Hearings

services provided; and second, the tax burden should be distributed fairly and equitably, with the Federal Government paying a just amount for services rendered.

As the Capital of the United States, the District must be a city of the very first rank. Nothing short of this will suffice.

Achievement of the first of our objectives is within the practicable capacity of the District. It is a compact urban area of high individual incomes, with no uneconomic overlapping of governmental units. It does not face the problems of debt and exhaustion of tax resources which beset nearly every other large metropolitan community.

The second of our objectives, a fair and equitable distribution of taxes with just payment by the Federal Government for services rendered, can be achieved by development of a system of taxation based upon ability to pay, and by prompt action by this Congress to place the Federal payment upon a determinable, equitable, and contractual

basis rather than have it left more or less to the whims of individual Congresses.

Within the framework of these objectives, we wish to present the views of the Washington Chapter of the Americans for Democratic Action on the various revenue bills under consideration by this committee.

First, the District of Columbia sales and compensating use tax, H. R. 2290, and utility taxes, H. R. 2280: At the top of our list for comment we place the proposed sales, compensating use, and utility taxes for the District, because they most seriously violate our objective of fair and equitable taxation.

The general sales tax is the most cruelly regressive of all forms of taxation. Instead of being based on ability to pay, its real effect is to tax heaviest those least able to pay.

Based upon expenditure studies of the United States Bureau of Labor Statistics, families with incomes between $1,000 and $1,500 would, on the average, have an income of $1,243 and spend approximately $550 per year on items which would be subject to the proposed 2-percent sales tax. The resulting $11 paid in sales taxes represents nine-tenths of 1 percent of annual income. For the $10,000-income family, sales taxes would amount to only three-tenths of 1 percent of income, or one-third as much, proportionately.

These figures are based upon the calculation of taxes at 2 percent of gross expenditures subject to the tax. The level of the tax could be considerably higher, depending upon how the fraction-of-1-cent tax is computed. If, for example, a 51-cent purchase were to carry a 2-cent tax, the rate would be nearly 4 percent rather than 2 percent.

It should be noted that the proposed utility tax is, in effect, part of the general sales tax. Without a utility tax, users of gas for heating would escape taxation, while purchasers of coal or oil would pay the sales tax.

The proposed utility tax is just as regressive as the sales tax, with the tax on gas consumption being probably the worst. Gas consumption by lower-income groups is considerably higher proportionately because of larger families, more clothes washing at home, more meals at home, and actually more cooking because of the higher cost of processed foods.

Proponents of the sales tax often take the position that the tax itself is so small that it does not hurt anybody. The facts reveal that the proponents of such a tax simply do not know what it means to be in the low-income group.

In 1944, according to the Bureau of Labor Statistics, it took $1,980, on a national average, for an urban family of four persons to break even. Since 1944 the cost of living has advanced 20 percent, and the District is known to be one of the highest-cost localities in the country. It is safe to estimate that today a four-person family in the District requires a minimum of $2,300 to $2,400 per year to live without going into debt. For families below this income level, the proposed general sales tax would either drive them further into debt or literally take food from their mouths. The annual amount paid in sales taxes, for the average low-income family, would be more than 1 week's food bill. Particularly hard hit by a sales tax would be the following groups, essentially all of whose expenditures are for necessities: The 5,000 families in the District receiving public assistance—a maximum of about $80 a month; more than 25,000 unemployed receiving unemployment compensation; student veterans receiving from $65 to $90 per month; and many retired civil-service employees living on small pensions. For all of these a sales tax is effectively a direct reduction in funds intended to enable them to obtain minimum subsistence.

Proponents of the sales tax often make the point that everyone, no matter what his income, should contribute to the cost of government. The implication of this argument is that low-income families do not now pay taxes and the only way to collect anything from them is through the sales tax. What are the facts?

The Temporary National Economic Committee of the Congress reported that in 1938-39, nearly one-fifth of the income of families with incomes of less than $1,000 per annum went for taxes, direct and indirect. Almost 7 percent were direct taxes, such as those on cigarettes, amusements, beer, gasoline, and so forth, and the remaining 13 percent were indirect taxes; that is, those levied on businesses or owners of rental property which are passed on to the consumer. All such taxes are much higher now than in 1938-39. When people say that the poor do not pay taxes, what they mean is that they do not generally pay income taxes.

In fact, the hidden and selective excise taxes paid by low-income families represent a much larger proportion of income than for higherincome families, because these families are forced to spend all of their income in order to live; they cannot possibly save.

In addition to the countless social arguments which could be marshaled, there is a very practical economic argument against a general sales tax. The purchasing power of consumers has declined 20 percent since 1944 and 15 percent since July 1946, because of the increase in the cost of living, without a corresponding increase in income. Any measure to further depress the mass purchasing power of low-income consumers will have serious economic repercussions.

General sales taxes have been imposed only as measures of fiscal desperation. In this connection, it should be noted that even during the war, with the terrific strain upon the Federal Treasury, the Con

services provided; and second, the tax burden should be distributed fairly and equitably, with the Federal Government paying a just amount for services rendered.

As the Capital of the United States, the District must be a city of the very first rank. Nothing short of this will suffice.

Achievement of the first of our objectives is within the practicable capacity of the District. It is a compact urban area of high individual incomes, with no uneconomic overlapping of governmental units. It does not face the problems of debt and exhaustion of tax resources which beset nearly every other large metropolitan community.

The second of our objectives, a fair and equitable distribution of taxes with just payment by the Federal Government for services rendered, can be achieved by development of a system of taxation based upon ability to pay, and by prompt action by this Congress to place the Federal payment upon a determinable, equitable, and contractual basis rather than have it left more or less to the whims of individual Congresses.