Exemptions from Taxation

Report Outline
Current Efforts to Curtail Exemptions
Intergovernmental Tax Exemptions
Tax Exemptions as Form of Subsidy
Subsistence Tax Exemptions

Current Efforts to Curtail Exemptions

Administration Proposal to Tax Public Securities

Steadily mounting demands upon public treasuries, and the threat of heavy tax increases for the future, have led American legislatures in the last few years to display a stronger resistance to pressure from private and quasi-public interests for exemptions from taxation. At the same time, legislative bodies have shown a disposition to reexamine exemptions previously granted, in order to correct inequities in the tax system and to widen the tax base. As Frederick L. Bird of Dun and Bradstreet observes: “Public budgetary requirements have become too urgent and expensive to permit the extension of tax exemption favors in the casual manner so often characteristic of the past.”

With approval of the Public Salary Tax Act in 1939, Congress extended the application of the federal income tax to employees of state and local governments and granted the states and localities permission to tax the incomes of federal employees. Legislation to remove the tax exemption privilege from interest paid on future issues of federal securities, and to permit federal taxation of income from state and local securities, will be sought by the administration at the present session.

Two measures to deal with the problem of tax-exempt securities have already been offered in the 77th Congress. A joint resolution by Rep. Kean (R., N. J.) provides for submission of a constitutional amendment to authorize reciprocal taxation of public securities; a bill by Rep. Tenerowicz (D., Mich.) proposes to authorize such taxation by legislative fiat. The Tenerowicz bill would permit taxation of income from all public securities issued after September 1, 1939. The Roosevelt administration has opposed retroactive taxation, however, and Secretary of the Treasury Morgenthau disclosed, January 6, that the Treasury was preparing its own bill on the subject.