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model educational plant, and sufficient funds to care for the sick and needy of our community.

No, the District is not in a desperate situation. Without the sales or utility tax, and even without the amusement tax, it is capable of providing the kind of community services we require and of which we might be proud in the capital of the United States.

Our arguments to this point can be summarized as follows: The general sales tax is socially unjust; it has an adverse effect upon our economy by reducing mass purchasing power; it is a tax of desperation, and the District is in a favorable, not unfavorable position. In our opinion, these are sufficient reasons why a general sales tax should not be enacted.

There are in addition, however, other reasons why there should not be a sales tax for the District.

It is contended that the sales tax is designed to catch non-residents who now pay no taxes to the District. Our answer is that the proposed income tax will catch the majority of those nonresidents, who are nonresident only by virtue of the curious concept of domicile which exists in the present law.

In a small compact jurisdiction like the District, a sales tax would drive business from the District into Virginia with a consequent decline in revenue from corporate income taxes and taxes on business properties.

An attempt is made to stop the flight of business to surrounding areas by providing a compensating use tax in H. R. 2290. This tax provides that every resident of the District shall keep an itemized list of all purchases subject to the sales tax, made outside the District, to file a quarterly report, and to pay a tax on all such purchases in excess of twenty-five dollars each quarter. Such a law is simply an open invitation to lawbreaking. It cannot be enforced except on such conspicuous articles as automobiles, which must be registered in any case.

It has been argued by proponents of the tax that it is easily collected, and at little expense. They probably mean little expense to the Government because a large part of the collection cost is shifted to business.

According to the study made by the United States Treasury, in response to Senate Resolution 160, entitled "Federal, State and Local Government Relations," the median cost-of-compliance for 91 corporations in connection with State general sales taxes was 3.7 percent. The Municipal Finance Officers' Association reports that collection costs by State governments range from 1.5 to 5 percent, with the most common cost 3 percent.

A sales tax would be imposed against the express will of the people of the District. In a recent poll by the Washington Post, 69 percent of the District residents opposed the sales tax. At the District Commissioners' tax hearings last September, substantially all organizations who testified were against it.

Recent enactment of a sales tax in Maryland has no force in consideration of such a tax for the District. Action of a bordering State does not change the fundamental issues here; they remain the same.

We have said that the sales tax is a tax of desperation. Perhaps, Maryland was desperate. The constitution of the State of Maryland forbids progressive income taxes which is why the Free State found it necessary to enact so pernicious a tax as the general sales tax.

No such prohibition exists in the District. Moreover, if the State of Maryland had not given a rebate on income taxes amounting to one-third, and in recent years one-half, during the period of higher incomes when other States were putting themselves in a sound financial position, Maryland would not have had to resort to a sales tax. The second bill on which we wish to testify is the District of Columbia Income Tax Act of 1947, H. R. 2282.

The Washington chapter of the Union for Democratic Action endorses H. R. 2282, but would like to see higher rates than those proposed in order to raise the level of services in the District.

A personal net income tax at graduated rates is the only tax approaching the ideal of payments based upon ability to pay, and should constitute a major element in a sound District tax system. As presently constituted, the District personal income tax law is unfair, inequitable and low in yield.

It is absurd that liability for such a key tax as the District individual income tax should turn upon an elusive common-law concept such as domicile, which is not subject to precise statutory definition. Domicile becomes a matter of intent to return to a previous place of residence, as evidenced by innumerable combinations of acts, associations, and attitudes. This is a flimsy basis for income taxation in a jurisdiction whose population is largely made up of persons with all varieties of real or fancied ties to their "homes" in the various States. There are now only 85,000 taxible returns being filed in the District, yet there are about 450,000 employees of Federal Government agencies and private business residing in the District limits. With such a basis for determining tax liability, enforcement and collection are made doubly difficult for an inadequate staff. Evasion and avoidance are widespread.

The proposed tax bill, H. R. 2282, would tax as "residents" those domiciled in the District on the last day of the taxable year, and those who maintain a place of abode in the District for more than 7 months of the taxable year, whether domiciled here or not. Residents would be taxed upon their entire net income, with a credit for taxes paid to other States on income derived within those States. Thousands of persons enjoy services provided by the District over extended periods of continuous residence without contributing their fair proportionate share of the cost.

Moreover, essentially all of these people make no direct tax payments to any other State or local government unless they happen to own real property in other taxing jurisdictions or elect to pay any small head or poll taxes which are levied.

There are 17 States, including some of the most populous, such as Ohio, Pennsylvania, Illinois, Indiana, and Michigan, which do not now levy individual income taxes. In the 31 States with individual income tax laws, tax liability depends generally upon maintenance

of a permanent place of abode in the State, residence for a given number of days or months of the tax year, physical presence in the State on a given date, or the tax is based solely upon income earned in the State.

Even in those States where the test of income-tax liability depends solely upon "domicile" or "citizenship" tax is rarely collected.* The Treasury study previously referred to, states:

*

* enforcement of the tax on local domiciliaries who reside elsewhere is virtually impossible. Generally, the existence of such persons and the amount of their income cannot be ascertained. Even if this information becomes available through returns filed with the Federal Government, for instance, there is no effective method of compelling payment of the tax unless the taxpayer owns property in the State.

Regardless of the vagaries of State income-tax laws, including the present law of the District, it is a clear principle of local taxation that taxes should be paid the jurisdiction in which the taxpayer enjoys the tangible services of government. The present situation is that the great majority of persons residing in the District are either not subject to State income taxes or, in fact, do not pay them.

It is inconceivable that the Congress will reject an income-tax law for the District based on actual residence. To do so, would simply permit thousands of District residents, consuming District services, to escape any payments for local services based on their ability to pay. The proposed redefinition of tax liability to a residence basis is urgently needed. We are certain that this committee will report favorably, and ultimately the Congress will correct, the inequities of our present income-tax law by enacting H. R. 2282.

Nonresidents, under H. R. 2282, would be taxed upon income earned within the District, and would be allowed a credit on District income tax for any income tax paid in their States of residence on such earnings, provided those States extend similar credit to District residents.

We should like to point out that the taxation of nonresidents on income earned within the District, coupled with the tax-crediting device, would not yield much additional revenue, since District taxes would be less than those in neighboring Virginia and less than those of Maryland for 1947, except at very high income levels.

A large amount of unproductive filing, checking, and handling of returns would be involved. In all likelihood, the taxing of nonresidents on income earned in the District with the credit provisions of H. R. 2282, will return a lower net yield from the tax than if nonresidents were not taxed at all.

While H. R. 2282 reduces the exemption for a married couple from the present $2,500 to $2,000, and increases the exemption for dependents from $400 to $500, it does not provide for increased tax rates. When the basis of income tax liability has been changed as proposed to cover all residents of the District, we believe that tax rates should also be increased. It would be grossly unfair, of course, to apply increased rates to those relatively few persons now paying the tax under the present inequitable definition of tax liability.

We recommend the following changes in rates on taxable income with the personal exemptions, as proposed in H. R. 2282:

PRESENT SCHEDULE

First $5,000 taxable income, 1 percent.
$5,000 to $10,000 taxable income, 11⁄2
percent.

$10,000 to $15,000 taxable income, 2
percent.

$15,000 to $20,000 taxable income, 22 percent.

$20,000 and over taxable income, 3 percent.

SUGGESTED SCHEDULE

First $2,000 income, 11⁄2 percent.
$2,000 to $5,000 taxable income, 2 per-
cent.

$5,000 to $10,000 taxable income, 22
percent.

$10,000 and over taxable income, 3 percent.

In testimony before this committee, District Budget Office Fowler estimated that the increased annual yield would amount to $3,150,000 or a total yield of $7,050,000. We estimate that the entirely reasonable increases which we are proposing in the individual income tax rates will yield an additional $3,350,000 of revenue, bringing the total annual yield from these taxes to $10,400,000.

The rates which we have proposed are below Virginia income tax rates, and are below present Maryland rates on earned income, except in the upper tax brackets. The higher Maryland tax on income derived from investments more than offsets the small differential in our proposed rates in the higher brackets.

We believe that the income tax rates in the adjoining States set a practical limit for District rates. If the tax levels of these States, containing all of the District's suburbs, were to be greatly exceeded, migrations might be induced which would impede sound residential and community development, and adversely affect the financial support and utilization of public services in the District.

As regards the tax on admissions, H. R. 2279, we are against the proposed 10 percent District tax on admissions. Such an addition to the existing 20 percent Federal tax would bring a far too heavy burden upon this single item. We believe, in fact, the Federal Government has preempted this particular tax.

We support the tax on motor-vehicle fuels, H. R. 2283, if it is clearly shown that the additional revenue is required for the highway fund. The proposed increase is defensible on grounds that it would bring the District rate equal to that in Maryland and below that in Virginia.

In general, we oppose selective excise taxes except for such specific benefit levies as those for the highway fund. We would rather see the income tax eventually take the place of most other individual tax levies.

However, since neither of these is a tax on necessities, and because we believe that essential services must be provided in the District, we do not oppose the increase in taxes on alcoholic beverages, and the new tax on cigarettes which have been proposed.

Senator CAIN. Thank you very much for that statement, Mr. Gordon.

Mr. GORDON. I would just like to leave a copy of our program. Senator CAIN. Yes, we would like to have it. There is so much. about what you said that we would like to give thought to.

It now being a quarter of 12, and time getting away from us, but for a very worth-while purpose, Mr. Bates and I were chatting and it is going to be convenient for him to continue the hearing this

afternoon in order, particularly, that we may hear from those who were encouraged to come to speak this morning, and we shall begin at 2 o'clock with the testimony of the remaining witnesses. Mr. BATES. We can sit until a quarter after 12.

Senator CAIN. Miss Lundquist, will you come and sit with us, please.

STATEMENT OF VERA M. LUNDQUIST, BUSINESS AND PROFESSIONAL WOMEN'S CLUB OF THE DISTRICT OF COLUMBIA, WASHINGTON, D. C.

Miss LUNDQUIST. Thank you very much, Mr. Chairman.

Realizing the importance of the subject of taxes for the District of Columbia, the board of directors of the Business and Professional Women's Club of the District of Columbia thoroughly studied the proposals of the board of trade as well as those of the tax committee. and made recommendations to the membership.

At a meeting of the club on November 11, 1946, the members discussed and voted upon these recommendations.

As you know, the Business and Professional Women's Club of Washington has approximately 800 members, and represents a good cross section of the women in the Government, business, and the professions.

For your convenience, I am setting forth first those proposed measures on which affirmative action was taken, before listing those which were not approved by the club.

1. It is the opinion of the club that every effort should be made to increase the Federal payment to the District of Columbia.

2. The club approved the proposal to broaden the coverage of the income-tax law of the District, so as to include within its provisions those persons who actually reside in the District, although perhaps maintaining voting residence elsewhere. In connection with such legislation, it was recommended that provision be made for tax credit when taxes are paid in the State which grants a similar credit to the District.

3. The proposal to place an income tax on unincorporated businesses was also approved.

4. In approving the suggested increase in taxes on spirits and wine, the club rejected the proposed increased tax on beer.

5. The proposed tax of 1 cent per package of cigarettes was approved.

6. While approving the recommended tax on amusements, the club approved only on condition that this tax be absorbed by the industry. There were two proposals that were not recommended to the membership by the Board, on which the club followed the Board's position. These were:

1. The proposed 2-percent tax on retail sales.

2. The proposed 2-percent tax on gas, electric, and telephone bills. Senator CAIN. Let me ask one question. Will you read again, for my information, your testimony on the proposed alcohol bill?

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