Letter to Congress on Tax Bills.

The revenue bills recently passed by the House and the Senate contain certain provisions putting taxpayers on a pay-as-you-go basis by means of collection at the source and current payment of the income tax. Needed relief is also given to millions of men and women in our armed forces.

I am eager, as I am sure the whole country is eager, to see our taxes put on a pay-as-you-go basis at the earliest possible moment. Ever since 1941 the Treasury has consistently recommended provisions designed to this end. Such provisions would help hold the line against inflation.

The Senate bill, however, provides for the cancellation of a whole year's taxes. This cancellation would result in a highly inequitable distribution of the cost of the war and in an unjust and discriminatory enrichment of thousands of taxpayers in the upper income groups. Such groups would be enriched by the cancellation of taxes already owing by them. The Senate bill would give to a man with an income of $2,000 a year a cancellation of taxes equaling less than four weeks' income after taxes; a man with an income of $100,000 would receive a cancellation equaling twenty months' income after taxes. The latter would have canceled more than all war tax increases since 1939, and would thus escape financial contribution to the war effort.

The fact that the upper income groups may pay just as many dollars into the Treasury in 1943 on account of their liability for 1943 does not detract from their enrichment nor change the result that they would have permanently escaped tax on 1942 income.

A program of the proportions necessary to finance the war and to curb inflation must inevitably reach far down into the income scale. Tax rates for taxpayers in the upper income groups are already so high that substantial additional taxation cannot be imposed upon these groups. The effect of the remission of taxes contained in the Senate bill would therefore be a transfer of a substantial part of the cost of the war from the upper income to the middle and lower income groups upon whom tax increases must be chiefly imposed. Others, including those now on the battle fronts, would later be obliged to shoulder the burden from which our most fortunate taxpayers have been relieved.

The so-called anti-windfall provisions of the bill do not go to the heart of this basic inequity, Although they would reduce the total amount of forgiveness, the reduction would be made in an inequitable way. It would be made at the expense of people whose businesses have been dislocated by the war as much as it would be at the expense of those who have been enriched by war profits. It would also be at the expense of many people whose incomes have increased since 1940 not because of the war, but because they have just arrived at their greatest earning capacity. Those who have always had large incomes get the greatest windfall and they are untouched by the anti-windfall provisions of the Senate bill.

I am writing you now so that you may know my views and in the hope that a bill may be worked out in conference that I can sign. I have recommended pay-as-you-go taxation. I have not insisted upon any particular formula for transition to a pay-as-you-go basis. I believe that there should be substantial adjustments to ease this transition. But there are limits beyond which I cannot go. I cannot acquiesce in the elimination of a whole year's tax burden on the upper income groups during a war period when I must call for an increase in taxes and savings from the mass of our people.