percent of the total amount of consumer goods purchased in 1948. This top 10 percent represents only slightly over 5 million American families. On the other hand, as can be seen from table I, the bottom 50 percent of our families--who earned less than $2,840 in 1948-accounted for only 28 percent of total expenditures. This group represents 251⁄2 million families.

In other words, the upper 10 percent of our families spent approximately as much as the lower 50 percent-i. e., almost the same amount was spent by the upper 10 percent as was spent by five times as many families in the lower 50 percent.

Certainly, the incomes falling within the bracket of the top tenth could be taxed a sufficient amount to reduce their expenditures to the level of the second tenth without reducing their families to anywhere near poverty levels. This would produce $18.5 billion-more than the increased revenue we now need. We do not suggest that such a drastic step be taken. But we do suggest that here is a large area. for taxing, if "ability to pay" and "equality of sacrifice" are so be given real meanings, before we seriously consider reducing still further the standards of the low-income families of America.

There are those, of course, who argue that higher taxes upon this upper 10 percent of our people would reduce incentive, initiative, and so forth. But let us not forget that incentives are essential to all individuals, not only those in the higher income brackets.

PROFITS

Another major area that must be carefully examined by this committee as it considers ways to raise $16 billion in additional revenue, is the corporate sector of our economy.

The profits of major corporations in the United States are at an all-time high, and they continue to rise. Table II indicates that 1950 corporate profits, before taxes, increased substantially quarter by quarter. In the first quarter, they were running at an annual rate of over $29 billion. They increased to $37 billion in the second quarter, skyrocketed to $46 billion in the third quarter, and went up further to $48 billion in the fourth quarter. The fourth quarter profit rate of $48 billion annually was 65 percent greater than the average profit earned by all corporations for the 4 years immediately succeeding the end of World War II.

Corporate profits, after taxes, in the fourth quarter of 1950 were running at a record annual rate in excess of $26.5 billion-even after the excess-profits taxes enacted by Congress in the last session. This is more than 50 percent greater than the $17.6 billion rate, after taxes, in the 4-year period, 1946-49. Even though the last Congress enacted an excess-profits tax and increased income and corporate tax rates, there is still a large source of revenue to be derived from the corporate profits sector of our economy.

All indications seem to be that corporate profits during 1951 will be very close to the rate of profits during the fourth quarter of 1950. While all forecasting is hazardous, it is my feeling, after careful consideration, that 1951 corporate profits before taxes will approximate $47 billion. Certainly our corporations can shoulder a much larger tax load as their contribution to our national needs.

EXCISES

Let us also keep another basic factor in mind as we consider sources of raising revenue during the coming year. Certain types of taxation, such as excise and sales taxes, hit low and middle income individuals. harder than they hit high income individuals. In other words, consumption taxes are borne in inverse proportion to income-the higher the income, the lesser the burden; the lower the income, the greater the burden. This is clearly shown in table III.

This table shows that taxation upon public consumption at the Federal level takes 2.4 percent or more of the income of those individuals earning less than $5,000 while it takes 2 percent or less of the income earned by individuals making over $5,000, the two extremes being individuals earning under $500 (who have 3 percent of their income going into Federal consumption of taxes) and those with incomes of $20,000 and over (who have only eight-tenths of 1 percent of their income going into Federal consumption of taxes).

Tables IV and V illustrate this same principle for excise taxes on gasoline and cigarettes. Table IV shows the total expenditure for gasoline for six cities in the United States during 1947 and 1948. This table shows also the percentage which these expenditures are of the total of the average income for the income class. It can be seen from this table that the percentage of income spent for gasoline is much higher for the lower and middle income individuals than it is for the higher income individuals.

Table V shows the estimated tax paid on gasoline and cigarettes and the percentage which this expenditure for taxes is to the total average income for the income class, again illustrating the point that consumption taxes are borne in inverse proportion to income.

Specifically, the excise taxes on automobiles, refrigerators, radios, and electrical appliances, suggested by Secretary Snyder in his testimony, are discriminatory. We in CIO strongly oppose increasing excise taxes not only on commodities like cigarettes and alcoholic beverages, but also upon these categories of consumer durable goods. The enactment of increases of excise taxes on consumer goods inpractice will establish privileged classes in our society-privileged because these taxes increase the ability of the wealthy few to buy. Those who cannot afford the increased excises will be unable to buy. Therefore, scarce consumer durable goods items will be, in effect, rationed to the privileged class with enough income to pay the price plus the excise tax.

Excise taxes should not be used to curtail the use of scarce materials. To impose higher excise taxes is to ration commodities according to the ability to buy and not according to need. It is wholly and highly inequitous to force low income individuals out of the market to make room or high income families to buy the reduced supply of goods.

SPECIFIC PROPOSALS

We believe that $16 billion in new Federal revenue can and should be raised now, but it must be done equitably on the basis of the principles of "ability to pay" and "equality of sacrifice."

We believe that this objective can be achieved by closing tax loopholes and by equitable increases in existing individual and corporate

tax rates.

By closing existing loopholes alone, we can raise from $4.5 to $5 billion in additional revenue. These loopholes would cover such wellknown practices as (1) the split income provision, (2) estate and gift taxes, (3) capital gains, (4) interest from tax-exempt securities, (5) dividend and interest withholding, (6) depletion allowances, (7) stock options, and (8) taxes upon life insurance companies. The community property and split income tax loopholes, if closed, would provide at least $2.5 billion; the estate and gift tax loophole, if closed, would provide another billion. By closing the six other loopholes mentioned above, another $1-$1 billion would be secured for the United States Treasury.

New taxes upon corporations should raise from 8 to 9 billion dollars rather than the $3 billion suggested by Secretary Snyder in his testimony before this committee. This amount can be raised by tightening excess profits tax rules and by increasing the corporate normal and surtax rates.

Individual income taxes can be raised 3.5 to 4 billion dollars by increasing an average of 4 percentage points on the progression scale. Thus, through the closing of loopholes, increasing corporate taxes and increasing individual income taxes by equitable means, we can raise from $16 billion to $18 billion in new revenue, without the need for increasing excises, adopting a more extensive type of excise, or for reducing personal individual income tax exemptions.

I would like briefly to refer to each of the types of taxes which I have mentioned above and outline specific proposals in connection with these.

CLOSING THE LOOPHOLES

(1) Splitting incomes: In the Revenue Act of 1948 the community property principle of splitting income between husband and wife is extended. As a result of the enactment of this handsome tax loophole for the well-off, the Federal Treasury is currently losing $21⁄2 billion in revenue per year.

The maintenance of this provision on the statute books is grossly unfair. It is an outright discrimination against individuals with income of less than $5,000 as well as a discrimination against single

persons.

Secretary Snyder has proposed that the individual income tax rates be increased by four percentage points to establish our progression scale one point above its peak in the year 1944. However, in spite of the bracket rates being higher than at the peak of World War II, taxes paid are less in the brackets below $5,000 because of the $100 increase in personal income tax exemptions, and they are substantially less in the higher brackets because of the enactment of the split income tax loophole.

Table No. 6 shows the effect of the existence of the split income-tax provision upon the amount of taxes paid by individuals at various income levels. It shows, for example, that a married couple with two dependents, with a $3,000 income, would pay $144 in income taxes, or $131 less than the wartime peak. Individuals with a $10,000 net income before exemptions will pay $349 less; an individual with $50,000 net income will pay $6,077 less; and an individual with a net income of $500,000 will be paying $20,625 less than he paid at the peak of the war in 1944.

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If we are talking about equality of sacrifice, we cannot enact additional taxes upon low-income individuals, as long as this grossly unfair and inequitous split-income loophole continues on the statute books. The community property principle is rank discrimination against single individuals and grossly unfair to low-income married individuals.

We should understand just how this community property principle operates. A married person with two dependents must have an income of $4,900 before he receives $1 of tax benefit from this provision. According to table No. 12, contained in Secretary Snyder's testimony of February 5, approximately 34 million-or over 80 percent of our taxpayers earn too little income to benefit from the split income-tax loophole. On the other hand, a little over 7 million taxpayers, constituting less than 20 percent of the total, receive the entire benefit from the existence of this inequitous provision. It is hard to speak of equality of sacrifice to low-income families, when a $21⁄2 billion handout is enjoyed by the well-off.

One does not really begin to receive significant benefits from the existence of this provision until his income is in excess of $10,000. In this category, we have only 14 million taxpayers, or 4 percent of the total.

I cannot see how an equitable tax structure can be developed until this provision is eliminated. The community-property principle can be eliminated first by straight outright repeal of the provision in the Revenue Act of 1948 with the requirement of mandatory joint returns without splitting of income, or the same result could be accomplished by establishing special tax rates for married couples. In either case the split income-tax provision should be repealed; and, if it is it would produce at least $2.5 billion in revenue.

(2) Estate and gift taxes: Almost $1 billion can be raised in this field by an all-out approach to the multitude of loopholes that exist in the estate and gift tax structure.

There are four major loopholes affecting estate and gift taxes which must be closed. To close them, we must

(a) Integrate the estate and gift tax structure.

(b) Repeal the splitting of property for estate and gift tax purposes which was validated by the Revenue Act of 1948. (c) Eliminate the life estate problem.

(d) Reduce exemptions.

The following is a brief discussion of each of these major points: (a) Integrated estate and gift tax: The present system is a dual system with separate exemptions and lower rates for gifts. As a result, considerable juggling is possible to reduce the tax on transferring wealth. This is particularly true with respect to gifts made in contemplation of death. The necessity to prove that a gift made shortly before death was or was not in contemplation of death involves time consuming litigation, with the Government often unable to prove that the gift was made in contemplation of death. Only in about 20 percent of the cases has the Government been successful in proving its charges. Substitution of a single set of rates and exemptions, and integration of the taxes so that taxwise the time of the transfer would not affect the tax, would not only increase revenue, but would close loopholes in the tax.

(b) Splitting property for gift and estate tax purposes: In 1942 tax amendments were enacted to equalize the treatment of estate and gift taxes between the community property States and those other States not having the advantage of community property laws. These amendments required equal treatment in all States, thus in effect setting aside the provisions of community property laws in those States having such benefits.

The Supreme Court of the United States has upheld the validity of these 1942 amendments. The repeal of these amendments by the Revenue Act of 1948 weakens our estate and gift tax structure. The Secretary of the Treasury has estimated that this results in a loss of revenue amounting to $245 million or 30 percent of the yield of the estate and gift taxes.

(c) Life estates: At present a man may place his property in trust, make provision that his wife (or anyone else) have the income for life (i. e., life tenant), and that at her death the income or the property go to their children or someone else. Although ability to enjoy the income is, in effect, virtual ownership, no estate tax is imposed on the life tenant for the value of the life estate. The effect of this is to skip at least one estate tax on the property. This procedure may, with skillful drafting of the trust instrument, be extended so that trust property is subject to estate tax only once every 100 years. Ordinarily, property is subject to estate tax once every generation (say 30 years); the exemption of life estates may, therefore, postpone the tax for an additional 70 years. This is the largest single loophole in the law. Closing that loophole alone could at least double the yield of the death tax.

The British, to whom settled property is at least as important an institution as it is to us, saw through the tax avoidance possibilities of life estates about 50 years ago (and may I add way before the Labor Government) and provided that the value of property subject to a life estate should be included in the gross estate of the life tenant. A similar procedure in the United States would represent a major step forward in equitable taxation.

(d) Reduce exemption: Present law provides for a $30,000 gift tax exemption, plus a $60,000 estate tax exemption, plus an annual gift tax exclusion of $3,000 to each of as many persons as the donor wishes. It is not too difficult for a man to pass $250,000 to his relatives, free of tax. Such liberality in the law allows most estates to escape any tax. Reduction of the combined estate and gift tax exemption to $25,000, and the annual gift tax exclusion to $1,000, would not only increase revenue but would increase the equity of the tax.

No basis exists for estimating the revenue potentialities of these four suggested changes. A modest guess, however, would be that they yield $1 billion additional annually.

(3) Capital gains: The existing rate of 25 percent for capital gains held for 6 months or more is extremely inequitous, as Secretary Snyder so clearly pointed out in his recent testimony. With the recommendation of the Secretary that the rate be increased we are in wholehearted agreement. We would, however, recommend that the rate be increased to at least 50 percent and the holding period extended to at least 1 year.

We propose only one exception-that profits received from the sale of a house should be exempt from taxation when they are used to