TABLE I.-Distribution of personal income and expenditures, 1948

Excludes income in kind and change in value of farm inventories.

Based on income and savings estimates of Department of Commerce, and on distribution of income and savings estimates in Federal Reserve Board survey of consumer finances.

1 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers. Source: Department of Commerce (except as noted).

TABLE III.-Taxes on specific consumption as percent of consumer income, 1938–39 1

TABLE IV.-Total expenditures for gasoline for 6 cities in United States, 1947-48

TABLE V.-Estimated tax on gasoline and cigarettes, 1947

Mr. MILLS. Mr. Ruttenberg, on page 13 of your statement I want to call your attention to what appears to be an incorrect interpretation of the provision of the Revenue Act of 1950 pertaining to stock options. I would suggest that you reanalyze that provision, because the statement you make here is not in keeping with my understanding of the provision.

As you know, it was a provision enacted by the Finance Committee of the other body and agreed to by the House conferees in conference. However, there is a limit of not 50 percent but 85 percent.

Mr. RUTTENBERG. I do not suggest the 50-percent limit.

Mr. MILLS. I know, but you say "the market price of the stock at $100 and an option to buy at $50," which would connote 50 percent of the market price.

Mr. RUTTENBERG. I see what you mean. My example should read $85 instead of $50.

Mr. MILLS. I doubt that the example would be appropriate under the provision I am talking about.

Mr. RUTTENBERG. But the second example of a corporation executive earning $30,000 a year being given a $20,000 cash bonus and the amount of tax saved is accurate.

Mr. MILLS. I think you are right, if the $20,000 is an increase after the option is issued.

Mr. RUTTENBERG. This other should read $85 instead of $50.

Mr. MILLS. If it is below 85 percent of the market price, all of the income derived is normal income. That is the point I was trying to make earlier.

Mr. RUTTENBERG. That between 85 percent and the 100 is subject to the capital-gains rate.

Mr. MILLS. No, that is normal income taxable when they sell the stock. That is my recollection of it.

The CHAIRMAN. Mr. Mason.

Mr. MASON. Mr. Ruttenberg, the tax picture that you have given us this morning, and it is quite thorough and complete, is about

what the Nation could expect if we had a full labor government. Would you not say that?

Mr. RUTTENBERG. No; if we had a full labor government we might expect something more. No, I think this is a tax proposal which meets the equity of business, argiculture, and labor and all major segments of American life.

Mr. MASON. Let us look at the equity part. You say that the consumer taxes of any kind, excises or general sales tax, bear heaviest on the low-income group, and that is true.

Mr. RUTTENBERG. On that I think there is no question.

Mr. MASON. I agree entirely with that. But the graduated income tax under our present rates now permits the man earning $2,400 a year, who has two children and a wife, not to pay any tax, and then above that it gradually goes up to the top bracket of 90percent income tax. If you put the triangle of a general sales tax, which bears heaviest on these fellows at the bottom, alongside of the triangle of a graduated income tax which bears heaviest on those at the top, you have not an inequitable tax structure. Either one by itself is inequitable, but if you put the two together you have a fairly well-balanced tax structure which, from my standpoint, cannot be called inequitable. When you consider one of them by itself and say it is inequitable, you are not drawing a complete picture of the

tax structure.

Mr. RUTTENBERG. I think, Mr. Mason, your argument is perfectly sound except for one factor. In order for your argument to stand up in the light of day it seems to me it would have to assume that the income of a $2,400 family permits savings or permits purchases of unnecessary commodities, permits the use of income for other than the basic necessities of life.

Mr. MASON. No, it does not assume that, because he has to spend every penny he has for the basic necessities of life for his family.

Mr. RUTTENBERG. If he has to spend every penny which he earns for the basic necessities of life, how then can you say that it is equitable to force upon him an additional tax of 2, 3, 4, or 5 percent, whatever the sales tax would be, or an excise tax of any category you want? How can you say that is equitable if it makes him redistribute the way in which he spends his money? If he has available so much for food and so much for clothing and so much for rent, and he has no savings, he has no excess income, it is all being spent for the immediate necessities; the moment you impose an excise tax here, a sales tax there, or a higher individual income tax upon this $2,400-a-year man, you are forcing him to redistribute the way in which he spends his money, to reduce his standard of living; but at the high-income level, at the levels of $5,000, $6,000, and above, the individual can reach into his pocket and pull out some excess money and pay the excise tax with no effect upon his standard of living. That is what I say is inequitable.

Mr. MASON. No, but the fellow up above who does not lower his standard of living by paying an excise tax certainly lowers his standard of living by paying this graduated income tax which runs to 90 percent. The proof, my dear sir, to me is simply this: That whenever you tax away the investment capital and the Government takes it all and redistributes it, as it is doing in Russia and as it is trying to do in

England, and getting pretty close to it, then you have lowered the standard of living for everybody.

Mr. RUTTENBERG. I would like to point out, Mr. Mason, if I can, that we ought not to talk about a 90 percent tax rate. That is not the tax rate. It is only, as you know, and as we all know, the rate on taxes in excess of $200,000 of income.

Mr. MASON. That is right.

Mr. RUTTENBERG. We are really talking about the category of $30,000, $40,000, $50,000, and $100,000, where the rates are considerably less than 90 percent. We are not taxing away, we are not confiscating all but 10 percent of the income. If you take a look at Secretary Snyder's table, it shows the effective tax rates by income levels. You will see that the effective rates in the middle brackets$10,000, $15,000, $20,000, and $30,000-is considerably lower than 90 percent.

Mr. MASON. I know that. It is only the fellow at the top who pays the 90 percent, but you are graduating on a sliding scale and that is exactly what happens to your consumer taxes or your general sales tax; it is graduated on a sliding scale, only it is an upside-down scale, and one put alongside the other makes a balanced tax program. Mr. RUTTENBERG. I cannot see how it is equitable to suggest to a low-income individual at the $2,400 level, the example you raised, that he has to reduce the amount of money he spends for food so that he can have enough excise taxes to buy a pack of cigarettes or buy a gallon of gasoline to go to work; how that is equitable when at the higher levels of income, in order to buy that pack of cigarettes at the higher excise tax or gallon of gasoline, all he has to do is dig into a little bit of savings to do it.

Mr. MASON. I do not suppose your slant on this and my slant on taxes will ever come together, but I do think that we have to consider more than just one angle and I also think we should consider that under our tax system, which permitted Ford and those others to get way up there, it has brought about the highest standard of living in the world; and we cannot get away from that fact, and where they have not had that tax system they are on various levels way below ours. Certainly as far as I am concerned I am not willing to wreck the tax system of this Nation.

Mr. RUTTENBERG. Might I just point out, Mr. Mason, that it is not only the tax structure which has made this country the great country that it is. I do not think you meant to imply that. I think we ought not to just say that if we do this to taxes we will destroy the kind of America we all want.

Mr. MASON. Sir, with our present tax rates we have made it absolutely impossible for any Ford to start at the bottom, as Henry Ford did, and get to the top and produce the cheapest transportation system in the world whereby an ordinary worker can drive all over the country and see the sights. That was a great benefit to humanity and it could not be done now under our present tax rates.

Mr. RUTTENBERG. I dislike to say that I challenge that statement, because I think it can be done and it is being done. Take a look at the television industry. Look at the television manufacturers who have moved into a new industry and have built a product. At least two main manufacturers of television sets are not the big corporations