Worse Than Prohibition

This week the Gallup poll came up with two fearful statistics: though in four months more U.S. adults than ever before will be liable for some form of Federal income tax, 77% of them do not know today how much they will have to pay, or think they will owe nothing. Moreover, 75% of them (in the lower brackets, 85%) have not started saving ahead for their taxes.

Those statistics point to as grave a law-enforcement problem as the U.S. has faced since the 16th Amendment was ratified (in 1913) and Federal personal income taxes became constitutional. For the first time in U.S. history, tax delinquencies and defaults* may become really widespread. If & when that happens, the consequences to the U.S. will be far worse than the lawlessness that was inspired by the Volstead Act.

For years the number of people subject to the once-mild Federal tax laws amounted to less than 5% of the population. As late as 1941, only 7,645,000 people paid the Federal tax. Even when the income tax jumped in 1941 (on 1940 incomes) and 16,000,000 filed, delinquencies and defaults did not increase proportionately.

But next year, some 27,000,000 people are expected to be liable for regular income taxes, and an additional 23,000,000 will be liable for the new 5% Victory Tax that hits every income over $624 a year ($12 a week). That is almost 40% of the total U.S. population and almost 100% of adults with incomes.

To make collection harder the new rates are really punishing. Including the Victory Tax, a single person must dig up $17 for enjoying a net income (before personal exemption) of $600 a year, $107 for $1,000, $220 for $1,500, $446 for $2,500; a married man with two dependents will owe $20 if he netted. $1,200, $159 for $2,500, $485 for $4,000. $730 for $5,000. These lower-bracket liabilities represent lump sums of the sort that few lower-bracket people have ever before had to raise.

There will also be countless draftees and enlisted men who will be in no position to pay taxes on incomes they are no longer earning. And there is the unpleasant fact that, after the war, high-paid workers, now drawing overtime, will find their pay checks drastically cut.

A pay-as-you-earn tax plan is the only answer yet proposed for this impasse. Yet the U.S. is still only talking about such a plan. First suggested by Beardsley Ruml (New York Federal Reserve Bank chairman and R. H. Macy treasurer--TIME, Aug. 10), it ran into a barrage of criticism from a jealous Treasury. The Treasury objected to the fact that Mr. Ruml's idea involved "forgiving" 1941 taxes, which would admittedly have given a break to big earners in 1941 who were small earners in 1942. (Among the beneficiaries would have been the Treasury's No. 1 Congressional pleader, obstinately high-minded Randolph Paul, who was a prosperous corporation-tax lawyer in 1941.)

Given enough public support, there is still hope that, before next March, some modification of the Ruml Plan will finally become law. One pay-as-you-go bill has already been introduced in the House by Ways & Means Committeeman Donald H. McLean (Rep., N.J.). In the Senate Finance Committee, Republican members Vandenberg and Taft and Democrats Byrd and Chairman George all favor some form of pay-as-you-go. Last week never-say-die Beardsley Ruml was once again campaigning: "Nothing can be gained," cried portly, ebullient Mr. Ruml, "by arguing that people ought to have saved the tax on last year's income. The fact is that they did not do it and now they cannot do it."

* Officially "delinquency" means failure to file a return that is due; "default" means filing the return but failing to make payment.

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