July 1, 1943

Tax Review: Income Tax Simplification

Download Tax Review: Income Tax Simplification

Volume IV No. 7

Executive Summary The severity of present income tax rates is likely to create less vexation than the complicated overlapping requirements that have been set up.

No changes were made in the income tax laws by the withholding tax-it adds further complications to a tax structure already needlessly complicated. There are now three different kinds of income tax in operation, each with its own concept of a taxable base and its own rates. The withholding tax cuts across all of them for the purpose of current collection.

While there is a general impression among taxpayers that they are automatically current in their tax payment—actually in rare instances only will this be the case.

All taxpayers will have to file a return on March 15 to cover the income of the previous year and estimated income of the current year. Adjustments will involve endless bookkeeping problems for the taxpayer and the Treasury.

Simplification is possible by (1) absorption of the Victory Tax into the withholding rate, (2) designation of the withholding rate as the normal rate, and (3) elimination of the requirement to file a year-end return in all cases where there is no income other than wages or salary and in which there is no liability for surtax. Introduction of the withholding principle was a worthy achievement. It would be unfortunate if the complications that have been piled up should produce ill will and place it in disfavor.