When Signing Under Penalty Of Perjury

[2501]

I would like to say. . . that we have to bring about a
readjustment of consumption in the country to the amount of consumers'
goods and services that we can spare the resources to produce under
war conditions. First, we have got to devote our productive energies
to the war. * * *



Page 102

* * * or you can "use the mechanism of the sales tax, as far as I
can-see, by mopping up the increased purchasing power that is created
by the rising amount they receive in their pay checks. * * * On the
other hand, if the money is stored up, whether it is in the form of
these stamps or in the form where people haven't spent it because they
have had no way to spend it, in either case if it is too large a
proportion you are going to have the problem, whenever you do turn it
loose, that you have now in the other case, namely, of having a lot
more purchasing power than you have goods and services to make it good
with.

That is the answer, I think, to the question that might be
raised as to why not carry this principle through and apply it to
income tax, corporation tax, and everything else.



* * * Obviously, this has the advantage that this definitely
sews up the purchasing power in such a way that it cannot be released
until we discover the proper period to release it.



Page 103

* * I think it has a great advantage over the deficient spending
program. This program just postpones the problem of administration, in
deciding how much purchasing power is available to release and to what
extent it will create the old wartime inflation over again.



Senator Danaher. Let me ask you this question: Considering
the withholding tax, . . . simply the Treasury withholds it currently
and applies the proceeds against the tax due in a given year. . ..



Mr. Hardy. The deduction from salaries and interest, and so
on, at the source?

Senator Danaher. Yes.



Mr. Hardy. Yes



Senator Danaher. That is a currently applied method of withdrawing so
much of the consumer purchasing power as is represented by the tax
collected or withheld.



Mr. Hardy. That is right.



Senator Danaher. And then applied as against the tax due.



Mr. Hardy. Yes

***



The withholding tax provision has the effect of withholding purchasing
power at the time the income is realized rather than a year hence
through the income tax structure.



Senator Danaher. And if it were in effect only 1 year it
would apply only 1 year?

Mr. Hardy. I assume so.



Senator Danaher. Yes. Whereas this proposal is a continuing thing.

* * *



Page 104

Mr. Hardy. It seems to me the essential difference is that the
withholding tax plan applies at the point of receipt of income, and
this applies at the point of expenditure of income.

Senator Danaher. Of course, you withhold not only from taxpayers but
nontaxpayers. (Emphasis added)



Mr. Hardy. Yes. * * *



Page 107

* * * Some people that I talked to about this plan, Federal Reserve
people, have been rather favorable to the idea. * * *



Page 108

Mr. Jacobstein. Don't you want to add that Mr. Selko pointed out that
such difficulties as are encountered in the States are, partially at
least, overcome when you have a uniform Federal tax?



* * * Where you have a uniform tax all over the country by one
administration, the Federal Government, it is easier to administer
than a sum total of 48 States. Now that was Mr. Selko's conclusion.



Page 141

STATEMENT OF MILTON FRIEDMAN, DIVISION OF TAX RESEARCH, TREASURY DEPARTMENT



Senator Danaher. I have only one other thought on that point. In the
event of withholding from the owner of stock and no taxes due
ultimately, where does he get his refund?



Mr. Friedman. You thinking of a corporation or an individual?



Senator Danaher. I am talking about an individual.



Mr. Friedman. An individual will file an income tax return, and that
income tax return will constitute an automatic claim for refund.

Emphasis added

End Page 147


DECLASSIFIED
SEE EXCHANGE & GIFT DIV.
DECLASSIFICATION FILE NO100
[CONFIDENTIAL COMMITTEE PRINT]
__________________________________________________ ___________________

WITHHOLDING TAX
__________________________________________________ ___________

HEARING
BEFORE A

SUBCOMMITTEE OF THE
COMMITTEE ON FINANCE
UNITED SENATE

SEVENTY-SEVENTH CONGRESS
SECOND SESSION

ON

DATA RELATIVE TO WITHHOLDING PROVISIONS
OF THE 1942 REVENUE ACT
________________________

AUGUST 21 AND 22, 1942

___________________________

Printed for the Use of the Committee on Finance





UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON 1942


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