Victory for Marshal Ruml

By a Senate vote of 49-to-30, the Ruml plan captured its Bizerte and Tunis. But the Administration was still fighting, and further resistance was due in the House this week. The President might still veto it, with a scorching philippic calculated to produce plenty of ammunition for 1944. In strong marching orders to his Congressional tax leaders this week, he threatened as much.

But in view of the narrow margin (four votes) by which the House had previously rejected the plan, of the plan's overwhelming popular support and of the universal agreement on the urgent need of a withholding tax, the Ruml plan seemed sure of victory--perhaps total, certainly partial.

Coming after one of the longest and bitterest tax fights in U.S. history, it was, like the Battle for Africa, a famous victory--particularly for an outsider like Beardsley Ruml, who has no standing in politics.

However much electioneering capital may be made of the fact that the Ruml plan "forgives" the rich (as well as the poor) a year's income taxes, the fact remains that taxes on all incomes over $25,000 a year comprise only a fraction of the estimated $9,275,000,000 to be forgiven. And because the war has increased most U.S. incomes, the Senate bill will net the Treasury this year an estimated $2,000,000,000 more revenue than it would receive under the old system of collecting this year's taxes on last year's incomes.

The Senate debate produced five alternatives to the Finance Committee-endorsed Ruml bill, all designed to soften the blow of new taxes or increased tax rates on the mass of voters, by some measure of doubling up on 1942 and 1943 tax payments. They were sponsored respectively by Senators from Louisiana, Georgia, Alabama and two from Texas. (Average per capita income in these four states in 1940 was respectively $395, $315, $257, and $411, against a national average of $554.)

One by one these alternatives were rejected as the Senate majority held fast to the conviction that doubling up would place an impossible burden on most taxpayers, and to the principle that if tax forgiveness was fair, it had to be tax forgiveness for all. The winning measure got 18 Democratic and 31 Republican votes, with 27 Democrats, two Republicans and one Progressive opposed.

Safeguards. To prevent war-brought windfalls, the Senate forgave each income-tax payer his obligation on one year's income but required him to pay on either 1942 or 1943 incomes, whichever is higher. A second windfall provision is based on the proposition that if a citizen is making over $10,000 a year more than he did before the U.S. went to war, the surplus is to be considered war-caused, hence taxable. A taxpayer in this class adds $10,000 to the highest annual income which he received in either 1938, 1939, or 1940, and pays the difference between the tax on this total and the tax which he escapes by the 1942-or-1943 cancellation. This payment is, of course, in addition to the full year's tax which he must pay on 1942 or 1943 income, along with less prosperous citizens.

How It Works. If the Senate bill becomes law, the civilian taxpayer will find himself operating under the following dispensation:

>Every taxpayer will pay the June 15 installment due under his current return. Then, beginning July 1, most wage earners will find their pay checks lopped by about 20%--17% income tax plus 3% Victory Tax.

> At year's end the employe will file a return figuring in his usual credits for charitable contributions, tax payments, medical expenses, etc., and figuring up his surtaxes. The Treasury will then give him a refund, or hold out its hand for more.

>Of the 44,000,000 citizens who pay income taxes, about 30,000,000 (or 70%) will meet all their obligations to the Treasury through the withholding tax. The other 14,000,000 are in income brackets which will force them to pay more. These taxpayers will have to file advance estimates of their incomes on March 15 each year, and make additional quarterly payments based on their forecasts.

>Thus all single persons must file advance estimates if 1) their wages can reasonably be expected to exceed $2,700, or actually did exceed that amount in the preceding year; 2) they expect to receive as much as $100 from sources other than wages and to have a total gross income of more than $500. For married persons, the corresponding amounts are 1) $3,500 in wages; 2) $100 from sources other than wages and $1,200 in total gross income.

>Wage earners not subject to the with holding income tax are 1) single persons whose yearly incomes fall below exemptions of $624 and married persons with incomes under $1,248 plus $312 for each dependent, 2) those engaged in certain occupations (farm workers, domestic servants, casual laborers, ministers of the gospel, et al.), 3) those who receive pay for active service in the armed forces.

>Wage earners in the last two above groups, along with those who receive income from independent business, farming, rents and royalties, interest and dividends must file an advance estimate of anticipated taxes for the coming year, and pay the tax in four quarterly installments. This estimate will also be due each March 15. But this year, since half of the year's taxes will have been paid on March 15 and June 15, the estimate and first payment must be made on Sept. 15.

>Taxpayers may increase or decrease their estimates each quarter, and change their payments accordingly. There are the usual perjury penalties for anyone who deliberately underestimates his income; those who honestly underestimate by more than 20% are required to pay 6% interest on the deficiency.

>A special provision allows farmers to postpone their estimates until Dec. 15 of the taxable year, provided that 80% of their gross income is derived from farming.

>For soldiers and sailors the Senate bill provides some well-deserved generosity. The windfall provision that a tax must be paid for the year in which income was higher does not apply to the earned net income of those who entered the service during 1942 or 1943. Everyone in the service, married or single, officer or enlisted man, also gets a flat $1,500 exemption on his pay, and special provision is made for those who have died in service since Dec. 7, 1941.

Curtain Raiser. The passage of this tax bill will be only a prologue. In itself, it furnishes only a foothold for an attack on the real tax problem of 1943. That problem is to raise the extra $16,000,000,000 which the President has called for in order to check inflation and put the U.S. war effort, on a 50% pay-as-you-go basis.

Well does every Congressman know that to raise any substantial part of the vast sum which the President demands will probably mean: 1) a heavy sales tax; 2) a stiff increase in the rates on low and middle-bracket incomes; or 3) both. Viewing this grisly prospect in the perspective of next year's elections, Congressmen shuddered.

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