Letter to Senator Byrd Urging Further Reduction in the Tax Withholding Rate.
[ Released January 9, 1964- Dated January 8, 1964 ]
Dear Senator Byrd:
H.R. 8363 provides for the reduction in the tax liabilities of individuals to be effective in two stages. The first rate reductions are to be effective on January 1, 1964; and further final reductions to the 14 Percent--70 percent range are to be effective January 1, 1965. This staging in the reduction of tax liabilities of individuals continues to be appropriate. However, I urge that the Committee consider a modification of the procedure on wage withholding needed to implement the reduction in tax liabilities.
Title III of the House bill now provides that the rate of wage and salary withholding be reduced on January 1, 1964 from its present 18 percent to 15 percent on wages paid in 1964 and on January 1, 1965 to 14 percent on wages paid thereafter. Obviously, even though the rate reductions will be effective January 1, 1964, it is not possible to reduce the rate of wage withholding before actual enactment of the tax bill. In light of the fact that the reduction in wage withholding cannot be made effective on January 1, 1964 as scheduled in the House bill, I urge the Finance Committee to adopt a one-step reduction in withholding to 14 percent on all wages paid more than one week after enactment of H.R. 8363, while maintaining the same two-stage reduction in individual tax liabilities.
Each month's postponement of enactment of the tax bill keeps $600 million out of wage earners' take-home pay. Since the first-stage rate reductions under H.R. 8363 are effective on January 1, 1964, these sums will eventually have to be refunded. Thus a significant part of the economic stimulus from the tax program will be delayed until taxpayer refund claims are processed sometime in late winter or early spring of 1965•
A reduction in the withholding rate to 14 percent, rather than to 15 percent, effective within one week of enactment, will compensate for the delay in enactment. The higher take-home pay will be immediately reflected in consumer spending. The additional one point reduction in withholding rates, taking effect sometime in February, will raise the gross national product for the rest of 1964 by some $3 to $4 billion over the level that would prevail under the 15 percent rate. Because Federal expenditures in fiscal year 1965 are being effectively controlled in the budget I will submit, these additional consumer expenditures will replace the higher level of Government expenditures previously anticipated.
This proposed change in withholding rates would effect a better fiscal balance between revenues in fiscal 1964 and fiscal 1965. The House bill, with a 15 percent rate starting January, 1964, would have split the $6.2 billion reduction in the calendar year 1964 individual income tax liability into a $3 billion reduction in receipts occurring in fiscal 1964 and a $3.2 billion reduction in fiscal year 1965. An 18 percent withholding rate for January, with 14 percent for the remainder of the year, splits the reduction $3.2 billion for fiscal 1964 and $3.0 billion for fiscal 1965. The 14 percent rate effective in February would thus maintain the same fiscal balance as the House bill between fiscal years 1964 and 1965. By contrast, a 15 percent rate starting in February would split the reduction $2.4 billion for fiscal 1964 and $3.8 billion in fiscal 1965--which is far different from the House bill.
Moreover, since the scheduled withholding rate for 1965 under the bill is already
14 percent, the use of the 14 percent rate in 1964 as well will make it unnecessary for employers to institute a second change in the withholding rate next year.
In past years, between 35 and 40 million taxpayers have experienced year-end refunds because withholding generally exceeds final liability. This arises principally because many taxpayers, for withholding purposes, claim fewer exemptions than they are entitled to or because of sporadic employment.
Although the 14 percent withholding rate beginning in February will result in a reduction in these refunds, total withholding will still be in excess of final liabilities. Moreover, holding the rate at 15 percent for the remainder of 1964 would mean even greater overwithholding for these taxpayers inasmuch as each pay period to which the 18 percent rate is applied in 1964 causes too much to be withheld from taxpayers relative to the new tax schedules for 1964 provided by the bill.
In summary: a reduction in the wage withholding rate to 14 percent immediately following enactment would more effectively achieve the economic objectives of the tax bill. It would provide a better fiscal balance between 1964 and 1965. And, it would greatly simplify the administration of wage withholding by employers and the avoidance of excessive overwithholding on many millions of taxpayers.
LYNDON B. JOHNSON
[Honorable Harry Flood Byrd, United States Senate, Washington, D.C. ]
Note: For the President's remarks upon signing the tax bill, see Item 197.
Lyndon B. Johnson, Letter to Senator Byrd Urging Further Reduction in the Tax Withholding Rate. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/242290