DECEMBER 4, 1929.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. HAWLEY, from the Committee on Ways and Means, submitted the following

REPORT

[To accompany H. J. Res. 1331

The Committee on Ways and Means, to which was referred the joint resolution (H. J. Res. 133) reducing rates of income tax for the calendar year 1929, having had the same under consideration, reports it back to the House without amendment and recommends that the resolution do pass.

THE PROPOSED REDUCTION

The joint resolution reduces the rates of normal tax on the taxable net incomes of individuals from 11⁄2 to one-half of 1 per cent on the first $4,000; from 3 to 2 per cent on the second $4,000; and from 5 to 4 per cent on the balance; and reduces the corporation rate from 12 to 11 per cent. The reduction is applicable only to the rates for the calendar year 1929, and will effect a saving to our taxpayers of approximately $160,000,000.

THE ESTIMATED SURPLUS

The estimated surplus for the fiscal year 1930 is approximately $226,000,000 and the estimated surplus for the fiscal year 1931 is approximately $123,000,000. The probable surplus is shown by the following table, which gives the actual receipts and expenditures for the fiscal year 1929 (on the basis of the daily Treasury statements, unrevised) and the estimated receipts and expenditures for the fiscal years 1930 and 1931:

Receipts and expenditures for the fiscal year 1929, on the basis of daily Treasury statements (unrevised), and estimated receipts and expenditures for the fiscal years 1930 and 1931

Corporations enjoyed a very prosperous year in 1928 and all reports indicate that their 1929 income will exceed that of 1928. However, an analysis of the available statistics and information shows that the surplus for the fiscal year 1929 is attributable almost entirely to the unusual increase in taxable incomes of individuals. The outstanding item is an increase of approximately $2,000,000,000 in profits from the sale of capital assets. The individual income taxes increased from approximately $790,000,000 for the fiscal year 1928 to approximately $1,019,000,000 for the fiscal year 1929. It is quite impossible to estimate the effect which the recent precipitous decline in security values will have on the profits from security transactions.

Because of the unusual conditions, your committee believes that the estimated surplus for 1930 and 1931 does not permit a permanent tax reduction. Nevertheless, it is convinced that the benefits of the probable surpluses should be passed on to the taxpayers, rather than applied to debt reduction. Ample provision for the retirement of our national debt, in accordance with our well-established policy, is made in the Budget. It will be noted that the estimated expenditures for 1930 and 1931 include, respectively, $630,000,000 and $635,000,000 for debt retirement chargeable against ordinary receipts. If there were reasonable assurances that the probable surpluses were of a permanent nature, your committee would consider, as it has in the past, a permanent revision of our tax laws, attempting to equalize and at the same time lessen the burdens now imposed upon our various classes of taxpayers. However, such an undertaking at the present time is not justified. The surpluses may be only of a temporary character. The extraordinary increase in the gains reported by individuals may disappear. Undoubtedly, substantial losses have been sustained. Whether these losses will be more than offset by future gains can not be reliably predicted. Again, it should be borne in mind that the income tax has become our principal source of revenue, and that the yield of any income tax is neces

sarily subject to the fluctuations of business. Our balanced Budget should not be subjected to the risks of uncertainties.

EXTENT OF PROPOSED REDUCTION

Although the estimated surpluses can not be classed with reasonable certainty as of a permanent nature, your committee is convinced that a temporary tax reduction is proper at the present time, and that the relief should be granted to the greatest extent consistent with sound Government finance and to the greatest possible number of taxpayers. By dividing the effect of the reduction between the fiscal years 1930 and 1931, it is believed that an aggregate reduction of $160,000,000 is within a reasonable margin of safety. By decreasing the normal individual and the corporation tax rates, the benefit is accorded all the taxpayers. Furthermore, the greatest relief is granted taxpayers of relatively small incomes, consisting primarily of salaries and wages. The proposed relief to taxpayers of this class is undoubtedly at least as great, if not greater, than would result from a revision of the "earned income" provisions of the present law.

It is generally admitted that the present corporation rate of 12 per cent is out of line with the rates imposed upon individuals. Undoubtedly, the corporation rate should be reduced as soon as the revenue requirements permit. The number of individuals contributing directly to the support of the Federal Government through the Federal income tax has been strictly limited, and, of those contributing, the vast majority pay but an insignificant amount. Of 2,434,000 individual returns showing taxable income, 2,059,000 returned but $32,861,000 of income tax, while 375,000 returned a tax of $1,109,000,000. The average rate of tax on the net incomes of the 2,059,000 individuals was 0.42 per cent, whereas these and other millions of individuals owning stock in corporations are virtually paying taxes. through their corporations at 12 per cent on that portion of their income arising from the profits of the business enterprises in which they are shareholders. For the calendar year 1927, 24.46 per cent of their net income was taken by taxes, if all taxes paid are taken into consideration; and for every dollar paid in dividends, 46 cents were paid in taxes. If all corporations be included-that is to say, corporations reporting a deficit as well as those reporting net incomethe percentage of net income paid in taxes is 34.84 per cent. can hardly be denied that the way to give the greatest Federal tax relief to the greatest number is through a reduction of the corporation rate. Furthermore, no reduction is made in the surtax rates, the rates at which dividends received by individuals are taxed. Whether the theory is adopted that the corporation income tax is passed on to consumers or that the burden falls upon the stockholders, it must be admitted that our corporate taxpayers and their stockholders. are clearly deserving of the proposed reduction.

It

The following table gives a comparison of the total tax, both normal and surtax, payable under the present law and under the rates fixed for 1929 by the joint resolution, by a single person and by a married person with no dependents. The table is based upon the assumption that all the income not in excess of $10,000 is earned income, and in addition that one-fourth of the income in excess of $10,000, until the limit of $30,000 earned income is reached, is also earned; and that the total net income is all the income received and does not include dividends, capital gains, or interest upon Government bonds.