House Report 76-2491

76Ta CONGRES 3d Se8siOn
HOUSE OF REPRESENTATIVES
N.2Ro4r 2491
THE REVENUE BILL OF 1940

JaNE 10, 1940.-Committed to the Committee of the Whole House on the state of
the Union and ordered to be printed
Mr. DOuGHToN, from the Committee on Ways and Means, submitted the following
REPORT [To accompany H. P. 100891

The Committee on Ways and Means, to whom was referred the bill (H. R. 10039) to provide for the expenses of national preparedness by raising revenue and issuing bonds, to provide a method for paying for such bonds, and for other purposes, having considered the same, report favorably thereon without amendment and recommend that the bill do pass. NEED FOR THE LEGISLATION There is a growing concern regarding the state of our national defense. Recent developments in the European War have reminded us forcefully of the inadequacy of our means of defense against modern weapons of aggression. This need has been pointed out by the President upon several occasions; particularly, in his message to the Congress of May 16, 1940. In this message, and in other requests, the President has requested defense funds for the fiscal year 1941 totaling $3,250,000,000. This sum includes the amounts carried in the Budget for 1941, and the supplementary requests made since January 3, 1940, the date of the Budget message. As outlined in the President's message of May 16, 1940, the four primary purposes for which the additional appropriations are to be used, areFirst. To procure the essential equipment of all kinds for a larger and thoroughly rounded-out Army; Second. To replace or modernize all old Army and Navy equipment with the latest type of equipment; Third. To increase production facilities for everything needed for the Army and Navy for national defense. We require the ability to turn out quickly infinitely greater supplies; Fourth. To speed up to a 24-hour basis all new contracts to be awarded. HI. Repts., 768-, voL 4-8
THE
REVE2NUE
BILL OF
1940
The urgent need for the speedy and effective undertaking and completion of this program cannot be doubted. THE FISCAL SITUATION The working balance of the Treasury is at present about $1,300,000,000. The gross public debt is $42,787,000,000, and the face amount of obligations which the Secretary of the Treasury may issue under the limitation of $45,000,000,000 specified in section 21 of the Second Liberty Bond Act, as amended, is $1,973,000,000. The present deficit will be $260,000,000 less on June 30, 1940, than was estimated on January 1, 1940. The national defense expenditures, including public works for the Army and Navy, were estimated in the Budget submitted to Congress last January, at $1 ,940,000,000 and they are now estimated on the basis of the program submitted to the Congress up to and including June 10 at $3,250,000,000. These greatly increased necessary expenditures for national defense would, thus, result in the large deficit indicated, except for this tax bill which is designed to raise the revenue to pay for the nationaldefense program. From these estimates it will be seen that it is highly desirable that Congress take some action at this session to provide the Treasury with the additional taxes levied in the bill and to provide it with the additional borrowing power set forth therein. This will give the Treasury that flexibility in its financing which so necessary for the effective management of the public finances in times like these and thus obviate the payment of higher interest rates. THE FISCAL PROGRAM as amended, provides Section 21 of the Second Liberty Bond that the face amount of bonds, certificates Act,indebtedness, Treasury of bills and notes issued under that act, as amended, shall not exceed $45,000,000,000 outstanding at any one time. Section 302 of the bill amends this provision to permit the Treasury to issue, within the framework of current statutes relating to the public debt, $4,000,000,000 of short-term public-debt obligations with maturities not exceeding 5 years, to be designated "National Defense Series". These obligations will be in addition to the $45,000,000,000 face amount of securities authorized under existing law. The tax increases provided under the bill are estimated to yield additional revenue of approximately $1,004,000,000 for each full year of operation. The increased taxes may be divided into two categories. Those contained in title I are permanent in nature and will yield about $322,000,000 annually. Those contained in title II are temporary in nature, being applicable only for the 5-year period, 1940-45, and will yield about $682,000,000, annually. The increased revenue attributable to title II, with certain minor exceptions, will be placed in a special fund which shall be available only for the retirement of the "National.Defense Series" obligations. Because of the difficulty of segregating the additional revenue attributable to the permanent increases contained in title I, this amount cannot be earmarked for this special purpose. However, the total additional revenue attributable to both titles I and II is intended to
Table: Estimated ad itional revenue1 at ributable to the proposed Revenue Act of 19402
insure the retirement of these special obligations issued during the 5;vrear period for which the temporary taxes are to be effective.
STUDIES OF EXCESS-PROFITS TAXES AND SPECIAL AMORTIZATION
During the executive sessions, there have been discussed proposals to provide special amortization for national defense industries and to provide for the imposition of excess-profits taxes. These two measures-each in itself requiring a complicated and exhaustive legislative project-must be considered together. It is the desire of this commnittee, which is favorably reporting a bill which will enable a larger proportion of our citizens to participate in the responsibility of providing an adequate national defense than has ever been the case before, that there shall not be an opportunity for the creation of new war millionaires or the further substantial enrichment of already wealthy persons because of the rearmament program. Accordingly we have instructed our technical assistants and the a propriate Treasury officials to accelerate their work in these two fiQlds so that bills wrill be prepared for submission not later than the opening of the next session of Congress, which if passed by the Congress may become retroactive and apply to income earned during the calendar year of 1940, or may become effective upon any other date which Congress, in the light of information it then possesses, may deem advisable.
REVENUE ESTIMATES
The. following table, prepared by the Trcasury Department, shows the additional revenue under the taxing provisions of the bill:
Estimated additional revenue I attributable to the proposed Revenue Act of 1940 2
Source of revenue
70 Corporation income tax .- A 252 Individual income taxTotal increase, title I -.. Title II: Corporation super income tax -----13-'; 123 Individual super income tax -12 -Capital stock and excess-profits taxes Estate tax -.. 29 3 Gift tax --Alcoholic-beverage taxes: 76 Distilled spirits 46 Fermented malt liquors3 OtherTotal increase, alcoholic-beverage taxes 125 Tobacco taxes: Cigarettes ---------- ---------- 67 Other -12 79 Total increase, tt;)ieco taxes 7 Stamp taxes-
Title I: Income tax:
AMlion, of dollars
322
a Excluding (a) the nonrecurring collections of floor taxes on alcoholic beverages and tobacco, estimated for fiscal year 1941 at $26,000,000 and (b) revenues resulting from the extension of certain excise taxes as provided in title II, "Section 209. Continuation of Excise Taxes", but including the super-tax on such excise taxes, ' As introduced by Mr. Doughton, June 10, 190.
THE REVENUE
JBILL OF 1940
Hetimated dditionil revenue aributable to the proposed -Revenue Act of 1940Continued MWu. Of buM of ran" dofaro Manufacturers' excise taxes: 112 Gasoline30 Other 142 Total increase, manufacturers' excise taxes Miscelaneous taxes-27 --Total increase, title II 682 Total Increase, titles I and II -1,004
Treasury Department, Division of Resarch and Statlstics, June 10, 190.
SUMMARY OF CHANGES IN TAX STRUCTURE

TITLE I-PERMANENT CHANGES These changes apply to income taxes for taxable years beginning after December 31, 1939. They are, therefore, applicable to 1940 incomes. (1) The personal exemptions allowed individuals for income tax purposes under the existing law have been reduced from $2,500 to $2,000 in the case of married persons and heads of families and from $1,000 to $800 in the case of single persons. The bill does not affect the $400 credit for dependents allowed under existing law. This credit is allowed if the dependent receives his chief support from the taxpayer and is under 18 years of age or incapable of self-support because mentally or physically defective. (2) The surtaxes are increased on surtax net incomes in excess of $6,000 and the increases continue up to surtax net incomes not in excess of $100,000, and from that point the rates of existing law are retained. Under the present law, the rate on surtax net incomes in excess of $100,000 and not in excess of $150,000 is 58 percent. While the rates applicable to surtax net incomes in excess of $100,000 are not increased, the surtaxes payable by taxpayers in these upper brackets are mereased by reason of the higher rates in the lower brackets. (3) The requirement as to filing income-tax returns in the case of individuals has been changed. Under the existing law, an individual is required to file a return if his net income amounts to $1,000 or more in the case of a single person, or $2,500 or more in the case of a married person, and in either case if his gross income is $5,000 or more. The bill requires a return from a single person if his gross income is $800 or more and from married persons if either their aggregate or separate gross income is $2,000 or more. (4) Nonresident aliens: Under existing law, a nonresident alien individual not engaged in business within the United States or not having an office or place of business therein, is taxed only upon dividends, interest, or other fixed or determinable annual or periodical income at the rate of 10 percent. This rate may be reduced to 5 percent in the case of a resident of a contiguous country if so provided by treaty. Subject to treaty provisions with foreign countries, the 10 percent rate has been increased to 15 percent, which corresponds to the proportionate increase in burden imposed upon American citizens and residents by the increases in income and excise taxes under the bill. Under existing law, if such a nonresident alien individual has a gross
Table: [No Caption]
TD RUVENUE BILL OF 1940
income of more than $21,600, which is the level at which the' average effective rate equals 10 percent, he is subject to the full normal and surtax on his fixed or determinable annual or periodical income, The bill raises this level to $24,000 which, under the increased rates, is the point which equals an effective rate of approximately 15 percent. Nonresident aliens engaged in business in the United States or having an office or place of business therein are subject to the same rates as apply to American citizens with respect to income from United States sources. They will, therefore, be subject to the increase in tax applicable to American citizens.
CORPORA'TIONS
(1) Domestic corporatiolw.-Your committee increased the rate of tax on corporations by 1 percent. In view of the increase in the tax burden imposed upon individuals under the bill, it was believed that corporations should bear some part of the increased burden. The rates under the proposed bill and under the existing law are as follows:
Normal tax netlnnozne
,000 Not Iu exess of $5 ......................................... In exces of $5,000 and not in excess of $20,000 In excess of $20,000 and not In excess of $25,000 .................................-..... In excess of $26,00....I
----------------------
RxIsting
Percent
1e
18 is
Bill
12% 4
Per'eent 13)4
17 19
5
(2) Foreign corporations.-Since the tax on domestic corporations is increased, your committee also deemed it advisable to make the same proportionate increase in the tax on foreign corporations deriving income from American sources. Under existing law, foreign corporations having an office or place of business in the United States are subject to a flat rate of 18 percent. This has been increased under the bill to 19 percent. Foreign corporations not engaged in trade or business within the United States or not having an office or place of business therein are taxable only upon their dividends, interest, or other fixed or determinable periodical or annual income, and they are subject to a tax of 16 percent on such income. In the case of dividends, the rate is 10 percent unless received by a corporation organized under the laws of a contiguous country, in which case the rate may by treaty be reduced to not less than 5 percent. The rate of 15 percent is increased under the bill to 16 percent and the rate of 10 percent is increased to 11 percent. No increase in taxes will apply where its application will be contrary to any treaty obligation of the United States. TITLE II.-TEMPORARY CHANGES The bill makes certain temporary increases in the internal-revenue laws for a period of 5 years. These changes are briefly as follows:
I
.(1)
INCOME TAX
For taxable years beginning after December 31, 1939, and before January 1, 1945, the tax computed in accordance with the changes made in title I of the bill is increased by 10 percent thereof. To
Table: [No Caption]
prevent the rate in the higher brackets from being confiscatory, a cushion is inserted which prevents such increase from being greater than 10 percent of the net income in excess of the tax computed under existing law, as amended by title I. This cushion begins to operate where the tax so computed is in excess of 50 percent of the net income, which in the case of a married person is around $200,000. The following examples will show the result of the operation of the tax and the cushion:
_ Tax under existing law Net Income fas amended by title I Tax under
Supertax
Net Income
existing law Super as amended tax by title I

... ..
$3,000 .: 100 $6,000 ........-........ -480 $10,000..-... ....-..

............ .....
..
.
$2.80 $100,000 ...... ....-...-... $39, .524 10. 00 $300,000)........... 169,364 48.00 $1,000,000 ......0 ....4
$3, 9T2. 40 13,063.60 31,379.60
It will be seen from the above examples that in the case of a married man without dependents with $5,000 net income, the supertax is (hetermined by increasing the ordinary tax of $100 by 10 percent, or $10, making a total tax of $110. The cushion will not operate in this case because the ordinary tax is not in excess of 50 percent of the net income. Ili the case of ii. married man with $300,000 net income tile 10 percent supertax if applied without the cushion, would amount to $16,936.40, but since the. ordinary tax is in excess of 50 percent of the net income the cushion applies. Accordingly, the supertax in this last example is computed by applying the 10 percent against $130,636 (the amount of the net income less ordinary tax) instea(I of against, the tax of $169,364. This makes the supertax $13,063.60 instead of $16,936.40.
(2) EXCESS-PROFITS TAX
The amount of the excess-profits tax pay able for any taxable year ending after June 30, 1940, and before July 1, 1945, is increased by 10 percent. Thins, a corporation with an excess-profits-tax year ending July 31, 1940, will be subject to the 10-percent increase. If the excess-profits tax payable is $1,000, the supertax will be $100, and the corporation will pay a total excess-profits tax of $1,100.
(8) CAPITAL-STOCK TAX
The capital-stock tax is increased for the year ending June 30, 1940, and for the 4 succeeding years ending June 30, from $1 per thousand of adjusted declared value to $1.10 per thousand of adjusted declared value.
(4) ESTATE TAX
In the case of a decedent dying after the enactment of this bill and before the expiration of 5 years after such date, the estate tax payable (after application of the credits provided for State death taxes anid Federal gift taxes), is increased by 10 percent.
(6) GIFT TAX
The gift tax is also increased by 10 percent, effective for the calendar year 1940 and subsequent calendar years up to and including the calendar year 1945.
Table: Tobac o, snuf , cigars, and cigaret es
Table: [No Caption]
THE REVENUE BILL OF 1N0
For the calendar year 1940, the increase is in effect applied only to gifts made after the date of the enactment of this bill. This is accomp1ished by determining the gift tax for the entire year at the existing rates and adding thereto an amount which bears the same ratio to 10 percent of the tax so computed as the amount of gifts made after the enactment of the bill bears to the total amount of gifts made during the year.
(6) TRANSFERS TO AVOID INCOME TAX
Under the existing lawu, an excise is imposed upon the transfer of stock or securities by a citizen or resident of the United States, or by a domestic corporation or partnership, or by a trust which is not a foreign trust, to a foreign corporation as paid in surplus or as a contribution to capital. The rate under existing law is 25 percent and this has been increased to 27'S percent in the case of any transfer made during the period after the date of the enactment of this bill and before July 1, 1945.
(7) TOBACCO TAXES
The bill makes the following changes in the taxes on tobacco and tobacco products:
Tobacco, snuff, cigars, and cigarettes
Description of tax
Old rate
New rate
.............
Percentage
18 cents-............... 21 cents_ 16 _ Snuff and snuff flour------------do do.. 16} Tobacco, except chewing tobacco - . 76cents.... ---------874 cents Cigars ....-.... 16} $21634 Do $2.33-i $3.60 . -..... Do -$ l-e-0i . .3 163 Do. .. ........ 6-$5.83)4 Do -$10.50-$12.21 26. ................. . $16 .0.$13.60. 6 Do ........$ ............ . $3-.60 ..16 -3 Cigarettes $7.20 -.---------. $8.40-6 le .. Do .. )------------1634 4 cent -. Cigarette paper .-.4 .ent 1634 Do-....--..-- .-- .--I cent ....1..4. ents cA .......-..,.
.............
..
......
....
..
...............
-
....
A floor-stocks tax is imposed upon all the prod ucts listed -above to which the increased rates apply, with the exception of cigarette papers. This tax is equal to the difference between the old rate and the new rate and is imposed with respect to such products held by any person for sale otherwise than in retail stock. The tax on chewing tobacco was not increased, due to the declining consumption of this product and the small amount of revenue involved.
DISTILLED SPIRITS
Your committee increased the taxes on distilled spirits at the following rates:
Distilled spirits
Old rates
New rates
Peroentage of
Increase
$2.25 $3.00 Distilled spirits generally -........ 2.75 Brandy- 2.( 3.00 perfumes-2.25 Imported
33&I
37
3334
Table: [No Caption]
Table: [No Caption]
TH REVENUE
BILL OF 190
Floor-stocks taxes are imposed upon distilled spirits which on July 1, 1940, are held by any person and intended for sale or for use in the manufacture and production of any article intended for sale. The rate is 75 cents, which is the increased rate imposed upon liuor. An exemption of 100 gallons is allowed in the case of a retailer. Your committee did not increase the tax on rectified spirits which are also subject to increased tax on distilled spirits.
BEER
Your committee increased the tax on fermented liquors from $5 a barrel to $6 a barrel, effective July 1, 1940. This amounts to a 20-percent increase in the rate of tax. In addition, a floor-stocks tax is imposed upon stocks held by manufacturers or wholesalers at the rate of $1 per barrel.
WINES
The taxes on wines were increased at the following rates:

Old rate New rate Percentage of increase
12 Do -10 24 Do-2 3 Sparkling wines-2.j . Mo - .... 1 I. 10 12 Fortification of wines-..-........
stl wines ------
Ccnts5
Cent 6
Percent
20 20 20
20 2U
20
ADMISSIONS TAXES
Under existing law, an admissions tax of 10 percent is imposed except where the amount paid for admission is less than 41 cents. TrIstead of raising the rate of tax, your committee deemed it much simpler and more feasible from an administrative point of view to decrease the exemption from 40 to 30 cents.
OTHER MISCELLANEOUS TAXES
The following table shows the increases in other miscellaneous taxes:

Description of tax
...............
Old rate
New rate
Percent. age of Increase
$11e0t1 .0................. IX P--e 10 Do -----. $33-*-----------$5.50 -------- 10 Do $* 10 10 percent.. 11 percent Bate-deposit boxes.- ,,,,,, 10 Pistols and revolvers................ .................-.......... .do .- do . Wholesalers In liquor ..........-.-.. ..................... 10 -$100 .-. $110 -10 Retailers In liquor$ . $25. 25-----7. Brewers (more tthn 500 barrels). ---------------------- $100.$111 .-.-. 10 Brewers (lea than S00 barrels) -----------------------$50.-.-10 $55-.. . . Whotmsalers In malt liquors ----------------------.................. 10 d do .d...... 10 R1taler In malt uors-$20-.........2.......... $22 ..........
. . .............
-
10 Box seats .................1.0... peroent-.. 11 percent do 10 Bals outside of box ofce..-.............................. .-...do 334 Cabarets, roof gardens, etc ........... ........... . ............... 1 cents.,_ 2 cents. . Club dues ..............-........................ 10 percent_ 11 percent -.. 10 0 Corporate securities ---------------------------------...-...-10 cents- 11 cents stock -------------------------.----------- --do .......-..... do Capital 10. Do*..-2 cents ......0 60 --.*.'''..''.'.' Cents 25 cents Do..................................... 4 cents 20 Do.........--5* cents. 6 cents --.--.*.-........................... 6 3 cents 4 cents ...s Inurance 1nolies ..-.........-...-..-...
...
-------
...
......
......
...
......
...
......
---
.........
------
THE REVENUNi] BILL OF 1940

Description of tax
(aids
........ _. ^_____ ............................... _ _____
Old rate
Now rate
V.2D $22D ........22
.....
Percent. age of incrase

10 10 10 . ......
.155 D~O $110 ...$5. .......... .-. . 10 8tills .....$0-..$65 10. . 10 ; $22$20....... D)o ...-.. Tires -----------..et ---cents.---------- - 24 cents 1-11 -. cents...24 'Pubhes.------------------------------- 410cents 4..1) percent. 10 )ollet reparationspercent.. ---------------p 25 2 percent.... 24 Percent . . Automobiles- . Oilier attoiujoiles. .-----------------3 perment.. 3 percent.. . . 163S 25 2 percent.. - 2 percent, A uto part-s . ..---------10 Ha(lios .5 percent-.. 56 percent-10 do . Mechinacil refrigerators ...- .do 10 Firearms --------------------------------10 percent... 11 percent -10 cents ... b cents.... MIatches-Jfo Electrical energy ...-.....-......... percent..... 364 percent.. (Insollne ...-...nt.......................... I-----------.. 14 cent... - 50 4 cents. Ad cents.c oils Iubricating 12Xi 12X 4 percent.. 'ri'ansportationi of oil by pipe line ................................. 4 cents ...... 4X percent-25 cents Transfers of bonds . 50 cents..... 55 cents..10 Conveyances ....... 10 ....... 10 ents.. . 11 cents ........... Playing cards............................
...... ........
.
$2 Sspechil ers Rectiil ... .................................. -,

...
........... ................ ... ........ ...
.
......
.........
....................
...
...........
........
....
...
....
---
....
CONTINUATION OF TEMPORARY EXCISE TAXES
The bill also provides for the continuation of the temporary import and excise taxes which either expire or have their rates reduced in 1941. Under the bill these taxes will not expire or have their rates reduced until 1945.
TAXES NOT INCREASED
(1) No increase is provided in the case of certain taxes of a regulatory nature, such as the taxes on white phosphorous matches, mixed flour, filled cheese, narcotics, sugar, bituminous coal, and certain types of firearms. Likewise, the bill does not increase certain excise taxes on imports such as those levied with respect to coal lumber, copper, petroleum products, and certain vegetable oils. fhe revenue from these taxes is small, and since they are designed for a particular function which an increase in their rates might impair, your committee feel they should not be increased and some of them are affected by reciprocal trade agreements. (2) The bill makes no changes in the taxes levied under the social security program. These taxes are directed to a special purpose and it is not felt that they should be increased for the d" fense program. (3) In the case of the taxes on communication facilities (telephone, telegraph., radio and cable), severe administrative difficulties convince your committee of the inadvisability of increase in rates.
DISCUSSION OF PRINCIPAL INCOME TAX CHANGES (a) Lowering of personal exemptis.-Title I of the bill lowers the personal exemption from $1,000 to $800 in the case of single persons and from $2,500 to $2,000 in the case of married persons or heads of families. This will make approximately 2,190,000 new taxpayers. Of the additional revenue to be derived from this source approxinatelv $14,000,000 will be derived from new taxpayers. This is a p)ermanent change and first goes into effect with respect to taxable years beginning after December 31, 1939.
Table: Table I.- Comparison of surtax rates, existing law, and proposed bil
10
THE RVENUVi BILL OF 1940
(b) Title I of the bill also increases permanently the surtax rates with respect to taxable eamrs beginning after December 31, 1939. The normal tax rate Whlich is 4 percent under existing law, is not changed in the bill. he following table shows the surtax rates under the existing law and under the bill:
TABLE I.-Comparison
of
surtax rates,
existing law, and propo8ed bill

rroposed Amount bill rate of rate
Inerpmse
Percent
0
Amount of surtas net Income
Exceeding
Not Ing excreel-
Existing law rate
$4, 010
14,
18,
8,000O I(,
12,000
6, (X)
(X0
Msn ro
8,1MM)
Percent
4
5
Perceni 4
8
14, MM
19), tav
10,
1N).
12,00
16, m)
tXV) 18P, M)
'26,
22.
(MM
I1
15
8 9
6 7
1R
21 24 27
10 12
20,0(O)
13
22, IMM
#
9
3 4 6 7
(MU
32, (M) 38, OM)

50), 0(M) 6,0((M)
004)
26, (MM)
17
10
19
21
24
38, (MM)
44, (MM)
44,000
150,000(X
000
M, M0
00,000
27 31 35
35
30 33 3M 40 44
47
47
12 12 13
13 9
11
60,000
(12, 000
72,000
.19
43
43.
47
47
12 8
4
70,000
74, 000
80,000
30. 950, zOM

200,9000
150,000
74000
1on,000
250, 000
I-A 68
60
47 51
80
53
3 2
0 0
0
000 1500,on0 200,000

25,
62
84
70 58
64
62 58
06
300,0OM
400,000
400, 750, 000 300,000
000
68
418
0
0 0 0
0(MM
750, 000
1,000, (MM
2,
2, 000 000
1,000,000
2,000,000
5, 000,000
000I,000
and
up
70 72 73 74 75
68 70 72
74 75
73
0 0 0
(c) 7lltal income-tax burden.- (1) Permanent increases: In order to (complete picture of the total income-tax burden, the following tal)les are included with respect to a married man with no dependents. Table II shows the increased normal and surtax: rateson a married nman with no dependents under existing law and under the hill. While there is no challge in the normal tax ratt over that of existing law, the normal tax itself is increased by reason of the lowering of the exeml)tions to $800 for single persons and to $2,000 for married
secure a
persons.
Table: Table I .- Comparison of normal and surtax, existing law and proposed bil , mar ied person, no dependents, al income earned
THIM JtEVIiNUI1O
BILL
OV~1940
11
TARLE IL-Comparison of normal and surt ax, omitting law and proposed bill, married person, no dependent,, all income earned
Normal tax
Not Income
Present
law
.
. . . . .
Burt"
Proposed
bill
0 $10 28 64 100 136 172 208 244 280 a10 352 388 424 404 884
Prsefnt
law
0 0 0 0 0 0
Proposed
bill
0 0 0 0 0 0
Inres
0 0
0 0
Sra
$13i X) ......................868 404 $HI,000...................... M) 444 $16 $20,000 ---8................. 44 $25,000 .. -..................844 1,044 Pof,0( $40,000 ---................... 1, 444 $50--------------00------- 1,844 $80,000 2, 244 ---.................. $70000 2,044 ---.................. $ ----0000----------8- ,044 $ ...00.............. , 444 3,8944 1(M0100( --------------- 150,00....................--5,844 ,0(0 ------------------ - 7, 844 .......,............... 9,844 MO$ $800,000 ---.................. 11,844 15,844 $" 'oo $500,000 ---.........19,844 $76(J,000 .............29,844 $1,0(100,-------00.---------- - 89,844 $2,00),000------------------- - 79,844 $6.KX,000, -----------00------- 199W,844
...........................
......................
$2,000. .... .0 0 $2, 5 00..................... $J-fJ00. --~. $8 44 ii,(w $ --,--80 11a *6.000 ---. 162 $7,(XK) .-188 $ ------,--------------- 224 $1 200 ......,...00.......... 290 $1 32 $12,0(K) ------------------.
...
...
.........
--
.......
--
--
--
--
--
--
--
--
--
--
--
--
---
----
--
--
--
--
----
--
--
--
--
--
--
--
1,00(1)-------------------
884 1,084 1,464
...........................
89,864 79,804 199,864
19,884 2P,884#
3,8604 58084 7,884 ,9,84 1 1, M4 15, 804
2,284 2, W4 8,084 8,404
1,864
87,500 118,450 150,400 218,350 284,800 469,250 mg8, 200 1,869, 175 8,69, 150
13,805 16,225 28, 220 28,825 57, 550
10,085
945 1,845 2,525 4,635 7,025
$2 00 105 155 210 270 385 405 480
1, 8768,20 3,696,300
84834
406,880
2,630 d, 040 7,22 10, "0 15,300 19,940 24,880 80,120 g5,6O0 84,020 94,580 125.540 157,500 223,400 291, 4210
140 200 280 BO0 400 660 66 400 1,
$40 80
7,0(70 7,060 7,099 7,100 7,110 7, 12D 7,180 7, 140 7,145 7,150
2,666 8958 8,215 8186 8,85 8,8095 7,035
no0 515 96a 1,615
20 86 46 70 g0 125 1I"
$20
percent. (2) Temporar increase: In addition to the permanent increases caused by the change in the exempItions &nd the surtax rates, title II of the bill- imposes a 10 percent supertax with respect to taxable years begnnin after December 31, 193.9 and before January 1, 1945, TI'1is is hown in the following table:
It will ho notedl dint a. married person with a not inconle of $2,500 pays 110 tax under01 existing law, However, tinder the bill hie will pay a norinal tax of $10 for each taxable year beginning after Decembet 31, 1939. The same person with a net income of $3,000 will pay for each such taxable year a normal tax of $28. No surtax is imposed either under the bill or under the existing law until1 tile net income of at married man exceeds $6,500 under the present law and $6,000 tinder the bill. InI the case of a single person, no surtax 'is imposed until tile net income exceeds $5,000 under tile present law 1)11( $4,800 under the bill. The largest increase in the surtaxrrate over existing law is with respect to married persons with net incomes between $46,000 and $58,000, where the rate is increased 13 percent. In the case of a9, single person, the largest increase is wit h respect to net incomes from $45,000 to $57,000, where the rate is also increased 13
Table: Table I I.- Comparison of total tax burden, existing law and proposed bil , mar ied person, no dependents, al income earned
THE REVENUEJO BILL OF 1940 TA~sm III.-Comnparison of kWta tax burdeo, so.tins law ansd proposed HiU, married
12
p.1-so.,, no dependents, all income earned

M~d jgpe~ fSupertax
Ing tax sjuperMP)OE) 11 Includ-
ffetive rate to percent

NotInenle ?~et Income
Present
Proposed bill
low
Presnt Witboul ~~~~law

goper-
With
super-
...OO........
..........
..............
$6
118 172
8s
44
..............
,000
26,089 low ----------- - 82,489 6,394 *10,000 - 08..... 96,844 $20000---------
08 002 12000 .......... 13,000 ? 708.. 14.000 809~~~~a 16,000 - -.924 .000 1,889la 000 Sl489 ,000 8,589.. 3 so - 8,97.....9 ,000 ...0.--...889 12,829 ,000-....... ..00 ....--. 18,449 - -..... 21,209
............
...........
248.... 82 415 10,000......

000........
.............
28 64 100 136 212 288 384 480 w9e 712 848 - 04 1,144 2,124
8,84 1t,844
8,494 ,104
~.000 --)--------....0....-L.
102,444
17,604 22,004 27,944 88,634 89,524 70,484
.000-........ 23%194 304,144 $50,000-----750,000...489,094 - 79,044 $1,00,00... $2,000,000------_-1,449,019
128,294
$5,000,000........-..8,78,994
521,019.00 31,879.060 717,6588.00 64,381.00 1,6810,686. 00 8,798,164 120,38.00 8, 918,547. 00
23,24 311,284 498,244 088,204 1, 460 184
136,404
8,568.40 8,952140 7,048.40 2,76 6.0 11,459.00

18081.00 18,871.00 26,376.00
190 10.00 18.60 21.20 28 80 36.40 46.00 8900 71.20 84.80 A8.40 114.40 212.40 849.40 810.40 888.40 1,204.40 1, 76840 2, 260.40 2,794.40
C 40
30.80 70.40 110.00 149.60 233.20 818.80 422.40 828.00 .60 woo 78.3.20 932.80 1,082.40 1,260.40 2338.40 8, Sq~.40 k6,14.40 9,8562. 40
88,942.40 48,478.40 77,6&32.40 112, 19.6.0 00 14 256,391.060 830,155. 60
14,128.40 12,320.44) 24,884.40 30,738.40
8683.
81.32
72.46
68.06 00.83 865.21 87.90
0.27 1.10 1.00 1.93 1 48 8.10 3. 08 4.16 L00 5.02 6.41 5.78 0.10 7.96 9.98 11.90 14.9.5 17.74 20.68 23. 50 20.69 29.63 32.47 42. 26 47.87
.98 1.00 2.00 2.27 8.03 8.0 4.27' 4.80 5.42 & 93 8.852 7.03 7.83 10.02 13.98 17.01 21.71 26.69 29.2_7 32. 29 34.93 37.32 39.62 4099 61.22
11.08 15.87 1&71 23. 88 28.26 32.20 3. 5.2 38.4 41.08 42.48 61.09 58,to
63.85
&839
1.08 1.76 2 I.0 2.49 8.33 8. 4.9 520 L 96 & 63 7.18 7.73
M75.7
82.280 (10.17 38.82 72.81 78.92
69.83
64.18
58,75
08.03 89.65 71.78
7A5.3 78.33
From the above table it will be noted a married man, without dependents, having a net income of $20,000 will pay in permanent taxes $2,124, an increase of $535 over existing law and in addition he will pay a super-tax, under title II of then bIll, of $,212.40 for 5 years, making a total annual tax for such 5-year period of $2,336.40 or 11.68 percent of his net income as against 7.95 percent under existing law. One with $50,000 net income will pay $12,844 in permanent tax, and $1,284.40 super-tax, making a totatI of $14, 128.40 as against $8,809 under existing law, or 28.26 percent of his net income as against 17.74 percent under existing law. (d) Requirement for filing indivs.idual income tax retutn.-Under existing law, an individual, if single, is not required to file an incometax return unless his gross income is $5,000 or more or his net income is $1,000 or more. In the case of a married individual, no return is required under existing law, unls hIt gros income is $5,000 or more, or the net income is $2,500 or more . Artnisaoreued if such individual and his spouse eaeh has a gross income and the aggregate gross income is $5,000 or more. The bill requires a return from a single individual if his gross income is; $800 or more and from a married individual if (1) such individual has a gross income of $2,000 or more and the other spouse has no gross income or (2) if such individual and his spouse each has for the taxable year a gross income and the
THIM REVENUJ BILL OF 1940
13
aggregate gross income is $2,000 or over. Many persons have failed to file returns upon the assumption that their income was insufficient, when, inl fact, they were liable for the filing of a return and the payment of a tax. This change will require approximately 8,000,000 additional returns, and it is believed will result in the collection of substantial additional taxes. It is estimated that under existing law approxinzately 7,500,000 individual returns are filed.
ANALYSIS OF BILL BY SECTIONS

TITLE I
This title contains permanent amendments to the Internal Revenue Code. Section 1. Short Title This section provided that the act may be cited as the Revenue Act of 1940. Surtax on Section .Indi.dual8 This section increases the surtax rates on taxpayers other than corporations. This surtax schedule has been discussed in a previous portion of the report. The increase is effective in the case of taxable years beginning after December 31, 1939.
Section S. Corporation Tax The rates of income tax on corporations are increased 1 per centum effective with respect to taxable years beginning after December 31, 1939. This section makes the specific rates named in existing law 1 per centum larger regardless of the character of the corporation, or whether of a special class or of a general whether large or of existing law, together with the amendment, is to class. The effect small, subject to the 1 per centum increase corporations, such as banks and insurance companies, whose rate of tax under existing law is the same as the rate on corporations in general. Section 4. Nonrsident Alien Individuak This section increases the rate of income tax upon nonresident alien individuals not engaged in trade or business within the United States and not having an office or place of business therein from 10 per centum to 16 per centum, such individuals being taxed under existing law on their receipts from. fixed and determinable income from United States sources, such as interest, rents, dividends, royalties, etc. This section also, in view of this increased rate, makes an adjustment in the figure of $21,600 in existing law, which is the point at which a nonresident alien individual is exempted from the flat 10 per centum tax provided for in existing law and is subjected to tax at normal and surtax rates on the same items of income as above mentioned. Twenty-one thousand six hundred dollars is changed to $24,000, and the section also increases from 10 per centum to 15 per centum the minimum rate of tax payable by an individual having gross income of such amount.
14
THE REIVENUE BILL OF 1940
Section 5. Withholding of Tax at Source Existing law provides for various rates at which taxes may be withhield at the source in the case of nonresident aliens and foreign corporations. These rates are increased by this section to correspond with the increased rates of tax imposed by other sections of the bill. The new withholding rates arc to take effect on June 26, 1940. Section 6. Personal Exemptiotn8 This section broadens the base for the imposition of the income tax by lowering thelpersonal exemIption of married persons froin $2,500 to $2,000, and the personal exemption of single persons from $1,000 to $800. The section also reduces to $800 the personal exemption of nonresi(lent alien individuals, which under existing law is a flat $1,000 regar(lecss of marital status. A similar change is made, in this section, in the case of United States citizens doing business in any possession of the United States. Section 7. Returns of Income Tax Under existing law, the requirement of filing a return in the case of individuals is based upon the amount of the net income equal to or in excess of the personal exemption, or a gross income of $5,000 or over. This section abandons the net-inconie test as the basis for the requirement of a return and substitutes a test of gross income equal to or in excess of the personal exemption. Thus, a return is requlre(l from an individual who is single or married and not living with husband or wife if his gross income is $800 or over, and from a married individual living with husband or wife if having a gross income of $2,000 or over if the other spouse has no gross income, or having a gross income together with the spouse of $2,000 or over. A similar change has been made with respect to fiduciary returns. This section also reduces from $1,000 to $800 the amount of payments to individuals which requires an information return from the payor of the income.
Section 8. Cigarette Paper8 This section amends section 2000 (d) of the Internal Revenue Code to remove the present exemption of packages and books containing 25 papers or less from the existing tax on cigarette papers in packages or books. Packages and books containing 25 papers or le." will thus be subject to the tax in the same manner as those. containing more than 25 and not more than 50 papers. The amendment made by this section is effective July 1, 1940. Section 9. Treaty Obligtvions This section provides that none of the amendments made by this title of the bill shall apply in any case so as to be contrary to any treaty obligation of the United States.
Table: [No Caption]
I)VW11JINUM BILL OF 1940 15 Section 10. Taxable Years to Which Title Applicable Trlis section that the amendments made by this title shall be apl)iicablc only with respect to taxable years beginning after December 31, 1939, but an exception is made of the aniendinents made by section 5, relating to the rates of withholding of tax at the source, which, as has already been pointed out, is effective June 26, 1940, an(l section 8, relating to the tax on cigarette papers, which is effective July t 1,940.
TI
pi'ovides
TITLE II
This title contains temporary provisions increasing rates of tax in general for a period of five years, and imposes necessary floor-stocks taxes to complement the increases in certain excise taxes, All these provisions, except as specifically pointed out hereinafter, ale effective July 1, 1940, to continue until July 1, 1946. Section 201. Super-tax on Incomes This section adds a new section 15 to Chapter 1 of the Internal Revenue Code providing that for taxable years beginning after December 31, 1939 and before January 1, 1945, each taxpayer's tax (after applying tihe amendments made in title I of the bill) shall be increased by 10 per centumn of the amount thereof. For the purposes of this 10 per cenltlul increase, the tax which is to be increased is cornImuted before the at source. of the foreign tax credit an(l the credit, for taxes withheldapplication Suppose, for example, that the net inconme of the corp)orate taxpayer is $100,000, of Which $60,000 is attributable to a foreign country, to which a tax of $25,00() lhs been paid. Under existing law the tJnite(l States tax before applying the credit is $18,000, andT the credit is that proportion of $18,000 which $00,000 bears to $100,000, or three-fifths, or $10,800, thus making the tax payable $7,200. Under the bill the tax will be computed as follows: Net income -$100, 000 Tax (computed without sec. 15) 19,0(0 10 percent IncrMase -1, oo
. Foreign tax credit three-fifths of $20,900012, 540 Tax payable under bill -8, 360 This section also provides, however, that in no case shall the effect, of the section be to increase by more than 10 per centum the amount by which the net income exceeds the tax computed without regard to Section 15. This limitation has the effect of affording relief to noncorporate taxpayers whose income tax, computed Without regard to the super-tax provisions, amounts to more than 50 per cenitum of their net income. It is provided that such taxpayers shall pay a super-tfax of not more than 10 per centum of their income remaining after deduction of income tax computed without regarol to the super-tax provisions. This limitation may be illustrated by the following example: The net income of an individual entitle to the maximum earned income credit and having no capital gains or losses, after application of the personal exemption and credit for dependents, is $750,000,
Total -.
20, 900
16
and his tax liability computed without regard to section 15 is $497,724. The difference between the net income and the tax liability is $252,276. The tax under section 15 is $497,724 plus 10 per centurn of $252,276, or $522,951.60. If such a limitation had not been provided for, the tax under section 15 would have been $547,496.40. It - should be noted that the effect of this limitation on the 10 per centumn increase is to relieve from any increase a taxpayer who under existing law, as amended by title I, has no net income, because he has a net long-term capital loss, but is subject to tax under section 117 (c) (2) of the Internal Revenue Code. The section does not apply in any case where its application would be contrary to the terms of any treaty obligation of the United States. Section 202. Rate of Withholding Section 202 of the bill inserts a new subsection (h) at the end of section 143 -of the Internal Revenue Code. This subsection increases temporarily the 11, 15, and 16 per centum rates of withholding prescribed by sections 143 and 144, as amended by section 5 of title I, to 12Xo, 16Yo, and 17&o per centum, respectively. The increased rates are to be in effect during the period after June 25, 1940, and before Jarnuary 1, 1945. The increased rates of withholding correspond to the rates of tax effective for the five year period on nonresident alien individuals and foreign corporations not engaged in trade or business in the United States and not having an office or place of business therein. The date June 26 is used to mark the start of the period of the increased rate because it was deemed necessary to have a date as close as reasonably possible to the date of enactment of the act, but which would provide necessary time for the withholding agents to comply with the law. This subsection does not apply in any case where its application would be contrary to the terms of a treaty obligation of the United States. Section 203. Personal Holding Companies Section 203 of the bill amends section 500 of the Internal Revenue Code by designating the present section as subsection (a) and adding a new subsection (b) at the end. The new subsection increases by 10 per centum the amount of surtax payable by any personal holding company under the existing law. The total amount of surtax under the amendment is thus obtained by ascertaining the surtax payable and then adding thereto 10 per centum of that figure. The 10 per centum increase is to be in effect for any taxable year beginning after December 31, 1939, and before January 1, 1945. Section 204. Excess-Projts Tax This section amends the Internal Revenue Code to provide for a 10 per centum increase in the amount of excess-profits tax payable for income-tax taxable years ending after June 30, 1940, and before July 1, 1945. The provisions for the increased tax will consequently affect excess-profits tax liability for five income-tax taxable years.
Table: [No Caption]
17
Section 205. Capital Stock Tax Section 1200 of the Internal Revenue Code is amended by increasin the rate of capital stock tax from $1 for each $1,000 of the adjusted declared value of capital stock to $1.10 for each ritich $1,000 of value. This shall apply for the year ending June 30, 19.10, and for the next four eucceeding years ending June 30. Section 206. Estate Tax A 10 per centum increase is proposed in the amount of estate tax payable in the case of estates of decedents dying within a period of five years after the date of the enactment of the proposed act. Such increase will be computed upon the amount of tax as determined by the Rate Schedule or schedules of existing law after subtracting from the amount so obtained the amount of credit for gift taxes paid, as provided for in sections 813 (a) and 936 (b) of the Internal ]Revenue Code, and also the amount of any State, inheritance, legacy, or succession taxes paid to any State, Territory, the District of Columbia, or possession of the United States (not exceeding 80 per centum of the basic estate tax of 1926-Subchapter A of Chapter 3 of the Internal Revenue Code), as provided for in section 813 (b). Thus, if the basic estate tax (Subehapter A of Chapter 3), computed in accordance with the Rate Schedule set out in section 810, amounts to $1,500, and the additional estate tax (Subchapter B of Chapter 3), computed as prescribed in section 935, amounts to $8,100, and the credit against the amount of basic estate tax on account of the payment of any such estate, inheritance, legacy, or succession taxes amounts to $1,200, and the gift tax credit amounts to $100, the operation of the proposed super-tax is illustrated in the following table:
Basic estate tax (Chapter 3A of Code) __-__-_-_---_--$1, 00 Additional estate tax (Chapter 3B of Code) - -8,100 Total tax under existing law before credits -- -- -9,1 00 Credits under existing law: $100 Gift tax credit ----Credit for State taxes 1,200
--
-Total 1, 300 -Total estate tax under existing law 8, 300 10 per centum of'$8,300 830 _ Total estate tax under bill --9,180
-
Section 207. Gift Tax This section provides for each of the calendar years 1941 to 1945, both inclusive, an increase of 10 per centum in the gift tax computed according to the Rate Schedule set forth in section 1001 of the Code. The following example illustrates the computation of the tax for the year 1943. Assume the taxpayer made net gifts of $50,000 in 1943, and aggregate net gifts of $100,000 for preceding calendar years, and that no specific exemption has been claimed, or is claimed for 1943.
R. Repts., 76-, Vol. 4-- 49
Table: Gift tax under existing law
Table: Tax under bil
Table: [No Caption]
Table: Gift tax under existing law
18
GW9 tax under existing law

$100, 000 -1942 and prior year gifts s50, 000 1943 gifts _-___------150,000 Total--_ 13, 575 Tax under section 1001 (a) (1) -.--7, 200 Tax under section 1001 (a) (2) 6,375 1943 gift tax payable under existing law Tax under bill 110 per centum of tax under 1001 (a) (1), or $13,575 -$14, 932. 50 110 per centum of tax under 1001 (a) (2), or $7,200 7,920.00 Total 1943 gift tax 7, 012. 50
For the calendar year 1940, in order to prevent the injustice that would be caused by applying the increase over the whole year if some of the gifts were made before the enactment of the act it is provided that only that portion of the 10 per cerntum increase shall be applied which corresponds to the ratio which the amount of the 1940 gifts made after the enactment of the act bears to the total amount of 1940 gifts. For the purpose of this proration the first $4,000 of gifts to each donee is not counted as a gift, and charitable, etc., gifts allowed as a deduction under existing law are not, counted. The specific exemption of $40,000 granted by section 1004 (a) (1) is not to be taken into account (whether claimed in whole or in part for 1940) in ascertaining the ratio to be applied. The following example will illustrate the computation of the tax for 1940. Assume the taxpayer has made (from 1932 to 1939, inclusive) net gifts of $1,040,000 and before 1940 has claimed no part of the specific exemption of $40,000. In 1940 he makes gifts to charity: $100,000 to X charity in March, and $75,000 to Y charity in August. He also gives $60,000 to John Smith in April and $40,000 to him in September. The tax will be computed as follows:
1939 and prior year gifts -----------------$1, 040, 000 1940 gifts before enactment of act: 60, 000 (13 Gifts to John Smith-(2 Gifts to X charity -100, 000 1940 gifts after enactment of act: (1) Gifts to John Smith -40, 000 75, 000 (2) Gifts to Y charityGift tax under existing law $1, 040, 000 1939 and prior year gif--s 1940 gifts to John Smith ($100,000 minus first $4,000) -96, 000 1940 gifts to charity -175, 000
-
Total -1,311,000 Deduct gifts to charity175, 000 1, 136, 000 40, 000 _ Deduct $40,000 specific exemption claimed -
1,096,000
Tax under section 1001 (a) (1) Tax under section 1001 (a) (2Gift tax payable for 1940 under existing law-
189,990 176, 950
18, 440
Table: Tax under bil
19
Two under bNU Ratio chf 1940 taxable gifts after enactment to total 1940 taxable
10 per centum of $13,440
gifts --
--
--
W Jor$1, 344
I
40, 000
660 'A2 Of $1,344---Plus regular 1940 tax-13,440 Total 1940 gift tax-14, 000
Section 208. Tax on Transfers To Avoid Income Tax This section amends section 1250 of the Internal Revenue Code by increasing the excise-tax rate therein provided from 25 per centum to 27fi per centum. Section 1250 provides for an excise tax on transfers made by citizens or residents of the United States or domestic corporations and partnerships to foreign corporations unless under section 1251 prior to the transfer it is established to the satisfaction of the Commissioner that the transfer is not to avoid Federal income taxes. The increase in tax rate is to be effective for the period after the date of the enactment of the act and ending before July 1, 1945. Section 209. Continuation of Excise Taxes Certain excise taxes and increased rates ot excise taxes under existing law are due to expire in 1941. Since the bill proposes to increase the rates of such taxes (the increases are specified in section 210) until July 1, 1945, it is necessary' to extend the temporary provisions. Section 209 of the bill therefore provides for such continuation. The taxes so extended or increased by this section are as follows: Stamp taxes: Issues of securities, bond transfers, and deeds of conveyance. Stock transfers. Manufacturers' excise taxes: Lubricating oils. Gasoline. Electrical energy. Tires and inner tubes. Toilet preparations. Automobile trucks. Passenger automobiles and motorcycles. Parts and accessories for automobiles. Radio sets. Mechanical refrigerators. Matches. Miscellaneous taxes: Telegraph, telephone, radio, and cable facilities, leased wires, etc. Transportation of oil by pipe line. Admissions to theaters, concerts, cabarets, etc. Import taxes on petroleum, coal, lumber, and copper. The admissions tax, insofar as the exemption is concerned, is treated in section 211.
20
THE REVENUE BILL OF
1940
Section 210. Miscellaneous ExciMes Section 210 of the bill inserts a new chapter 9A in the Internal Revenue Code, to be entitled "Super-tax For Five Years". Section 1650 of such new chapter provides for an increase in the rates of tax now applicable with respect to most of the miscellaneous excises and occupational taxes. The excises affected, and the increased rates, called super-tax rates, are specified in the schedule contained in section 1650. The amount of the increase in each case has been stated previously in this report. The increased rates are effective for the period after June 30, 1940, and before July 1, 1945. Thus, if the tax is on the sale of an article, as in the case of the manufacturer's excise on radio parts, and such sale occurs after June 30, 1940, it is taxable at the increased or super-tax rate. If the tax is on transportation as in the case of the transportation of crude petroleum by pipe line, and such transportation originates after June 30, 1940, it is taxable at the increased or super-tax rate. If the tax is occupational tax, the increased rate applies for the fiscal year beginning July 1, 1940, or part thereof, during which the occupation is carried on, and continues For four more years. Section 211. Admission Tax The present law exempts from a(lnissions tax admissions of less than 41 cents un til July 1, 1941, and thereafter admissions of $3 or less. The bill, in section 211, exempts only admissions of less than 31 cents until July 1, 1945, after which time admissions of $3 or less will be exempt. Section 212. Tobacco, Snuff, Cigars, (igarettes, and Cigarette Paper This section amends the Internal Revenue Code to increase the rates of tax applicable to tobacco (other than chewing tobacco), snuff, cigars, cigarettes, and cigarette papers and to impose a floor-stocks tax on all these articles except cigarette papers. Subchapter A of chapter 15 of the Internal Revenue Code is amended by adding a new section 2004 which, for the period beginning July 1, 1940, and before July 1, 1945, increases all rates of tax with respect to the articles named by 16% per centum. While the tax rates with respect to cigarette papers are increased to 2, 1%, and YA1 cents, respectively, no increase of the rate of tax with respect to cigarette tubes is made. The tax on cigarette tubes returns very little revenue and is collectible by stamp. It wats thought impracticable to provide for an increase of YX of a cent because the administrative difficulties involved in issuing new stamps would( be out of all proportion to the very small increased revenue that would result from an increased rate of tax. Because of the increase in the rates of tobacco tax provided for in the proposed new section 2004, it is proposed to add to the Internal Revenue Code a new section 2005 which will impose a floor-stocks tax on tobacco products (other than chewing tobacco) held on July 1, 1940, by any person for sale otherwise than in retail stocks. The rate of the floor-stocks tax is the difference between the rates of tax imposed by existing law and the increased rates contained in the proposed new
TIHE REVENUE BILL OF 19
21
which tax must be paid which are removed for sale or consumption after June 30, 1940, will bear a total tax equal to the increased rates of tax imposed by section 2004 on articles manufactured after June 30, 1940. The proposed new subsection 2005 (b) provides that every person required to pay the floor stocks tax shall, on or before August 1, 1940, make a return and pay such tax. A special provision has been included in subsection (b) designed to simplify the collection of floor stocks tax with respect to articles held by manufacturers and importers. It is reccignized that many such taxpayers will, on July 1, 1940, have on haned (a) articles to which no tax stamps have been affixed; (b) articles to which tax stamps have been affixed; and (c) unattached tax stamps purchased at the old rates of tax. Under section 2005 (b) the Commissioner will have authority in the case of manufacturers and importers to dispense with the requirement of a floor-stocks tax return with respect to articles subject to tax hold on July 1, 1940, to which tax stamps have not been affixed. Trhe floor-stocks tax payable with respect to such articles would then he paid by tile taxpayers affixing the usual tax stamps, purchased however at the increased rates of tax rather than the o0l rates of tax. For example, the manufacturers' tax due with respect to a package of 20 small cigarettes at the old rate would be 6 cents; the floor-stocks tax, 1 cent. Instead of affixing a stamp purchased for 6 cents on the package of cigarettes and filing a floor-stocks tax return with respect. to the 1-cent floor-stocks tax, the taxpayer could affix a stamp purchased for 7 cents altogether. In order to make this simplified procedure possible, provision is madle in section 2005 (b) to give the Commissioner authority to make an assessment against taxpayers with respect to unattached tax stalmlls on hand July 1, 1940, for the difference between the amount paid for such stamps and the increased rates of tax. This provision of law is similar to one contained in section 1006 of the Revenue Act of 1917 and section 1311 of the Revenue Act of 1918. As to articles to which tax stamps have already been affixed, this procedure could only be followed if taxpayers affixed to stamped articles an additional stamp to cover the floor-stocks tax. With respect to such stamped articles, it would be simpler to have the floor-stocks tax paid by means of return and dispense with the necessity of affixing an extra stamp. Section 213. Distilled Spirit5 This section increases the rates of tax on distilled spirits, brandy, high-proof wines, liqueurs, etc., which are classified as distilled spirits, and imported perfumes containing distilled spirits, by 75 cents per proof gallon or, in some cases, wine gallon when below proof. The increase applies to distilled spirits, articles classified as distilled spirits, and brandy withdrawn from bond after June 30, 1940, and before ,July 1, 1945, and to such perfumes imported during such period. A floor-stocks tax is imposed on distilled spirits, articles so classified, and brandy held by any person for sale or for use in the manufacture or production of an article intended for sale. This tax is at a rate of 75 cents per proof gallon. An exemption of 100 wine-gallons is
section 2004. As a result of the floor-stocks tax, all such articles on
22
accorded to retail (dealers. The floor-stocks tax is imposed only on distilled spirits upon which the internal-revenue tax has been paid, in order not to impose a floor-stocks tax on distilled spirits aging in warehouses and not yet withdrawn. This corresponds to the taxation, at the increased rate, of spirits, etc., removed after June 30, 1940, and before July 1, 1945. Returns and payment of the floor-stocks tax must be made on or before August 1, 1940, but the Commissioner may extend the payment to a date not later than February 1, 1941. Administrative provisions and penalties applicable to the regular distilled-spirits taxes are incorporated by reference. A technical amendment to the provisions relating to draw-back of tax increases the rates of draw-back to $3 and $2.75 where the tax has been paid at such rates.
Section 214. Wines and Fermented Malt Liquor8 This section increases by 20 per centum the rates of tax on wines produced in or imported into the United States. The increase applies to such wines sold or removed for consumption or sale after June 30, 1940, and before July 1, 1945. This increase is effectuated by an increase in the specific rate in the schedules under the wine tax. A similar increase is made in the rate of tax on fermented malt liquors (beer lager beer, ale, porter, and similar malt beverages) sold or removed for consumption or sale during such period. The rate is increased from $5 per barrel to $6 per barrel. A floor-stocks tax is imposed on fermented malt liquors, at a rate equal to the increase in rate of tax made applicable to such articles by section 3190, held on July 1, 1940, by any person, other than a retail dealerr, and intended for sale. Section 215. Playing Cards This section increases from 10 cents to 11 cents the rate of tax on each pack of playing cards manufactured or imported, and sold, or removed for consumption or sale, in the case of articles manufactured, etc., after June 30, 1940, and before -July 1, 1945. Section 216. Credits of Tax on Automobile8, Etc. Section 3403 (e) of the Internal Revenue Code allows a credit against the automobile, truck, and motorcycle tax on account of the sale in connection with the vehicle of tires and tubes with respect to which the tax on tires or tubes has been paid. This credit under existing law is 2 per centum, in the case of automobile trucks, and 3 per centum in the case of automobiles and motorcycles, of the purchaso price or sales price of similar tires and tubes. This section of the bill increases the credit to 2% per centuni and 3% per centum, respectively, with respect to such vehicles sold after June 30, 1940, and before July 1, 1945. These increases correspond to the increase made by section 210 of the bill in the rates of tax on automobiles, etc. The credit is allowable at 2% per centuem andl 354 per centum regardless of the rate of the tax paid on the tires and tubes or their date of acquisition.
THE REVENUE BILL OFi 190

TITLE III
23
Section 801. Special Fund ThiS section provides that the Secretary of the Treasury shall as soon as practicable after the end of each quarter determine the additional amount of taxes collected attributable to the increases in taxes made, and to the floor-stocks taxes imposed, by the amendments to the Internal Revenue Code in title II of the bill, and the amounts so determined shall be set aside as a special fund which shall be available only for the retirement of any of the National Defense Series obligations authorized by sectioI 302 of the bill. In the Inount to be set aside in the special fund there is not to be included the minount of taxes attributable solely to the extension of excise taxes fln(l rates of excise taxes contained in section 209 of the bill, nor any amount collected under admissions taxes attributalble to a basic admission charge of more than 40 cents. If at any time the amounts in the fund are not sufficient for the rctiremeiit of the obligations of the National Defense Series, the Secretary of the Treasury is authjorizedl and directed to transfer to the fund moneys ouit of the general fund of the Treasury. Any amounts in the special fund not necessary for the retirement of the obligations shall be deposited in the general fund of the Treasury. The revenues attributable to title II of the bill will be collected aind paid into the Treasury in accordance with established procedures. Shortly after each quarter the Secretary of the Treasury, acting upon information obtained by the Bureau of Internal Revenue from the offices of collectors of internal revenue, will determine the amounts collected during the preceding quarter which under this section 'are required to be set aside in the special fund, and on the basis of such (letermnination he will transfer the amount thereof to the special fund for the retirement of the national defense obligations outstanding. It will be obligatory upon the Treasury, beginning July 1, 1940, to retire the national defense obligations and charge the amount so retired to the special fund. The Secretary of the Treasury has stated before this committee that it is his intention to arrange the maturities of any national defense obligations issued under the authority contained in this hill so as to insure as nearly as possible the application of the increased revenue from the enactment of title 1I to the retirement of national defense obligations during the year in which such revenue is received. Section 802. National Defense Obligations This section amends section 21 of the Second Liberty Bond Act, as amended. That section now provides that the face amount of bonds, certificates of indebtedness, Treasury bills and notes imued under the Second Liberty Bond Act, as amended, shall not exceed $45,000 (((,000 outstanding at any one time. On June 30, 1940, there wiji he a margin under this limitation of only $1,700,000,000 which can he availed of by the Treasury to issue additional public-debt obligations for the purpose of obtaining funds in addition to $700,000,000 to be recovered from governmental corporations, to meet the increased deficit in the fiscal year 1941 if the President's defense recommendations are adopted by the Congress. More than $1,600,000,000 of
24
THE RHEVE1NUE BILL OFn 1940
this deficit will be due to additional emergency national defense expenditures. On the basis of present recommen(Iatiolls, total national defense expenditures will amount to about $3,250,000,000, the highest amount spent for this purpose in any year in our history except for the 2 fiscal years when this country participated in the} World War. In order to finance national-defense expenditures after Juno 30, 1940, it is proposed to permit the Treasury to issue within the framework of current statutes relating to the public debt, $4,000,000,000 of shortterm public-debt obligations with maturities not exceeding 5 years, to be designated "National Defense Series." These obligations will be in addition to the $45,000,0001000 face amount of public-debt obligations permitted to be outtandng under the Second Liberty Bond Act, as amended. This additional $4,000,000,000 authorization for national-defense obligations permits only a temporary increase in the limitation on outstanding public-debt obligations because, to the extent that such national-defense obligations are retired under the provisions of section 301, the authorization will be reduced. CHANGES IN EXISTING LAW For the information of the House of Representatives, there is set forth below a comparative print of each provision of the Internal Revenue Code which is proposed to be specifically amended by the bill in cases where the proposed amendment changes existing law either by amending a provision to read as follows or by striking out words and inserting others in place of them. Other provisions which merely add new provisions are set forth in the bill, -as, for instance, the new section 15 of the Code, which purts on a super-tax for 5 years. No comparison between them and existing law is possible without reprinting a large portion of the Code, and hence they are not set forth below. INTERNAL REVENUE CODE
(Sec. 12:) (b) RATES OF SURTAx.-There shall be levied, collected, and paid for each taxable year upon the surtax net income of every individual a surtax as follows: Upon a surtax net income of $4,000 there shall be no surtax; upon surtax net incomes in excess of $4,000 and not in excess of $6,000, 4 per centum of such excess. $80 upon surtax net incomes of $6,000; and upon surtax net incomes in excess of $6,000 and not in excess of $8,000, [5 per centum] 6 per centum in addition of such excess. [$180] $O00 upon surtax not incomes of $8,000; and upon surtax not Incomes in excess of $8,000 and not in excess of $10,000, [6 per centum] 8 per centum in addition of such excess. [$300] $S60 upon surtax net incomes of $10,000; and upon surtax net incomes in excess of $10,000 and not in excess of $12,000, [7 per centuni] 1 per centum in addition of such excess. [$440] $560 upon surtax net incomes of $12,000; and upon surtax net incomes in excess of$12,000 and not in excess of $14,000, [8 per centum] 12 per centlim in addition of such excess. [$6003 $800 upon surtax net incomes of $14,000; and upon surtax net incomes in excess of $14,000 and not in excess of $16,000, [9 per centuin] 15 per cenium in addition of such excess. [$780] $1 100 upon suftax net incomes of $16,000; and upon surtax net incomes in excess of i16,000 and not in excess of $18,000, [11 per centum] 18 per centum in addition of such excess.
25
[$1,000] $1,460 upon surtax net incomes of $18,000' and upon surtax net incomes In excess of $18,000 and not in excoess of $20,000, per centum] P1 per centum in addition of such excess. E$1,260] $1,880 upon surtax net Incomes of $20,000' and upon surtax4 net incomes In excess of $20,000 and not In excees of $22,000, per centumn] per centum in addition of such excess, ($1,560] $2,360 upon surtax net incomes of $22,000; and upon surtax net incomes in excess of $22,000 and not in excess of $26,000, [17 per centum] 27 per centum in addition of such excess. [$2,240] $13,440 upon surtax net incomes of $26,000' and upon surtax net incomes in excess of $26,000 and not in excess of $32,000, i19 per centum] 30 per cenlum in addition of such excess. [$3,380] $5,240 upon surtax net incomes of $32,000' and upon surtax net incomes in excess of $32,000 and not in excess of $38,000, i21 per centum] 35 per centdurn in addition of such excess. net [$4,(;60] $7,220 upon surtax incomes of $38,000; and upon surtax net inconies ill excess of $38,000 and not in excess of $44,000, (24 per centum] 36 per centurn In addition of such excess. ($6,080] $9,380 upon surtax net incomes of $44,000; and upon surtax net incomes in excess of $44,000 and not in excess of $50,000 (27 per centum] 40 per ceitdurm ill addition of such excess. ($7,700 upon surtax net incomes of $50,000; and upon surtax net incomes in excess of $50,000 an(d not in excess of $56,000, 31 per centum in addition of such
k13 k15
[$9,560 upon surtax net incomes of $156,000; and upon surtax net incomes in excess of $56,000 and not in excess of $62,000, 35 per centum in addition of such
($11,660 upon surtax net incomes of $62.,000; and upon surtax net incomes in excess of $62,000 and not in excess of $68,000, 39 per centum in addition of such
excess.
excess.
[$14,000 upon surtax net incomes of $68,000; and upon surtax net incomes in excess of $68,000 and not in excess of $74,000, 43 per centum in addition of such excess. [$16,580 upon surtax net incomes of $74,000; and upon surtax net incomes in excess of $74,000 and not in excess of $80,000, 47 per centumn In addition of such excess.] $11,780 upon surtax net incomes of $50,000; and upon surtax nzet incomes in excess of $60,000 and not in excess of $60,000, 44 per centum in addition of such excess. $16,180 upon surtax net incomes of $60,000; and upon surtax net incomes in excess of $60,000 and not in excess of $70,000, 47 per century in addition of such eXCee.1. $20,880 upon surtax net incomes of $70,000; and upon surtax net incomes in excess of $70,000 and not in excess of $t0,000, 60 per centum in addition of such excess. ($19,400] $26,880 upon surtax net incomes of $80,000' and upon surtax net incomes in excess of $80,000 and not in excel of $90,000, [51 per centum] 63 per centum in addition of such excess. [$24,500] $31,180 upon surtax net incomes of $90,000; and upon surtax net incomes in ew;vess of $90,000 and not in excess of $100,000, (55 per centum] 56 per centum in E dK1,ion of such excess. [$30,0003 $36,780 upon surtax net incomes of $100,000; and upon surtax net incomes in excess of $100,000 and not in excess of $150,000, 58 per centum in addition of such excess. ($59,000] $65,780 Upton surtax net incomes of $150,000; and upon surtax net incomes in excess of $150,000 and not in excess of $200,000, 60 per centum in addition of such excess. ($89,000] $96,780 upon surtax net incomes of $200,000; and upon surtax net incomes in excess of $200,000 and not in excess of $250,000, 62 per centum in addition of such excess. ($120,000] $126,780 upon surtax net incomes of $250,000; and upon surtax niet incomes in excess of $250,000 and not in excess of $300,000, 64 per centum in addition of such excess. [$152,000] $158,780 upon surtax net incomes of $300,000; and upon surtax flet incomes in excess of $300,000 and not in excess of $400,000, 66 per centum in a1I(lition of such excess. [$218,000] $224J,780 upon surtax net incomes of $400,000; and upon surtax net ilnCOts8 ill exCeC of $40,000 and not in excess of $500,000, 68 per centum ill addition of such excess.
excess.
net incomes hn excess of $750,00 and not In excess of $1,000,000, 72 per centuni in Addition of such excess. [$041,000] $647,780 upon surtax net incomes of $1,000,000; and tipon surtax i net neoVesn excess of $1,000,000 and not In excess of $2,000,000, 73 per centtum in addition (if stich excess. [$1,371,000] $1,.877,780 upon surtax net incomes of $2,000,00; and uipot surtax net incomes in excess of $2,000,000 and not in excess of $5,000,000, 74 per centum in addition of such excess. [$3,691,001] $3,697,780 upon surtax net incomes of $5,000,000; and upon uvrtax net incomes in excess of $5,000,000, 75 per centum In addition of such
exceess
26 'THI RlWV!NUP1 BILL OF 1940 ($286,000] $49)9,780 upon. surtax net Incomes of $500 000; and upon surtax net incomes In excess of 0000,OO And nol in excess of $8T50,O00, 70 pet century in Addition of such excess. [$4131,000I $467,780 upon surtax net incories of $750,O00; and opon surtax
(Svc. 3:) (h) TMPOBITION OF 1TAx-There shall be levied, collected, and paid for each taxahle year upon the normnl-tax net income of every corporation the normaltax net income of which io more than $25,000 (except a corporation subject to the tax imposed by section 14, section 231 (a), Supplement G, or Supplemerit Q) whichever of the following taxes is the lesser: (1) GrNNRAL RULVD.-A tax of (18 per centuim] 19 per centhm of the nornmal-tax net income; or (2) AITERNATIVFH TAX (CORPORATIONS WITII NORMAL-TAX NET INCOME BLTRT.LY MORE TnAN $25,OOO).--A tax of [$3,525] $3,776, phis [32 per eenturn] W. per centim of the amount of the normnl-tat net income in excess of $25,000.
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(1S9,C. 14;)_(b) COnRORATIONS WITH NORMAL-TAX NET INCOMEF3S OF NOT MOu1, THAN $2.5,000.-If the nornial-tax not income of the corporation is not nmore than $25,000, and if the corporation does not conie within one of the olassens s)ecifie(i In subsection (c), (d), or (e) of this section, the tax shall be as follows: Upon noimal-tax net ine(mnis not in excess of $5,000, [12/fi per centum] 1S3 per centum. [$6253 $675 upon normal-tax net incomes of $5,000, and upon normal-tax net incomes in excess of $5,000 and not in eXCesm of $20,0W0, [14 per centumn 16 per centuin in addition of such excess, 6$2,725) $2,9R5 upon normnal-tax net incomes of $20,000, and upoi normnal-tax net incomes in excess of $20,000, [10 per centum] 17 per cenhum
in Addition of such excess. (c FOREJGN CORPORATIONS.(1) In the case of a foreign corporation engaged in trade or business within the United States or having an office or place of business therein, the tax shall he an amount equal to [18 per centuim] 19 per centum of the normal-tax net income, regardless of the amount thereof.
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S:C. 231. TAX ON 1POREIGN CORPORATIONS. (a) NONRESIDENT CORPORATIONS.(1) IMPOSITION OF TAX.--There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by sectIons 13 and 14, upon the amount received by every foreign corporation not engaged in trade or business within the United States and not having an office or place of business therein, from sources within the United States as interest (except interest on deposits with persons carrying on the banking business), dividends, rents, al arises, w ages, premiumts, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and Income, a tax of [15 per centurm] 16 per centum of such amount, except that In the csie of dividends the rate shall be [10 per centum] 1i per centum, and except that in the ease of corporation, organized under the laws of a contiguous country such rate of [10 per centum] 11 per cenlum with respect to dividends shall be reduced to such rate (not less than 5 per centuni) as may be provided by treaty with such country.
THM MtMNtlh PI..t, OF 1940
7"
(So. 86l2:) (b) IMPo1tioNt o* TAX.--Ther shmAll be levied, collected, atd paid for each tnxnble year llpon the Supplicnient Q net ineorne of every ttinttitl Investnlient cotuparly a tax equal to 18 per century] 19 per centuns of the amount thereof, * 4 * * * * * Si,,. 21 . TAX ON NONMRJSIDFNT ALIrmN INMMlIDUALS. (a) No UNITrED S'PATEs B1iJ1NviiI OR Oprtue.--(A) IMP'SPNt'ON OF TAX.-There z3hall be levied, collected, and paid for each taxable year, in lieut of the tax imposedc by sections 11 and 12 upon thoe aniou t received, b)y every nonresident alien inidivl(dual noi engaged In trale or business Uitlill tile Vnited Stg tes and not having an office or place of business therein, from souirces with11in the United States as interest (except Interest on deposits with persons carrying on the banking businesss, dividetnds, rents, salaries, wages preiniumns, annullities, colnie)tlIsatlones, reunillerations, etnoluifictits, or ot)teir fixed or detrmiinable annual or Perlodical gains, profits and1c incoine, a tax of [10 per centinim] 16 per centum of suall ainouilli, except that such rate, shall be reduced, in the esse of a resident of a contiguoIus country, to such rate (niot less than 5 per oentun) as may be provided by treaty with such counttry. * * * * * .* * (2) AOORFOATM MORE THAN [$21,000) $24,000,-The tax imposed by parsigraph (1) shnll not apply to any Individual if the aggregate amount receive(l during the taxable year from the sources therein specified Is more than [$21,6000J $!'?4,000.
*
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(1 ) (JNaRAL RHIP.--
(c) No 1JNITED STATE9S BUMINESS OR OFFICE AND GROSS INC1OME O MORu THAN [$21,600] 004 O00.-A nonresident alien individual not engaged in tra(le or business within the United States and not having an office or place of buSitiC.SS tihereln Who has a gross income for any taxable year of more thaan [$21,6000 $24 000 from the sources specified in subsection (a) (1), shall be taxable witollout regard to the provisions of subsection (a) (1), except that-(1) The gross income shall include only income from the sources specified in subsection (a) (1); (2) Tte reductionss (other than the so-called "charitable deduction" provided in section 213 (c)) shall be allowed only If and to the extent that they are properly allocable to the gross income from the, sources specified in subsection (a) (1); (3) The aggregate of the normal and surtax under sections 1I and 12 shall, in lO case, he leiis than [10 per centulm] 16 per centum of the gross income from the sources specified In subsection (a) (1); and (4) This subsection shall not apply to a resident of a contiguiouts country so long as there Is In effect a treaty with such country (ratified prior t) August 20 1937) under which the rate of tax under section 211 (a) of the lbevenue Act of 1936, prior to its amendment by section 501 (a) of the Revenue Act of 1937, was reduced. * * * * * * * fEc. 143, WITHHO1LDING OF TAX AT SOUacE. (a) TAX-FRitnn C'ovriANT BoNDR.(1) I51CJuRMM9NT OF wlTHHoLoimmo.-In any cae where bonds, mortgages, or deeds of trust, or other sirnilar obligations of a corporation, issued before January 1, 1934, contain a contract or provision by which the obligor agrees to pay any portion of the tax imposed by this chapter upon the obligee, or to rehinburse the obligee for any portion of the tax, or to pay the interest without de(luctiorn for any tax which the obligor may be required or permitted to pany tereon, or to retain therefrom under any law of the United States, the ob)ligor shall deductt and withhold a tax equal to 2 per centum of the Interest u1pon such bonds, mortgages, deeds of trust, or other obligations, whether such interest Is payable annually or at shorter or longer periods, if or a foreign corporation not engaged pvaable to an individual a fin trade or business wit in partnership States and not having any office or the United place of business therein: Provided, That if the liability assumed by the obligor does not exceed 2 per centum of the interest then the deduction and withholding shall be at the following rates: (A) tiQ per centum] 16 per
28
within the United States or has an office or place of business therein, and (2) more than 85 per centum of the gross income of such corporation for the threeyear period ending with the close of its taxable preceding the declaration of such dividends (or for such part of such periodyear the corporation has been in as existence) was derived from sources within the United States as determined under the provisions of section 119: Provided further, That the Commissioner may authorize such tax to be deducted and withheld from the interest upon any securities the owners of which are not known to the withholding agent. Under regulations prescribed by the Commissioner, with the approval of the Secretary, there may be exempted from such deduction and withholding the compensation for personal services of nonresident alien individuals who enter and leave the United States at frequent intervals. (c) RETURN AND PAYMENT.-Every person required to deduct and withhold any tax under this section shall make return thereof on or before March 15 of each year and shall on or before June 15, In lieu of the time prescribed in section 56, pay the tax to the official of the United States Government authorized to receive it. Every such person is hereby made liable for such tax and is hereby indemnified against the claims and demands of any person for the amount of any
foreign corporation unless (1) such corporation
cenium in the case of a nonresident alien individual (except that such rate shall be reduced, In the case of a resident of a contiguous country, to such rate, not les than 5 per centum, as may be provided by treaty with such country), or of any partnership not engaged in trade or business within the United States and not having any office or place of business therein and composed in whole or In part of nonresident aliens, (B) in the case of such a foreign corporation, [15 per centum] 16 per centum, and (C) 2 per centum in the case of other individuals and partnerships: Provided further, That if the owners of such obligations are not known to the withholding agent the Commissioner may authorize such deduction and withholding to be at the rate of 2 per centum, or, if the liability assumed by the obligor does not exceed 2 per contum of the Interest, then at the rate of [10 per centum] 15 per cenlum. (2) BENEFIT OF CREDITS AGAINST NET INCOME.--Such deduction and withholding shall not be required in the ease of a citizen or resident entitled to receive such interest, if he files with the withholding agent on or before February a signed notice in writing claiming the benefit of the credits provided in section 25 (b); norin the case of a nonresident alien individual if so provided forin regulations prescribed by the Commissioner under section 215. (3) INCOME OF OBLIGOR ANDOBLIOEE.-The obligor shall not be allowed a deduction for the payment of the tax imposed by this chapter, or any other tax paid pursuant to the tax-free covenant clause, nor shall such tax be included in the gross income of the oblige. (b) NONRESIDENT ALIENS.-AII persons,in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, employers, and all officers and employees of the United States, having the control, receipt, custody, disposal, or payment of interest interest on deposits with persons carrying on the banking business paid to persons not engaged in business in the United States and not having al office or place of business therein), dividends, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income (but only to the extent that any of the above items constitutes grossincome from sources within the United States), of any nonresident alien individual, or of any partnership not engaged in trade or business within the United States and not having any office or place of business therein and composed in whole or in part of nonresident aliens, shall (except in the cases provided for in subsection (a) of this section and except as otherwise provided in regulations prescribed by the Commissioner undersection 215) deduct and withhold from such annual or periodical gains, profits, and income a tax equal to [10 per centum] 15 per centum thereof, except that such-rate shall be reduced, in the case of a nonresident alien individual a resident of a contiguous country, to such rate (not less than per centum) as may be provided by treaty with such country: Protided, That no such deduction or withholding shall be required in the case of dividends paid by a
(exempt
i is engaged n trade or business
payments made-in accordance with the provisions of this section. (d) INCOME OF RECIPXENT.-Incorne upon ivhich any tax is required to be withheld at the source under this section shall be included in the return of the recipient of such income, but any amount of tax so withheld shall be credited against the amount of income tax as computed in such return.
T1I9 RIEVENUE BILL OF 1940 29 (e) TAX PAID BY RZCIPIENT.-If any tax required under this section to be deducted and withheld is paid by the recipient of the income, it shall not be recollected from the withholding agent; nor in cases in which the tax is so paid shall any penalty be imposed upon or collected from the recipient of the income or the withholding agent for failure to return or pay the same, unless such failure was fraudulent and for the purpose of evading payment. (f) REFUNDS AND CREDIrB.-Where there hi been an overpayment of tax under this section any refund or credit made under the provisions of section 322 shall be made to the withholding agent unless the amount of such tax was actually withheld by the withholding agent. (g) CROSS REFERENCE.For definition of "withholding agent" see section 8797 (a) (16).
(h) RATJrS UNTIL JANUARY 1946.-For the period after June 26, 1940, and before January 1, 1946, the rates provided in this section and section 144 of 11 per centum 16 per centum, and 16 per centum shall be 12Tav per centum, 16A per centum, arI 17%o per centum, respectively. This subseclion or section 16 shall not apply in any case where its application would be contrary to any treaty obligation of the Uinted States. SEC. 144. PAYMENT OF CORPORATION INCOME TAX AT SOURCE. In the case of foreign corporations subject to taxation under this chapter not engaged in trade or business within the United States and not having any office or place of business therein, there shall be deducted and withheld at the source in the same manner and upon the same items of income as is provided in section 143 a tax equal to [15 per centum] 16 per cent u thereof, except that in the case of dividends the rate shall be [10 per centum] U1 per centum, and except that in the case of corporations organized under the laws of a contiguous country such rate of [10 per centum] 11 per centum with respect to dividends shall be reduced to such rate (not less than 5 per centym) as may be provided by treaty with such country; and such tax shall be returned and paid in the same manner and subject toithe same conditions as provided in that section: Provided, That in the case of interest described in subsection (a) of that section (relating to tax-free covenant bonds) the deduction and withholding shall be at the rate specified in such subsection.
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(See. 25:) (b) CREDITS FOR BOTH NORMAL. TAX AND SURTAX.-There shall be allowed for the purposes of the normal tax and the surtax the following credits against net income: (1) PERSONA-L EXEMPTION.-In the case of a single person or a married person not living with husband or wife, a personal exemption of [$1,000] $800; or in the case of the head of a family or a married person living with husbandor wife, a personal exemption of [$2,500] $2,000. A husband and wife living together shall receive but one personal exemption. The amount of such personal exemption shall be [$2,500] $2,000. If suchhusband and wife make separate returns, the personal exemption may be taken by either or divided between them.
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SEC. 214. CREDITS AGAINST NET INCoME. In the case of a nonresident alien individual the personal exemption allowed by section 25 (b) (1) of this chapter shall be only [$1,000] 800. The credit for dependents allowed by section 25 (b) (2) shall not be allowed in the case of a nonresident alien individual unless he is a resident of a contiguous country.
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(Sec. 251:) (f) CREDITS AGAINST NET INCOME.-A citizen of the United States entitled to the benefits of this section shall be allowed a personal exemption of only [$1,000] $800 and shall not be allowed the credit for dependents provided in section 25 (b) (2).
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(Sec. 51:) (a) REQUIREMENT.-The following individuals shall each make under oath a return stating specifically the items of his gross income and the deductions and credits allowed under this chapter and such other information for the purpose
30
THE REVHNUE BILL OF 1940
of carrying out the provisions of this chapter as the Commissioner with the approval of the Secretary may by regulations prescribe [(1) Every individual who is single or who is married but not living with husband or wife, ifEA) Having a net income for the taxable year of $1,000 or over; or for the taxable grows [(B) Having aamountincome net income.] year of $5,000 or over, of the regardless of the (1) Every individual who is single or who is married but not living with husband or wife, if having a pross come. for the taxable year of $800 or over. (2) Every individual who is married aid living with husband or wife, If no joint return is made under subsection (b) and if[(A) Such individual has for the taxable year a net income of $2,500 or over or a gross income of $5,000 or over (regardless of the amount of the net income), aid the other spouse has no gross income; or ;(B) Such individual and his spouse each has for the taxable year a gross income (regardless of the amount of the net income) and the aggregate net income of the two is $2,500 or over; or [(C) Such individual and his spouse each has for the taxable year a gross income (regardless of the amount of the net income) and the aggregate gross income is $5,000 or over.] (A) Such individual has for the taxable year a gross income of $2,000 or over, and the other spou8e has no gross income; or (B) Such individual and his spouse each has for the taxable year a gross income and the aggregate gross income is $2,000 or over.
* * *
*,
(SeC. 142:) (a) REQUIREMENT OF RETUHN.-Every fiduciary (except a receiver appointed by authority of law in possession of part, only of the property of an iII(Iividual) shall make under oath a return for any of the following individuals, estates, or trusts for which he acts, statil)g specifically the items of gross income thereof and the deductions and credits allowed under this chapter and such other information for the purpose of carrying out the provisions of this chapter as the Commissioner with the approval of the Secretary may by regulations prescribe(1) Every individual having a [net] gross income for the taxable year of ($1,000] $800 or over, if single, or if married and not living with husband or wife' (2$ Every individual having a (net] gross income for the taxable year of [$2,5001 $2,000 or over, if married and living with husband or wife; [(3) Every individual having a gross income for the taxable year of $5,000 or over, regardless of the amount of -his net income;] [4] (3) Every estate the [net] gross income of which for the taxable year is ($1 000] $800 or over; h5V (4) Every trust the (net] gross income of which for the taxable year is $100 or over; and [(6) Every estate or trust the gross income of which'for the taxable yeat is $5,000 or over, regardless of the amount of the net income; and] [(7)] (E) Every estate or trust of which any beneficiary is a nonresident alien. * * * * * * *' (Sec. 147:) (a) PAYMENTS OF [$1,000] $800 on Moms.-All persons, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, and employers, making payment to another person, of interest, rent, salaries, wages, premiums, annuities, compensations, reinunerstions, emoluments, or other fixed or determinable gains, profits, and income (other than payments described in section 148 (a) or 149), of [$1,000] $800 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Commissioner, under such regulations and in such form and manner and to such extent as may be prescribed by him with the approval of the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment. 4' * ,f, * * * * CIGArE'rrE PAPER.-There shall be levied, collected, and paid (Src. 2000:) (d) upon cigarette paper made up into packages, books, sets, or tubes, made up in or imported into the United States and sold by the manufacturer or importer
THE 9IEVENU)J BILL OF 1W
to any person (other than to a manufacturer of cigarettes for use by him in the manufacture of cigarettes), the following taxes: On each package, book, or set containing [more than twenty-five but] not more than fifty papers, % cent; Containing more than fifty but not more than one hundred papers, 1 cent; Containing more than one hundred papers, X cent for fftyy papers or fractional part thereof; and Upon tubes, 1 cent for each fifty tubes or fractional part thereof. SEC. 1801. CORIPORATE SECURITIS. On all bonds, debentures, or certificates of indebtedness issued by any corporation, and all instruments, however termed, issued by any corporation with interest coUpons or in registered form, known generally as corporate securities, on each $100 of face value or fraction thereof, 10 cents 'until July 1,1 1941] 1945, and 5 cents thereafter: Provided, That every renewal of the foregoing shallbe taxed as a new issue: Provided further, That when a bond conditioned for the repayment or payment of money is given In a penal sum greater than the debt secured, the tax shall be based upon the amount secured. The tax under this section shall not apply to any instrument under the terms of which the oblige is required to make payment therefor in installments and is not permitted to make in any year a payment of more than 20 per centum of the cash amount to which entitled upon maturity of the instrument. Etc. 1802. CAPITAL STOCK (AND SIMILAR INTERESTS). (a) ORIGINAL IssuE.-On each original issue, whether on organization or reorganization, of shares or certificates of stock, or of profits, or of Interest in property or accumulations, by any corporation, or by any investment trust or similar organization (or by any person on behalf of such investment trust or similar organization) holding or dealing in any of the instruments mentioned or described in this subsection or section 1801 (whether or not such investment trust or similar organization constitutes a corporation within the meaning of this title), on each $100 of par or face value or fraction thereof of the certificates issued by such corporation or by such Investment trust or similar organization (or of the shares where no certificates were issued), 10 cents until July 1, [1941] 1945, and 5 cents thereafter: Provided, That where such shares or certificates are issued without par or face value, the tax shall be 10 cents until July 1, [1941] 1945, and S cents thereafter, per share (corporate share, or investment trust or other organization share, as the case may be), unless the actual value is in excess of $100 per share; in which case the tax shall be 10 cents until July 1. [1941] 1945, and 5 cents thereafter, on each $100 of actual value or fraction thereof of such certificates (or of the shares where no certificates were issued), or unless the actual value is less than $100 per share, in which case the tax shall, be 2 cents until July 1, [1941] 1945, and 1 cent. thereafter, on each $20 of actual value, or fraction thereof, of such certificates (or of the shares where no certificates were issued). The stamps representing the tax imposed by this subsection shall be attached to the stock books or corresponding records of the organization and not to the certificates issued. (b) SALES AND TRANSFERS.-On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legaltitle to any of the shares or certificates mentioned or described in subsection (a), or to rights to subscribe for or to receive such shares or certificates, whether made upon or shown by the books of the corporation or other organization, or by any assignment in blank, or by any delivery, or by any p)ap)er or agreement or memorandum or other evidence of transfer or sale (whether entitling the holder in any manner to the benefit of such share, certificate,'intercst, or rights, or not), on each $100 of par or face value or fraction thereof of the certificates of such corporation or other organization (or of the shares where no certificates were issued) 4 cents until July 1, [1941] 1945, and 2 cents thereafter, and where such shares or certificates are without par or face value, the tax shall be 4 cents until July 1, [1941] 1945, and 2 cents thereafter, on the transfer or sale or agreement to sell oln each share (corporate share, or investment trust or other organization share as the case may be): Provided, That in case the selling price, if any, is $20 or more per share the above rate shall be 5 cents instead of 4 cents until July 1, [1941] 1945: Provided further, That it is not intended' by this chapter to impose a tax upon an agreement evidencing a deposit of certificates as collateral security for money loaned thereon, which certificates are not actually sold, nor upon the delivery or transfer for such purpose of certificates so deposited nor upon the return of stock loaned: Provided further, That the tax shall not be imposed upon deliveries or transfers to a broker or his registered nominee for sale,
TK1T REtIVENUE BILL OF 10 32 nor upon deliveries or transfers by a broker or his registered nominee to a customer for whom and upon whose order the broker has purchased same, nor upon deliveries or transfers by a putchasing broker to his registered nominee if the shares or certificates so delivered or transferred are to be held by such nominee for the same purpose as if held by the broker, but such deliveries or transfers shall be accompanied by a certificate setting forth the facts: Provided further, That the tax shall not be imposed upon deliveries or transfers from a fiduciary to a nominee of such fiduciary, or from one nominee of such fiduciary to another, if such shares or certificates continue to be held by such nominee for the same purpose for which they would be held if retained by such fiduciary, or from the nominee to such fiduciary, but such deliveries or transfers shall be accompanied by a certificate setting forth the facts: Provided further, That in case of sale where the evidence of transfer is shown only by the books of the corporation or other organization the stamp shall be placed upon such books; and where the change of ownership is by transfer of the certificate the stamp shall be placed upon the certificate; and in cases of an agreement to sell or where the transfer is by delivery of the certificate assigned in blank there shall be made and delivered by the seller to the buyer a bill or memorandum of such sale, to which the stainp shall he affixed; and every bill or memorandum of sale or agreement to sell before mentioned shall Show the (iato thereof, the name of the seller, the amount of the sale and the matter or thing to which it refers: Provided further, That as used ill tfiis section the term "registered nominee" shall mean any person registered with tile collector in accordanye with such rules and regulations as the Commissioner with the approval of the Secretary shall prescribe. The tax shall not be impl)osed upon deliveries or transfers of shares or certificates(1) From the owner to a custodian if under a written agreement between the parties the shares or certificates are to be held or diSposed of by such custodian for, and subject at all times to the instructions of, the owner; or from such custodian to such owner; (2) From such custodian to a registered nominee of such custodian, or from one such nominee to another such nominee, if in either case the shares or certificates continue to be held by such nominee for the Manie purpose for which they would be held if retained by such custodian; or front suich nominee to such custodian. No exemption shall be granted under this paragraph unless the deliveries or transfers are accompanied by a certificate setting forth such facts as the Commissioner, with the approval of the Secretary, may by regulation prescribe as necessary for the evidencing of the right to such exemption. No delivery or transfer to a nominee shall be exempt under this paragraph unless such noIninCe in accordance with regulations prescribed by the Commissioner, with the approval of the Secretary, is registered with the Commissioner. The tax imposed by this subsection shall not be imposed upon any delivery or transfer by an executor or administrator to a legatee, heir, or distriulutce of shares or certificates of stock if it is shown to the satisfaction of the Commissioner that the value of such shares or certificates is not greater than the amount of the tax that would otherwise be imposed on such delivery or transfer.
*
* * * *
for which so sold:

*
SzC. 3403. TAX ON AUTOMOBILES, ETC. There shall be imposed upon the following articles sold by the manufacturer, producer, or importer, a tax equivalent to the following percentages of the price
* * * * * *
(f) (1) Where prior to August 1, [1941] 1945, any article subject to the tax imposed by this section or section 3400, relating to tax on tires and inner tubes, has been sold by the manufacturer, producer, or importer, and is onI such date held by a dealer and intended for sale, there shall be refunded to the manufacturer, producer, or importer the amount of the tax, or if the tax has not been paid, the tax shall be abated.
*
SEc. 3452. EXPIRATION DATE. No sale or importation after June 30, (1941] 19945 (or after .Jllly 31, (1941] 1945, in the case of articles taxable under section 3403, relating to tho tax on automobiles, etc., or section 3400, relating to the tax on tires and inner tubet), shall be taxable under this chapter.
* *
33
Set. 3460. (a) COMPUTATION AND PATMUNT.-There shall be imposed upon all transportation of crude petroleum and liquid products thereof by pipe line originating before July 1 [1X41X 1945(1) A tax equivalent to 4 per oentum oi the amount paid for such transportation, to be paid by the person furnishing such transportation. (2) In case no charge for transportation in made, eiher by reason of ownership of the commodity transported or for any other reason, a tax equivalent to 4 per centum of the fair charge for much transportation, to be paid by the person furnishing such transportation. (3) If (other than in the case of an arm's ngth transaction) the payment for transportation is less than the fair charge therefor, a tax equivalent to 4 per centum of such fair charge, to be paid by the person furnishing such transportation.
*
*t
Sp,c. 3465. IMPOSITION AND RATE OF TAX. There shall be imposed(a) In the case of each telegraph, telephone, cable, or radio dispatch message, or conversation, which originates before July 1, [1941] 1945, within the United States, a tax at the following rates: (1) Telephone conversations for which the charge is 60 cents or more and less than $1, 10 cents; for which the charge is $1 or more and less than $2, 15 cents' for which the charge is $2 or more, 20 cents; (2) telegraph dispatches and messages, 5 per contum of the amount charged therefor; and (3) cable and radio dispatches and messages, 10 cents; but only one payment of such tax shall be required, notwithstanding the lines or stations of one or more persons are used for the transmission of such dispatch, message, or conversation; and (h) a tax equivalent to 5 per centum of the amount paid to any telegraph or telephone company for any leased wire or talking circuit special service furnished )cforo July 1, [1941] 1946. This subsection shall not apply to the amount paid for so much of such service as is utilized in the conduct, by a common carrier or telephone or telegraph company or radio broadcasting station or net work, of Its business as such.
*
SEc. 3481. TRAN5FBR OF BONDS (a) IMPOSITION Or TAX.-On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to any of the instruments mentioned or described in section 1801 and of a kind the issue of which is taxable thereunder, whether mad6 by any assignment in blank or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale (whether entitling the holder in any manner to the benefit of such instrument or not), on each $100 of face value or fraction thereof, 4 cents: Provided, That it la not intended by this chapter to impose a tax upon an agreement evidencing a deposit of instruments as collateral security for money loaned thereon, which instruments are not actually sold, nor upon the delivery or transfer for such purpose of instru.. mnents so deposited: Provided further, That the tax shall not be imposed on deliveries or transfers of bonds in connection with a reorganization (as defined in section 112 of the Revenue Act of 1932, 47 Stat. 19) if any of the gain or loss from the exchange or distribution involved in the delivery or transfer is not recognized under the income tax law applicable to the year in which the delivery or transfer is made: Provided further, That the tax shall not be imposed upon deliveries or transfers to a broker for sale, nor upon deliveries or transfers by a broker to a customer for whom and upon whose order he has purchased same, but such deliveries or transfers shall be accompanied by a certificate setting forth the facts: Provided further, That the tax shall not be imposed upon deliveries or transfers from a fiduciary to a nominee of such fiduciary, or from one nominee of such fiduciary to another, if such instruments continue to be held by such nominee for the same purpose for which they would be held if retained by such fiduciary, or from the nominee to such fiduciary, but such deliveries or transfers shall be accompanied by a certificate setting forth the facts: Provided further, That where the change of ownership is by transfer of the instrument the stamp shall be placed upon the instrument; and in cases of an agreement to sell or where the transfer
11 lI)ets., 7G-3, vol. 4---50
of the sale, and the matter or thing to which refers. Any person liable to pay iti the tax as herein provided, or anyone who acts n the matter as agent or broker for such person, who makes Any such sale, or whoIn pursuance of any orsuch sale Instrument, bill or delivers any certificate or evidence of the sale of any such memorandum thereof as herein requited without having the proper stamps shall be to the thereto, with affixed of a misdemeanor, and evade conviction thereof shall pay a fine deemed upon more than six months, or both. of not guilty or exceeding $1,000,not beimprisoned not beimposed upon deliveries or transfers made after June 30, The tax shall 1038, ofinstruments-
BILL OP 1940 THE REVEjNUE 34 in blank there b delivery of i iswed by the sellerthe nstrumentAassignedmemorAndum ofshall be made and dellisuch sale, to which tho to the buyer bill or bill M sale ot agreement to seU stamp shall be affixed and every date or eniorandum of of the seller, the amount show the the name before mentioned
sha
thereof)
Intent
foregoing provisions,
(1) From the owner to a custodian if under a written agreement between the parties the instruments are to be held or disposed of by such custodian for, and subject at all times to the instructions of, the owner; or from such custodian tosuch owner' (2) From such custodian to a registered nominee of such custodian, or from onesuch nominee to another such nominee, Ifin either case the for which nominee for the continue to mentswould be heldbeif held by such such custodian; orsale purposenominee to from such retained by they
instrni-
No exemption shall be granted under this paragraph unless the deliveries or transfers are accompanied by a certificate setting forth such facts as the Cornmay by regulation prescribe as missioner, with the approval of the Secretary,such exemption. the evidencing right necessaryto fornominee shall be of the tindertothis paragraph unlessNo delivery or such nominee transfer a exempt innecordance with regulations prescribed by the Commissioner, with the of the Secretary, is registered with the Commissioner. Any person who, with intent to evade the tax provided In this subdivision makes a certificate falsely of a misdemeanor, accompanying any delivery or sball be shall be more fined not and upon conviction thereof guilty than $1,O00, orimprisoned not more than 6 months, or both. (b) EXPIRATION or TAx.-Subsetion (a) is repealed efTective July 1,
such custodlian.
transfer
194t.
approval deemel |19411
Deed, instrument, or writing, delivered before July 1, [1941J 1946 (unless escrow before deposited in sold shall be April 1, 1902) whereby anyorlands, tenements, or other realty granted, assigneA, transferred, otherwise conveyed to, or vested in, the purchaser or purchasers or anyorother person or persons, direction, when the consiaeration value of the.interest or by his, her, or their exclusive of the value of any lHen or encumbrance remaining property conveyed, of thereon at the time sale, exceeds $100 and does not exceed $500 50 cents; thereof, 50 cents. Thids section and for each additional $500 or fractional
shall not apply to any instrument or writing given to secure a debt.
SEc. 3482. CONVEYANCFE.
part
or
ssessegd, collected, and paid-SEASON for SUIBHCRIPTION.(A) SINGLE OR tax of TICKET;each cents or fraction thereof of the amount 10 1 (I) RATM.-A any cent including place, paid for admissionintocase the amount admission by season ticket or subscription; except that paid for admission, (until July 1, 1941, is less than 41 cents] until Jily 1, 1940, is lest than 41 cents, and after June, O, 1940, and before July 1, 1946, is less than Aft cen(t, and thereafter Is $3 or less, no tAx shall he imposed.' In the case of persons (except bona tide em. loyeeR, municipal officers on official business, and children under 12 years of age) admitted free or at reduced rates to any place at a time when and under circumstances under which an admission charge is made to other persons, an equivalent tax shall be collected based on the price so charged to such other persons for the same or except that no be similar accommodations, tocase paid by the person so admitted,spoken play (not of persons admitted free to any tax shall be imposed in the to music or with mlusical whether or not a mechanical
accompantiments,
reproduction),
which is a
SEC. 1700. TAX. There shall be levied,
sat consecutive narrative interpreted by a single set
parts
THM 1tIVENUE l1ILL OF 140
35
of characters, all necessary to the development of the plot, In two or more acts, the performance consuming more than I hour and 45 minutes of time, and except that in the case of tickets or cards of admission to any such spoken play sold at the ticket office of theaters at reduced rates the tax shall be based upon the price for which sold. Amounts p)aid for adtmisson by season ticket or subscription shall he exempt only If the amount which woufd be charged to the holder or subtserlber for a slngfe admission ECm less thanm 41 cents, until July 1, 1941] is tea. than 41 centJ until July 1 1940, a4d is less than J1 cents after June 50, 1940, and before July 1, 1946, and thereafter $3 or less.
*
(Sec. 2887:) A drawback shall he allowed upon distilled spirits on which the tax has beezi paid and( exported to forel g countries, under the prois ions of this section when exported as herein provIded for. The drawback allowed shlall Include tie taxes levied and paid upon the distilled spirits exported(, anti the rate of drawback shall be equal to the rate of the internal tax paid In respect of the distilled spirits exported, [btut shall not exceed a rate of $2.25 (or, In the case of hran(ly, $2)J bUt shall not exceed a rate of $8 (or, in the case of brandy, *$0.76) per )roof gallon, as per last gaulge of said spirits prior to exportation, and shall be (Ine and payable only after the proper entries have been made and filed and all other conditions compblied with as iereintbefore rc(uired, and orl filing with the Secretary the proper clafin, accompanied by the certificate of the collector of elistonis at the port of etitry where the spirits are entered for export that such spirits have beeii received into his custody and time taX-pai(l S{1iLJ) thereon obliterated; an(d the Secretary shall preserilbe such rules and regulations III relation thereto as tnay be necessary to mectire the Treasuiry of the United States against
frauds.
0
SUPPLEMENTAL VIEWS OF THE REPUBLICAN MINORITY

I The pending b)ill-the avowed purpose of which is the financing of the defense progranm--brings home to the American people the realization that the New Deal's extravagant arid wasteful spend(ling program has not only resulted in exhausting thb authorized public debt, but lias seriously underrl-ninl(l the finafnchil security of the Nation, which is our fiirst lineo of defense. Faced with a grave national emlergency, requiring the immediate expJenditure of several billions of dollars for defense I)urPoes and possible future outlays the extent of which no one can now foresee, we find: 1. The Secretary of the TreasIry publicly confessing tbat by the (nd of next Februiny the Government of the United States will be "broke." 2. The plublic (lebt at the stnargering and unprecedented level of 45 billions-a figure which no one ever dreamed would be reached when originally fixed by Congress,. 3. The sources of Federal taxation, Olready tappeed virtually to the limit, but still insufficient to pIay more than half thle cost of New Deal expenditures for ordinary purposes.
II The object of the pending bill is threefold: 1. An increase of thm authorized public debt by $4,000,000,000, with the proviso that such additional borrowing shall be used only for
interest. 3. The raising of incidental revenue for the general Treasury, amounting to the difference between the $1,000,000,000 estimated to be realized from the bill an(l the arnount actually required to pay the amortization charges above referred.1 to.
III
niational-defenise purposes. 2. The raisin-g of sufficient revenue to fillarLce this borrowing Jver a 5-year lseriod, requiring $800,000,000 per annum exclusive of
While we of the Republican minority are in accord with the purpose of the bill in authorizing additional borroeling for defense needs and in raising the necessary taxes to finance such additional borrowing, we believe that the people of this country are entitled to know certain facts in connection with the pending bill which might not otherwise be brought to their attention These facts are:
87
THE REVENUE BILL OF 1940 38 1. That whereas the so-called super-taxes levied by the bill are limited to a 5-year period, the broadening of the income-tax base and the readjustment of the middle surtax brackets is permanent law. 2. That the so-called super-taxes will produce only $650 000,000 of the total revenue of $1,000,000 000 to be raised by the bill. 3. That these super-taxes are the only taxes levied under the bill which are specifically earmarked to pay off the $4,000,000,000 of defense bonds which are authorized. 4. That the revenue to be realized from the lowering of the incometax exemptions and the readjustment of the surtaxes will go into the general fund of the Treasury, and that only so much of such revenues as are necessary to make up the deficit in the defense amortization fund wvill be transferred to such fund. 5. That the so-called nuisance taxes, which have already been extended four times beyond their original expiration date, and which would otherwise expire on June 30, 1941, are extended by the bill for 4 additional years. 6. That all of the money from these nuisance taxes, with the exception of that realized from the so-called super-taxes thereon, goes into the general fund of the Treasury to be used for ordinary expenditures of government. 7. That the effect of the bill is to increase the amount of borrowing which may be made for general purposes within the present $45,000,000,000 debt limit, by reason of the transfer of over $1,000,000,000 of ordinary defense expenditures from the regular Budget to the special defense fund. 8. That as a consequence of the foregoing fact, the $4,000,000,000 increase in the debt limit provided by the bill, and the taxes levied in connection therewith, are not entirely for "emergency" defense purposes. 9. That while the bill purports to set up a fund into which certain tax revenues under the bill will be paid for the retirement of the proposed defense bonds, the bill is so drafted that this money may be transferred back and forth to the general fund of the Treasury. Our efforts to insure the security of the fund by offering amendments in committee were only partially successful. 10. That while the additional borrowing power authorized under the bill can be used only for "the national defense," this term is not defined, and it is therefore possible that expenditures may be made out of the fund which are not strictly for defense purposes. 11. That of the total revenue to be raised by the bill, approximately $175,000,000 will come from the corporate income tax, approximately $375,000,000 from the individual income tax, and the balance of approximately $450,000,000 from excise levies, principally on consumption goods. 12. That after the present bill becomes law, the only substantial source -of revenue which will be left for the Federal Government will be a general sales tax. 13. That the present financial crisis in the Treasury is not due to the emergency defense program alone. Even without it, the Secretary of the Treasury has admitted that the administration would have to ask for an increase in the debt limit early next year, along with possible further increases in taxation, in order to meet the ordinary costs of government under the New Deal, and the present bill does not alter that situation,
THE REVENUE BILL OF 1VW0
39
IV We of the Republican minority recognize the un gent necessity of providing funds for meeting defense needs andi of strengthening the financial security of the Nation. We believe that the people of this country will gladly make every sacrifice required of them for this purpose. However, we feel that inasmuch as the citizen is being asked to "tighten his belt" and contribute more taxes it is not too much to ask that the civil departments of the Government do likewise. We of the Republican minority proposed in the committee that a 10-percent cut be made in the total amount of all appropriations, except for national defense, interest on the public debt, and trust funds. Our proposal was rejected on a strict party vote. While technically appropriation inatters cannot be considered by the Ways and Means Committee, a provision such as we proposed could have been made in order tinder a rule. Throughout the whole New Deal spending program, we of the Republican minority have constantly insisted that the administration has no right to increase taxes on the people without first making an earnest effort to reduce expenditures. Leaving out of account thle emergency defense program, present expenditures are now approximately double the $5,000,000,000 level of :1932, which President Roosevelt and the Democratic Party promised to reduce by 25 percent. In adhering to a policy of economy in Government expenditures in connection with any increase in taxes, we but reflect the feeling of the vast majority of the people. Another Republican proposal which was rejected i:n committee was one allowing taxpayers an amortization period of as low as 5 years for plants and equipment built or purchased for use in connection with the defense program. This proposal was in line with a suggestion made by the President in his fireside message of May 26, in which he said that it night be difficult to induce. private capital to make the necessary investment in plant extensions under existing law. The Treasury has promised to give special consideration to this matter with a view to recommending legislation at a later date. An additional Republican proposal relating to possible war-profits taxation, was also referred to the Treasury for further study and report. pending bill is a makeshift tax measure, hastily drafted to tlhe meet an emergency. We believe that it is essential that the Committee on Ways and Means, or its tax subcommittee,' immediately undertake a further study of the general tar( question with a view to enacting a balanced, long-range tax program at the earliest possible date. In this connection, we believe consideration should be given to the possibility of securing additional revenue by modifying some of the rates of taxation which have reached the point of dimnniisbing returns. In view- of the emergency which confronts the Nation, we have unanimously joined with the Democratic majority in reporting. the pending bill to the House, but we feel that we would be remiss in our duty as members of the minority party unless we supplemented the report of the majority with these additional views, calling attention
TM REVENUA BILL OF 1940 to certain facts which in our opinion the people of this country are entitled to know. 40
ALLEN T. TREADWAY. FRANK CROWTHER. HAROLD KNUTSON. DANIErT A. REED. RoY 0. WOODRUFF. THOMAS A. JENKINS. DONALD H. MCLEAN. BERTRAND W. GEARHART. FRANK CARLSON. BENJAMIN JARRETT.

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76Ta CONGRES 3d Se8siOn

THE REVENUE BILL OF 1940

REPORT [To accompany H. P. 100891

THE REVENUE BILL OF 19

Title I: Income tax:

SUMMARY OF CHANGES IN TAX STRUCTURE

Table: [No Caption]

TD RUVENUE BILL OF 1940

Table: [No Caption]

THE REVENUE BILL OF 1940

existing law Super as amended tax by title I

$3,000 .: 100 $6,000 ........-........ -480 $10,000..-... ....-..

$3, 9T2. 40 13,063.60 31,379.60

Table: Tobac o, snuf , cigars, and cigaret es

Table: [No Caption]

THE REVENUE BILL OF 1N0

Table: [No Caption]

Table: [No Caption]

The taxes on wines were increased at the following rates:

12 Do -10 24 Do-2 3 Sparkling wines-2.j . Mo - .... 1 I. 10 12 Fortification of wines-..-........

stl wines ------

The following table shows the increases in other miscellaneous taxes:

Percent. age of Increase

THE REVENUNi] BILL OF 1940

Percent. age of incrase

$2 Sspechil ers Rectiil ... .................................. -,

CONTINUATION OF TEMPORARY EXCISE TAXES

THE RVENUVi BILL OF 1940

existing law, and propo8ed bill

Amount of surtas net Income

Not Ing excreel-

Existing law rate

32, (M) 38, OM)

30. 950, zOM

000 1500,on0 200,000

400, 750, 000 300,000

884 1,084 1,464

89,864 79,804 199,864

3,8604 58084 7,884 ,9,84 1 1, M4 15, 804

2,284 2, W4 8,084 8,404

13,805 16,225 28, 220 28,825 57, 550

945 1,845 2,525 4,635 7,025

$2 00 105 155 210 270 385 405 480

140 200 280 BO0 400 660 66 400 1,

2,666 8958 8,215 8186 8,85 8,8095 7,035

no0 515 96a 1,615

p.1-so.,, no dependents, all income earned

ffetive rate to percent

Presnt Witboul ~~~~law

26,089 low ----------- - 82,489 6,394 *10,000 - 08..... 96,844 $20000---------

248.... 82 415 10,000......

17,604 22,004 27,944 88,634 89,524 70,484

.000-........ 23%194 304,144 $50,000-----750,000...489,094 - 79,044 $1,00,00... $2,000,000------_-1,449,019

521,019.00 31,879.060 717,6588.00 64,381.00 1,6810,686. 00 8,798,164 120,38.00 8, 918,547. 00

23,24 311,284 498,244 088,204 1, 460 184

8,568.40 8,952140 7,048.40 2,76 6.0 11,459.00

88,942.40 48,478.40 77,6&32.40 112, 19.6.0 00 14 256,391.060 830,155. 60

14,128.40 12,320.44) 24,884.40 30,738.40

82.280 (10.17 38.82 72.81 78.92

THIM REVENUJ BILL OF 1940

ANALYSIS OF BILL BY SECTIONS

THE REIVENUE BILL OF 1940

Table: [No Caption]

THE REVENUE BILL OF 19