Broadening of the Income-Tax Base

Report Outline
Tax Revision and the Budget Situation
Personal Exemptions and Income-Tax Liability
Revenue Stability and Tax Consciousness
Collection of Income-Tax at the Source
Special Focus

Tax Revision and the Budget Situation

A subcommittee of the House Ways and Means Committee under the chairmanship of Rep. Vinson (D., Ky.) met in Washington this week to begin preparation of a general tax bill to be submitted to Congress at its regular session next winter. The proposed measure, based upon studies conducted independently by the subcommittee and upon Treasury recommendations resulting from an exhaustive survey of the federal tax structure, will have as its principal objective, not increased taxes, but the removal of inequities in the present revenue laws. While interest will doubtless center in revision of the undistributed-profits tax and of the provisions dealing with capital gains and losses, proposals will be made, in the Senate if not in the House, to broaden the base of the income tax. Senator La Follette (P., Wis.) said in mid-October he would resume the fight he has waged for several sessions to obtain a lowering of the personal exemptions as well as a raising of surtax rates in the middle brackets.

In view of the fact that all members of the House and one-third of the members of the Senate will be obliged to stand for re-election next year, it may be seriously questioned whether a measure designed to subject at least 1,500,000 additional persons to the income tax has any chance of passage at the coming session. At the same time, the picture may be changed if the budget situation should make it imperative to increase federal revenues, Last January the President estimated that the government would end the fiscal year 1938 with a surplus of $37,000,000. Revised estimates in April, however, indicated a deficit of $418,000,000, and this figure was raised to $695,000,000 in estimates published October 18. If revenues should be seriously affected by the current downward trend of business activity and by losses from the recent break in stock prices, the estimate of the deficit for the present fiscal year may have to be again revised upward. Such an eventuality, moreover, might diminish the prospects for a balanced budget in the fiscal year 1939, assurance of which was held out by President Roosevelt in a speech at the Bonneville Dam on September 28.

Revenue Needs and Advocacy of Broader Tax Base

While the government's immediate fiscal problem is to balance the budget, that task will no sooner be accomplished than thought must be given to reducing the huge public debt that has piled up in nearly a decade of deficit years. The difficulty of making progress in that direction will be all the greater if federal expenditures are to continue at or close to their present high levels. In urging a broadening of the income-tax base and an increase in surtax rates, Senator La Follette has voiced his conviction that government expenditures must not only be continued on the current scale but increased to sustain recovery. However that may be, federal fiscal demands are likely to be so pressing for a number of years to come as to force consideration eventually of means of increasing the productivity of the income tax.