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special assessments for improvements. A plan of procedure in such cases has been worked out by the Commissioners and a committee of citizens of the District of Columbia, which is embodied in a proposed bill submitted to Congress by the Commissioners of the District of Columbia.

TITLE X. INCOME TAX

Under the provisions of the act of Congress approved August 17, 1937, entitled "An act to provide additional revenue for the District of Columbia, and for other purposes," the 25-cent increase in the rate on real estate and tangible personal property (raising the rate from $1.50 to $1.75) expires on June 30, 1938, as does the tax of two-fifths of 1 percent of gross receipts of businesses and professions in excess of $2,000 for the privilege of doing business in the District of Columbia.

It will be necessary to replace these taxes in the fiscal year 1939 in order that the District of Columbia may have sufficient moneys to meet the payment of expenses under appropriations already made by Congress for that year. These appropriations total $47,255,155, of which amount the sum of $5,723,590 is payable from the special fund for highways, and $2,191,220 from the water fund, leaving $39,340,345 to be paid from the general fund of the District. It is in this latter fund that there exists the need for additional taxes to meet the prospective deficit in that fund.

In addition to the above $39,340,345, other appropriation charges against the general fund of the District must be provided for in the fiscal year 1939, including one-half of the appropriations for Freedmen's Hospital, 60 percent of the appropriations for the District Court of the United States for the District of Columbia, 30 percent of the appropriations for the United States court of appeals, and estimated supplemental and deficiency appropriations, these several items being estimated to amount to $930,636. There must also be provided for, the further sum of $1,769,102, being the present computed revenue deficit in the general fund of the District of Columbia at the close of the fiscal year 1938, on June 30 next.

Bringing all these items together makes a total of $42,040,083 as the general fund appropriation charge in the fiscal year 1939, to meet which-without legislation providing for additional taxes-only $37,725,000 is estimated as available. This therefore leaves a revenue deficit in the general fund in the fiscal year 1939 of $4,315,083, which must be supplied by additional taxation. Should Congress appropriate further funds for relief in the District of Columbia, before or after the investigation into the subject authorized by the District Appropriation Act for next year, such amount would necessarily increase the foregoing revenue deficit of $4,315,083.

Moreover, any new legislation passed by Congress imposing additional financial obligations on the District would increase the deficit. This tax bill is estimated to raise about $5,200,000, made up of $3,000,000 from the increase of 25 cents on the tax rate ($1.50 to $1.75, which is limited to the fiscal years 1938 and 1939), $2,000,000 from the tax on incomes, and $200,000 from the tax of 50 cents on beer.

While it would appear that the taxes proposed by the bill will raise approximately $900,000 more than appears necessary, as compared with the estimated revenue deficit of $4,315,000, it should be borne in mind that additional relief appropriations may consume this difference.

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Moreover, should there be any excess revenue collected in the next fiscal year it would be available in the fiscal year 1940 for disposition as provided in the act of June 29, 1922, namely: such excess shall be available the succeeding year, in the discretion of the Commissioners, either for the purpose of meeting the expense chargeable to the District of Columbia and/or for the further purpose of enabling the Commissioners to fix a lower rate of taxation for the year following the one in which said excess accrued than they might otherwise be able to do.

Title X imposes an income tax for the District of Columbia to be cited as “The District of Columbia Income Tax." It consists of a table of contents and 47 sections. Title X is applied to the taxable year 1938, and succeeding taxable years.

The rates prescribed for individuals are as follows:
One percent on the first $2,000 of taxable income.
Two percent on the next $3,000 of taxable income.
Three percent on the next $5,000 of taxable income.
Four percent on the next $5,000 of taxable income.
Five percent on the next $5,000 of taxable income.
Six percent on the next $5,000 of taxable income.
Seven percent on the next $5,000 of taxable income.
Eight percent on the next $10,000 of taxable income.
Nine percent on the next $10,000 of taxable income.
Ten percent on all in excess of $50,000 taxable income.
The rates prescribed for corporations are as follows:
Four percent on the first $15,000 of taxable income.
Five percent on the next $35,000 of taxable income.
Six percent on all in excess of $50,000 of taxable income.

Taxable income, net income, and gross income are defined in the title. Exclusions and deductions from gross income are set forth in detail.

Salaries paid to justices of the Supreme and inferior courts, to members of the Cabinet of the President of the United States, and salaries of all elective officers and the clerks and secretaries of all elective officers when such clerks or secretaries maintain a residence without the District of Columbia are excluded from gross income and are not subject to tax.

Gain or loss in capital assets is not recognized in the computation of gross income except where capital assets have been held for not more than 2 years. “Capital assets” does not include stock in trade or like property or assets.

There are exempted from taxation under title X the following organizations: Corporations, and any community chest, fund, foundation, or club organized and operated exclusively for religious, charitable, scientific, literary, educational, or social purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation; labor organizations, trade associations, boards of trade, chambers of commerce, citizens associations or organizations, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual; and insurance companies, building and loan associations and companies, incorporated or otherwise, which guarantee the fidelity of any individual or individuals such as bonding companies all of which

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pay taxes upon gross premiums or earnings under existing laws of the District of Columbia, and railroads, express or steamship companies which report to and are subject to regulation by the Interstate Commerce Commission under the provisions of the Interstate Commerce Act of 1887, as amended.

The following credits are allowed to individuals against net income: In the case of a single person or married person not living with husband or wife, personal exemption of $1,000; and in the case of a head of a family or married person living with husband or wife, a personal exemption of $2,500. In addition there is a credit of $400 for each dependent (other than husband or wife) dependent upon and receiving his chief support from the taxpayer if such dependent is under 18 years of age or is incapable of self-support.

Other credits against net income are substantially the same as those allowed in the Federal income-tax law.

In respect of nonresident individuals and corporations, income having its source in the District of Columbia only is subject to the provisions of title X.

Credits against tax are allowed as follows: Where a resident individual has become liable to any State or Territory upon income taxable under title X, the amount of tax payable by him under title X shall be credited with the income tax so paid by him to any State or Territory. Such credit, however, shall not exceed that proportion of the tax payable under title X that the portion of the taxable income taxed by such State or Territory bears to the net income of such resident subject to tax under title X. Where a nonresident individual has become liable for income tax to the State or Territory where he resides upon net income derived from the District of Columbia, and taxed under title X, the amount of income tax payable by him under title X shall be credited with such proportion of tax so payable by him to such State or Territory as his income from the District of Columbia bears to his entire income upon which the tax so payable to such State or Territory was imposed.

Any tax on intangible personal property paid by a taxpayer to the District of Columbia shall be allowed as a credit against the tax imposed by this title for the taxable year in which such tax on intangible personal property is paid.

Any tax paid upon gross earnings by national banks, and any other incorporated banks or trust company or companies which furnish abstracts of title and savings banks, within the time prescribed by law for the payment of such tax by the taxpayer, shall be allowed as a credit against the tax imposed by this title for the taxable year for which such tax on gross earnings is paid.

Accounting periods, basis of returns, and other provisions relating to returns by the taxpayer are substantially the same as the Federal law relating to such subjects.

The tax imposed by title X is to be paid on the 15th day of March following the close of the calendar year for which the return is made or the 15th day of the third month following the close of the fiscal year for which the return is made. The taxpayer, however, may elect to pay the tax in four equal installments pavable as the Federal income tax is paid. However, with respect of the taxes for the first year, namely, the calendar year 1938, the return by the taxpayer shall be

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made on or before the 15th day of February 1939, and the tax shall be paid in two equal installments on the 15th day of February and the 15th day of May 1939. The other provisions of title X relating to payment are substantially similar to provisions of the Federal income tax law relating to the same subject.

All persons within the District of Columbia except disbursing officers of the United States Government shall withhold the tax imposed by title X from any payments due or made by them to nonresidents of the District of Columbia.

Title X provides that the assessor of the District of Columbia is authorized and required to administer the provisions of title X with the authority in the Commissioners of the District of Columbia to promulgate regulations for the administration and enforcement of title X. Provision is made in title X for refunds of overpayments of taxes upon a claim for such filed by the taxpayer with the assessor. If the assessor disallows any part of the claim for refund the taxpayer may within 90 days thereafter appeal to the Board of Tax Appeals of the District of Columbia established by title IX of the act and prosecute his appeal in the manner set forth in sections 3 and 4 of title IX of the act.

Authority is given to the Commissioners to compromise a tax when in their opinion there is any doubt as to the liability of the taxpayer.

Penalties for the failure to file returns or pay the tax or the filling of fraudulent returns are provided in title X substantially similar to provisions relating to the same subject in the Federal income tax law.

Although it is readily conceded by most people that of all taxes a graduated income tax conforms most closely to the universally accepted principle of taxation according to ability to pay, the objection is sometimes raised that the rates of a specific proposal are excessive.

In the case of the proposed District tax on individual incomes, the nominal rates vary from 1 percent on the first $2,000 of net income to 10 percent on net incomes over $50,000. These rates, for incomes in the lower brackets, place considerably less burden on the taxpayer than any other tax that would meet present District needs. And even for that portion of the higher incomes which is taxed at the top rate under the bill, 10 percent, the actual tax can hardly be considered excessive.

This much should be made clear at the outset: A stated bracket rate does not apply to the taxpayer's total income, but only to a part of it. Take, for example, an unmarried man who has an income of $70,000. The 10-percent rate applies to only that portion which is in excess of $50,000—or $20,000. This man would pay a tax of $4,930, which is not 10 percent, but an average effective rate of 7.04 percent.

In the second place, the burden imposed by the enactment of the proposed District income tax is considerably lessened because the tax is allowed as a deduction in determining the net income upon which the Federal tax is computed.

Thus the man with an income of $70,000 who pays $4,930 to the District, would as a result pay $2,097 less in taxes to the Federal Government than he would have paid if there were no District tax. His net additional burden, as distinguished from his actual tax payment, therefore, is only $2,833, not $4,930. And reference to the accompanying table shows that his burden is not 7.04 percent but only 4.04 percent.

In fact, as the accompanying table further shows, in no case does the District burden exceed 4.1 percent. This maximum percentage applies to net incomes in the neighborhood of $60,000.

The percentage burdens shown in the tables, moreover, are calculated without allowance for two important deductions. First of these is a credit for the amount of District intangible property tax paid. The estimated yield of the proposed income tax has been placed at $5,000,000, whereas the estimated yield of the intangible levy is $3,000,000. About $2,500,000 would be credited against the income tax, thus further reducing the burden by 50 percent.

Finally the credits for taxes paid to other States, which will be permitted under the proposed plan, will cut the burden again.

The tax as proposed is fair and equitable in principle, and the distribution of its burden is such that in no case will it create a hardship. Care has been taken, it may be noted, to credit the payment of other taxes to avoid the hardship arising from a double tax. It is a first step toward a rational and effective fiscal policy for the District of Columbia.

There follows a table showing the effect of the tax imposed by title X upon the income of married persons with three dependents. Maximum District of Columbia income taxes and net burden of proposed rates for married persons with 3 dependents--All income from salaries, $3,500 to $500,000

(Without credits for personal property or State income taxes paid)

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Title XI repeals that portion of the act of June 29, 1922, providing for Federal contribution of 40 percent of the annual expenses of the District of Columbia and the participation by the United States to the same extent in the miscellaneous revenues of the District of Columbia. The act of June 29, 1922, provided, among other things, that on and after July 1, 1922, the expenses of the District of Columbia should be divided between the United States, and the District of

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