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. $10,000 to $15,000 taxable income, 2 $15,000 to $20,000 taxable income, 21⁄2 percent. $20,000 and over taxable income, 3 percent. SUGGESTED SCHEDULE First $2,000 income, 12 percent. $5,000 to $10,000 taxable income, 21⁄2 $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? Miss LUNDQUIST. Yes. In approving the suggested increase on spirits and wine, the club rejected the proposed increased tax on beer. Mr. BATES. Will you restate also what you had to say on the income tax in relation specially to taxes paid in another jurisdiction where credit is concerned? Miss LUNDQUIST. 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. Mr. BATES. Well, now, let us assume that the basis of income earned here within the District; let us take yourself, for instance, as an illustration: You may have a domicile in New York State; you pay your income tax to the State of New York although you live here all the time. Now, under your suggestion would you say that the District would credit you with the amount of that tax that you pay in New York? Miss LUNDQUIST. Yes, sir. Mr. BATES. That is not in the bill. Miss LUNDQUIST. That is what we wrote in. Mr. BATES. All right; that is your understanding of it? Miss LUNDQUIST. Yes. Senator CAIN. You wrote your own in? Miss LUNDQUIST. Yes. Mr. BATES. In other words, you believe people ought to be permitted to retain their domicile in some other State and pay the taxes on income earned in the District, and if they do, pay it back in their State of domicile, and then, irrespective of whether they live here 7 months or 12 months, the District must then give them credit for the taxes they paid in the State of domicile. Miss LUNDQUIST. Yes, sir. Mr. BATES. All right, thank you. Senator CAIN. Thank you. Miss LUNDQUIST. Thank you. Senator CAIN. I wonder if Mr. Herbert S. Wood, of the Potomac Cooperative Federation, will join us for a few minutes. STATEMENT OF HERBERT S. WOOD, PRESIDENT, POTOMAC COOPERATIVE FEDERATION, WASHINGTON, D. C. Mr. Wood. My name is Herbert S. Wood, 2909 Brandywine Street NW., Washington, D. C., retired Federal employee; formerly technical assistant to the Commissioner of Internal Revenue, appearing as president of the Potomac Cooperative Federation, which is an association of consumer cooperatives in the District of Columbia, Maryland, and Virginia. These cooperatives have a total of about 12,000 members, most of whom represent families. However, there is some duplication, and 99538-4741 one person may belong to two or more of the cooperatives, so we estimate there are, in fact, about nine or ten thousand families involved with perhaps 20,000 persons, adult persons represented. The cooperatives own, operate, and patronize stores and other mercantile establishments, having annual sales of something over $3,000,000. It is estimated that about half of the members live in the District, and about half in the adjoining areas of Maryland and Virginia, and some in other cities of Maryland and Virginia. The board of the federation, following the expression of opinion of its members repeatedly in the past, voted to authorize me to appear to oppose the sales tax, the general sales tax, and urge that any deficiency in revenues, after other measures are taken, be made up by means of the graduated income tax. I have a few points to make on that on the merits of those two taxes. Before starting, however, I would say that we have, as have others, expressed some doubt as to the need for as large additional revenues as were recommended by the Commissioners. We join with other District residents in our feeling that the principal business of the District should contribute to its expenses in substantially the same measure that it would if it were a private business, which would mean a substantial increase in the Federal contribution. Without having made a detailed study, we are of the opinion that the capital outlays planned for this and the immediately succeeding years are in excess of the normal capital outlays of the District, following the shortage of capital improvements during the war and to some extent during the depression, and we feel that abnormal capital outlays, outlays in excess of the average long period of time, should be met by some form of borrowing, and should be spread over the years instead of current outlays, as is customary in other jurisdictions. Mr. BATES. You would say abnormal Mr. WOOD. Yes, sir. Mr. BATES. In other words, if we had what we would call, for instance, recurrent capital requirements, you would not suggest that we ought to go borrowing that money. Mr. WOOD. I see. Mr. BATES. Permanent improvements, as a general thing, throughout the country, up to, say, within 20 years ago, were financed mainly by borrowed money. But with the advent of recurrent charges in street construction every year running into a large capital outlay, it has been looked upon as uneconomical to borrow money when you really are considering capital improvements on a current basis. Mr. WOOD. That is right. Mr. BATES. Recurrent from year to year. Mr. WOOD. We are in accordance with the policy of the Federal Government and the District in meeting normal amounts of capital expenditures out of current revenues, but we think abnormal capital expenditures should be spread out over a period of years to equalize the burden of payment. Mr. BATES. As a program of work. Mr. WOOD. That depends upon the immediacy of the need. When there has been a shortage of improvements for a considerable period |