Ides of March, 1943

This week the U.S. citizen faces a hard and stubborn fact of wartime living: despite all the hullabaloo about Ruml plans, forgiveness of 1942 taxes, and revolutionizing the tax structure, the U.S. Treasury on March 15 will demand and get more money from more people than at any time in the history of the republic.

The 1942 Ides of March brought out 26 million returns; this year the Treasury expects returns from over 40 million.

One-third and more of the entire population will feel the heavy hand of the Government and the war. Last year the Treasury collected $5 billions through the personal income tax; this year it should collect $9 billions. But the President has recommended, and Congress must sooner or later provide, an additional $16 billions through taxes and savings, unless the fight against extreme inflation is to be given up.

The Test. This year's first tax-collection day represents a stupendous task for the Treasury. The easy preliminaries are over. Over 900 radio stations, through the talents of Walt Disney, by book, leaflet and pamphlet, the Treasury has hammered home the theme that, no matter how the tax laws may be changed, the individual citizen must pay more than ever before. This week nearly 35,000 tax collectors (an increase of 5,500 over last year) were sweating in post offices and revenue bureaus.

First reports were not encouraging. In January and February citizens filed less than half the number of returns filed in the similar 1942 period, despite the fact that there are more than ten million additional taxpayers. By the end of February returns were up to three-fourths of the similar 1942 period--not an improvement to boast about.

Nevertheless Treasury Secretary Henry Morgenthau and his tax assistant, John L. Sullivan, were still betting on a strong finish. One reason: the novice taxpayer has been putting by money in war bonds. At the worst he will cash in those bonds--many have already begun to do so--before he will default. Another reason: many a taxpayer who has been holding off in hope of some last-minute reprieve will realize that no reprieve is possible, and pay up.

Background of Confusion. If the American citizen does come through, it will be more because of inherent patriotism than because of sound tax policy. The U.S. is now paying heavily for the fact that it has for years relied on corporation taxes and levies on high incomes, and has never accustomed the lower-income groups to paying something to their Government (except through hidden indirect taxes). Experts agree that the U.S. tax structure is riddled with inequities from top to bottom. But the prime confusion has been the bitter debate in Congress about changing the whole method of tax collection in the midst of war. The fight over the Ruml pay-as-you-go plan has long since become a national nuisance, in that it takes the citizens' eyes off the main objective: no matter how, bigger taxes must be collected in 1943.

Last week the Rumlites were still going strong. But one positive action taken in the House last week was not reassuring to them. From a subcommittee of the House Ways & Means Committee came a proposal which made no mention of tax forgiveness, but did propose a new tax system.

Basic recommendation was a 20% withholding tax for wage and salary earners, effective July 1, on current net income (after exemptions) up to $2,000. This would replace the normal tax, first bracket surtax, and Victory tax. Another recommendation: higher-bracket incomes would make quarterly tax payments on current income for tax liability over & above the amount withheld. People living only on investment income, and the professional classes, would pay their entire tax by the quarterly method.

How Much Forgiveness? Against this plan the followers of Beardsley Ruml immediately put up the cry of "double taxation." As the proposal stands it would mean that, beginning July 1, many a citizen would be not only paying taxes on 1943 income but also clearing up his obligations on 1942 income. The subcommittee wisely refused to pass on the issue, tossed it up to the full committee, which was considering it this week. The Treasury kept mum, and for good reason. For the Treasury's main line of policy was now clear: get a stiff withholding tax on the books first, then take up other changes in the tax system and the issue of tax "forgiveness" later.

How much forgiveness remained to be seen. But every day that passed put the Treasury in a better and better bargaining position. Whatever Congress may do about pay-as-you-go, it must get its hands on $16 billions of additional money. As time passes the floodwaters of inflation creep higher: the stockmarket is on its way (see p. 63). As it goes higher, the Treasury can argue that something must be done to stem the tide.

Light From Canada. Just how tough 1943 may be for U.S. taxpayers, Canada showed last week. The Canadian Government has agreed on a program which, beginning April 1, will force Canadians to pay taxes on 1943 income. Some part of 1942 taxes are to be "forgiven." But significantly, the Canadian program insisted that at least half of all 1942 income over $3,000 derived from investments shall be taxable, with collection at death. Beardsley Ruml denounced this feature of the Canadian scheme. But the Canadian authorities apparently were siding squarely with the U.S. Treasury in holding that the Government has real claims against a citizen for past taxes.

Most important fact to come out of Canada was that there the authorities faced up to realities. A married man with two dependents, with a $5,000 income, will have to pay about $1,200 this year as compared to $730 in the U.S. under present laws. The moral of Canada was its return to first principles:1) the object of tax policy in 1943 is to raise more revenue; 2) as a corollary to raising more revenue, collection of some taxes at source, at least in the lower brackets, is a useful device; 3) whether all taxes should be on this year's income or on last year's seems much less important. Current collection is easy to accomplish in the case of some taxes; it is difficult and not worth the candle in the case of others.

But no pat formula like pay-as-you-go can provide an easy panacea for financing the war. This week U.S. taxpayers were beginning to learn this hard truth.

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