Tax Burdens and Tax-Free Securities

Report Outline
Prospect of Tax Increases by the New Congress
The Problem of Tax-Exempt Securities
Failure of Amendment to Abolish Tax-Free Bonds
Suggested Methods of Reaching Tax-Free Income
Special Focus

Prospect of Tax Increases by the New Congress

Hoover's Sales Tax Proposal; Democratic Income Tax Proposals

The Nature and Scope of any new tax legislation undertaken by Congress in special session during the early months of the Roosevelt administration will be strongly influenced by the yield from the increased income taxes imposed by the Revenue Act of 1932. First returns and first income tax payments under this act, covering incomes received during the calendar year 1932, will be due on March 15 next. If the yield from the income taxes proves as disappointing as that from most of the new excise tax now in effect, further tax levies by the new Congress will be unavoidable. They probably will be unavoidable in any case. Campaign promises of economies sufficient to balance the budget without new taxes, other than a tax on beer, are likely to be found impossible of fulfillment.

Secretary of the Treasury Mills, in a radio address on January 16, 1933, asserted that half a billion dollars of additional revenue would be needed to balance the budget for the next fiscal year, even if current expenditures were reduced by half a billion. President Hoover, in a special message to Congress the next day, estimated the deficit for the next fiscal year at $500,000,000 to $700,000,000, exclusive of sinking fund charges. Both urged immediate adoption of a general manufacturers sales tax to make revenues match expenditure during the first fiscal year of the Roosevelt administration.

Democratic Income Tax Proposals

When a proposal of this nature was advanced by Democratic leaders in December, it was promptly disavowed by the President-elect and was there-upon abandoned by his supporters at Washington. In a conference with Democratic leaders at New York, January 5, 1933, a plan for broadening the base of the individual income tax by a further lowering of exemptions, and for increasing the yield by raising the normal rates to 6 and 12 per cent, the highest rates imposed during the war, was laid before Mr. Roosevelt. This plan, if not endorsed, at least was not disapproved by the President-elect. In response to public criticism of this plan, Senator Harrison (D., Miss.), prospective chairman of the Senate Finance Committee, indicated that lowering of exemptions and increases in normal rates were not the only changes in the income tax contemplated by the new majority.