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65th C0NGktS, HOUSE OF REPRESENTATIVES.

REPORT
*.d SOson. I No. 767.

- REVENTUE BILL OF 1918.

BSmXDZ 3, 1918.-Committed to the Committee of the Whole House on the state


of the Union and ordered to be printed.

Mr. KrrCjIX, from the Committee on Ways and Means, submitted


the following
REPORT.
- [lTo accompany H. R. 12863.1

,-The Committee on Ways and Means, to whom was referred the


bill (H. R. 12863) to provide revenue, and for other purposes, having
had the same under consideration, reports it back to the House with-
out amendment and recommends that the bill do pass.
THE FIRST PROBLEM IN DETiEMIING OUR FISCAL POLICY TO FINANCE
THIS WAR.
In determining our
question that must befiscal Oicy is, what per cent of our total
determined
for financing the war the first
expenditures shall be financed by taxation and what per cent by
bonds Your committee has determined the proportion of the
cost of the war that should be financed by taxation and by bonds not
upon the basis of -previous experience, for there is no analogy in his-
tory, but upon a careful consideration of the effect of the fiscal policy
upon the morale of the .people, upon the inflation of prices, upon
production, and with reference to the relative ability of the people to
pay taxes now and after the war.
On June 5 the Secretary of the Treasury advised your committee
that the probable expenditures for the fiscal year ending June 30,
1919, would be about $24,000,000,000 and.recommended that one-
third of this amount be raised in taxes, or $8,000,000,000. On July
15 Mr. Sher, chairman of the Appropriations Committee of the
House, confirmed the estimate of the Secretar of the Treasury and
set out in detail the appropriations for this fiscal year, the total of
which amount to $24,328,561,427.67, exclusive of contract authori-
zations.
2 2 REVENuE BlL 0? 1918.
PRPARATION OF TEE MEASU
On May 27, 1918, the President addressed the Congessin joint
session and recoimen4ed that the Congress set to work immediately
to draft the new revenue measureand recommended that tie eces
sary additional taxes be ecuriedfm warprofits, and lux
juries. The Wa and Means Committee immedWil began the
preparation of the new measure, and on Ma2i,1;918, the chairman,-
after conference with the Ways and M s Committee :gave out t
following statement relative to hea on the proposed new revenue
bill:
The Committe on Waysad Means announceto alconcerned that it will hold
public hear at Washington 1.A bnnig Je6,1918
It is deemed necssary largely to Increae the revenue frm tion. It seem tio
the committee that it will be ne ec incread revenue
chiefly0from taxe uponi income, excess of war profits, luxuries, id seiluxl.
In the preparation of the new tax measr thle omttee will$ir. mdiu coiwdera
tion to all suggestion rwith reference to the measure, together with suggesio of
revenue sources.
Your committee sat in daily hearing from June 7 to July 17j, and
since that time has been in continual daily session engaged in the
preparation of the measure.
At the beg of'thej-prepsration-of the new measure your com-
mittee accepted the fials policy,-y suggested by the Secretary, as
sound, and determined to prepare a new revenue hat wuld raise
during a 12-month period 8,000,,000000. In ma the decision to
recommend that one-third of the expenditures for the nt isal
year be raised by taxes and twthirds fm thes befbd your
committee has been guided by condition stigat the present tme.
While your committee makes this recommenation for the current
year it realizes that no fixed policy as to the relation of-taxe to
bonds for the future can be determined at Mthis time and that the
amount that should be raised by taxation in any given year must
necessarily be determined after due consideration is given to busine
and financial conditions eti -Your
yeat.
in: s committee fur-
ther adopted the, poncy that so far as practicable the$8,000000,000
should be raised from taxes on incomes, excess and war profits, and
luxuries and s unes.
Throughout the preparation of the measure your committee has
tIhe ew tax burden and to levy the
endeavored to distribute equitably
takes in such a way that the burden should be met by those most able
to pay. Your committee has edeavred to wipe out.al inequalities
in the operation of existing law and recommendss the repeal of te
major portions of the reveneacts of 1918 and 1917 in order that
the existing internal-revenue laws sofare asdeemed practicable will
be in one act and therefore more readily accessible tothe` taxpayer.
A law of so great magnitude as th witht ieay eIxeptions
and similar provisions in the interest of quality and justice mist of
necessity be more or lees complicated but your committee has
striven- td make this bill as sple andlear as possible-in every
patcular.
t1W53Tm i .. 0F' 1916. a
$

1111 NNW MRAS8UI&


The49ill is dividedinto 14 tites, as follow:
-*tlTitle-II, I-come :definlitions.-
E Gnerl
ta-.
Title :I. -Wr profits and excess profits tax.
Title IV. Estate ta -x. -:
Title V.- axon portionad other facilities and on insur-
:TitV.t XTaxcon belrages.-:-
Tax on cig - tobaico, and manufactures thereof.
;Title0YI.A
Ti:le II. Tax onadmissi dues.
Title Excise taxes.
Title I. Specialtaxes."
le XI St xes.
:Title XII. Advsory :Tax Board.
Title XIII. General admiistrative prosio.
Title XIV. G eta provisions.
i. ,n

T' ;i- I. GENERAL DEFINITIONS.


This -title contains definitions appliable to the entire bill. The
folowin termsrdefie in this tile: Person, Corporation, domes-
tic, foreign, United Stats Secretary, commissioner, collector, revenue
at of 1916,rvnact ct of 1917, taxpayer and Government contract.
TiM .II. INCOME TAX.
-Prt I. G aNRAw PuovISIONS.
f DX5F~~Z13INIT[ON: -
Part I of Tqitle I contaibs:the definitionsappicable to the income
tax only. In this part (sec. 200) the following terms are defined:
Taxable year, fiscal year iduICary, witbholdind agent, and dividend.
Thispart (se 201 and 202) alo states the basis for determining gain
or loss d taking inventories.
The dividnd provision- makesiany distribution made by a corpora-
tion ou't (4.it' erinmi or profits accrued since February 28, 1913,
and pyle to its sharholder or members, whether A in cash or in
other property: or in stock of the corporation, subject to tax in the
hbiids of-theshaeholder, the same as under the present law. It
also provide that any distributioniade in 1918'or subsequent years
shall be deemed to; aveL beentmde from earnings or -profitscred
since: Febrary 28, 1913. :The present law provides that dividends
distributed to th s ldeslaflbe a t the individual atis
th~e lncome-tax -ra;es in ec I e year in which the dividend
reid, unless the corration distributesmore than its earnings
forIthe tabIy inwhi Case theV additional mount so dis-
tibuted areaable theM hdsthe the individual at the rates in
in
effect during: the yearin which the corporation earned the same.
Under the proposed bill all distribution of earnings accrued since
Fe-bnaty 28, 1913, wiU be taxable ih the hands of thethe stockholder
accorng t e ratesin ect during the year in which dividend
, A2-,3
4 4REVENUE BILL OP 1918.
is received. The proposed bill, like te present law, p des that
earnings or profits accrued prior-to March 1, 1913, may be distributed
in stock dividends or otherwise exempt from tax after the earning
and profits accrued since February 28, 1913, have been distribute
Under court decisions an addition to surplus through reappraise-
ment of assets is not made out of earnings or profits, and therefore
a distribution of the amount so added to surplus would not be -a
taxable dividend, since not made out of earnings or profits. In order
to prevent tax evasion by this method it is provided by the proposed
bill that any distribution made shaU ie deemed to have been-made
from earnings or profits unless all earnings and profits have first
been distributed.
BASIS FOR DETERMINING GAIN OR LOSS.
In determining gain or loss from the sale or disposition of property,
real, personal, or mixed, the bill provides that the basis shall be as
follows:
In the case of property acquired before March 1, 1913, the fair
market price or value of such property as of that date; and in the
case of property acquired on or after that date; (1) the cost thereof,
or (2) the inventory value, if the inventory is mqle in, accordance
with the rules and regulations to be prescribed by the Commissioner
of Internal Revenue in order that the inventory may dearly reflect
the income.
INVENTORY.
In many cases the only way that the net income can be determined
is through -the proper use of inventories. This is largely true in the
case of manufacturing and merchandise concerns The bill author-
izes the commissioner to require inventories whenever in his opinion
the same is necessary in order clearly to reflect the income of the
taxpayer.---
Part II. INDIvIDUALS.
NORMAL TAX.

Under existing law a normal tax of 2 per cent is levied under the
revenue act of 1916, upon the amount of the net income of a head
of a family or married person in excess of $4,000 and upon the amount
of the net income of a single person in excess of $3,000. A like
normal tax of 2 per cent is also levied under the revenue act of 1917
upon the amount of the net income of a married person or head of
a family in excess of $2,600 and in the case of a single person in
excess of $1,000. In'lieu of the rates now in effect the proposed bill
(sec. 210): lvies upon citizens or residents of the United States a
normal tax of 12 per cent upon the' amount' of the net iincome in
excess of credits provided irL section 216, but provides that upon the
first $4,000 of this amount the rate shall be only 6 per cent.
UNEARNED INCOME.

The committee gave careful coiisideration to the advisability, of


making a differential between earned and unearned income, but
finally determined that a flat normal tax was advisable in view of the
1XUE" U Bex 01F8. 6
difficulty experienced by the committee iA finding A satisfactory
method of distinguishing between earned and unearned income
(a difficulty also experienced by the Trury Department) and in
view of the
thlealmost insuperable difficulties in administration of
such a differential and the added complications in the law which
would be necesstated thereby. The Treasury Department also
gave caarefull consideration to this question and reached the same
conclusion as the committee.
CMES.
In determine. the amount of net income for the purpose of the
normal At< onlyfollowing'credits
the are allowed (sec. 216): (1) The
amount received as dividends from a corporation. (2) Any amount
received as interest upon obligations of the United States, any State,
Territory, anyr political subdivision thereof, ortheDistrictof Columbia,
if the same has been included in gross income. (3) In; the case of a
single person., an exemption of $1,000 or in the case of a head of a
family or a married'l, person living; with husband or wife, a personal
exemption of $2,000. A husband and wife living together are
entitled to but one personal exemption of $2,000. If a husband and
wife make separate returns either one may take credit for the ::$2,000
or they. may divide the same between them. (4) An additional
credit of $200 is allowed a taxpayer for each dependent receiving his
chief support from the taxpayer if the dependent is under 18 years
of age or incapable: of self-support because mentally or physically
defective.
The only changes in the credit provisions are as follows:
For the purpose of the normal tax levied under the act of 1916, a
single person Was entitled to a personal credit of $3,000 and a married
person -or head .of a family -to $4,000.. The proposed bill reduces this
exemption to. the exemption provided under the revenue act of 1917,
namely, $1,000 in the case of single persons and $2,iOOin the case of
heads of families or married persons. Under the revenue act of 1917
a credit of $200 was allowed a. taxpayer for each dependent child
under the age of eighteen years. The proposed bill allows the same
exemption for dependent, children under eighteen years of age, but
extends the $200 exemption to cover persons receiving their chief
support from the taxpayer who are incapable of self-support because
mentally or physically defective.
NONRESDENT ALIENS.
Under existing law a nonresident alien is not entitled to a personal
exemption, but is only subject to a 2 per cent normal tax. The
bill provides that the normal tax upon nonresident aliens be made
the same as in the case of citizens or residents, namely, 12 per
cent of the net income in excess of the credits provided in section
216 (but without any reduction to 6 per cent on: the first $4,000)
and that nonresident aliens be entitled (sec. 217) to the same
deductions and credits as citizens of the United States if they file
or cause to be filed with the collector a true and accurate return of
their total income received from all sources corporate or otherwise
in the United States, anid include therein all the information which
the commissioner may deem necessary for the 'calculation of such
~41260so-'O. ~. _,.
Table: Table showing surtaxes levied under existing law and under the proposed bil .

6 ]VI U'A AftB! OJ- M&.


deductions and deita. Provision is;m the '( 217)t.
allow the iione hisdiscretion to prmitn -ri aiens
to file a claim for thi personal exemption the withlding-gent
in cases here w income is withheld at: th source.
The bill provides (se. 216
aso ilin
a citizen- or subject of a country which impose an income tax the
personal e:iemption shall be allowed only if such country allows a
similar exemption to United States citizens riding in such
SURTAX.

The following table shows the surtaxes levied under existing l1w
and the proposed bill:
Table showing surawe levied under azisting law and under th proposed Nl,
Sra rates

.- EXsting Proposod
.JAw bill
.p o) (Peo*ent).
_ . . _... .. ._...._. .__.._. .. .

$6000- $7,' .... . 2.


00 1
. . . ...... .

750..
12,600-1
1.0 00...,,........
,0
12,''''''''500'''
10,000
6 , 00...............................6
-- *--
2
8
*-'-'-'-'''-
3
7 ** -'''

20,000 30,0 ............ -., 00,8,-


. ........ 71
30,000- Oj0 .8a
O0,000-
,000D
............. ........
60 ,00
.............0..............
..................
.

................................2...... X
12.......................
70,
00,000D-0 06E000 ..............,
70,000-
00, 0 9 0 0, .........
..17
........... ........................
.........
. ....,....
.........
, 12 :
117
282
................ .........

. 42 * | .--
........................ .............. ..............
.........

sO, 00- 0, ....... .........................4...


go," .............. ...... .

00- Om ............ .....8.. 2 4


10,000- 150,000 ..2 60 .

7wi0,
000.,
200, ..

....
. .. . .. . . .......... .'.

376
'-........,-

000-D4
200,00,-20, 000
000............ a - 87,.:. - 421 .*.-.-*.-.-...*..........................
- :52.t0
2OW0,000 .............4
.....-.5
3OT
5,000,000- ..........6 64
1,00-2,0000 0.0.
.62 -- -

M
,0W
r ..........
............. ........ ............... 63 66'
,O. e~t10 a 0 o
Table: Table showing the income tax levied under existing law and levied under the proposed bil for specified incomes of mar ied persons without dependents and without dividends from corporations or interest from tax-fre securities.

I
t3YEUU SLL 0 118
The ollowin
f table showsthe' ineomer 'tax' levied under existing
law, And under th~e pposed bill forspecified incomes
Tal .At^gAiom tz lt~id uneein la -and l1ie unde the prcdi bil
for ednoe of marrperen without depnet and wihu from

per cen1t of tal to not


net income.
*Pr 1
xatg IdesE Prcetttw l
bV..
AL_:~~~~~~~~~~~~~oi)
_l..
--
cent)._ ...8.--
.10
w

3 ,8)004 .. 20
2
' , 0.
0 ..... . 830
60
0.40
.67
1.
2.00
3,^oo ......0..
.-
30, , ... 88, 267
400 .

;...; . .
....6...
.. .-......I8
I0
....... ..
. .

... .
.......

.. . .... . 60 1w0
B. 3O 1.83 &
33
.....
....... IC
.................... O 180 1.00 3.60
..105 ...........0
... 0 2D 1. 91 4.00
,0 ..... 130 20 2.16 4.3S
.. 15
...................................... 330 2o 0.08
i.....
................... . ISO 40 ............ 2.67 6.71
.,. 206. . . 470 . 2.73 a.27
.O80 ..; 236 54 2.93 . 81
3.100
.*I**---so- ............5......... ................ 266 820 3 12 7.29
S 0 ... 295D6 895 W

3.28 7.72
,500 ..32.,, 770 . 3.42 &811
10,00.......,...................3............ , 846 , '3. 3. 45
15..80 . 1,3 4.24 10.5
.................. ....................... .730 1,795 4.87 11.97
20000....-,, , 1,8 I 5.90\ 14.48
...... ...1,780. 4,245 7.12' 16.98
......6...................... 9w 2 555
2,380
,0196. 7.98
S. 61 1866
2D .66
4,000. .. 4,380 10, 645 9.73 23.08
80,000 ..;............................... b,139 12,495 10.30 M. go
56,(MN) ............................148.......9...... 14 696 10.87: 28.72
60,0oo').)....;. ...............6.. 780 16,8S5 11.30 28,16
70,000 . *
.,.8,80 ... ) .....
;21,9
896 12.090 31.28
,00..109 8. .0 27 298- 13.72 34.12
100,000.t** -.10..180.
---*! 39,05 10.18 39.10
180000 ... ; 31, 680 705.095 21. 12 46.73
ao.. .92,.............................4... .
-180
.
11,095
1668096 .
24.59
30.89
D0. 56
6. 03
...................... ................ .. 192:680 : 7 095 38.64 9.042
;......................................
1,00..0 ... 475 8 0 47,095 47.$2 64.71
5__00,000.. 0, 3,527,096
. 62.80 70.64

The followin' table' shows the income taxes imposed in the United
States, United Xingdom, Canada, and France.
Table: Income taxes upon specified incomes of mar ied persons or heads of families with no dependents levied in the United States, United Kingdom, Canada, and France.

Income taxes upon pecified income. of married person or heads offamities with no dependents levied in the United States, U-nited Kingdom,' Canada,
arid France.
United States tax under- United Kingdom tax. Canada. France.

ofn
niedr -Existing law. -Proposed bil. Amount. Bate (per cent.)
Rate Rate
Bate- Rate Un
IAmount. (per Amount. (e
Amount. (per Amount. (per, Unearned. Earned. Earned. cent). cent)..
cent). cent).'eaed
..,..0 510 0. 40 130 1.20 1281.25 10.4 121 844$10.00 0. 40 131.25 12
3,000 ................. 20 .87, 60 2.00D 445.31 35025 14.84 11.87- 20. 00 .67 50.0 1.8L 7
3,'500................. 30 .86 90 2.57 568.44 453.75 16.24 12.96 40.00 1.14 72.50 2.07
4,000................. 46 1.00 120 3.01) 726.56 581.25 18.16 14.53 60.00 1.50 97.50' 2.44
4,500.-............... 60 1.33 15O 3.33 8M375 675.00 18.75 15.00 80.00 1.78 128.75 2.86
6,000........ ........
.80 1.60 180 IL W 937.50 756.00 18.75 15.00 100.00 2.00 160.00. 3.20
MOO................. . 108 1.91 220 4.00 1237.50 1, 031.25 22.50 18.75 120.00 2.18 191.25 3.48
6,4 .................. . 130 2.18 260, 4.33 1,350.00 1,125.00 22.50 18.7$ 140.00 -2-33- 222.50 3.71
6,500. ..... .155.. 2.38 330 5.08 1,8.0 1,218.75 22.50 .18.75 17-1.50 2.64 253.75 390
7,000................. . 180 -2.57 400 5.71 1, 575.00D 1,312.50 22.50 18.75 208.00 2.90 285.00f 4.07 of
7,500 ...
------------- 205 2.73- 470 0.27 1,687.50 1,406.25 22.50 18.75 234.50 3.13 -316.25 4.21
8,000 ...~---------- 235 2.93 545 6.81 2, 100.00D 1'800. 00 28.25. 22.50 266.00 3.33 347.50 4.34 9C
8,500.--- ............ . 265 3.12 82 7.29 2,231.26 1'912. 50 26.25 22.50 297.50 3.56 - 385.0 4.53
9,000................. 295 3.28 095 7.72 2,382.50 2 025,00 '26.25 22.50 329.00 368 422.50 4.69
9 500 ..325 .3,42 770 8.1 2,493.75. 2, 137.50 26.25 22.50 360;-56 3.79 460.00D 4.84
16,000.... ~~~~ ~~~~~~355 3.55 845 8.45 2,825.00 2,250.00 28.25 22.50 392.00 3.92: 497.50 4.98 0S
12,500................ . 530 4.24 1,320, 10. 58 3,750.00 3,281.25 30.00 26.25 839.50- 5.12 601.25 5.53 bC
C
15,000............... . 730 4.87 1,795 11.97 4,812.50 4,812..50 32.08 32.08 887.00 5.91 910.00 6.07 z
20,'000
25,000...
. ...... . 1,18
1,780
5.
&90
7.12
2,895
4,245
14.48
16.98
6,812.50
8,937.50
6,812.50
8,937.150
34.06
35.75
34.06
35.75
1,382.00
2,042. 00
6.91 1,397.50
8.17 1,90.~00
90.9
7.84
30,000. ............... 2,380 7.93 5,595 18.85 1,17.50 11,187.50 37.29 37.29 2,'702.00 9.01' 2,522.50 8.41
35,000 ..2,980
3,58-
8.51 7,195- 20.56 13,582.50 13,562.50 387.75 38.75 3,472. 00 9.92 3',147.50 8.99
40000 .
45 000
.................
. ... 4,380
8.95
9.73
8,795
10,'645
21.99
23.66
15,937.50~
184,437.50
15,937.50
18,437.'56
39.84
40.97
39.4
40.97
42200
5,012.00
1.0
11.14
3772.8
4,307.80
9.43
9.77
60,000
55,000
. ............. 5,180
..5,980
10.36
10.87
12,495
14,605
24.99
26.72
20937.50
23562.50,
20,937.1)
23,562.560
41.88
28
41.88
28
5,782.0
6870
11.56:
24
S'F,0.D
.5,647.50,-
10.05
10.117
60,000 ............... . 86,780 11.30 16,895 28.16 26187.56 28,187.50' 43.65 43.65' 7,872.00, 13.12 6,27250. 10.41
70,000-.... ..-8,880 12.09 21,895 31.26 31437.56- 31,437.56 44.91 44.91 9,y982.00 14.23 7,772.50 10.71
80000 ... 10,980 13.72 27,295, 3412i 36,687.506 36,687.50 45.86 45.88 12,327.00 15.'41 8,772.50, 10.95
106,000.
150,000.-
~~~~~~~~~18,180
16.18: 39,095
70,096
39.10 47,187.50 47,187.50. 47.1919 7670 i7.61 1,2.5 1.7
. .....
.... 31,680 21.12 48.73~ 73,437.50 73,437.50, 48.98 48.98, 34,282.00- 2285 17,M235 1LJ60S
200,000 . . ."--------
aE,(fl) . ~~.
.4,180
.§2,8... 80
24.50
30.89,
101,096,
185,095-
50.55
55.(B
99,887.-50.
152,187.50,
90;687.50
152,187.50
49.84
507
149.84. 50,97.00-
07 8,5.0
26.48
3.8
23,72.50
8225
11.3
500,000..... .192,.. M680 38.54. 297,095- 59.42 257,187.50 257,187.50 51.44 51.44 196,407.00 39.08- 81,27li50 2.0
122
1e,00,0 ................. 475 180
5,00000 ..------------- 314(180
47.52- 647,0961
62.80 3,527,095
64.71 519,6887-.50 519,0687.,50, 51.'97 -51.97' 3499,157.00 iM
49.92 12,772.50, 1238
770.54 -2,819,887.50 2,619,687.50 52.39 52.39 3415,157.,00' 68.30 82,772.150' 12.48
"IVXNUE BILL 01 I99
NET INOOr E DEFINED.
The bill (see. 212) defn net income to mean the gross income
as defined in section 213 1esas the deductions allowed by section 214.
Gross income 0ill include' the same items of income as are included
under the present law, with the following exceptions:
(1)Th>e bill includes in--gross income the interest from obligations
of-States, Territories, political subdivisions thereof or the District of
Columbia, issued after the passage of this act unles authorized by
law prior to the passage, of this act or unless issued for the purpose
of -funidig or refuiding intrest-bearing indebtedness outstanding at
the :time of the passage :of this act or for the performance of a contract
entered into pnor to -the passage of the act. The committees of
the- opinion- that,ralthougIh there is: doubt as to the constitutionality
of inluding the 'interest on these obligations, justice requires that at
least in time of war the holders of these securities should share the
burdens equally with'the tbeholders of 'Liberty bonds. The bill places
these bonds and Liberty bonds upon the same basis, exempting the
holder of not more than $5,000 of them, from all income, war profits,
and #excess profits taxes, and exempting him f normal income
tax On, the interest received from the total amount held by him, and
subjectingX hin to surtax and war profits or excess profits tax on the
interest received from such bonds the aggregate principal of which
exceeds $6,000
(2) The compensation of the President of the United States and of
the judges of the Supreme and inferior courts of the United States and
all other officers and employees of any State, Territo or political
subdivision thereof or the District of Columbia, is made subject to
income tax. The compensation of these officials under existing law
is not subject to income tax. Your committee realizes that there
is a great difference of opinion among the best legal talent with
reference to the constitutionality of this provision, but feels that in
all equity and justice such officials should be subject to income taxes
and that, if necessary, this matter should be definitely decided by
the courts.4`,
(3) The bill also excludes from gross income amounts not in
excess of, $3, 00 received 'by persons in the military or naval forces of
the United States as salary- or compensation in any form from the
United States for servces abroad or at sea' in such forces.
(4) The present law excludes from gross income the proceeds of life
insurance policies paid upon the death of the insured to individual
beneficiaries. The proposed bill also excludes the proceeds of such
policies p aid to the estate of the insured.
(6) blider the present law it is not necessary to include ill gross
income the income of foreign governments received from investments
in the United States, in stocks, bonds, or other domestic securities
owned by, such forei' governments, or from interest on deposits in
banks of the United States of moneys belonging to such foreign gov:
ernients. Th proposed bill, in addition to providing that the
aforementioned income shall not be included in gross income, provides
that income of foreign governments from any other source within the
'United States shall not be so included.
(6) Under the present law it is doubtful Whether amounts received
through accident or health insurance, or under workmen's compen-
10 0REVENUE BILL, OF 1918.
sation sats, as compensation for pesonal injuy or scei s nd
dama es received on account of suc injuries or sike, required
to be inluded in gross income. The proposed biprovides that such
amounts shall not be included in gross income.:
DEDUCTIONS. -
Sec. 214 of the bill allows the same dedtions from gross income
as under: existing law, with the following exceptions:
(1) The present, law allows the deduction of interest paid, except
on indebtedness incurred for the purchase 'of tax-reeobligations or
securities. This is difficult of a instaid for in many caSeSit is
impossible to tell for what purpose indebtedness isince. Ama,
for example, may have a mortgage on his house and have $1,000
in
bank. Heborrowi 61,000 and buys a Liberty bond and makes a
payment on his mortgage. For what purpose was the $1,000 bor.-
rowed?i The proposed billtallows the deduction of al: interest paid
in exCess of the amount of interest,received freefoincome tax..-
This is easy of administration and carries out the general purpose of
the existin'g-law.
(2) The6 present law allows as a-deductibn the whole amount of
taxes paid to aforeign government. -Theproposedbill, sinceit llow
(sec. 222) theuponamount ofincome and exce proft taxes paidtoforeign
countries income received from sources therein as a credit
against the income taxpayable to the United States,do6e not allow
the same amountover again a deductionin
as comTpu netincome.
(3) Under exsting law,intransations entered mto orprofit but
not connected
actually with the: taxpter's
sustained therein during the business
year to
or trade, only the los
an amount not exceeding
the profits arising therefrom: can be deducted. The proposed bil
changes the provision of existinglawto allow the
entire.los in such
transaction to-bededucted.
- (4) Due to the necessity for ertin buildingsand buildig
machinery for warfat purposes many bildings and much mahinr
have- been erected Will' be oflittle value after the war. Under
existin:lawit is-ipossible for the TIesuryDepamt tallow
deductions other thahnfor the ordinaryexh'austion,wearand tear, and
depletion of such property. provision-is
A incorporated in thisbill
to allow, the Treasury Department in such cases to allow special
amountsfor amortization, according to the peculiar condition in each
case1 but suchamounts can'not ex6ed any in year 25 peret of the
net icome. At anytime within three years :allowance
the
reexaed,-and if found incorrect thetaxeswiil be readjusted, and
m kay be
any overpayment refunded orany underpayment olleted from the
taxpayer.
(5) The depletion provisionof existing law does not t An
allowance for of
cost development. In the case of mine, oil andJ
wells such an allowance seemson equitable andfair aid the ll
provides that a reasonable allowance in sucheases be allowed.for
depreciation of improvement. The bill alsoorrects aninequality
of the p resentlaw by providingfor an equitableaportio t of
the dpletn allowance 'tween eor and les
kEVE19 BILL 0P 1918. 11
PARTNERS.
. Under -theproposed bill the partners will be lile to income tax
the same ,as under existing law. The partnership assuch is not Jiable
t income tax, but each partner will pay his income tax upon his share
Of the parterbip profits wether thesame are distributed or not.
ACIDIT FOR FOEEIGN TAXES.
-Unlder existing law a-citizen ofthe United Sta can oxi]y deduct
inome war or exqo" profit taxes paldto a foreign country firm os
inco ine imputing -net income. With the 'correspondinigi gh
rates imposed by certain foreign countries the taxes levied in such
countries in adtion to thetaxes 'levied-in the United States-upon
catizens of the United States place a very severe burden upon such
cities. The bill W proides at d against the income tax
imposed in the United States be allowed a citizen of the TJnited
States subject to income and war or excess profits taxes in a
foreign country of an amount equal to the tax ytid ifuch country
Aipon -income that is rece'ed'roi sources within such country
The jbill further provides that, in the case of an alien resident of the
United.Stats Who0 is a citizen or subject of a country which imposes
income, wr profits, or excess profits taxes, a like credit shall be
allowed if such country allows a similar credit to citizens of the
United States resident in such country.
INDIVWUAL INOOME-TAX RETURNS.

returns Aeisting
Under
minor slaw onlyis either
income
persons of lawful ae have to make
included in the- income-tax return
of the parent or a return is made for: the minor by his guardian.
Single persons of lawful age and having a net income of $1,000 or
over and married persons having incomes of $2,000 or over are
required to make return undder- exist-' law. The proposed bill
requires every person, whether of law'4 age or not, havinga net
income for the taxable' year of $1,000 or over, if single, or-if married
and not living ihhusband or wife, to m a return, and requires
all 'married persons living with husband or wife having a net income
of $2,000 or over to make returns. It, is deemed advisalble to allow
persons under 21 years of age to make their own return and pay
their own taxs separate from their parents if they are making their
own livng or are emancipated. It is believed that there are a con-
siderable number of roung men and women under the age of 21 now
earJing more th0n $1,000 per year.
INDIVEDUAL OME TAX EsTIMATE&S

:Th income-ta esi mates are based upon the returns for the cal-
enadryear e1917, as nar as the' Treasury Department can determine
the details ofsuch returns atthis time. '
these figuresshow- that thee "were about 615,000 Midividuals with
an income of- over, $4,0 per annum, and 2,440,000 with taxable
incomesof $4,000or less.
:The.'total tax ble income i given :as 7,400,000,000 and of income
subjectno1,1
to ta t$4,700,000,000, the difference being due to the
12 REVENUE BILL OF 1918.

fact that in computing the normal tax a credit is given for the per-
sonal1 exemption and for dividends received from corporations.
It is assumed, in these estimates, that the gr oupigof incomesof
taxpayers for 1918 will correspond to the grouping in 19169 That
is, that the incomes in any one bracket in 1918: wi 'bear the same
proportion to the total income that the incomesiin the like bracket
in 1916 bore to the total income for 1916. It was necessary to use
the 1916 groupings of income for the basis of the estimates because
the 1917 compilation of returns is not yet complete in this respect.
It is estimated that the individual normal income tax will yield
$414,000,000 and the surtaxes $1,068,186,000, making the total indi-
vidual income tax for the current taxable year, $1,482,186,000.
Part III. CORPORATIONS.
Under the revenue act of 1916 a corporation tax of 2 per cent is
levied upon the net income of all corporations and-under that a t
dividends received by one corporation from another are not allowed
to be deducted in arriving at not income. The revenue act of 1917
levies an additional corporation income tax of 4 per cent upon the
net income of all corporations but for the purpose of such additional
tax allows a corporation to deduct dividends received by it from other
corporations in arriving at its net income. The proposed bill allows
a deduction of all dividends received by one corporation from another
in computing net income and levies (sec. 230) a corporation tax of 18
per cent upon the amount of the net income in excess of the credits
allowed in section. 236, but provides that the rate shall be 12 per
centum upon so much of this amount as does not exceed the sum of
(1) the dividends paid during the taxable year, plus (2) the amount
paid during the taxable year out of earnings or profits in discharge of
bonds and other interest-bearing obligations outstanding prior to the
beginning of such year.
An example will make clear the effect of this ftax. Suppose the
amount of the net income of a corporation in excess of its credits is
$100,000. Suppose it has paid out during the year $50,000 in divi-
dends, and discharged $10,000 worth of bonds. Its tax would then
be 12 per cent of $60 000, and 18 per cent of $40,000.
The committee believes that the reduction of the rate to 12 per
per cent on an amount equal to the amount of dividends paid will
have a wholesome effect in many cases in stimulating the payment of
dividends, which will be subject to surtax in the hands of the stock-
holders.
Tho bill makes no change in the corporations exempt from income
tax.
DEDtJT1ON8.
Section 234 of the bill allows corporations the same -deductions
from gross income as under existing law, with the following excep-
tions:
(1) Under existing law- the interest deduction is limited to interest
on an amount of indebtedness not in excess of the sum of the paid-in
capital stock plus onehalf of the interesting-bearng indebtedness.
Since borrowed money is not allowed to be, included in computing
invested capital for the purpose of the war profits and excess profits
tax, it seems only fair to allow as a deduction in computing net
Table: Corporate net income, 1909 to 1918.

BEVZNUE BILL OF 1918. 13

This is done in the i'mount


income the whole- of the interest.paid during the year
bi, which, however, contains the same limitation
in respect to the tax-free interest received by the corporation which
is applied in he case of an individual. This matter is discussed under
the heading "Deductions,'.' under the portion of this report relating
to the individual income tax.-
(2) Existing law allows as a deduction the whole amount of taxes
paid to a foreign Government. The proposed bill, since it allows
(sec. 238) the amount of income and exce-profits taxes paid to
foreign countries upon income received from- sources therein as a
credit against the income tax payable to the United States, does not
allow the same amount over again as a deduction in computing net
income.
(3) A new amortization provision applicable. to corporations has
been added to the deduction provisions. This amortization provi-
sion as applied to corporations is exactly the same as the amortization
provision applicable to individuals, which is explained &t an earlier
page of this report.
(4) The depletion provision of existing law has been changed in the
same manner as in the case of an individual. For a statement in
regard thereto, see paragraph (5) on an earlier page of this report.
CREDITS ALLOWED.
In computing net income for the corporation tax the following
credits are allowed:
(1) The amount received as interest upon obligations of the United
States, any State, Territory, or political subdivision thereof, or the
District of Columbia, which is included in gross income.
(2) The amount of any war or excess profits taxes imposed by act
of Congress for the same taxable year.
(3) In the case of a domestic corporation, $2,000.
OORPORATION RETURNS.
Like existing law, the proposed bill provides that every corporation
not specially exempt shall make a return. -The exempt corporations
are specified in section 231; The return will be required to show
the items of gross income and the deductions. and credits allowed,
in a manner similar to that now required under existing law. The
returns will be required to be filed with the collector of the district
in which is located the principal place of business or principal office
or agency of the corporation, the same as under existing law.
CORPORATE NET INCOMIE.
Te following table shows the corporate net income from 1909. to
.ndate: 0
8 ~~~~~Corporate net income,
1909 to 1918.

. ~__
yegi.,Net Income._I Year. Net Income.

M IA0.$3,600,000,000...
1910-
......
.........-... ., S3,50040 14 ...3,940,000.....000.
3,761, 000,00 1916.55,310,000i000
.........
.......

i911 ... ...


.912
.
- 3,5A,000,000
. . .. 4,1 51,000,000
1910.8,75,i
1917 (esttmated)............. 0,500,
0, o0o
000, 000
.:...
- !oi3 . ..... 4,714,000,0
1918 (esimat ............... 0,0 0
14-14BVXWUZt BILL OW lEE
CORPORATION INCOME TAX.
The net income :of corportion gfor the current table year has
beel estimated by the Treasuy Dertment at- $i,000 00,000
Afterddting frm this amount tho ceits ailowed1'0 $200
exemption each
allowed staimaed
:to
crporation,
$500,000,000, and 0(2) the'sthte Vd
t
aot
ecsa waprflt taxes
'to
amounting
taxes tW $3,20W,000
wTlfbe'$6,3,000,900.00, the
o income subject to th
It's estilmiatedtth fianmount
oration
$4,000490,000 will est amount distributed in dividends and
indebtedness paid 6ff during thetaxable year d atth 12 p nt
rate will yield $480,000,000. The remaining $2,30)0,0(00,0will- be
subject to the 18 per cent rate and willyield S414,000,000 revenue,
thus making a total revenue of $894,000,000 from the corporation
Income taxes.
Part IV. ADML%.TRATm PaonsIoINs.
PAnMENTr OF -Tns
Under exsting law al-co tins having a period
ending with the close of the calelar year and, all counting
inividuasare
required to make their return on the fo6owing March 1 and to pay
their itax on or before June 15. Under the Vpent law corporations
having a fiscal year other tan the-calendar pa r re iredtomake
return on the est day of the third month cls of the
fiscal. year. In order t harmonize the pa nt as of buness
concerns and Government taactions, with a new to dtributing
the burden upon the- banks to th best advantageit is deemed: pre-
erable to change the timthe return o h rations
to the 15th day of the third month after tle close of th calendar or
fiscal ear. A like period is o provided for individuals hang
accounting periods for a final year -other -thn the calendar year ad
also for those having an accounting period closing at the end of the
calendar year. In order-not tohe_ the large aymentoinome and
excess profits tacone upon one dat, th bil providethat
these taxes be paid in three instllments, one-thid t6obepaid at
the time of the filing of the return, one-thid on the 16th day-of,
the second month- tereafter, and the remaining ontird the
16th day of thefourth month alter the time fixd -bylaw -for
filing the returth. In other wd, he :tax payment &dates of Sidi
viduals and corporations whoe -accounting penod is on thle bai of
the calendar year w be March 15, May 15, azid) The coma
missioner is authorized to extend: the 6time for maing the retuli,
whenever in his judgment good cause e,-for a Peod not to
exceed two monthi, excet kthe casef ta y o eaboad.
In the case of taxpayers who are abroad the commisionr has dis
cretionary authority to extend the me for such period as h deems
necessary.E'!xcpt'n c:aseof
m the a, tyer a road tax -
payers -seuring such extension of time mustpay the first instnent
oftaxes upon the expiration of the prodof extension, and the
second third inst nts will become cAse of all
other taxpayers and as above stated. In the cae of any taxpyer
who is abroad die msso nr may extend the time for py-
ERVUNUS I :OP iSG. I&
1
mient o e second and third ist imet bynot more than four
months after the expirationi of the period o any extension of time
for filinghi return;. ~-
A new povins incorprati te bilprvid tt if upon
examinatIoofany retr of incom e made' -pursuant to -theiAncome-1
1913,erxtheevenueactsof1916and
tax piovisons 1
of therevenue ac oAust51909, tra ot or Otober
c 3,
-an amount of inicom e, war ro~s, or. exces-rfits tax hasteen paid
inxcsofthatpropt ete iamountof ttheecesso:paidh^tll
be credited against any inome, war profits, orexcespoits taes
or intallmentsthereof thendu~e-from the taxpayer under any other
return aWd tat nsy balance. imfedatily
of such exs shall bb
refunded 'to the tapayer. It is believed Ath this proviion wil
matter *fo
..~~~~~~~~u .ixp
.0i
assisttinpthe settlement
..
of transaction between the tax-
payer anld the Government. -
IFOEXATIOIIO AT THE SOUREB.
The"revenue ict of 1917 abolished-collection at the source and
substitute iormation:at the source in, u thereof, and provided
that all individuals, corporations, ad partnershi nuding lessees
or mortgtEgorP of red or personal property, Aducia, and em-
ployers making paym t to, another individual, corporation, or
partnership of, any fixed or determiable nual or periodical sum
in excess of $80 should report s information to the commissioner
in order that he might, use the same as a check -upon the returns of
the respecive taxpayers. The proposed bill retains the system of
information at the source, but only requires information of income
payments made in exces of $1,000 or morein any tble year.
COOLLETION AT TS SOURC.
Te proposed bill, as law, only requires the with-
holding of income n: theunderexisting
case of payments by idividuals, corpora-
tions, and partnership of fixed and determinable annualor pri-
odical gain, profits, and income to nonresident alien individuals or
noneent corporations. I :th case of bonresident alien the nor-
mal tax willbwthheldat the rateof12 pe cent.
htax-fee
In the-cs of covenant bonds tie obhgor-will be required
to deduct, and withhold a tax equal to 2 per centof the interest upon
such bonds and similar obligations the same as under existng law.
Tm IM. WAR :PROFITS AND EXCESS PROFITS TAX.
in the interest of Clearness this title has bes divided into eight
parts, aS follows:
Part I.General Definition".
Part II. Imposition of Tax.
Pts me~ Wr Profits Method
Part IV. Excess Profits Method.
Parkt V. Net Income.
Part-VI. Invested C3apitaL
Prt . Reox .
Pat III iclltos
1IB REVENUE BILL OF 1918.,
Part I. GENERAL DEFINIIONS.
in thispart
year,"
it is provided that the terms "taxable year," "fiscal
an " dividends" shall have the same moaning for the purpose
of the excess profits tax and war profits tax title; as is proVIdd
for the purpose of the income tax in sat tion 200, and that the "first
taxable year" for the purpose of this title shall be the same as the
"first taxable year" for the purpose of the income tax.
Part II. IMPOSITION OF TAX.
In lieu of the excess profits tax-imposed by Title II of the revenue
act of 1917 and in addition to the other taxes imposed by this act,
a tax is levied for each taxable year upon the net income of every
corporation computed according to which ever of the two following
methods wil yield the higher amount of taxes: (1) The war profits
method or (2) the excess profits method.
In view of the increased individual normal and surtax rates upon
the income of individuals and partnerships which in most cases will
make the taxes paid by. such individuals as- high as the 'income and
excess or war profits taxes' paid by corporations' engaged in similar
biassiness and in view of the difficulty in administering an excess
profits tax applicable to individuals, the bill provides that The war
and excess profits taxes shall apply to corporations only.
CORPORATIONS WHOSE INVESTED CAPITAL 1S LESS THAN $50,000.
In view of the fact that in many cases it has been the experience
under the present excess profits tax law that the excess profits tax
has borne more -heavily upon many small corporations with capital of
less than $50,000 than upon the larger corporations, because of the
fact that the smaller corporations arein most instances capitalized on a
different basis, and the income of such smaller corporations is in most
cases largely attributable to the personal activities of the stockholders
rather than to t4e capital invested, in order to. more equally dis-
tribute the tax burden the bil provides that in the case of a corpo-
ration having an invested capital of not more than $25,000 the excess
or war profits tax levy shall in no case exceed 35 per cent of the amount
of its net income for the taxable year in excess of $3,000, and that in
the case of corporations having more than $25,000 but not more than
$50,000 invested capital, the exce s or warprofits tax levy shall in no
case be more than 40 per cent of the amount of its net income for the
taxable year in excess of $3,000. Th provision, however, will not
apply to corporations whose net income exceeds $50,000.
CORPORATIONS IN WHICH INVESTED CAPITAL IS NOT- A MATERIAL
INCOMB-PRODUOING FACTOR.
In certain instances the experience Sunder the -existing excess-
profits tax law has been that there are 'certain classes of corporations
the earnings of which are to be ascribed primarily to the activities
of the principal owners or stockholders and in which capital is not
directly or indirectly a material incomeprucing factor. In such
cases the excess-profite tax would bear tw' heavily upon such cor-
poration, as practically all or by far the greater oprtion of the income
1 US BILL OF 1918. 17
would be subject to the rate provided in the highest xcss-profits
bracket. In order to equalize this situation the bill provides in
section '303 that in the case of such a corporation in lieu of the
tax imposed :;by 'the excess-profits tax provision of the Revenue
Act of 1917 and in lieu of the tax imposed by section 301 of the
proposed bill, and in addition to all other taxes imposed by such
bill, a tax of 20-per cent upon the amount of thnet ncome of such
corporation for the taxable year in excess of $3,000. It is provided,
however, that no corporaiton shall be taxable under this provision
if 50 per; cent or more of its gross income consists of gains or profits
derived from purchase or sale, or of gains, profits, or commissions
derived from Government contracts, or if the invested capital of such
corporation is more than $100,000. Such corporations will be taxable
under section 301 under the excess-profits method or the war-profits
method, whichever will yield the higher tax.
-XEMPT CORPORATIONS.
All corporations exempt under the income-tax title will be exempt
from the excess-profits or war-profits tax. A list of these corpora-
tions will be-found- in section 231.
Part IlI WVAR-PRoFrrs METHOD.
This part fixes the prewar period as the calendar years 1911, 1912,
and 1913, or,' if a corporation was not in existence during the whole
of such period, then as many of such years during the whole of
which the corporation was in existence. The bill provides a tax
of 80 per cent' upon the amount of the not income in excess
of the war-profits credit. The war-profits credit will be determined
in the following way: Every corporation will be allowed a specific
exemption of $3,000 and in addition its average prewar earnings
for the prewar period 1911, 1912, and 1913. In; the case of corpo-
rations who have increased their capital since the prewar period
the bill provides that an additional amount be allowed equal to 10
per cent of the additional invested capital employed during the tax-
able year. If .the corporation has reduced its capital since the re-
war period, the allowance must be decreased by an amount equal to
10 per cent of the invested capital withdrawn. If a corporation was
not in existence during the whole of anyone calendar year during the
prewar period, :orif it had no net income for the prewar period, or if
its prewar earnings were less than 10 per cent of its invested capital
for the taxable year, it will be entitled to a specific exemption of
$3,000 and an adi tional amount equal to 10 per cent of the invested
capital for the taxable year, The proposed bill, like the present
excess-profits tax law, specifically provides that a foreign corpora-
tion shall in: no case be entitled to the specific exemption of $3,000.
The war profits tax is not distinctly a war profits tax, since a mini-
mum exemption of 10 per cent is allowed in all cases. In view of the
high rate of tax imposed by this method and in view of the fact that
owning to a serious depression in many industries, many corporations
were making very small profits during the prewar period, your com-
mittee believes that it is only equitable -and fair to allow such cor-
porations a minimum exemption of 10 per cent and that such an
B,.
1818W~ ~ ~ ~ ~ ~ ~ ~ ~NU3~ ~ 1 If4 01 ifiS. ::~ ;

exemption
in allowtosuch
is neeessarytoorder
upon their investment a, a SUfientrt
surecorporations pfit a them eson
at the same time to enable them to min-tain their plan as going
concerns.
Part IV. ExiSs PROrrS MElhOD.
The bill provides that for the puose determiin 6 te excess of

profitsiantax the credit- shall consisi of pacific exemptionof


plus8 amount equal to 8 pr cent-of th invsted cpitlo the $3i,060
a

corporation for year. The tax unfider the excesp0ftrof


the
taxable

tax method-will be computed the folloin Ibasis:Tty..


upon

five per cent of the amount 'of the net income inexess the
excess profits credit (of 8 per cent
of the invested capi
of

lus
$3,000) and, not exe8sof,' invited :capital
15 per cent

for taxable
in excess of 15
ye-ar; 50
centoof pr
per

invested-
amo
capital
the
of the'
:and not in exce. income
of 20 percent of suchcapital; and 70 per cent of the "amount ofthe
net income in excess of 20-per ,cent of such caI-itl. Even wi4th
the increased excel will-be
profit tax rates, isprobabe thatmanyvcor-
it

porations
have
whose tax

computed undlr thi method w not


increased to so great an extent over theirbexce
their taxes

profits oflast year-


taxes corporation whose taxeswill be
computed under the war many profits
as

tax method.. corporations of


Under existing- law it isfound'that some
small

capital would not be able to takeintheir creditout under th-frst


bracket. The billprovides that such:entirecases. where the amount full
not be:allowediin the bracket by reason
can

of the credit fit

of the fact that such credit is in of-the


invested.capital
in
the not so part
amount the nextsucceeding brakes, ad i
shall be15 660centfrom
excess of.
allowed
thn
per
the
allowed not
deduted
fully

the remaining i nthi bracket. Asunder


part

i shill be, deducted e last


existing law, computing the,excess-profitstax forigan corporation

will not be entitledto a specific exemption of $3,000 computing


excess-profits tax under the propose bill.-
-Part rr- N :
The of' corporations for the prewar peiod 1911,1912,
income

and 1913 will be computed exactly asunder the existing exce fits
tax law and will be easy
comparatively
ascrtain
to -s threirturns
the
: Department. we income
are

thealready
taxableon tbe
year iwill n heTrasury for
fie

t0herporatebasis
computed upon
nt

same manner as is provided for com puttingthec s ame and in


t he
income e under
H-I
Title of the proposedbll.
The average netincome the prewar periodwillbe6determined
for

by
didn g the ber yoears ithin tt'perod duringthewh oleh o
num
w

whichth e corporation in existence thsu thnet come


was
into
of
in

for such years even though there may have been no net income: for
one or moreof suchyears. -
Part VI.INvli amAl ,APTAL.
Thedefinition of invested ctap.ital i.et-existi ng law, 'while re-
written inthet proposed
changed slightly order in to

rulein ewhiel
bill in.the' interest of clearness and
liberalcase
IVTt O ILL 0P 11. 19
where the existing law has in operation been found- to produce
certain inequalities, has not been changed in any important par-
ticulir.'
In order to simplify the definition of invested capital it has been
deemed advisable to define certain terms such as,' intangible prd-
erty," "tan ible property," "borrowed capital," and "hadmmiib~le
assets," These definitionss will be found in: section 32 of the bill
In the case of certain investment banking houses whose business
is almost entirely confined to tax-exempt securities such as mun1i-
cipal and State bonds" a very difficult question arises as to what
should: be the invested capital of such corporation. Although the
definition of invested capital in existing;,law specifically state that
\the amount invested in such securities shall not be included in
invested capital if the interest income from the same is not subject
to income, excess and war profits taxes, the income from the gain
upon the sale of these bonds, however is subject to all the a'ores
mentioned taxes. The bill therefore allows such a corporation to
add to its invested capital an Iamount equal to the same proportion
of the amount invested :in such tax-free securities as the profit from
the sale of such securities bears to the, total net income derived from
the sale thereof and the interest thereon.
It also has been the experience of the -Treasury Department that
the excess profits tax places a very heavy burden upon investment
houses and similar corporations whose business largely confined
to dealing in tax-free securities, because such corporations cannot
include in invested capital either such securities or borrowed money.
In order more nearly to' equalize this burden, the bill provides that
in such cases 'a corporation shall be entitled to include in invested
capital an amount invested in such tax-free securities not in excess
of the borrowed capital of such corporation (other than indebted-
ness maturing within one year of its creation, -all accounts payable
and current l-abilitie) for such year if it includes in its net income
for excess profits tax purpose the interest and dividends from the
bonds and stocks included in computing invested capital.
OONSTRUCTI CrAPIrTA.
The existing excess profits act provides that in cases where the
Secretary of the Trehury is unable to determine satisfactorily the
invested capital of a corporation he ma contract the same upon
the basis of representative concerns. he bill provides that the
Commissioner of Internal Revenue be given this same discretion
under the-proposed excess profits tax method and adds a provi-
sion in stion 327 for the construction of capital in. two additional
specified, cases: () here the mixed aggregate of tangible prop
erty and intangible property has been paid in for stock or for
stock and bonds and the Cos ioner is unable satisfactorily to
determine the representative values of the several classes of property
at the time -of payment or' to distnguish the classes of property paid
in for sttoe and for bonds, respectively, or (2) where capital is a
material income, producing factor but where, because of the fact that
the capital employed is in large part borrowed, there is no invested
capital, or the invested capital is materially disproportionate to the
net income as compared with representative concerns engaged in a
like or imilar tra e or bui~nes. This section is not, howe'ier, to
H R-454-vol 2-48
2020U"NUN BILL orlia.
apply, to any' coloration O per cent or more of we gicome
is derived from (idverument contracts.
The bill provides in section 328 that in determining instead
capital in e above cases the cX commissioner shall compare the
taxpayer only with representative corporations hose invest
capital can be satisfactorily determined and w 'as nerly, as'
may be similarly 'circumstanced with respect to r' inco 'me net
income, profits per unit of business transacted, and capital employed,
the amount and rate of war or excessdprofits, and allother relevant
facts and circumstances. i,
Section 328 also provides that the commission shall keep a
record of- all -cases in which invested capital is constted under:
section 327 and that the Senate'or House of Representatives may
call for a copy of such record or information regarding any such
cases without regard, to the restrictions contained in section 257
with reference to publicity of income tax returns.
Part VII. REORGANIZATIONS
In 'the case of 'the reorganization, consolidation, or change -of
ownership after January 1, 191, of a trade ortbusiness now canedm
on by a corporation, for the purpose'' of determining the net inme'
and invested capital for the prewar' period, the corporationshall be
deemed to have been in existence prior to that date; and the net m-
come and invested capital of the predecessor trade or businge for
all or any part, of 'the prewar perod prior to the organization of the
corporation shall be deemed to ha'e been the net come and invested
capital of the corporation.
In the case of 'the reorganization, consolidations, orcang eof owner,
ship of a'trade or business after March 3, 1917, if an interest or contiil
in such trade or business of 50 per cent or more remaining the same'
persons or any of them, in :suc case no asset trferred or.received
from the predecessor trade or business shall in' computing inveed,
capital, be allowed -a greater value than would have ba all in
computing the invested capital of the 'prior trade or business if'such
asset had not been so transerred or received.
Pa.rtVI. MNnou.
case of corpotions having a f y din -durin 1918
theInincome will be ded into two parts: incomeJaling ii the
year- 1917 will be subject to t exess-profits ta rates provided
under exis law in the revenue act of 1917, and e income filing
in the peiofrom:Jauar 1, 1918, to the close of the fiscal year
will be taxable at the war-ofits rat or excess-profits rate, whichever
is higher, providedinthis '':l.
ORPRATION RETURNS FoR 3 8 03 WA TAxU.
No r for excess or war profit t prposwillbe required
of ayootion not' having-a net income of $3,00 or'over' for the,
taxable year. Corporations subject to:ta under this iIe'wimk
return and-.pay tieir taxes at the same times' and ipcs and in the
sane manner -ndsubject to the same 'ondtions as is required of
corporations i making :teir n for incomeo-a purposes."
UMVNUN BILL 07 11 221

ExonsS PRO!ITS AND WAR PROFITS EfT


rh.bais ofthe estmtjo h exespoft t&~es is''as follow
Ft is assumed that then~.iu:come of, corprations for the cur t
taxable year ,ill: Ib$10,000Q00,600. This less the net come
for thelas taxable Lya h is estimated by the asuryDepart-
ment at:Sl0,5600,0)00000, and it is estimated that thes earnings
b ducd o "the aboe fig fr 1918.
--p rovaiis
or ",tE provided in this bill the returns of
about 11,500 corpoation fore 1 l7,'ected at random, were tabu-
lated.- It is assumedthat the returns for the current year will beimi-
lar to these kniow corporations ring for lastyar, the total net
income, of course being estiated at $10,000,00000. It it esti-
mated that the revenue from thre taxes will be about $3,200,000,000.
Txnz 1Y.FJSTATE TAX
Congress for, the first time, by the revenue act of September 8,
1916,levied a tax (a graduated tax) upon the transfer of the net
estate of a deedent. In dei the net estate an eemption
of $bofooOW allOwed.
This iform of taxation has no'w been in operation for about two
year&' an& sufflcient opportunity has been afforded those engfafd
in administering- the law- to observe and report to Congress the e43ct
of the existing lawand suggestions for amendments which il bring
ouit more clelythe intention which Congress desired to prevail at
the time of the- oi nal imposition6of an estate tax.
The present bill provides for the' imposition of 'a tax which will
take the -place of that imposed by Title II of the revenue act of 1916
as amended Mare h 3', 1917, and the tax imposed by Title IX of the
revenue act of 1917.
Section 402 of 'ti bill, which takes the place of section 202 of the
orinalact, has been revised so a to contain -a provision specifically
inluding in the. gross estate dower, curtesy2 or any estate created
in liu oof dower, or curtesy. The distinction between. dower and
courtesy interest and property passing to wife or husband by will or
intestate succession is technical rather than real, at least in the con-
sideration^ of- thbe-question as to whether they should be subject to
estate tax. The- proposed amendment 'is for the purpose of making
it dear 'that such interests are to be included.
:It was the intention of the framers of the original act that dower,
curtesy, and estates created in lieu of dower or curtesy should be
included in the:gross estate, and your committee believes that the
Treasury DepartmenthasWcorrectlyruled inrequiring them tobe so
included. Since spu hs e to this question,
your committee deems it advisable to- provide specifically that these
estates shall be included in the gross estaie._.
There h also been included m the gross etate the value of prom
erty passing under a,, general -power of appointment. This amend-
ment as we as that precedin fr the purpose of claify rather
than extending the existing statute. A person having a general
power of appoitment is, with respect to disposition -of t e property
at his deat, ilaposition not unlike that of its owner. The pos-
sessor of the power has full authority to dispose of the property at
22 REVENUE BILL OF 1918.
his death, and there seems to be no reason why -the Xpriviege which
he exercises should not be taxed in the same degree as otier property
over which he exercises the same authority.. The absenceof a pro-
vision including property transferred by power of appointment
makes it possible, by resorting to the creation of such-ai power, to
effect two transfers of an esta~tewith the payent-of only one tax.
The gross estate section as been -amended to secifically include
(1) insurance receivable by the executor under polcis taken out b1y
the decedent upon his own life and (2) insurance in excess of $40;000
receivable by a specific beneficiaries under; policies taken out by the
decedent upon his own life. (1) Insurance payable to the executor or
to the estate is now regarded as falling within section 202 (a) of the
existhig statute and this construction of the existing statute is now
written into the new bill for the sake-of clearness. The amendment
will serve the further purpose of putting on notice those who acquaint
themselves with the statute for the purpose of making more definite
plans for the disposition of their property. (2) Theprovision with
respect to specific, beneficiaries has been included or the reason
that insurance payable to such beneficiaries usually passes under a
contract to which the insurance -company and t he -individual bene-
ficiary are the parties in interest and over which the executor
exercises no control. Amounts passing in this way- are, not liable
for expenses of administration or debts of the decedent and therefore
do not fall within the existing provisions defining the gross estate.
It has been brought to the attention of the Committee that wealthy
persons have and now anticipate resorting to this method of defeat'
the estate tax. Agents of insurance companies have openly urged
persons of wealth to take out additional insurance payable to
specific beneficiaries for the reason that such insurance would not be
included in the gross estate. A liberal exemption of $40,000 has
been included and it seems not unreasonable to require the inclusion
of amounts in' excess of this sum.
Section 403, which takes the place of section 203: of the original
act defining the deductions for the purpose of arriving at the net
estate, inserts a-provision that income taxes upon income received
after thesedeath of the decedent, and estate, succession, legacy, or
inheritance taxes, are not to be deducted. Obviously, income taxes
should not be deducted, for the reason that they aie payable from
and on account of income which is not included in the gross estate.
Inheritance tixes payable to States are payable in respect to the
benefits derived by individual legatees and b ereficiaries. They are
computed upon the basis of the amount. which passes to such bene-
ficiaries and are not known until estate taxes have been ascertained.
These provisions are in conformity with existing ruling in the- ad
ministration of 'the law, which rulings the committee thinks 'are in
accordance with the statute, and are now included for the sake of.
clarification, as in the case of additions made to section 402 men-
tioned above.,
An additional subdivision has been added to section 403 hich will
grant a deduction of amounts which haveben received by the
decedent as a share in the estate'of any person who died Within five
years prior to the death of the decedent. Xet has come to the attention
of the committee that persons closely related have died within such u
short space of time that the same estate passing within a short period
REVENUE BILL 0P 1918. 28
of tiie has been subjected to the estate tax and thereby diminished
unreasonably because 'of the short period, within which the two levies
have been made. For example, a husband dies leaving a lage
amount of property to-his wife, an elderly woman, who dies within; a
few weeks after her husband's'death. Under, esxitin law the entire
estate is taxed on the transfer from husband to wife and on the
transfer 'fr''om wife to -other beneficiaries. The: proposed amendment
grants an interval of .five years within which the deduction- may be
taken.
Section 404 includes a provision thatrsetaurns shall be made in all
cases where the gross estate exceeds 'B50,000 -instead of $60,000, as
provided under existing law. In the administrationn of the present
law it has been found that' representatives of the estates almost
uniformly report local tax assessmen as the value of property for
measuring estate tax. The act levies this tax on the actual value of
property at the Xtime of the decedent's death. It was therefore
necessary to require a return on estates of $50,000 or more even
though there is a specific exemption of $50,000, in order that the
department may have the opportunity of verifying the true value
of the property included in estates which are near the line of exemp-
ton.
A provision has been included in section 406 which will enable the
commissioner to grant relief in the form of an extension of time for
the payment of the tax not to exceed two years from the due date,
where the requirement for immediate payment of the tax will impose
undue hardship upon the estate. In .the case of thosevestat where
the holdings of the decedent are largely in lands and other property
for which there is no ready market, it has been found in practice that
a forced collection of the tax results in enormous sacrifice to the
beneficiaries. This is due not so much to the amount of the tax as
to the lack of a market for certain kinds of property. It is believed
that in levying taxes of this character the estate should be given
every opportunity, consistent with safe and proper enforcement of the
law, to raise the money with which to pay the taxes without sacrific-
ing the true value of the property of the decedent.
Vhe rate of interest chargeable on taxes not paid within a year and
a half after the decedent's death has been changed from 10 per cent
to 6 per cent per annum in the belief that this rate is a fair rate as
interest and that penalties should preferably be imposed as penalties
and not in the form of penal rates of interest. E
Minor changes in verbiage and slight modifications in procedure
have been made for the sake of insuring more equitable, uniform
and efficient administration of the law.. Instances'of these are the
extension of time for filingg notice, the extension of the due date
the change in the rate of interest on account of delayed'payment,
authorization to release the lien on specific property when the tax
has been paid, the limitation of deductions in the case of non resi-
dents, to 10 per cent of the value of the gross estate situated iid the
United States for administering the estate, and the giving to the
executor a right of contribution from the specific beneficiary under
policies of insurance.
E$8edsahngtx,40l6 .andbtexc.din,0 o.
Table: [No Caption]

24 BfEVN2VE BnLL OJ 1MB


The follow table compares the estate-tax rates imposed by
existing law an the proposed bill::

Amount of net estate (an exemption Of $50,000 IJ allowed et"ts of presents


of the United States, In comput1n the va ot not estate).

Per o. ar .
Not exceeding $5,0AX0.........2 ~3
Notnot exceeding
".e'
. 000.....................g
1"' 00
'i .,;not............x._e
.................
$5000 12. 6 9
Exceeding $450 000 and not xceeding $1 oooO ......................10 12
Exceding $2,
Exceeding ;1i6,o~OOOand
0 0 andnot A $, OO
eoeedig
not etoeeding 000 ...................................1
. ......................... 14: 1i1a
Exceeding $3,000,000 and not exceeding $4,000,000........................... 6 24
not exceedig$,000.82 . ..............
16 1 4 -.1
Excedng$4000,000
Exceeding t3,000,000 and
and not excOeding$8000 ................................ , 2 2
B- gO O and not exceeding 000 20.-
Ebbooeding
dnot $4,000,090 ...............................

..............................
,
.......... .....
*
22

ES-TATE TAX ESTIMATE.


It is estimated that the estate tax will yieildduring thefl'ca year
1920 $110 000,000, and that when the bil is infu operation the
annual peid will be $140,000 000. For the fiscal year 1919 itis i-
mated thpt the estate tax yied will be -about $80,000,000.--
ThTLE V. TAX ON TRANSPORTAION AND OTHER FACILI-
TIES AND GN INSURANCE.:

The proposed -bill does not increase the Opresent rate of 3 per cent
upon the amount paid for transportation of freight. it does provide,
however, that in the case of freight tr pored from a point without
the United States toapoit within the United States atax of 3 per
cent-shall be paid upon thle amount paid for transportation of such
freight within -the Unitied Staies.
The receipts from the freight tax during the period it wa in
operation during lhe fiscal year ended June 30 1918- amounted te o
$30,000,000. It is etimated that this tax will eid $75,,000
during the first 12 months' period the bill is in operation.
thcn..o~
t 2
The proposed bill does Rot increase the rate of 1 cent fr each 20
cents or fraction therof of the amount paid ftransportation by
express. It does, however, as in the case of the freight prcnsion
proide that a tax shall be paid upon express reported from a
point without the United States to a point withi the ljnited Stae,
and levies a tax of 1 cent for each Z0 cts orifraction thof upon
the amount paid for such transportation'within the United Stat.
During th period that the express tx provision ws in operation
330, 19i8, the` express tak receipts
during the - fiscal ::year ending une
amounted to $6,459,000. It is timated that this tax i yield
$20,000,000 during the first 12 months' period the bill is in operation.
EVI3UE- BILL 0F 1. 25
TVAWSPOSTATION, 0F PZBOW&
The propsd bil levis a t 08 of per cent-upon the amount paid
for transom ti of , the same s under eisting law.
During the 'erPod t at thi tax was' n operation dunn the fiscal
year ende JdTun 30, 1918 the tax yielded $24,306,000. It is estimat-
ed that durig the first 12outh period thi bil is in operation the
receipts from this tax will amount to $60,000,000.
:PLIMAN ACO MODATIONS.
Under existing law the tax upon Pullman accommodations is an
amount equivalent to 10 per.cent of ^the amount paid for seats berths,
and staterooms in parlor le cars, or on vessels. He pro
posed bill reduces this rate to 8 per cet.. This reduction is recom-
mndeda because the Director Gerl -of Railroads contemplates
issuing in thievery near future a ticket combining the rgular fare and
Pullm accommodation charge and therefore in order to most expe-
ditiously. conduct the sale of Suc tickt and to avoid making a sep&-
rate computation of -tax for each railway and Pullman transportation,
charge, it -is deemed advisable that the rate for both such charges be
the gane.
The receits from seats and berths during the period that the
tax upon Pullman accommodations was in effect during the fical
year ended June 30, 1918, amounted to $2,237,000. It istimated
that this tax will yield, during the'-first 12-months period this bill is
in operation $5,000,000.
TRASPORTATION OF OIL BY PIPE LIN.

In view of the fact that freight charges have been increased 25 pe


cent a-d that there has been no siilar: increase ti hei transportation
charge on oil by pipe line, your committee deems it fair to make an
increase in- the tax on the amount paid for the transportation of oil
by pipe line of approximately 25 per cent. The present rate is 5 Per
cent of the amount paid for such transportation and the bill provides
that the rate be, increasedto6 per cent Of the amount so paid.
-During theperiod of the fiscal year 1918 that theoil tax provision
was in operation the rceiptI from this source amounted to $1,463,000.
It is estimated that the receipts from the increed tax during t
first 12 months this bill-is in operation vwi amount to S4,550,000.
TEEGRAPH AND TELEPHONE MESSAGES, ET.
Under' existig law a tax-of 5 cents is levied upon ealh telegraph,
telephone, or r aio adiath, message, or conversation in which the
charge for,;the transmission is 16 cents -or more. The bill provides
the fo1109wli! taxes upon the transmisionof such messages: A ta
of 5 cntsoreach message on which the charge is more that 14
centsand not morethe6an W0ect, amd tax of 1ocents upon all such
mesages, when the charge is more tIan 50 cents.
The bill provides a new tax upon the amount paid to anty
teeaph orWtelephone company for any leased wire or talking
circit special service equivalent to 10 per cent of the amount so
26 REVENUE BILL OF 1918.,
paid. It is provided, however, that this tax shall not apply, to the
amount paid for so much of such service as is utilized (1) in the col-
lection and dissemination of news through the public press or (2)
in the conduedtby a common carrier or telegraph or telephone com-
pany of its business as such.
The receipts for the period the tax upon telegraph and tele-
phone and similar messages was in effect during the cal year 1918
amounted to $6,299,000. It is estimated that at, the increased
rates, -the tax, together with the tax upon talking circuit and leased
wire charges, will amount to $16,000,000 during the first 12 months
this bill is in operation.
LIFE INSURANCE.
A tax equivalent to 8 cents, on each $100 or fractional part thereof
of the amount for which ainy life is insured, is levied under existing
,law, and this same tax is retained in the proposed bill. It is found
that some industrial insurance is written ton the monthly pi-yment
plan. A new provision is proposed in such cases to harmonize more
nearly the taxupon such insurance with the tax upon industrial policies
issued on the weekly payment plan providing that in the case of in-
dustrial insurance upon poliiesE by which a life is insured not in ex-
cess of $500 issued on the monthly payment plan, the tax shall be 20
per cent of the amount of the first monthly premium. This bill also
provides that in the case of such policies issued on the weekly re-
mium plan the tax shall be 40 per cent of the amount paid for the frt
weekly premium, the same as under existing law. The bill contains a
new provision in the case of group life insurance covering group
of not less than 25 lives in the employ of the same person Nor the
benefit of persons other than the employer, providing that the -tax
shall be equivalent to 4 cents on each $100 of the aggregate amount
for which the group policy is issued and of any net increase in the
amount of insurance under such policies.
MARINE, INLAND, AND FI INSURANCE.
The bill re-enacts the tax of 1 cent on each dollar or fractional
part thereof of the premium charged under each policy of such
insurance without change.
CASUALTY INSURANCE.
Under existing law a tax is levied equivalent to 1 cent on each
dollar or fractional part thereof of the premium charged under each
casualty-insurance policy. No change is made in this provision
except that in the case of industrial-insurance policies when issued
on tho monthly payment plan, a tax equivalent to 20 per cent of the
amount of the first monthly premium is imposd; and when issued on
the weekly. payment plan a tax of 40 per cent of the amount paid
for the first weekly premium is imposed, so that the tax levied upon
such casualty-insurance policies w correspond to the tax levied
upon similar life-imsurance policies.
AlueU3 BILL OF 1918. 27
INSTRANOE-TAX ESTIMATE.
During the period the insurance provisions were in operation
during the fiscal year 1918 the revenue receipts from insurance
amounted to $6,492,000. It is estimated that the receipts from
insurance during the first 12 months this bill is in operation will
amount to $12,000,000.
TrrI VI. TAX ON BEVERAGES.
In fixing the rai*Ass upon beverages your committee, in the prepara-
tion of this bill, hs endeavored to fix the maximum revenue- roduc-
ing rate, and therefore the bill provides in the case of distilleif spirits
for beverage purposes for an increase in the rate from $3.20 to $8
per gallon and` the case of beverages to be used for manufacturing
purposes for an increase in the rate from: $2.20 to $4.40 per gallon.
In the case of imported perfume containing distilled spirits, the bill
provides for an increase m the' rate from $1.10 to $3.30 per
order to place the imported perfume upon the same tax gallon,
in
basis as
domestic perfume.
In the case of all other beverages, other than soft drinks, the rates
under existing law are doubled.
The present law levies the tax upon soft drinks upon the basis of
the gallon and the present tax only applies to soft drinks sold by
the manufacturer, producer, or importer. As a considerable portion
of the soft drinks sold are compounded at the soda fountain, and not
reached under existing law, the taxes levied under existing law are
not great revenue producers. In order to secure a greater revenue
from soft drinks the bill provides that a tax of 30 per cent be levied
upon the manufacturer's, producer's, or importer's shelling price of
cereal beverages, and that a tax of 20 per cent be levied upon the
manufacturers, producer's, or importer's selling price of all other soft
drinks.
In the case of soft drimks, compounded or mixed at the soda
fountain, ice-cream parlor, or other similar places of business, and
ice cream, ice-cream sodas, sundaes, or other similar articles of
food or drink when sold for' consumption in or in proximity to such
places of business, the bill levies a tax of 2 cents for each 10 cents
or fraction thereof of the selling price to be collected from the con-
sumer by the proprietor of the soda fountain or similar place of
business and returned to the Government. In the case of sales
amounting to 7 cents or less the-tax will only be 1 cent.
The following table shows the beverage rates under existing law
and under the proposed bill.
IJsol
-2aditonal
Table: Beverages.

28 avESu R:uI 0
Bivorage..
i
Ditlled #pW* m s t,6 -uno -ilinadwn, Be' Pr

Dultilled spirit per rot goon oine gllon It below p.20 $ do00
If withdrawn ft other than b ro.20 AQ
Perfume import contatg d wine gallon (to b olect,0
by collector ofcustoms), ........................... . .... 1.10 LA.0
OGral Zbrlud odr*Ine slta(O be a m ?)X -f S.
In Ih Wr~ tiriheltor
sweet'wines te W, proo
th PMUMs, per proo .gallo
bold for sal bbythe
Withdraw* for fortifying wine A hot used, perTprM r gallon
ab11¢.,
. . . . . . . . . . . .<. . . . ....
..
..20
n
.. . 10
.1 .So.
s
.30
Distilld 'sprits, stock onband, hold and t le, t equal to the
Recllld spirits (with Nee&ud
xs
certain ecptin), per proofbkglo..1. . .................. .30 .
Rectified sprits, ftoor ta, per allo ..................... ..1
Fermented liquors, per barrel, contalnn nt mor than 31 piios (and ^ or:
tionate rator any other quantity orf rtionl part of a authrl
0.00........-.
law) ..
.. w - ............ .

Still wines including verinuth and at l or Imition w and compound


sold as wine 0Oohting
Not more tn4pr ih......wino....o...08
Over 14 peo nt xnot over 2paJ Oet alOo p ine gallo...20 .40
alhol per Wino gabo
Over 2U per cont butnot over4iper sent .50 1.00
cent (cued distiLled srite); er wine gallcU .3......................................Q .ao20
a.
Ovor2 per..........other.sprkling................. 8.00
.1
Champagne or- lroo .thereo..00
.06
.trtlfilalalycerbonat
Liqusurs, d~ e oe it or raunthereof
odrdlils~ similar om unds, ortainin osWJ4 ine, With grape'
..03
brandy, or wino tsut, per one-hall pit or fracn the .eof..00 .06
Other liqueur, cordial, ad similar compound .........................00
Floor tax on tax-pad win, vermuth, end t or imitate i and com-
unds sold as e, hld and intended forl, a ta equal to additional taxes
.... .. ...... . ..... .-.......
--- ....................................-..-.-.-. ....,..,

Rate per
UponI all dsiup or extract ued in the m=an cure of soft drlns ga&ln Per cent.
soldfor not mor than$.3o
S
opoe ergallo
h$,0
If sold for more than 81,30 end not more lon n.,0.08
awtmelw
than ris per........g
.........................................
n 0
.0
. B
... 0..... .,.

If sold for more then $2 and not mor than 113 p ....................g
:llo.
L 10 .
* If~~oldformcrethan~andnotm~~lsttban$4p...........15...
I old for notsmore then ....... .'. ......

Upon all imemetd gra juc, soft drinksorrtfll minral 1waters (not car-
bonated) sold ~by naufatuer, p~roducer or Im re,-in bote or clse
tainers..-. Yt01;8,i ' 20 i,.
Un beverage derived wholly or bi part from oeels or substitutes threbor, eon- . X
taming less than on-half per cent oflc ol ... .01 80
Upon all ginger ale, root beer ea l p, ad a other cerbted waters or
bevera6enianufaotured aL s9ol brythe iaufaeture, producer, or. importer of
tb o he same..
the car c-acid gas used in crbonting .01.20......
Upon all naturl mneral wator or table wats sold by th producer, bottler or
, .D
Importer thereof, bottn or other closed dontalnr, at oer 10 cent r millon ga .01 (1)
Uponall carbonlciMaod gas in dmi o sother catainsrs (intended f the
or production of chrbonted water brother drinks), sod by the
manufacturer, producer, cq' Importer theftof...................¢.z.Per pound.. .08 .
Soft drinks compounded or mixed 'at a soda fountin, lo-a p , other
siila plac of busnesIcdreaem, lc-ra oda sundaes or other dsimila
parties of food or drin, whe sod fo aosuptio In or inpoxmt to suh-
placof busns...... ....,('
eon ts ier gallon.
121 cents brgeach 10 cens or fati"o thereof of the amount paid. Where the chrge Is 7 cents or leawtO
tax will be I cent.

Many of the special provsions relating t b*everages Wbi h are how


found in the revenue'acts of 1916 and 1917-are carried':ino this bill
without material change in order that the.provisions of the revenue
acts of 1916 and 1917 relating to beverages may all be inoorporatd
in this bill.
The following new legislation: is contained'in the bill;
(1) By section 602 the, commissioner, with the approval of the
Secretary, may permit :distillers of ethyl alcohol for use 'i ',the pro-
duction of munitions of war or other n6rbeverage purpossto empty
their fermenting tubs as often as in, his judgment it may be -deem'ed
expedient, the provisions of e tig law to the contrary notwith-
Table: [No Caption]

;fltnv 0D
BILL; 1918. 2S9

standin. Thislslation is' in th interestof expediting the mau-


facre on ain orderto 'provide-for getting the maxmum
use out ofeah ementing tub.
(2) aBy setion 60;3'the commissiner with the approval of the
Sectarye tay permit ethyl cohol of not les than 180 degrees
proof produced at central distling and denaturingX plants to be
removebdbefore or after denaturationfrom such ilant or from denatur-
ing bonded wpr'houss free of tax for the use of the United States or
for shimet nation ixte-present war with the
Imperial German: dovernmen e isolation is also suggested
as awaraI measure.
(3) -In' orde to enable the Inte al Revenue Bureau to keep a more
accurate check upon all wine producers, etion 61of the bil requires
all producer of wvineto be duly registered.I
(4) A loor ta of 1 cents per proof gallon is levied-upon rectified
p(6);0"I, cordials or similar compounds-are not taxable as such
.(5) .Liqueurs~,co'B4d
under existing launless they contain sweet wine fortftiiedwith grape
brandy. The tax in the bill of cts on eac onehalf pint or frac-
tion thereof applied to all liqueurs, cordis, orsimilar compounds.
(6) Under xt law the producer of fortified wines is allowed
six months to pay the tax upon grape brandy used in fortifying sweet
wines. Because of doubling the rate upon grape brandy, ad the fact
that. the prod ucer of such wines has to hold'the w s for a consider-
able period before sale, the producers of these wines are given 10
monx'Underto pay the tax.:;
the present law retail liquor dealer were allowed to hold
(7)
50 gallons of distilled spirits and 25 gallons of wines free from the floor
tax. The bill eliminates every exemption of is nature because it
is believedethe reenue needs require it.
(8) Due'to tIe levtof a tax on soft drink sold at the soda fountain
the bill does not include the provision ineisting 1aw vying a tax upon
carbbnic-aeid gas, since the theory upontwhich the tax upon carbnic
acid gasw levied was that by placing the tax upon the gas used at
the soda fountain a ax was idirectly lvid upon the drink sold at
the soda fountain. The tax i this bill ilbe a greater revenue pro-
ducer and a more satisfactory basis for levying the tax.
BEVESAGB TAX ESTIMATES.
The following table shows the estimated revenue collections from
the beverage taxes duringnthe first 12 months iod the law is in
operation, disregarding'the effect of any prohibition legislation:
,.~~~~~~~~~~~~~~~OO Im
FoX beerags use.$. .¢^ .* .. 760, 000, ooo
6200,000
Fr oruse. .............
P:Refimd..............11..400.00.................
-.11,400,00
Fe nted liquor............ . 2400, 0
Winesetc............. i........ 20,000,000
Cereall
b* .........e. 24, 000, 000
............ ...............

Other soft drin 0sold bythe manufacturer, producer, orimporter 10,000,000


Soft drinks, ice cream, etc., sold at soda fountains ..............,. 37,0,
Total.....*.a....1,137,600,000
Table: Tobac o, snuf , cigars, and cigaret es.

so8IEVE!VE BILL 0O 118


T1TI.E VII. TAX ON CIGARS ::TOBACCO, AND MANUFACUURES
ThEREOF.
Your committee after making a careful study of the tobacco taxes
of England and tie monopoly receipts from tobacco *tnd kindred
products of toFrance and Italy,
proportion population as compared revenues-raised
with the Unitedtherefom
and the in
States -has
conclude that the proposed taxes are approximate the h hest
revenue-producing rat thats can safely-`be levied tWhe Ifnited
in
States at this time in the interest of a continuous flow of reene into
the Treasury and without ggreatly reduced consumption of tobacco
and manufactures thereof. Under the revenue act of 1916 retail
dealers were allowed to hold not to exceed 100 pounds of manufac-
tured tobacco and snuff and not to exceed 1,000 cigars or cigarettes
free from the floor taxes levied under that act. :It has been the pur-
pose of your committee in framing this bill to- eliminate all exemp-
tions as farl as possible tand in this particular case no similar exemptioI
is provided mi this bill.
The revenue act of 1917 only levied one-half of the additional tax
imposed by that act upon cigars, cigarettes, and manufactured tobacco
and snuff held by retail dealers upon the passage of the act. The
bill provides that the entire additional taxes imposed by this bill be
levied upon all stocks held and intended for sale by any person upon
the passage of this act.
The following table shows the rates under existing law andtl the
proposed bill upon cigars, cigarettes, and manufactures of tobacco
and snuff:
Tobacco, nuff, cigars, and cigarettes.
Excistin.Pr
- Item,
Item law. bill.n
Cigars weighing not more than3 pounds per 1 000, per thousand....:
............. , 100 2. 00
Cigarsnighing moe than 3 pounds per 1,o6, it manufactured or imported to
re tailat-. - X 5.00
4 cents or more each andper
4ents notthousand.3.00
Lessthan 4 cent
n

each, ................. 5
more than 5 cents each, per thousand . 4.00 5.00
More than 6 vents each and not more than 7 center each, per thousand........ 4. .00 .00 8.00
8.00
More than 7 cents each and not more than 8 cents each per thousand ........

More than 8 cents each and not more than 15 cents eacA per thousand 6.00 12.00
More than 15 cents each and not more than 20 cents eacA, per thousand 8.00 16.00
More than 20 cents each, per thousand...... 10.00 20.00
Cigarettes weighing not more than 3 pounds per thousand, 11 manuftured or
imported to retail at- 2.05 4.10
Less than 2 cents each, per thousand .......
2 cents or more each, per thousand ....... 2.05- 5.10
Cigarettes weighing more than 3 pounds per thousand per thousand ....... ; .... 4.80 9. 00
Tobacco, however prepared, manufactured or imported, and sold, or removed for .26
consumption or sale, per pound .............
Snuf, however preparedmanufactred or imported, and sold, or removed to
.13
.1
consumption or sale, Per pound......................................13
paolckg%,anbook,
apper, on each om or set, containing-
.26
Opapers .
More than 50 but not more tlan 100 papers.1.......
........................ ..... 0
0o1
.02
Over 100 papers, for each 100 or traction thereof............................... .01 .02
garette tubes, for each 100 or fraction thereof .... .02
................... .04
Floor stock tax on cigars, cigarettes, manuftured tobacco and snuff equal tothe
difference between the tax paid under existing law and the tax Impoed under
proposed bull.

ESTIMATES.

The following table shows the revenue collected from cigars,


cigarettes, tobacco, snuff, and cigarette papers and tubes during the
fiscal year 1918 and the estimated revenue therefrom for the scal
Table: [No Caption]

ULU"t5YTE BILL OF 1911 81


year 119M under existing liw and for the first twelve-month period
under the proposed bill:

Find
1X For12-
F-sc 1 F----,month
199u od un e

Cigar $3090%000 341,700,000


....................... 361,304,000 ..

'...
6c000A00 100:O,
M;, 166,240,000
Su .f,
Snuf) 6W .0..
48..
..; . 10,100'0000 03,700,'000
000, 000 '
.
104, 00,000
0,000,000 9,100,000
Papers t s325,
............. 7500, 1,500,000
Total ......................................................1 56 234,000 212, 150 0 341,204,000

TITLE ViII. TAX ON ADMISSIONS AND DUES,


ADMISSIONS.
Under existing law the tax upon the amount paid for admission
to any place of amusement is-1 cent for each .10 cents or fraction
thereof of the amount paid for such d ssion. The bill increases
this tax to 2 cents for each 10 cbnt or fraction thereof of the amount
paid for such admission. Under existing law and under the proposed
bill in the cases of children under 12 years of age the tax' upon such
admission wiln be 1, cent regardless of the amount paid for the admis-
sion.--
Under existing law there is no tax levied upon admission to any
place the maximum charge for adision to which is 6 cents or in
the case of shows, rides? and other amusements (the maximum charge
for admission to which is 10 cents) with outdoor general amusement
parls or in the case'of admission to such parks. The proposed bill
provide in lieu of thisprovision that in cases where thie charge for
admission is 7 cents or le the tax shall be 1 cent.
In the case of persons (except bona fide employees, municipal offi-
cers on official business and children under 12) admitted free to an
place :at a: time when-and under cumstances under wich an admis-
sion charge is made to other persons, aax of i cent for each 10 cents
or-fraction thereof of the; price, charged such other persons for the same
or similar accommodations is required to be pad by the person so
admitted under existing law. The proposed bill proposes to increase
this tax to 2 cents for each 10 cents or fraction thereof of the price
so charged and also proposes to, exempt from the pynment of the
admission ta persons in the military or naval service pf the United
States when in- uniform, admitted free by the proprietor. In the
case of persons receiving reduced rates of admiion to any place, a
tax of 2 cents for each 10 cents or fraction thereof of the price charged
to other persons for the same or similar accommodations is levied.
TAX ON TIOCETS SOLD AT OTHER THAN THEATERS, OPERAS, AND
PLACES OF AMUSEMENT.
The following new I axes upon the amount paid for admissions are
levied:
In the case of tickets or cards of admission to theaters, operas, and
other places of amusement, sold at niews stands, hotels, and places
8283SVDRVN mL P Itt
other than ticket office tnen
sum of the:establishedprie ttheo r at the tia:taoffc insths ld for
amount of the admission tax he bil
per ct of the amount suck xce, an if
io
cke
morethan 0t cents in exc of th ab'ls dpriceplustha
of there aradmissiontaxsuch an additional tax to 30
equivalent mager, peor
centoftheof an opera of 0
whole amount kdex eS. propre
Ia
of aumt
employee orhouse,
ordisposesof tickets cards of am
,or-otherisinp lie mxce oftheperegular sl
established
of the excess cah'r mipos:ed-
pricesoorcharg-eid istherefor
i
e taax equivalent to
of
Under existing law:in case persons havi
place permanent-use
ofamusement or atlease of a
an:
box or seat in opea house or any
for the'useof a similar b se ataeqivalent
t to0ect of
the amountIfor s uch
which bod orbyseat sldfaenjoyngpe prv-
is e or
lege. reued
exhibitin:The bill
is :;be paid
lto
increases this
the person
ta t o an amount equiv t 25 per
such
cent of the amount for which similar boxes or rsold
act-of 1917 levied a t ofany1 public
:revenuethereof
oruThe
each10-cents-
centforperformance f or-
fraction paidor for admission to,
a-d tae6 tIe
profit at
amount charged'for. other wenterainmen
any-cabaret admionwas included in theprice inpaid.for
similar
refreshment, merchandise,
service or l eftt he amounts iluded f
this
admission to determined
be by commissioner.
the
that Uder
genra
^a amount rul
provisionmthe
couldbe
Treasury
laidtdown e Iect to
eDeatnt determined
that 20cent of the
perrepresented pproxiae paid
for refreshment; service and mercane
the amount covered bythe totalprice paid wbidhcould be ttributaby
to the admission charg, and uponA thai
provision of bI
theulili
thi p
containthA4hi
collected
tax levied
Treasury pnder-existing law.
rdiifignas
of upon
a basis for determining the txhe hsz
t

,where the admission 'charge isadm inclu'dd- in the, price


to rooffromgrdens, chaiged
cbarets, fr
and other The
refreshments. tax Upgn ioincreased each
similar entertaiiments for each 1 cethforfraction
10 cents or fraction thereof to 2 cents
is
10 cents or
thereof of the amount paid.
TAX UflN DUtS.
The revenue act of 1917i ed a taxof 10 pe cent upon theatmount
paid as dues or ienTershlp fes(iluding initiation fe)
sch to anor
due
social,are in e beesaosportting
athletic, or
f uclub o*rorganization where
$12 per yesr. Thins tx isiAcreased t 20 rr
fees
cent of the 'amount paid where the dues f, or: year, la likeresidentis
e of an aiv
annual member are in excess of' $10 per
an
imposed or menberhip
upon duesexisting fees of stock and prdu
exchanges. Under lawifthe dues orinili fes initia-
tion dues or fees exclusive
the
fees amounted t $12 of 'theof 10initiation,
& ta I cent, was,
per feesmight be lestha atugh
$12. The present law i changdb the bill s hateresuchdues a t of 20 per
cent will be levied upon the dues or membership
or fees are 'in excess of $1O per year and upon initiation fs if
such fees amount to more than $10
W3NU BILL OF 1Q18. 338
ADMISSION A*D DUES TAX ESTIMAE.
Yoiwcoimmitteebelieves 0 that the doubling of the rates on admis-
sions andi,0dues wi-llfreultndbling the euefrom these sources
an~d .that thee taxes can. be, efyslj borne, by the tagpayers -.
1918rthat the, present
Thinngthe. periodof.the.fiscayear
sion. and dues taes were in effect, the revenue 'eid therefrom
amount S to $26,357,000. It is estimae that duringa '12-month
period t~he present rates on dmissions'anddues will yield $5o0,000,00
and; thie'prooed rates $100,000,00. ":~ ..'- ':,-
0 . ;TimIX. EXCISE_ TPAES
In recommending etxcse taxes the .roposd bill yourcommitttee
has endeao'd select articesZ that f al withinn two classe: (11) Arti-
to
cles that are more or le luxury: beae of their nature ahd(2)
articsthat beome'.inthe 'nat'ureMofalr whten sold for more
thnfixednprice.
'a . he ta of thec'-ommittee in recommending
these ta'xeis twofold^ ' ( tiTo provide revenue anld (S.) to reduces
extravagance. :. ,. . .-
So far, aspracticable the committee has placed these taxes upon the
manufacturerr. producer,;-'or.:-importer. In the second group of your arti-
cles thi-at,'are'reegarided as luxury a ro when sold over :afixed price
commit eievesthat these taxesshould be paid by the consumer
and collected'by'theetailer Government,'
and by returned to the
and the bill s.o provin:des. z.. ;-.:
.Underexistinglathe taxupon jewelry is baed upon materially the manu-
facturer's -selling price. The jewelry definition has been
este'nded i the interest- of securig more revenueafom th source
and becuse of thisexZtension your committee is of the opinion that
this poison canc be better. administered by placing the taxs upon the
basis of the retail sales4 t.'. ' In . g
A floor tax is levied dall
eupon articles specified in section 900 equal
to the difference between thetaxthat has been paid upon such arti-
clesand t~he taxprovided byth thisbih ll, f: oax has theretofore been
leivied-upon anyarticle specified in thi section a tax equal to the tax
imposed by: this bill . .," .r
Secktion;:905, levies 'a -tax 'of 20. pe cent upon thxe amountimposed paid in
excessof a."fixed'price upon articles upon which this tax is
because regard asn a luxury whensold for an amount in excess of
fixeed pjriGe.-
theu'Sectionu907 h
impos a tax of 10 per cent' in addition to taxton
retail~ saless .jewelry:
of onX t~he :amount..paiqd for 'all jewelry composed
in:wh~oleor in'partoiplat~inum,. Such tax is to-be collected United by the
vtdhis brom the purchaser and paid over by him t the
Stateogther -,vith tthe .na~me, and' address .of the Spurchaser and a
depfio of ;the article sold. ..
* :It. isv etimated theat':'the revenue from the' excise:taxes .during. t~he
first l2xnonths3 this bill isinW operation, will; amount to $517,305,000.
-The folloing tables show the
except
under
excise
those
taxs existing
specified
levied
insation 905 of
law' and the: proposed bill
"the bill'which are fully set outftherei . e
Plat~nu.pr
Auitwy~,
Table: Excise taxes on manufacturer, producer, or importer.

Table: On manufacturer, producer, or importer.

34 REVEWUE BILL 0O 191.

Excise taxq on manufacturer, przucer, or import.


4-U
Itrewitlawt .PAn
bil (per
ercen ) ofpri
cent
for
acid).- for whi
d).

Au'tomoilerioks admbl dmbfllo. wagns


,ga .......-.:*. 5
Automobilers ,
or- m ot cycles ..'
.........

Piano played, graphophones, phonogphs, talking machines and


..........

records used _10


- a '-10
in connection with any musical instrument, etc .......
Moving picture films (twbch have not been exposed) per linear foot.
Positive movu picture films, per linear foot..............................U....o
Jewelry, real or .n station, on price for which sold by manufacturer, producer, or
importer on retail price ................................. 3 to,
10
Sporting goods ......... I

Chewing gum or substitutes therefor...................... . 2


3 0
10
Cameras .
Perfumes, essences, extracts, cosmetics, toilet soaps, etc., of price for which sold 2
by manufacturer, producer, or Importer...............................
Of price paid by consumer for each 10 cents or fraction thereof paid.
Pills, tablets, powders, etc. (proprietary medicines, etc.), of price for which sold
by manufaturer, producer, or importer. .I2 ....i
Of price paid by consumer for each 10 cents or fraction thereof pid. ............
Floor stock tax: To be paid by the person holding any of the following articles.
for sale upon which the tax under the revenue act of 1917 has been paid (not
applicable to second-hand articles): 2
Automobile trucks and wagons.............................................. 7
Automobiles and motorcycles .........................................
Piano players, graphophones, phonogaphs, talking machines and records 7
used In onnection Wrth any musileelinstruments, etc ..................... '107
Positive moving picture films ..................... .....;.-
Bporting gm ods......... ..........L........... ........I.......... ..I......... ....I.......
4
Clama ................................... I...............................
Cameras... 7

I Cent. t Less centperlinear foot,


NEW EXCISE TAXES.
On mnanufactuier, producer, orrimporter.
Percent
of price
when sold
or leased.

Automobile trailers or tractors, Including tires inner tubes, parts, accessories.


Automobile tires,.tubes parts, accessories, sold on or in oonnection with:
Trucksi and automole wagons.........................
.......
Automobiles or motorcycles ...................
a manufacture or producer of
10
Tires, tubes parts or accessories, sold to any person othr
automobiles, eto .............. . . 10 .

Pianos and pip organs ............... 10 ..........

Clocks, opera glasses, lorgnettes, marine glasses and binoculars ..................... 10


Photograpic -films and plates, other than moving-pioture flms .10
C andy ...
10 .

and cartridges: .R,-


Pistolsshe~la,
Fiream and revolvers................................ . . 26 .

All other firearms and shells and cartridges .. 10


Dirk knives, bowie kives, daggers, sword canes, stilettos,and brass or metallic knuckes 100
10
Electric ....... ......
....-.... 10
Thermos and thermostatio bottles, etc ................ .................
Tapestries and textiles for furniture cov gs or orangin n terior decoration.10
Cigar or ciaette holders and pipes meorsolaum amber, huidors,ad smoking stands.'.. 10
Ph ihproductons us .........................10
PhoFtrnae ..............ns.........
l10 10
Adding
.ac
nes. . . - ..-.- 10
Autmadtio slot-device weighing or vendiug machines .4................ .........
...... 10
Uiveries ai fviiey bots and bats..1
adlvery' bootsD: ht. ................. ........ .......... 10
M~Sintin arments ad
Hunting n ridinig habitS.>r:;-510
-iin habits .*.*.*.
\ *.\. .....................4.....;. s;swseew*.
.. \s.*.sw.b;......

1
10

Bathinug suits.,,~~, '; ,4~~-,;


Articles made Irom anyd ofthe follow furs: Sa Hudsbn seal, Russian or Hudson Bay 1
. .otter,
ablWe e inesilver fox, natural or black fox, natural bl fox, natr Amnrican mink, fisher,;
kolinsky~sqtlrtel, skunlk, mole . 10
Yachts anid motor boats; and pleabu. boats and canoes If sold for more than $165 eah 0........ -
Gasoline, per gailon............ <.............s ,,-
lpturo,- yaintlngs,ad statuary, sold by other than the artist, upon the puhaw for
-n
Platinumiewelry, ..... ............or Wxditxa
amount by consumer, an ................................................
additional.10 , 10
I Coun4L Of amount paid.
. scoedUwO~.
o1thr":.; . .
Table: Special taxes.

B VhNIUB BIL o01 1916. 8$


:Txm TAXES. X. SPECIAL

:iW c iding allth tax sources suggested to your


co itteit. has; endeavoredto select suchspecial taxes would
yield coniideri ble revenue--ad at th same tim well distribute the
of .taxation; andf'..:W -"eapabi- of "satifctory a iisration
burdens -@
by" the'tisuy Department. It is believed that the special tax
recommended in the'rpd bill will yWeld about $166,000,000
The foilog table shows the. special taxes levied under -exiliinlg
law andthe propose,.d
bill.:
maSpcct ta.xs
law. Jbod
I :

l l

C'ortatlions, ftt each $1,000 of value of capital stock-


*
Exceeding ssdoo....
... . .. . .. . . .....................'.,.;.
3050
................................................
Brokers.I. . , , ,.'.' iI 10.00
moo
l
Ifi broker member any
a of stock exchange, Uhe
or is a member f any pro-
duc exe , board of trade, br similar organiation where produce or
merhandise sold and If the average 4year pr
Jalration , W60,
ending June 30, of a sat or membership tn such eL org 0
was-,
Not more tha $2,000, n additional.... 50.00
mloe than 33,000 d not more than $,W00, an additional............... 100,00
More than $6,000, an additional .................................. 150.00
Pawnbroker. ...... 50.00 100.00
Customhousbkera....e.
...............................
Ship broker .............................................
. . . . . . 50.00'
50.00O
Theat, museums,4% .
...........................................
,,i ...
=4.
Seating expodty no 250. ............................
..

Seating capacity over 20 and not ecdng 500............................. '50.00, 100;00


seating capacity over 5O0 and not exceeding 80n................... 175.00
Seating capacity exceeding 800 ........................................... 100.0 .

Theaters mmus , and concert h cities, towns or villages of 5 000 popula- to


tIon re acordli to eating paty, ha of that above stted....... 100.00
ClUM atdl exhibition within any one State, Territo or District) 100.00 200.00
Exhlbitbat not otherise provided for (one special tax for exhibitions within
any Son ata4, Tatritory, or District).... ............................. 10.00 2D.00'
atlmfofes tainolat, known - "a street fir" (mxmnum). 100.00 200.00
kwnsiB d b ro , for oh Al oi table ............. 5.00 10.00
ghootNlw; ................................. .................... 10.00
100. 00
butomoblts, ntho be of the gros recip durn the X
year endigJimee3, from th op on of each s automobile ha a sea
Bu
ug caqpacityof mor than v .............................................
of orti or hirf the or mor p r automobe (other than 110
ight-esdug aumobi ha a seatin capaty of mo than seven), on the
fg of each
r i du edi
te ding ye 80, from the
Jma
oporatld suc automob....l.... 15
distilr,
Carryngtbe .biinea of . bree, whUo deaer re
-n=tor St
tWuy wolel
o
alIn malt Hquor or
tate, Terris h h
we of stlls con-
car on oi biness s phibied lta,
by local munal I ition
Prorletors otfvy trade bM s orplsroodptooth -gro o f r
1,000.00
the zdiig
Ju soeso 12,0o....................................... 10.00
If g~jrces recib~ from sources ether than sales directly to the consumer
allW, additl...........................
StAL tAi'ON )IA$WACTUN8 0F 203000, CUGAI, AND CIGAUSTT. I8.00
*mup oftouAc:'
Manuhoctutera
*mk -i'so O"00 ano . .
t 3.00
~ tnotmm10,
not
8601.e W
Anumlsake I
; ..............................
Ove 10000
saduot~over 200
pound 6.00
12.00
12.0
An e o go
era0 Diiow Wt 4 pounds or ft..............
...........................
.06
2. 00 4.00
Annual sot 6 r 0000 Over 3.00
over 80 100 al a .h..................r
AnuS salesO- 0.00 1200
11,00
Asknu
IManuoehmeIuf lm ,
limaO
adS .0 ,0 d......................
Miu sls ove*'r10,000cias, pe' t!f ~
ot rethn3o i
.06 Also
1.00
per thou d: P 1VN ett, in m fdp ror fraction thirof.. .08
U YhvdSle
o tbcratsprboat moar boats with fixed
lbngth- zoo
Rot onlhet0Wbrboot... .150
overwsetaow 10(feet, perfoot. . 1.00 tOO
4 L49
Over -I* ,-
0l-. uten
................................... ... too
--:., .. .. --
Cent
: R-4-G-2-vol 2-64
136 U 'DILL 1918.

8paCi taxa-OontintiUd.
Item.~ , _
law. Obtill~,W
SPECIAL TAXES ON MANUPACTUR3ES 0F TOBACCO, B2OAM, AND CKGAlt7eU-0on.
Manuthotuiers of oigare-Continued.
Motor boats of not over 5 not tons with fixed ne5......................00 810.00
Businesses consisting of the retailing of merchandise through or upon orders re-
celved by mail, on the basis of the retail sales during the preceding year ending
June 30, on the gross amount in excess of $100,000 ..............................)
use of motorcycles...5 00
............ [)
Use of automobiles:
(Other than electric) 23 horsepower or less
....... ........... 10.0000
More than 23 horsepower and not more than 30 horsepower . .................0..........
More than 30 horsepower and not more than 40 horsepower.................. ........ ....
A
30.00
More than 40 horsepower ........ ............ 50. O
Use of electric automobiles ....................... ............
Manufacturer of automatic vending or weighing machines who operate such mn-
chines, on the basis the gross amount received by him from such operation
of
during the preeding year ending June 30..............................) .. .........

Ia per cent. $5 per horsepower and 80 cents for each 100 pounds of weight. 85 per cent.
AM1 ENDMENT OF HARRISON NARCOTIC ACT.

The decision of the Supreme Court in the Jim Fuey Moy case
(June 5, 1916) has made it very difficult to enforce the act of December
17, 1914, Jknown as the Harrison Narcotic Act. Under that decision
it is impossible to hold criminally liable a person nhving in his pos-
session Any amount of the habitforming drugs included within that
nct, unless such person is a dealer theremin. The- proposed bill in sec-
tion 1008 amends that act so as to place an internal revenue taxi pay-
able by stamp, upon such drugs, and provides that the possession of
an unstamped package shall be prima facie evidence of a violation
of the act.
Section 6 of the Harrison Narcotic Act exempts from the operation
of the act preparations containing only a small proportion of narct-
ics. In the administration of the act it hs been found that the
exemption has made the adequate enforcement of the act Almost
impossible, and that many preparations are market whih-hcon-
tain a lawful amount of the drugs, but which are of great harm to
the consumer. The bill therefore provides in section 1009 for the
amendment of section 6 so: as to make the Harrison Narcotic Act
apply to all habit-forming drugs.
Under the present law only: prepared soking opium seized by the
United States Government from any person volati e acts £,&
October 1,1890, as amended vby the acts of March 3,1898, :-February-
9, 1909, and January 7,: 1914, may be sd to the. highest bidder,
pursuant to the provisions of setion 3460 of the Revid0 Statutes
of the United States. The Secretsry of Athe asury do not have
any authority to dispose of coca leaves their lts, and derivative
or compound or opIm, except smoig opium, i any manner
whatever, when seized f viola ion of any of thse abe cts or when
seized under the act of Decembe:r17, 1914. Neither- are theicourts
authorized by any statute to dispoe of coc leaves their salts and
derivatives or compounds, or oanvOpium;, except smoking opium.
At tihe present time, the Feder GIovernmenti has in its possession,
at the presnt market value, about $100,000 worth of opium halts
and alkaloids, and salts and derivatives of coca leaves seized by it
from persons violating the acts aforementioned.
merchandib\|t1~. .
Table: Stamp taxes- Schedule A.

nvnu urDIM Or s19.L 87


Section- 1010 of the bill permits the Federal Government to deliver
this amount of opium salts and alkaloids and salts and derivatives
of coca leaves, and any such salts and alialoids, hereafter taken to
any depa ent,- b au or agency of the Unite States Govern-
ment for use for medicinal or scientific purposes.
TriE XI. STAMP TAES.
The bill reenacts the stamp tax provision of the revenue act of 1917
without changing the rate excpt in one instance. In the cae of
playing cards an increase from- 7 cents to 8 cents per package is rec-
ommended. The foliowM t.able shows the atticles subject to stamp
tax and the rates proposed upon the same.
Stamp taSw~e cAh A. RAU.
1. Bonds, debntures, or certificatOe of indebtedness isued by any person,
crporation, partzijrship, or a ion, on each $100 of face value or
fractionthereof.$0.0.......... ......,........... S0.06
2. Indemnity and surety-bonds8 * : , . . 50
;-Where premium is charged for the execution of such bond, on each dol-
lar or fractional part thereof, 1 per cent.
8. Capita stock isue: On each oril isue of certificates of stock, whether
on organization or reorganization, on each $100 of face value or fraction
thereof . ........ ...:.............................. .005
thereof....,..
Capital tctisued without face value, on each S100 of actual value or frac-
tion threoft p .l
ereeen ...06
4. Capital ork ee or tini: On all sales, or agreemenbtoslo mem-
oanda of ale, or deliveries of or ansfers of legal title to sha or certifi-
tates of stock ''of any asciion, company, or corporation, on'each $100
of actual or face value or fraction thereof. .............. 1
................ .02
6. Produce-ales of, on exchange: Upon each ale, agreement of sale, or agree-
ment I sell any products or merchandise at any exchange or board of
trade or similar place for future delivery, for each $100 in value of the
mechndscoerd02 ,,,,,,~..0

And for each additional $100 or f ion0th~eof ............... .02


6. Drafts or check (payable other than at sight or on demand) upon
their a n or livery within the United States whichever is pror, -
promissory ntes, excePt bank not isued for circulation, and for each
reneSalof theme, s for a sum not exceeding $100 (except obligations
secufed by pledge of bonds or oblig tons of United States) ............. .02
And for each additional $100 or action thereof .02
...... .........I........
7. Convey ynces:eeds, instrument, or writing conveying lands tenements,
sold,wetc. vaue over $100 and not exceeding i500. .
or otherealty 50
For each additional d or fractional part thereof . ................. .50
8. Entry of go~dS, wares, or merchandise at any customhouse, not exceeding
$1i ini v$0. 25
rlue..0.0. . ..........

Exceeding $100 and not exceeding $0 in value .................... ..0


Exceeoding $500 in value ............................................ 1.00
9. Entr for the withdrawal of goods or merchandise from custom-bonded
warehouss................. ............................ . 50
10. PaA ticketone way orround trip, for each psenger sold or issued in
he-United States forp by vesselto places not intie United States,
Canada, or Mexico, costig notAexce ing $0 .1.00
More thian $30 and not exceeding$60............................. 3.00
More than $60...55.00 .........

(Passage tickets costing $10 or less exempt.)


11. Proxy, for voting at any election of officers of any incorporated company or
asociati,- except6eMligious, charitable, fraternal, or literary societies,
or public cemeteries.'... .10
12. Power of attorney.25 ................. .25
(Eemption: Papersied in the collection of claims for pensions,
back EYor bounty,r or fr property lost in the military or naval service,
or, itI brnty cae .)
13. Playing every pack containing not more than 54 cards . 08
.......

14. Parce1-rt packages, where the postme amounts to 2B cents or more, for
pt 'owlof. .-........0...............01
8888nuvZlivE Buz. 1F18.
aring the period of the fiscl year 1918 that t sm es
were in effect the renue yield therefrom amounted to $18,815,000
It is estimated that these taxes will yild $82,060,0 durig a 1i2-
month period.,
TrrLm XlI. ADVISORY -TAX BO .
Because of the large' number of difficult cases that, arise under.tihe
internal-revenue laws -byreason of the g t p of the- same, the
amount of revenue involvi .in the ectio of th same, and .to
sure fair' and adeuate consideration of every Gase arising under.'
the internal-revenuelaws, the bill rovids for thereation ofabard
of tax advisors Wt be. known as the "Ad y.tax aboard," to pass
uon all cases referredA6to tm by the Sectof thieTreasury or
U mmissioner Iternal
of Revenue or to consider any case in which
the taxpayer shall request th't Athe bordoder. The board is to
consist of five membersito bebappointed by the Pit of the ite
States by and with the advice and consent of the.S."~t:The bill
provides that the board shall iemin in existence during the ctinu-
ance of the present war with the Ivpeial Germa-n Goverment and
for a perAiod of one year after, the'tarnation of such war. Thes'ai-
provided for each member of the boar is $9,000 per year and is
deemed to be the lowest salary advisable in view, of thess of men
that it is desired shall be secured' for this board.
TITLE XIII. GENERAL ADMINISTRATIVE PROVISIONS.
The salary of the Commissioner of Internal Revenue is increased
by the bill to $10,000 a year. Such a salr i smalenu cmpen-
sation for one qualified, as 'the present commissioner oncededly i,
to fill the position of Com oner -of Internal 'Revenue with its
onerous duties and Vast responsibilities.
APPRORIATION TO OARRY THIS A(TI INWO" EFFECT F.0, THE FISCAL
YEAR 1919. '-

The Commissioer of Internal-Revenue appeared before your


commItt on Auist 15 and fully set tPhe-pane
forth: of his bneu
for collecting the eternal revenue under the'neW-ill di- 0the fiscal
year ending June 30, 1919, d the, estimated costof cectin'g the
same.. E.His statement: has ben printed NoW..
as Hean 29 and sets
forth mn detail the estimated cost of maintainig the Iternal Revenue
Bureau and the estimated additionai'L'employeesrequird. Your
committee believes that the sum reque'stedby the Com issioner of
Internal Revenue of $7,50w00a-aitiona is a reable estima teand
recommends that this amount be.,appropriated. Thi additional
appropriationn for this fiscal year will make the':appropriate ion for the
Initeial Revenue Department for this fiscal year amount to approx-
mately $25,000,000.
Because .of the additional ibilit and the e amount of
additional work placed upon the- collectors-of internal revenue the
bill provided tha the commissioner,, sujet to: heapproval ofth.e
Secretary, bi allowed to readjust and increase the salarynibility- of the
collctorsi'of internal revenue upn the basic of ther'--
and internal revenue,coll ons ut that in no case shll^ anycT-'
lector of intrnaL revue receive salayin exces of $6,000 a'year.
1M.9
REVINUs BTILL 01 89
Sect~on 301 of the.bill authories in lieu of the deputy commis
sioners whose salrie -are now fixd by law the employment of five
depu itycommissioneitsand an assitant to the commissier at a
lawe
salaryeach of$5,000 a year. Tprovides
The present for three
deputy commisonerstwo-a't
x ;~~~~~~~~~~~a salary
at:t of
0660 $4,000 er
-,Pvyeares orzea
andon
sz~~;eooper year.~i Due to thaCmee
ainceae Iitheinternal
scopeof revenue
laws and the greatly increased problems to be- met under the same,
your committee believes that the recommendation of the commis-
sioner is advisable and inl the interest of the better administration
of thehdepa rtmen tand therefore, incorporatedd in the bill such
recommendation.
LEGISLATIV DAFTIMG SERVICE.
The bill0provides in section 1303 for the creation of a legislative
drafting service, under the direction of two draftmen, one to
be appointed by the President of the- Senate and'one by the
peaker of theHous, at a sal 'of' .54)00 'each, the appointments
to be made without regard:to political'affiliation and solely wth regad
tness for the duties of the- office. This drafting service woul aid
in the:dafing of public
billss on the request of any cznmittee of
either Hou-s and would' bte under 'the-general supervision of the
int Committeeon 'the Library. For'the remainder of the current
fiscal year an Sappopriation 'of $25,OOO is provided to pay the
salrsof-. 'the two draftimen and their necessary assistants and
clerks and to provide for the purchase of necessary furniture and
supplies.
Your committee during th'past 'two -years has received valuable
volukbi'teer -it,'ce from expert legislative draftsmen, and is in-
formed t oter comitteesof both Houses have made u-s of such
services, including the Finance Committee of the,'Senate and the
Merchant ainad Fisheries'and the6JudiciaryCommittees of the
,House, las well tw numerous individualRepresentatives and Senators.
Theex'perienceof your committee convs it that the establishment
of such a serce,ona nonpartisan and permanent basis, wil prove
of grea Alue,i the framingiof:bills,- articularly at this tme, when
the complexy a'nd wide scope of war legislation with the constantly
inceing teity of dealing with problems never heretofore
within the Units "'of cogressiona action, rnder it imperative that all
acsof 'C be dra with the greatest possible clearness and
prbeision.
The remainderkof thege neral provisions carry forward into this bill
the general administrative provisions of the revenue acts of 1916 and
1917 which arerepealed bythis bill. Section 1318 ad section 1319
arenew sections added to the general administrative provisions. Sec-
tion131t8 provides that:whoever in connection with the sl or lease
or offerfor' i.le or lease, of any article, 'of'for the purposeof- iakino
such 'ale or lease, makes any statement, written -or oal, d (1) intend
.or:cu d to lead any pron to believe that an art of the' price
at which 'such article isold"or leased, or offered for sale or lease
coistsoa tax'im d under Lthe atority of, the United States
or'': (2) ascrig a particular wt'of;f price to a tax imposed
underitheauthority of theUnitd States, koing that such state-
is fa~le ohat the taxis it so great asth portion of such
price ascribed to such tax, shal- be guilty of a misdem anor d upon
conviction thereof: shall be fined not more than $1,000.
Table: Revenue receipts during the fiscal year 1918 and estimated receipts during the fiscal year 1919 under existing law and under the proposed bil .

40 REVENU1. BILL OF 1918.

LIBERTY-LOAN BONDS MAY BE USED IN LIEU OF SURETY BONDS.


Section 1319 provides that wherever by the laws of the United
States or regulations made pursuant thereto, any person is required
to furnish surety or sureties on any bond, such person may, in lieu
of surety or sureties, and under regulations prescribed by the Secre-
tary, deposit with the United States an amount of bonds of 1the
United States issued after April 24, 1917, equal to the amount of
such bond, together with an agreement authorizing the United
States to sell such bonds in case of any default in payment of the
bond. As soon as the bond becomes void and of no effect -uch
bonds shall be returned to the depositor.
Your committee is unanimous in recommending the passage of
this bill.
RZOAMITULATION.
Revenue receipt. during he fiscal year 1918 and estimated receipl. during the fiscal year
1919 under existing law and under the proposal bill.
Remvnus receipt.
Fiscal Year or2onh
_i . ri._. 1919 under
191.lea
11 1~xlstjng period under
law proposed
estimateded. bill.

Income tax: $030,000,000


individual.......................................... I W 0
$930,000,000 $1, 482,
'5b28,500,000° 1,791,000,000
528, 500, 000
18, 000
894,000,000
Corporation......................................... * 1,791,000,000 3,200,000,000
Excese.&rofts tax..................... 47,453,000 75,000,000 110,000,000
Estate tx .....................................
Tansportation: 30,000,000 75,000,000 75,000,000
eght. .......... 6,450, 000 20, 000.00
Express.......................
-- Pe ................... 24,308,000 20,000,000
20,000,000 00,000, 000
000
..........
Oil by pPMe lles.................................
g 1,463,000 1,000,000 4,650,
5,000,000
Beats samd bets.................................... 2,237,000 2,000,000 b, OOO
1800000,
Telegraph and telephone................................ 6,299,00') 14,500,000 000
12,000,000
INsurance............................................ 8,492,000 1,000,000
100,000,000
Adlmissins...... .268, 67, 00 ,000,000
Club dues. 2,259,000
Emxisf taxes. 35,000,000
Automobiles, eto................................... 23 981,000
13,000,t00
41,700,000
15,000,000
123,750,000
80,000,000
Jewelry, sporting goods, eto.......... 88,700,000
Other taxes on luxuries, at 10 per cent............ .............. ................
Other taxes on luxuries, at 20 per cent. ................
................ ................
184,795,000
Gasoline................................ ................
Yachts and pleasure boats . 900,000,000 ......... ...... 1,000,000
1,137,BOOOOO
18,81, 000 320,000 32,000,000
Tobacco: ' 5,00,
50,000,000 000 61,304,000
Cigars ............................................. 30,s),000 25,700,000
Cigarettes...................... 06,000,000 100,000,000
48,000,000 63,700,000
165,240,000
104,000,000
Tobacco....................... 9,100,000
Snuff, etc........................................... 10,000,000,
T2.5,000O 36,000,0
760,000 1,500,000
Papers and tubes.......................................
Special taxes: 26,000,0(0 70,000,000
Capital stock....................................... 233, 000 850,000 1,785,000,
Brokers.................................. 1385,000 ,107,,000 2,143,00
Theaters, etc...... 5,000,000
Mail order sales....................... ................
2,200,
Bo-xling alleys billiard and pool tables .: 1,080,000 ................
400,000
Shooting galleries.................................. ................. I.............. 50,000
Riding academles ................................. ................
.

10,000,000
Busiss license tax ................................ ................
37,000 89,000
Manufacturerso f tobacco ...........................
Manufacturers of oigars............................. 638,000 440,00
1a0,000
. 850,000
240,000
Manufacturers of oigarettes..................... 72,930,000
Use of automobiles and motorcycles............ ................ ............... ........

Total ........................ 3,941,663,000 4, 417, 267,0O00 8,182,492,000


Assessed but not collected In 1916.
lucmre tax based on total Individual Income of (taW) ................................. $7,400, 000,000
Corporation exes profits lanoon t on lot..... 10,000, 000,$O