his country as a taxpayer until he dies and we get at his estate? Is not that about the situation?

Mr. McGOLDRICK. It might be.

Mr. RAINEY. Now, what do you think about limiting estates that may be transmitted at, say, a million dollars, the Government to take the balance; would not that be a good way to distribute these large estates?

Mr. McGOLDRICK. You would not scare me with that.

Mr. RAINEY. I know, but even if it did scare you, what difference would it make?

The CHAIRMAN. It would not scare him.

Mr. RAINEY. But if it scared somebody else, what effect would that have on industry?

Mr. McGOLDRICK. It is not easy to say precisely what effect it would have. It is not quite the same as taking from huge incomes because incomes arrive in cash and can be readily set aside to await payment as taxes. The taxation of estates results in the sale of securities and, to a very minor extent, of realty to raise cash for tax payment. This sometimes involves putting large blocks of stock on the market and may have the effect of depressing prices. But it does not affect industry. It means merely that a new owner from the high-income group has come in. It commonly has no more effect upon industry than the death of a wealthy man and the transfer of his holdings to his heirs.

Mr. RAINEY. Would not it speed up industry?

Mr. McGOLDRICK. Yes, in so far as it preserves the purchasing power of the consuming classes.

Mr. RAINEY. Do you know what the other nations in the world have done in the matter of estate taxes, and limiting them? Of course, we all know what Russia has done. Is there any other nation attempting to do what Russia has done?

Mr. McGOLDRICK. Of course, the British taxes are very high, and elsewhere on the continent, Germany, and elsewhere.

Mr. RAINEY. What is the limit; do you know?

Mr. McGOLDRICK. Here is the schedule of British death duties in effect since August, 1930. They apply to both real and personal property:

Mr. LEWIS. What would they be in the United States, provided we adopted the British tax system?

Mr. McGOLDRICK. Let us go further and compare relative taxes and rates for England, Germany, France, and the United States.

The figures I have here for incomes of $2,000 to $200,000 are based on the exemptions of a married taxpayer with two minor children and in each case the income is derived from wages or salary to make them comparable. It is to the point to note here that in most European countries the tax rates differ on earned incomes, incomes from capital, and mixed incomes. These figures were compiled in 1930:

The figures for the new British income tax just enacted are very difficult to calculate in terms of American dollars. An examination of the new rates seems to indicate a substantial increase, perhaps 5 per cent, in all rates. There are no graduations in the British income taxes on incomes above 50,000 pounds (roughly $175,000), and the rate for incomes of this magnitude will be between 50 and 60 per cent.

Mr. RAINEY. May I ask the doctor one or two questions on underconsumption? How are you going to make people consume more wheat?

Mr. McGOLDRICK. The fact of the matter is that people with incomes of less than $10,000, in my opinion, spend practically all of their incomes. Take away one-half a million dollars in taxes from that, and they would have that much less to spend. As for getting them to spend that on one thing and another thing, that is what advertisers are busily engaged in trying to do.

Mr. RAINEY. Could we advertise sufficiently to make people use all the cotton we produce, when we produce twice as much as we can consume, or all of the wheat that we can produce, and we produce 200,000,000 bushels per year more than we consume?

Mr. McGOLDRICK. No; overproduction of that sort is probably impossible to absorb. On the other hand, if the incomes were substantially increased, then we could absorb a very great deal of your cotton and of your wheat.

Mr. RAINEY. What do you think about reducing salaries of Government employees?

Mr. McGOLDRICK. That obviously, has the very reverse effect. Mr. RAINEY. It would have the effect of destroying the buying capacity of the employee?

Mr. McGOLDRICK. Yes.

Mr. RAINEY. Then there would be less people working to supply these buyers?

Mr. McGOLDRICK. Yes.

Mr. RAINEY. So it is a vicious circle that goes right around the line?

Mr. McGOLDRICK. Yes.

Mr. RAINEY. In other words, your position is that as to the small incomes, we ought to preserve them as much as we can and increase them as much as we can, and cut down the big incomes and the big estates as much as we can, and make them contribute to this fund to carry on the Government?

Mr. McGOLDRICK. Yes; we built up in 1922 to 1929 an enormous production capacity, based on high wages. If we are going down to a new level of wages, a lot of that productive capacity has to be written off. It can not be put to use. Now, at the present time we have two alternatives, that of taxing the capital income-that is, incomes above $10,000, which largely look for investment opportunity or speculative opportunities-or of taxing the wage earners and the middle classes. If you tax the latter, they have just that much less with which to buy. If you tax the high-income group, their purchasing power is not disturbed, and the capital will be abundant enough to provide all they want to buy.

Mr. RAINEY. And the more that these small incomes have to buy, the more rapidly these big estates will accumulate?

Mr. McGOLDRICK. Yes.

Mr. RAINEY. Therefore, the way to get revenue for the Government is not to commence at the bottom but commence at the top; and if you commence at the top, then the wage earners who are then at the bottom keep on working and fill up the top; and we take it out of the top and put it in the bottom, and it makes an endless chain, anyway.

Mr. McGOLDRICK. Yes; I think so.

Mr. RAINEY. Which means probably a return of prosperous times? Mr. McGOLDRICK. Yes.

One of the chief problems presented by the present organization of economic society is the fact that it promotes the undue concentration of wealth. The holders of this wealth receive incomes vastly greater than their consumptive needs. The surplus income is devoted to the increase of productive facilities. This is the only way in which they can profitably invest it. At such a time as this with overproduction on every hand this is the very thing we do not need. It will only aggravate the mischief of overproduction. It happens that at this very time we are in urgent need of balancing our budgets. If we take $500,000,000 from the pockets of the spending classes a huge snowball of overproduction and unemployment is started rolling down hill. The same is true of wage cutting. It means that much less can be spent. The answer is clearly to balance our budgets and promote public improvements with excess incomes that to-day are not needed for and should not be devoted to the expansion of our overexpanded productive facilities.

The CHAIRMAN. We thank you very much.

STATEMENT OF HON. FRANK W. MONDELL, WASHINGTON, D. C.

Mr. MONDELL. Mr. Chairman and gentlemen of the committee, I realize the need of early action on the part of Congress in the matter of tax legislation, and, therefore, I have hesitated to take the time of the committee with an expression of personal opinion with regard to these matters. In the belief, however, that the opinions which I

shall express may represent the view of a very considerable number of people, I thank the committee for the opportunity of presenting these views briefly.

I think it is quite generally accepted that a carefully drawn and fairly administered income tax represents, everything considered, perhaps the most equitable form of taxation, and that a properly graduated tax is justified on the theory of the benefits derived from orderly government, and of ability to pay. Such a tax, however, is not sound unless it have a broad base, nor can it be depended upon to produce a reasonably uniform amount of revenue through the running of the years and under changing economic conditions, unless it is broadly based. European nations using the income tax have established a broader base than we ever have and higher rates in the lower brackets. I do not advocate the broadening of the base or the increase of rates in the lower brackets to the extent practiced elsewhere, but I do think we have made a great mistake in narrowing the base and reducing the rates in the lower brackets to the extent we have.

It is true that no one is particularly anxious to pay taxes, as is evidenced by the appearance before this committee of representatives of industries whose products or whose business it has been suggested should be subjected to additional tax. On the other hand, our people realize the necessity of the collection of revenues and do not seriously object to reasonable taxation, uniform in its character and equitable in its provisions.

The income tax undoubtedly has its compensations to the taxpayer. Beyond all question, the levying and collection of such a tax necessitates a careful consideration of one's income and expenditure-the sources of the one and the purpose of the other-which in the long run at least is individually beneficial. It necessitates the keeping of records which, while it may cause some trouble, is useful and in the long run helpful from an individual standpoint. I do not assume that the Government is justified in laying a tax with a view of compelling people to keep a careful record of their affairs, but I do say that a tax, otherwise equitable, which necessitates thoughtful consideration of income and expenditure is not, for that reason, less equitable on the contrary, it is to that extent useful and advantageous. The better informed we are with regard to income and expenditures the more thoughtful and careful we shall be in regard to the same, and anything that tends to encourage the keeping of careful records is beneficial.

It has been urged that the cost of the collection of income taxes in small sums is excessive in percentage as compared with that of the collection of large sums from considerable incomes. Even if this were true, it would not justify the abandonment of such sources of taxes, equitably laid. But I doubt that it is true. We have the testimony of the Treasury to the effect that the cost of collecting small sums of taxes from moderate incomes is not excessive. Naturally the Treasury does not care to convey the impression that income returns in the lower brackets are not carefully considered, and thus encourage carelessness in the preparation of such returns. But that these returns, regular and correct on their face, do not require expensive auditing and examination, goes quite without saying. Undoubtedly there are instances where something on the face of the

return or some information in the possession of the tax authorities, raising a question as to the accuracy of the return, may lead to expenditure even in excess of the sum collected. But such instances are rare. Taken as a whole, it is very doubtful if the average cost of collection of small tax payments in the lower brackets is in excess of the general average cost of all collections. I should not be surprised if it were less.

I am of the opinion that the suggestions made by the Treasury in this behalf are very reasonable. They propose reducing the exemption, in the case of the head of a family, by $1,000, and in the case of a single person, by $500 as I understand it; so that single taxpayers with incomes of over $1,000 and married taxpayers with incomes of over $2,500 would pay some tax, thus bringing back into the taxpaying group some 1,700,000 individuals. I am of the opinion that there would be very little complaint on the part of our people of such a modification of the law, or of the proposed increase of the normal tax from 12, 3, and 5 per cent to 2, 4, and 6 per cent. It is estimated that this would result in an additional revenue of $12,000,000 from the new taxpayers, but it must be remembered that these changes of the law would have thier effect through the entire list of taxpayers, adding about $12,000,000 to the increase of the present taxpayers with incomes under $5,000, but at the same time adding at least $15,000,000 to the increase of the remainder of the taxpaying group with incomes in excess of $5,000. The tax to the individuals of the new group would be very light-it would only increase the tax paid by taxpayers with an income of $5,000 in the amount of about $27.

Mr. BACHARACH. Mr. Chairman, I was going to ask Mr. Mondell a question before he leaves the question of small incomes; do you mind being interrupted?

Mr. MONDELL. I would be glad to answer any questions.

Mr. BACHARACH. I was wondering why you figured particularly on these small incomes, which would bring the Government about $27 a person, and it probably is costing that same person $15 or $20 to make out his statement, and the Government not attempting to collect a tax from gasoline, for instance.

Mr. MONDELL. I don't want to express any opinion with regard to a gasoline tax, except to say I think gasoline is already fairly well taxed, and of course the States do need that revenue pretty badly.

Mr. BACHARACH. And tobacco is pretty well taxed, and the States are after that.

Mr. MONDELL. I wouldn't say that the committee might not properly consider the question of a gasoline tax. Not on the theory that gasoline is not already pretty well taxed, but on the theory that possibly and I just want to make this suggestion, not that I am. very certain as to my premise--that possibly you might work out some better plan, some more informed plan, with regard to gasoline taxation, if the Government would take hold of the matter. I think that gasoline is such a necessary article in this day and is now so heavily taxed, quite generally, that one should be a little careful about laying a greater load on it, and particularly about interfering with the States in that matter.