1924. That was a measure calculated to produce much larger revenue than the present act, yet it was bearable by the country and furnished no bar to increasing prosperity.

I recommend, therefore, that the Congress consider returning in principle to the general plan of taxation existing under the revenue act of 1924.

I realize, of course, that arguments can be advanced against every increase in rate or additional tax proposed. This is true of all measures looking to an increase in the public revenue. But I trust that on this occasion the attitude of taxpayers will be different from that which, knowing human nature, we would expect under normal circumstances. We are in the midst of a grave emergency. It is essential to raise additional revenue, not just to cover current expenditures but to maintain unimpaired the credit of the United States Government. This last objective is of paramount importance to every citizen in the land. It is an indispensable step in our progress toward recovery. The losses that will be suffered by every individual and every industry through a continuation of the depression will exceed many times over the amounts to be contributed in additional taxes. It is not only the patriotic duty of all to insure the financial stability of the Government in times such as these, but the sacrifice demanded-if we desire to put the justification on a lower plane is amply warranted by considerations of individual selfinterest. If every taxpayer, whether individual or corporate, will look upon the additional burden suggested as the best investment he can make looking to the restoration of his own economic condition, he will not only be guided by enlightened self-interest, but this committee will be spared many tedious hours in listening to arguments from those who all approve of increased taxation in principle but are convinced that they themselves or their industry are not in a position to bear it, even though they be but indirectly affected.

I make the following recommendations for the provision of additional revenue, the new measures to terminate, as nearly as may be, at the close of the fiscal year 1934; that is, two years from next June:

INDIVIDUAL INCOME TAX

The normal rates to be fixed at 2, 4, and 6 per cent; surtax rates at 1 per cent, beginning with incomes over $10,000, graduated up to 37 per cent on incomes between $100,000 and $200,000, and reaching 40 per cent on incomes in excess of $500,000 as compared with the present maximum rate of 20 per cent on incomes in excess of $100,000. Personal exemptions to be fixed at $1,000 and $2,500, with a credit of $400 for each dependent. The earned income provisions of the revenue act of 1928 permitting larger deductions in respect of earned income than were permitted by the act of 1924 should, in my opinion, be continued.

The Treasury contended at the time of the passage of the revenue act of 1924 that individual income-tax rates carried in that act were higher than it is wise or desirable to impose under normal conditions. This is still the position of the Treasury Department. We are convinced that in the long run lower rates are more productive than the higher ones. But these are not normal times. There is a real emer

gency resulting in the immediate need for a substantial amount of additional revenue. Until the emergency is passed, we can not avoid utilization of emergency measures. We believe that the taxpayers will recognize the facts of the situation, and, particularly in view of their temporary character, will cooperate with the Government to make higher rates effective.

The proposed revisions would bring back into the taxpaying group some 1,700,000 individuals. Even so, our income-tax law would still remain a tax paid by relatively few individuals. There would be only some 3,600,000 Federal taxpayers in a nation of 120,000,000 people, and of this number less than 300,000 would contribute 90 per cent of the tax.

It is estimated that such revisions will result in the collection of additional income taxes in the amount of about $83,000,000 during the last half of the fiscal year 1932 and about $185,000,000 during the full fiscal year 1933. Of this additional revenue, it is estimated that about three-fifths will be derived from incomes of $100,000 and over and more than four-fifths from incomes of $10,000 and

over.

For reasons I have often expressed, it is my belief that when the emergency period is passed lower rates should be restored.

CORPORATION INCOME TAX

The rates to be increased from the present 12 per cent to 1212 per cent.

In addition I recommend that the exemption of $3,000, at present provided for domestic corporations with net incomes of $25,000 or less, be eliminated.

It is estimated that this proposal will result in an increase of about $27,000,000 in corporation income-tax receipts during the last half of the fiscal year 1932 and about $60,000,000 during the full fiscal year 1933.

MISCELLANEOUS TAXES

Under the 1924 act a substantial amount of revenue was provided through miscellaneous taxes. These included the tobacco taxes, the taxes on admissions and on club dues and certain stamp taxes, which have been retained, and the capital-stock tax, other special taxes, the tax on manufacturers' sales of automobiles, trucks and accessories, and a number of minor taxes which have been repealed. In view of the marked contraction in corporation and individual incomes, in recent years the principal source of taxation, it seems essential that, as under the revenue act of 1924, substantial additional revenues be provided by miscellaneous taxes. I do not recommend, however, the exact provisions of that act as to miscellaneous taxes.

Accordingly, I recommend that additional revenue be provided from the following sources: An increase of one-sixth in the present rates on tobacco manufactures and products except cigars; an increase of 1 cent in the existing stamp tax upon sales or transfers of capital stock; extension of the present tax on admissions through the reduction of the present exemption to 10 cents; a tax on manu

facturers' sales of automobiles, trucks, and accessories at 5, 3, and 22 per cent, respectively; a stamp tax on conveyances of realty of 50 cents for each $500 of value in excess of $100; a tax of 5 per cent on manufacturers' sales of radio and phonograph equipment and accessories; a stamp tax of 2 cents on each check and draft; and a tax on telephone, telegraph, cable, and radio messages of 5 cents for charges in the amount of 14 to 50 cents, and 10 cents for charges in amounts in excess of 50 cents.

The amount of revenue which would be realized from the miscellaneous tax proposals would depend upon when they became actually operative. Additional revenue on the basis of assumed collections for a period of six months from January through June, 1932, was estimated at about $205,000,000. The increase for the fiscal year 1933 was estimated at $514,000,000.

ESTATE TAX

I have frequently expressed my opposition in principle to the levying of excessive taxes on estates of decedents. Notwithstanding the views which I have expressed, I believe that in the existing emergency estates should contribute some additional revenue to the Government. It should be observed, however, that because of the longer period which is provided for the payment of tax on estates, additional revenue from this source would not be realized until the latter part of the fiscal year 1933.

The Congress drastically increased rates in the 1924 act but evidently felt that this action was unwise, since in 1926 the increases were repealed retroactively. I therefore recommend that the present rates and exemptions be revised to correspond to those effective under the revenue act of 1921. That act provided for the taxation of net estates at rates graduated from 1 per cent on the first $50,000 up to 25 per cent on amounts in excess of $10,000,000. Except for the high rates provided by the revenue act of 1924, which were never actually operative, the proposed maximum rate of 25 per cent is the highest previously in effect.

In order to avoid the undesirable result of automatic increase in State levies on estates in certain States in which such taxes are based on the present Federal rates, it is proposed that the increase be effected by means of a supertax to be imposed in addition to present rates, with no deduction from this supertax for State taxes paid. Under such an arrangement amounts of State taxes paid would continue to be allowed as credits against the Federal tax as provided under the present law, up to 80 per cent of the latter tax, but the entire proceeds of the proposed supertax would be retained by the Federal Government. Additional collections from this source are estimated at about $11,000,000 for the last half of the fiscal year 1933 and about $22,000,000 for the full calendar year 1933. estimated amount to be added to the Federal revenue in 1933 by the proposed supertax represents approximately 50 per cent of the estimated collections (after deduction of credits) under the present

law.

The

POSTAL REVENUES

In recent years the failure of postal revenues to cover expenditures has resulted in increasing postal deficits which have been met from the general revenues of the Federal Government. A part of this deficiency may be attributed to expenditures for special services, such as the cost of free postal services performed for governmental departments and agencies, the excess of the cost of air mail service over revenues, and the cost of special rates paid to ocean mail carriers of American registry. According to estimates by the Post Office Department the postal deficit exclusive of such special expenditures will approximate $150,000,000 for the fiscal year 1932. It is recommended that postal rates be increased to cover such deficiencies by a reasonable margin; that is, to provide additional revenues in the amount of not less than $150,000,000 on an annual basis, thus relieving the Budget for the fiscal year 1932 by about $75,000,000 and for 1933 and subsequent years by the full $150,000,000.

I am submitting herewith three tables, the first showing in greater detail the additional revenue which it is estimated will be raised through the adoption of these recommendations, the second illustrating the effect which the proposed changes in individual incometax rates would have on the taxes paid by income-tax brackets as compared with existing rates if applied to the income returned for the calendar year 1930, the third showing in one case what a married man with one dependent would pay on varying amounts of income at the proposed rates and exemptions as compared with existing rates, and in the other what a single man would pay.

It should be understood that these estimates for the most part were prepared in October or early November on data available at that time. They may require some revision in the light of additional data now available. I am assuming that in the preparation of a revenue bill there will be close cooperation between this committee and the Treasury Department and that in the course of preparing the bill opportunity will be afforded for comparison between the estimates made by the committee and those prepared by this department and for making any necessary readjustments. (The tables referred to are as follows:)

TABLE 1.-Summary of estimated additional revenue from Treasury revenue

Increase effective for collections during last half of fiscal year only.

New rates, assumed effective Jan. 1, 1932, will not affect collections until Jan. 1, 1933.

TABLE 2.-Individual income taxes on 1930 incomes at proposed and at present rates, exemptions, credits, etc. (estimated)