The Press WEDNESDAY, MAY 12, 1943. Has Mr Nash Met Dr. Ruml?

Press, Volume LXXIX, Issue 23945, 12 May 1943, Page 2

The Press WEDNESDAY, MAY 12, 1943. Has Mr Nash Met Dr. Ruml?

Last year Dr. Beardsley Ruml, treasurer of Macy's and adviser to the National Resources Planning Board, proposed to the United States Senate Finance Committee a striking change in the system of federal tax collection. Income tax on 194243 incomes was to be collected in instalments during the year 1942-43: pay-as-you-go at one stride. It would have been necessary (i) to assume that 1941-42 Income levels continued into 1942-43, collect on that basis, and adjust, up or down, at the end of the financial year; and (ii) to forgo taxation on 1941-42 incomes. This surrender, not so real as it may seem at first sight, would have avoided the difficulty of collecting, or trying to collect, in 194243 both the tax on current income and the tax on the previous year’s The system would have reached normal runniny til ohcC, Thu iiniiiß of such a system, to the Treasury, are that it will speed' tax collection; that it will reduce defaults; that it will in these ways control inflationary spending more readily; and that it will do so, also, by responding sooner to war-time (or other) increases in the national income and by checking the tendency—fairly common in America—to meet lump taxes by borrowing. The taxpayer is benefited because, clearing his taxes as he makes his income, he reaches the end of the year either in credit or with little to pay; that he need no longer go in fear of having to pay, in a year of reduced income, the lump tax piled up against the previous year's high income; and that, on his death, his estate will be tax clear. The United Slates Treasury objected, chiefly, that if this plan were adopted in 1942-43, there would be a very serious immediate loss of revenue. Dr. Ruml had argued that the loss would be spread over many years, as taxpayers died fully paid-up instead of owing tax on a year or part of a year. (It is curioUs that he did not argue,, rather, that any estimated loss could and would be fully absorbed by tax rate adjustments from year to year.) Tiie Treasury pointed out that to forgo the taxes on 1941-42 incomes would be to forgo the revenue ffom a year of high incomes. Those of 1912-43 were being reduced by pt’ice control, profit control, higher costs, and so on. The same rates applied to these would yield less; corporations and individuals would win on 'he difference, and the Treasury lose. Tills is true. But the root of the objection was not in any financial or fiscal principle that forbids the change itself or any device to solve the change-over problems. It was in Mr Morgenthau’s current Cudgel plan, which pursues a three billion dollar income tax incrfwc, aimns't wholly from those high 1941-42 incomes. All tiie difficulties, in fact, are technical and transitional. Tcchni--?.l resource can overcome them Lone is fundamenial and far-reach-ing. But the advantages are. It was reported from Washington a few days ago that the House of Representatives had adopted, by a majority of more than three to one, a compromise bill on the Ruml model. The Treasury’s objection to the skip loss may be raised again, bu f cannot, clearly, be raised on grounds so strong as before. Moreover, tiie compromise is designed to meet it. While it is tiie central provision of the bill to forgo taxation on 1942-43 incomes and begin in 1943-44 the taxation of current income, reservations extend to about 10 per cent, of taxpayers and their 1942-43 incomes. The Senate has now to consider the bill. If it is adopted, however, and becomes law, it will not be without a precedent, as impressive as the theoretical case for clear-cut pay-as-ynu-go taxation. The Canadian Treasurer announced last month that, from the end of last year, the old system of lag lax-collection was discontinued, and taxpayers this year would pay their current assessments. Though the Ruml system is applicable in all conditions and at all times, its advantages are such as make it a specially useful instrument of war-time finance, in Wellington no less than in Washington and Ontario. Mr Nash is preparing his Budget. He has spent months in Washington. Did he meet Dr. Ruml?