10,000. (2) A tax of $1, to be collectible from every individual 21 years of age or over in the United States. (3) All individuals having taxable net incomes in excess of $10,000 would continue to file the present tax returns, but would pay only $1 on the first $10,000 of the taxable net income. If the Treasury Department deemed it necessary, this provision could be extended so as to require all persons with gross incomes in excess of $10,000 but taxable net incomes of less than $10,000 to also continue to file the present tax returns at the time of paying their $1 tax. As previously stated, the Government collected only $33,057,457 from the 3,844,033 individual 1925 tax returns of net incomes under $10,000. Under the proposed $1 tax plan individuals with net incomes in excess of $10,000 would only pay $1 on the first $10,000 of their taxable net income. An estimate is necessary of the amount of taxes paid during 1925 by the 327,028 individuals with net incomes over $10.000. There were 39,403 tax returns of 1925 net incomes ranging from $10.000 to $11,000 which reported normal taxes of $4,173,570, or an average tax per return of $105.91. An estimate of the amount of tax paid by the 327,028 persons with net incomes in excess of $10,000 on the first $10,000 of their taxable net incomes is obtained by multiplying the 327.028 tax returns by the average tax of $105.91, which gives a figure of $34,635.535.48. According to the Federal census of 1920 by the United States Bureau of the Census there were 60,886,520 males and females 21 years of age or over out 1 Withdrawn from the book entitled "Statistics of Income From Returns of Net Income for 1925," Treasury Department, United States Internal Revenue of a total population of 105,710,620. The Bureau of the Census estimated the 1925 total population at 115,378,094, or an increase over 1920 of approximately 9 per cent. The number of males and females in the United States 21 years of age or over in 1925 is estimated by multiplying the 1920 figure of 60,886,520 by the average increase of 9 per cent, which gives a figure of 5,479,786 and a total of 66,366,306. Under the proposed plan of taxation the Government revenue at the rate of $1 for each person 21 years of age or over would be $66,366,306. A comparison of the tax revenue collected during 1925 under existing tax laws and the revenue under the proposed $1 tax plan is as follows: On taxable net incomes under $10,000....... On first $10,000 of taxable net incomes in excess of $10,000___. Tax under existing tax laws. Difference $33, 057, 457.00 34, 635, 535. 48 67, 692, 992. 48 66, 366, 306. 00 1, 326, 688. 48 There would not be any actual loss of revenue to the Government for the reason that the Government costs of collection under the proposed $1 tax plan would be several million dollars less, due to (1) elimination of the printing, auditing, and handling of the 3,844,033 tax returns of net incomes of less than $10,000; (2) the auditing of the 327,028 tax returns of net incomes of over $10,000 would be simplified by the elimination of credits for married persons, dependents, etc.; and (3) the reduction of many other direct and indirect administration costs. Very large savings would accrue to the 3,844,033 persons with net incomes of less than $10,000, who would (1) no longer devote considerable time in preparing a complicated tax return; (2) no longer pay counsel or notary-public fees for the preparation and execution of their tax returns; and (3) pay a tax of $1 each, or a total of $3,844,033, in lieu of the $33,057,457, or $29,213,424 less taxes. Likewise, the 327,028 persons with net incomes of over $10,000 would (1) have less complicated tax returns to file, and (2) instead of paying $34,635,535.48 on the first $10,000 of their taxable net incomes pay only $1 each, or a total of $327,028, with a net saving of $34,308,507.48. The proposed $1 plan of taxation could easily be made to produce additional revenue to the Government by various methods, among which are: (1) Requiring all single persons 21 years of age or over to pay a $2 tax in lieu of the $1 rate, (2) the elimination of the earned-income tax credits now allowed under existing tax laws. (3) reducing the amounts of taxable net incomes subject to the $1 rate from $10,000 to $5,000, and (4) requiring persons with net incomes ranging between $5,000 to $10,000 to pay an additional $1 tax. It might be mentioned in passing that the various States having individual income tax laws could adopt the proposed $1 tax plan with similar advantageous results. The Treasury Department, in discussing individual income taxes, made the following pertinent statement: "As a matter of policy, it is advisable to have every citizen with a stake in his country. Nothing brings home to a man the feeling that he personally has an interest in seeing that Government revenues are not squandered but intelligently expended as the fact that he contributes individually a direct tax, no matter how small to his Government." (P. 5, Annual Report of the Secretary of Treasury for the Fiscal Year Ended June 30, 1925.) Under the proposed $1 tax plan 66,366,306 persons would individually contribute a direct tax, as compared to only 4,171,051 persons who filed 1925 tax returns. The payment of a $1 tax would not impose a hardship on anyone. The present costs of collection would be reduced several millions of dollars under the $1 tax plan, for the reason that the $1 tax payments could be easily verified by a comparison with census records, city directories, etc. Approximately 4,000,000 persons who filed complicated 1925 tax returns would no longer be required to file returns. The Government would not lose any revenue under the proposed $1 tax plan. In view of the foregoing it is evident that the $1 tax plan would greatly simplify the present complicated tax laws and their administration. CORPORATIONS STATEMENT OF LESLIE VICKERS, NEW YORK CITY, REPRESENTING THE AMERICAN ELECTRIC RAILWAY ASSOCIATION Mr. VICKERS. Mr. Chairman and gentlemen: I represent the American Electric Railway Association, which is an industry engaged in the business of supplying local and interurban passenger and freight transportation throughout the country. The investment in the industry is large and the number of passengers carried per annum is in excess of 16,000,000,000. We supply, by means of our street cars, interurban cars and trains, and by buses, an essential service, vitally necessary to the growth and progress of our communities. Our rates of fare are, for the most part, determined by local conditions and by the contracts entered into, often many years ago, with the individual communities which we serve. In addition to our taxes, we are called upon for many expenditures such as paving (which scarcely benefits us at all and which is a relic of the days when we used horses and mules instead of electricity) and also for many other public services such as street sprinkling, snow cleaning; and the transportation, free of charge, of policemen, postmen, and municipal employees generally; and the transportation at very reduced rates of children attending school. In many other ways could the public nature of our service be indicated and its essentiality shown. But we are bearing a burden of taxation which is staggering in its weight. Its effect is not only to hamper us financially and to discourage the investment of new capital, but to impair those services which the public has a right to expect from us. Many of the street railways of to-day could be revivified and restored if we could find relief from the oppressive burden of taxes which we bear. We ask for tax relief in the interests of service. The taxes of the Federal and local Governments, including special assessments, but not such items as paving, comprise an estimated total of $60,0000,000. The revenue of the industry for service it renders the public is approximately $936,000,000, so that for every dollar obtained as revenue 7 cents are contributed, to Government in the form of taxes. In addition to this, we pay out a further 2 to 3 per cent of our gross revenue in paving and other charges, making a payment of approximately 10 per cent of our gross or a contribution to the State and Federal Governments of about 1 cent out of every 10 cents we collect. The tax item itself amounts to about half of all interest payments and is more than one and three-quarter times the amount paid out in dividends on preferred and common shares. The effect of such a substantial tax burden is to render more difficult the supply of public service and to profoundly affect the credit position of the industry. In any industry, subject to regulation and operating under limited and reasonable rates, the burden of taxation in the last analysis rests upon the public utilizing that service. But there is a practical limit to the extent to which the public service company can act as collecting agent. Such a limit is reached when cash requirements for taxes regularly assume so large a proportion of the net income. of the corporation. Traction utilities are local in character and scope of operation and accordingly relatively large taxes are already imposed by local governments. The Federal income tax is an added burden to an already overburdened industry and constitutes one of the most important examples of the adverse effect of the Federal corporation tax on business development. Our industry has passed through a revolution of the most serious nature. The present popularity of the private automobile could not have been predicted a generation ago, nor could have anyone have suspected that the monopoly of urban transportation which we enjoyed could so easily be lost to us. But the fact is that to-day we are competing with private automobiles not only for passengers but for street space in which to operate. Our industry is now emerging from as difficult a period as any industry has ever experienced. The essential nature of our services has been proved in community after community where attempts have been made to supplant them. We need tax relief not only that we may supply the services now called for but in order that we may continue to be in the future, as we have been in the past, the providers of efficient local transportation which builds up cities. Mr. COLLIER. You are complaining there of the corporation tax. Mr. VICKERS. Specifically of the corporation tax. This is the general statement of an industry which appeals to Congress for relief from a tax which is oppressive to it. Mr. DOUGHTON. What taxes other than the corporation tax do you pay? Mr. VICKERS. We are complaining of the Federal corporation tax. We pay no other Federal tax, except, I suppose, those incident to the purchase of automobiles, busses, etc. Mr. GARNER. Did I understand you correctly when I got the impression that you paid out more on account of taxes than you paid to the preferred and common stockholders? Mr. VICKERS. Yes; we pay one and three-fourths times as much in taxes. Mr. GARNER. How does that compare with the total net profit? I do not mean what you distribute, but your total net profit. Are your taxes larger or smaller than your total net profit? Mr. VICKERS. Before the payment of fixed charges? Mr. GARNER. Your fixed charges are represented by the interest on your preferred debt, are they not? Mr. VICKERS. No, sir; the interest on bonds. Mr. GARNER. Well, that is a preferred debt, is it not? Mr. VICKERS. I beg your pardon, I thought you said the preferred "net." Mr. GARNER. Your comparison, then, applies to the common stockholders? Mr. VICKERS. Yes, sir; preferred and common stockholders. I have not the other figures for which you ask. STATEMENT OF CARL D. JACKSON, NEW YORK CITY, REPRESENTING THE AMERICAN GAS ASSOCIATION AND THE NATIONAL ELECTRIC LIGHT ASSOCIATION Mr. JACKSON. Mr. Chairman and gentlemen of the committee, I appear before you simply to illustrate in connection with the industries which I represent the effect of the corporation tax with the |