With practically everyone from the President down agreeing on the necessity for some sort of pay-as-you-go tax plan during the coming fiscal year, Congress whirls dizzily along in a maelstrom of personal and legislative animosities. with the bill still far from finished and the taxpayer, left out in the cold as usual, watching the match from a seat in the third balcony. Neither Congress nor the treasury, both quick to find fault with the plan proposed by Beardsley Ruml, Chairman of the New York Federal Reserve Bank, have come forward with any final plan of their own. It would seem as if their chief reason for opposing the Ruml plan is that someone else thought of it first. After Ruml's five hour session with the Ways and Means Committee last Friday, Representative Doughton, Chairman of the committee, told Ruml that Congress, not the pay-as-you-go pioneer, would write the bill. This typifies the Government's attitude.
The idea of the Ruml plan is fairly simple in stead of paying 1942's taxes in 1943, the taxpayer would pay 1943's taxes in 1943. It amounts to "turning the tax clock ahead one year," as Mr. Ruml described it.
This would have a number of advantages. It would end the problem of the taxpayer who under the present system has been forced at times to meet the taxes on a large income of one year with money from a smaller income of the year after. It would permit the Treasury to collect the tax by withholding at the source, as it is already doing with the fixe percent Victory Tax, and it would save hundreds of the smaller taxpayers from defaulting on their obligations. It will take the taxpayer's money before he has had a chance to spend it.
This year's aggregate income is bound to be more than 1942's. Even without any increase in tax rates, if this year's taxes are paid on this year's income, the Government would be bound to collect more than if it were receiving payments on 1942 income as it would under the present system. This should be an important consideration when the Government is trying desperately to drain away the nation's excess spending power. The missing sum, taxes "forgiven" in 1942, which would not appear on the record until the taxpayer dies, could be recovered through inheritance taxes, as Mr. Ruml suggests.
The Treasury is considering a plan by which the taxpayer would be called upon to pay taxes on both his 1942 and '43 incomes this year. To reduce the hardship of this, the Treasury suggested that rates on 1942 income be put back to the rates and exemptions prevailing in 1941. This would mean that the average taxpayer would have to pay nearly twice the amount he would normally pay this year. On a $20,000 income, the federal tax alone, not considering a probable increase in rates, would be 58 percent. If the government does feel that such high taxes are necessary, then it had better levy them directly rather than resorting to the unfair subterfuge of taxing two years in one.
In view of the long-standing friction between Mr. Morgenthau and the members of Congress, the chances of getting anything done before March 15th, the beginning of the fiscal year, seem very poor. It looks like a race between Congress and the Treasury to see who can change the Ruml plan enough to call it their own prodigy, push it through the legislative mill, and take the credit. Looking back over the record of the Treasury's failures on Capitol Hill, it looks like easy money on Congress, a seat in the bleachers for Mr. Ruml, and a sharp jolt to the taxpayer who has been floating around in the optimistic misconception that the switch to pay-as-you-go will mean no taxes this year. In his interests, we hope the smoke settles soon.