Exemptions from Income Taxation

June 17, 1937

Report Outline
Limited Scope of Roosevelt's Tax Message
Partial Tax Immunity of Public Employees
Tax Exemption of Government Securities
Revenue Losses from Tax Exemptions
Special Focus

Limited Scope of Roosevelt's Tax Message

The Letter of Secretary Morgenthau which President Roosevelt incorporated in his tax-evasion message of June 1 noted the Treasury's surprise and disturbance over failure of income-tax receipts to measure up to budget estimates and, attributing that failure to widespread resort to evasive devices for reduction of tax liability, advanced the opinion that “if tax evasion and tax avoidance can be promptly stopped through legislation and regulations resulting from a special investigation, a very large portion of the deficiency in revenues will be restored to the Treasury.” In asking that Congress enact legislation at this session aimed to plug loopholes already disclosed, and that it make provision for a further investigation to provide the basis for more comprehensive corrective legislation at the next session, neither the President nor the Secretary of the Treasury mentioned two broad classes of income which at present largely escape federal taxation: (1) Compensation paid to state and local officials and employees, and (2) income from federal, state, and municipal securities.

When this omission was brought to his attention at a press conference on June 8, the President said he favored abolition of the foregoing exemptions as well as the corresponding exemptions from state income taxes of federal salaries and of income from federal securities. He observed, however, that action of that sort would require a constitutional amendment, and he could see little hope for ratification of such an amendment by the states. There have nevertheless been signs of a revival of interest in this question in Congress, and the way has been left open for its possible consideration by the new Joint Committee on Tax Evasion and Avoidance. The duties of the committee, to be limited originally to investigation of the methods of tax evasion and avoidance pointed out in the President's message, were broadened in the authorizing resolution as finally adopted so as to include consideration of “other methods of tax evasion and avoidance.”

Moves in Congress to Subject Exempt Income to Tax

On the day the President's message was sent to Congress, Senator Byrd (D., Va.) introduced a bill to permit the states to tax the compensation of federal employees and the income from future issues of federal securities. He introduced also a joint resolution proposing a constitutional amendment which would empower the federal government to tax the compensation of state and municipal employees and the income from state and municipal securities. A score of other resolutions proposing constitutional amendments to permit reciprocal taxation of federal and state securities or the salaries of federal and state employees, or both, had already been introduced at the current session of Congress. While numerous proposals to amend the Constitution in this manner have been advanced in recent sessions, advocacy of such action at the present time is given added force by reason of the current drive to increase the yield of the income tax by closing existing avenues of escape from the full burdens of that levy.

ISSUE TRACKER for Related Reports
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Mar. 19, 1982  Tax-Exemption Controversy
May 19, 1978  Property Tax Relief
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Feb. 10, 1971  Property Tax Reform
Mar. 26, 1969  Tax Reform Pressures
Mar. 24, 1965  Excise Tax Cuts and the Economy
Feb. 15, 1961  Flexible Taxation
Apr. 02, 1959  State Tax Problems
Apr. 23, 1958  Tax Reduction, 1958
Aug. 14, 1957  Fast Tax Write-Offs
Apr. 10, 1957  Federal Payments in Lieu of Taxes
Sep. 12, 1956  Corporation Profits and Taxes in Prosperity
Mar. 16, 1954  Shares in Tax Relief
Nov. 21, 1953  Revision of Excise Taxes
Mar. 19, 1953  Federal-State Tax Relations
Oct. 01, 1952  European Taxes and Tax Evasion
Nov. 03, 1950  Excess Profits Tax
Feb. 01, 1950  Tax Loopholes
Jun. 04, 1949  Excise Taxes
Oct. 27, 1948  Postwar Sales Taxes
Aug. 29, 1947  Taxation of Family Income
Apr. 09, 1947  Income Tax Relief
Jan. 11, 1946  Taxation of Cooperatives
Oct. 16, 1945  Federal Taxes on Business
May 08, 1944  Postwar Taxes
Sep. 20, 1943  Sales Taxes
Dec. 05, 1941  New Taxes for Defense
Apr. 05, 1941  Taxation for National Defense
Feb. 28, 1941  Taxation of Alcoholic Beverages
Jan. 11, 1941  Exemptions from Taxation
Dec. 04, 1940  Federal Taxes and Defense Financing
Feb. 01, 1940  Sharing of Tax Revenues
Feb. 02, 1939  Turnover Taxes in the States
Nov. 05, 1937  Broadening of the Income-Tax Base
Jun. 17, 1937  Exemptions from Income Taxation
Apr. 05, 1937  Coordination of Federal and State Tax Systems
Dec. 19, 1936  Revision of Federal Tax on Capital Gains
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May 26, 1936  Assessment of Property for Taxation
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Mar. 19, 1936  Taxation of Undistributed Corporate Profits
Dec. 17, 1935  Reduction of Tax Burdens on Real Estate
Oct. 21, 1935  Tax Delinquency in the United States
May 21, 1935  Comparative Tax Burdens in America and Britain
Feb. 01, 1935  Federal Taxation of Corporations
Nov. 27, 1934  Elimination of Conflicts in Taxation
Jul. 25, 1933  Taxation of Excess Profits
Jan. 25, 1933  Tax Burdens and Tax-Free Securities
Nov. 23, 1932  The Beer Tax and the Sales Tax
Dec. 19, 1931  Sales Taxes: Federal, State, and Foreign
Sep. 18, 1931  Death Taxes and the Concentration of Wealth
Mar. 18, 1931  Federal Taxation of Large Incomes
Jan. 10, 1931  Taxation of Capital Gains
Nov. 09, 1929  Federal Tax Reduction-1930
Aug. 08, 1927  Federal Tax Reduction—1928
Sep. 27, 1926  Tax Reduction and the Public Debt
Jan. 16, 1926  Taxation of Estates and Inheritances
Nov. 07, 1925  Federal Taxation of Small Incomes
Nov. 28, 1924  Social, Fiscal and Legal Aspects of the Inheritance Tax
Apr. 07, 1924  Causes and Effects of the Tax Return Blockade
Dec. 12, 1923  Tax Exempt Securities
Dec. 10, 1923  Taxation
Income Tax
Tax Exemption