Too Good to Be True

The Senate Finance Committee, beating its brains out over the House's garbled tax bill last week, got a new suggestion on personal income taxes.

With one stroke of the pen, it would put U.S. taxpayers on a sound pay-as-you-earn basis, instead of the punishing pay-for-last-year's-riches- out-of-this-year's-poverty basis that now prevails.

The author of this revolutionary idea is huge, 48-year-old Beardsley Rural, R. H. Macy treasurer and New York Federal Reserve Bank Chairman. Mr. Rural got to brooding on a pay-as-you-go tax when he saw the mess that U.S. business executives get into when they retire on incomes far below their former earning power but still have to pay one year's taxes on what they used to earn. With the U.S. at war, the same sort of thing happens to younger men. So far the Treasury has of necessity been very lenient about demanding current tax payments from draftees and enlisted men but the debt remains to harry them when they are demobilized.

As early as last March, Beardsley Rural stopped brooding over this problem, sent his plan off to the Treasury and to a long list of friends. The Treasury was shy about stating any opinion at all, but the friends came through with paeans of praise. Thus encouraged, Mr. Rural last week went down to Washington to spill his plan to the Senate.

The plan, as Mr. Rural explained it to the bemused Senators, is so simple it sounds complicated. Said he: let each taxpayer 1) consider that the tax statement he filed last March on income earned in 1941 was really a statement of the tax he owed on his 1942 income; 2) at the end of 1942, when he knows what his income really was, let him figure out how much more or less he owes; 3) let him apply the difference as a credit against or addition to the tax he figures next March on his 1943 income--and so on into eternity.*

This sounds as if somebody loses--or gains--a year's taxes somewhere. But the real miracle is that, on balance, everyone gains and no one loses. For example:

P: Under the Rural plan, a withholding tax on next year's incomes (which almost everyone agrees is a good idea) would not bump into the hideous fact that most U.S. taxpayers would also be struggling to pay taxes on 1942 income.

P: U.S. patriots who went from good jobs into the armed forces would not be faced with crushing taxes on incomes they no longer enjoy.

P: The new-rich war worker would still get clipped for his newly inflated income. But, while the new-poor would get a break now, the new-rich would get one later, since they would have paid taxes on their war-inflated earnings the year they were earned, would not be stuck with them in peacetime, when they might be making much less.

P: Yet the U.S. Treasury would suffer no appreciable loss in tax income, since it does not count its chickens before they are hatched, anyway: e.g., its 1941 revenue from income-tax collections came from income actually received in 1940.

There was almost no criticism of the Ruml plan last week except that it was so easy that most people could hardly believe what they heard. Finance Committee Chairman George and Committee Member Bennett Champ Clark were cautiously for it. The Treasury said nothing audible, though some of its experts were worrying over the breaks it gives taxpayers with big incomes in 1941 v. 1942. This Mr. Ruml admitted, but he contended that the benefits to most taxpayers far outweighed the extraordinary (and wholly unforeseen) benefits to a few.

Most of the people who heard the Ruml plan agreed with Federal Reserve Board Economist Emanuel Alexander Golden-weiser, who exclaimed, "It's too good to be true! If there is something wrong with it I can't find it, so I'm for it."

Because the regular stockmarket is too thin to handle big blocks of stock, two N.Y. Stock Exchange firms last week jumped into the over-the-counter market, sold 100,000 shares of Standard Oil of California, 115,000 shares of Standard of Jersey and 46,000 shares of American Tobacco B in two days. One result: a full day's business lost to the Exchange.

*Mr. Ruml further suggested that if a taxpayer sees that his income for the current year will be much less than for the year before (as with many draftees) or much more (as with many war-plant workers) he might instead report on his estimated real income for the year instead of his actual income for the year before.

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