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IV. ESTIMATES

A substantial improvement of the revenue system and an increase in revenue would result if the proposals for the income tax (Section I) and the estate and gift taxes (Section II) were enacted in whole or in part. Similarly, a substantial improvement of the revenue system would result if all or part of the excise taxes (Section III) were eliminated, but this would bring about a substantial loss of revenue.

Estimates will be prepared for the fiscal years 1938 and 1939 for those changes proposed in this memorandum which, in your opinion, have sufficient merit to warrant further investigation.

EXHIBIT 1

THE CANADIAN INVESTMENT INCOME SURTAX /2/

In the Canadian income tax law earned income and investment income are defined as follows:


          " 'Earned income.' - 'Earned income" means salary, wages,
     fees, bonuses, pensions, superannuation allowances, retiring
     allowances, gratuities, honoraria, and the income from any
     office or employment of profit hold by any person, and any
     income derived by a person in the carrying on or exercise by
     such person of a trade, vocation or calling, either alone or, in
     the case of a partnership, as a partner actively engaged in the
     conduct of the business thereof, and includes indemnities or
     other remuneration paid to members of Dominion, Provincial or
     territorial legislative bodies or municipal councils, but shall
     not include income derived by way of royalties, or any income,
     irrespective of the source or combination of sources from which
     it may be derived, in excess of fourteen thousand dollars;

          " 'Investment income.' - 'Investment income' includes any
     income not defined herein as 'earned income' and also any amount
     deemed by this Act to be a dividend and any income from whatever
     sources derived in excess of fourteen thousand dollars."

ALTERNATIVE EXEMPTIONS FROM SURTAX

The following income shall not be liable to the additional rates of tax on investment income, namely,


     (a)  All income up to five thousand dollars; or

     (b)  "Earned income" up to but not exceeding fourteen thousand
          dollars; or

     (c)  Income equal in amount to the sum of the exemption and
          allowances for dependents to which the individual is
          actually entitled under the provisions relating to
          exemptions for purposes of the normal tax, namely, two
          thousand dollars for a married person; one thousand dollars
          for single persons; and four hundred dollars for each
          dependent.

RATES OF INVESTMENT INCOME SURTAX

Rates of tax applicable to all persons other than corporations and joint stock companies, in respect of "investment income" as provided for in this Act


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On investment income included in any income exceeding $5,000     
  but not exceeding $10,000                                    2%
On investment income included in any income exceeding            
  $10,000 but not exceeding $14,000                            3%
On income exceeding $14,000 but not exceeding $20,000          3%
On income exceeding $20,000 but not exceeding $30,000          4%
On income exceeding $30,000 but not exceeding $50,000          5%
On income exceeding $50,000 but not exceeding $75,000          6%
On income exceeding $75,000 but not exceeding $100,000         7%
On income exceeding $100,000 but not exceeding $150,000        8%
On income exceeding $150,000 but not exceeding $200,000        9%
On income exceeding $200,000                                  10%
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COMMENT ON CANADIAN INDIVIDUAL INCOME TAX RATES

In the Canadian income tax law the normal income tax is graduated from 3 percent on the first $1,000 of net income, or any portion thereof in excess of exemptions, to 56 percent upon net income in excess of $500,000. The Canadian surtax applies only in the case of incomes in excess of $5,000, and for such incomes the surtax is a flat 5 percent of the amount of tax under the graduated normal income tax rates and the surtax rates on investment income. In other words, the tax liability under the normal income tax rate is added to the tax liability under the surtax rates on investment income. The surtax is 5 percent of the combined taxes.


                              Exhibit 2

     tax rates under the Revenue Acts of 1918, 1936 and proposal

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  Net income       Rate (percent)              Total surtax          
  Exceeding:    1918  1936  Proposal                                 
   Equaling                                                          
(Thousands of   Act   Act             1918 Act   1936 Act   Proposal 
   dollars)                                                          

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    0 - 3         -     -       -             -          -          -
    3 - 4         -     -       4             -          -       $ 40
    4 - 5         -     4       4             -       $ 40         80
    5 - 6         1     4       5          $ 10         80        130
    6 - 7         2     5       5            30        130        180
    7 - 8         2     5       7            50        180        250
    8 - 9         3     6       7            80        240        320
    9 - 10        3     6      10           110        300        420
   10 - 11        4     7      10           150        370        520
   11 - 12        4     7      13           190        440        650
   12 - 13        5     8      13           240        520        780
   13 - 14        5     8      16           290        600        940
   14 - 15        6     9      16           350        690      1,100
   15 - 16        6     9      19           410        780      1,290
   16 - 17        7    11      19           480        890      1,480
   17 - 18        7    11      22           550      1,000      1,700
   18 - 19        8    13      22           630      1,130      1,920
   19 - 20        8    13      26           710      1,260      2,180
   20 - 21        9    15      26           800      1,410      2,440
   21 - 22        9    15      30           890      1,560      2,740
   22 - 24       10    17      30         1,090      1,900      3,340
   24 - 26       11    17      34         1,310      2,240      4,020
   26 - 28       12    19      34         1,550      2,620      4,700
   28 - 30       13    19      38         1,810      3,000      5,460
   30 - 32       14    19      38         2,090      3,380      6,220
   32 - 34       15    21      38         2,390      3,800      6,980
   34 - 36       16    21      42         2,710      4,220      7,820
   36 - 38       17    21      42         3,050      4,640      8,660
   38 - 40       18    24      42         3,410      5,120      9,500
   40 - 42       19    24      46         3,790      5,600     10,420
   42 - 44       20    24      46         4,190      6,080     11,340
   44 - 46       21    27      46         4,610      6,620     12,260
   46 - 48       22    27      46         5,050      7,160     13,180
   48 - 50       23    27      49         5,510      7,700     14,160
   50 - 52       24    31      49         5,990      8,320     15,140
   52 - 54       25    31      49         6,490      8,940     16,120
   54 - 56       26    31      49         7,010      9,560     17,100
   56 - 58       27    35      52         7,550     10,260     18,140
   58 - 60       28    35      52         8,110     10,960     19,180
   60 - 62       29    35      52         8,690     11,660     20,220
   62 - 64       30    39      52         9,290     12,440     21,260
   64 - 66       31    39      54         9,910     13,220     22,340
   66 - 68       32    39      54        10,550     14,000     23,420
   68 - 70       33    43      54        11,210     14,860     24,500
   70 - 72       34    43      54        11,890     15,720     25,580
   72 - 74       35    43      56        12,590     16,580     26,700
   74 - 76       36    47      56        13,310     17,520     27,820
   76 - 78       37    47      56        14,050     18,460     28,940
   78 - 80       38    47      56        14,810     19,400     30,060
   80 - 82       39    51      57        15,590     20,420     31,200
   82 - 84       40    51      57        16,390     21,440     32,340
   84 - 86       41    51      57        17,210     22,460     33,480
   86 - 88       42    51      57        18,050     23,480     34,620
   88 - 90       43    51      57        18,910     24,500     35,760
   90 - 92       44    55      58        19,790     25,600     36,920
   92 - 94       45    55      58        20,690     26,700     38,080
   94 - 96       46    55      58        21,610     27,800     39,240
   96 - 98       47    55      58        22,550     28,900     40,400
   98 - 100      48    55      58        23,510     30,000     41,560
  100 - 150      52    58      59        49,510     59,000     71,060
  150 - 200      56    60      60        77,510     89,000    101,060
  200 - 250      60    62      61       107,510    120,000    131,560
  250 - 300      60    64      62       137,510    152,000    162,560
  300 - 400      63    66      63       200,510    218,000    225,560
  400 - 500      63    68      64       263,510    286,000    289,560
  500 - 750      64    70      65       423,510    461,000    452,060
  750 - 1,000    64    72      66       583,510    641,000    617,060
1,000 - 2,000    65    73      67     1,233,510  1,371,000  1,287,060
2,000 - 5,000    65    74      68     3,183,510  3,591,000  3,327,060
   5,000 up      65    75      70             -          -          -
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                              Exhibit 3

           Estate tax rates under the Revenue Act of 1936

                         and under proposal

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      Net estate          Rate (percent)          Total tax       
 Exceeding   Equaling   1936 Act  Proposal   1936 Act    Proposal 
(Thousands of dollars)                                            

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          0        $ 5      2         4          $ 100       $ 200
          5         10      2         6            200         500
         10         20      4         8            600       1,300
         20         30      6        10          1,200       2,300
         30         40      8        12          2,000       3,500
         40         50     10        14          3,000       4,900
         50         60     12        16          4,200       6,500
         60         70     12        18          5,400       8,300
         70         80     14        20          6,800      10,300
         80         90     14        22          8,200      12,500
         90        100     14        24          9,600      14,900
        100        150     17        27         18,100      28,400
        150        200     17        31         26,600      43,900
        200        250     20        36         36,600      61,900
        250        300     20        42         46,600      82,900
        300        400     20        47         66,600     129,900
        400        500     23        51         89,600     180,900
        500        600     23        54        112,600     234,900
        600        750     26        54        151,600     315,900
        750        800     26        56        164,600     343,900
        800      1,000     29        56        222,600     455,900
      1,000      1,500     32        57        382,600     740,900
      1,500      2,000     35        57        557,600   1,025,900
      2,000      2,500     38        57        747,600   1,310,900
      2,500      3,000     41        57        952,600   1,595,900
      3,000      3,500     44        58      1,172,600   1,885,900
      3,500      4,000     47        58      1,407,600   2,175,900
      4,000      4,500     50        58      1,657,600   2,465,900
      4,500      5,000     53        58      1,922,600   2,755,900
      5,000      6,000     56        58      2,482,600   3,335,900
      6,000      7,000     59        59      3,072,600   3,925,900
      7,000      8,000     61        59      3,682,600   4,515,900
      8,000      9,000     63        59      4,312,600   5,105,900
      9,000     10,000     65        59      4,962,600   5,695,900
     10,000     20,000     67        60     11,662,600  11,695,900
     20,000     50,000     69        60     32,362,600  29,695,900
     50,000     up         70        60              -           -
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[Part 1 of 2]

                              Exhibit 4

    Miscellaneous excise taxes ranked in the order in which they
   should be eliminated, showing legal citation, measure and basis
                           of tax and rate

    Group A - Taxes weighted against the general public and which
                     should be eliminated first.

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      Tax and legal citation          Measure and basis of tax       

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a.  Toilet preparations         Sale of toothpastes, dentrifices,    
    (items subject to           toilet soaps, etc., by manufacturer, 
    5% tax only).               producer or importer.                
    Section 603 of                                                   
    the Revenue Act                                                  
    of 1932.                                                         

a.  Matches                     Sale of matches by manufacturer,     
    Section 612 of the          producer or importer.                
    Revenue Act of                                                   
    1932, as amended.                                                

a.  Electrical energy           Sale of electrical energy furnished  
    Section 616 of the          for domestic or commercial           
    Revenue Act of              consumption                          
    1932, as amended.                                                

c.  Admissions                  Total amount paid for admission to   
    Section 500(a) (1)          any place except as specifically     
    of the Revenue Act          exempted, when charge exceeds        
    of 1926, as amended.        40 cents.                            

b.  Automobile trucks           Sale or lease of automobile truck    
    Section 606(a) of           chassis and bodies by manufacturer,  
    the Revenue Act             producer or importer.                
    of 1932.                                                         

a.  Lubricating oils            Sale or use of lubricating oils by   
    Section 601(c)(1)           manufacturer, producer or importer.  
    of the Revenue                                                   
    Act of 1932,                                                     
    as amended.                                                      

a.  Lubricating oils, imports   Importation of lubricating oils.     
    Section 601(c)(4) of                                             
    the Revenue Act                                                  
    of 1932.                                                         

a.  Telephone, telegraph,       Use of telephone, telegraph, radio,  
    radio, cable facilities.    cable facilities.                    
    Section 701 of                                                   
    the Revenue Act                                                  
    of 1932.                                                         

c.  Issues of capital stock.    Each original issue, whether on      
    Schedule A, Title           organization or reorganization of    
    VIII of the Revenue         shares or certificates of stock,     
    Act of 1926,                profits, interest in property or     
    as amended.                 accumulations.                       

c.  Issue of bonds              Issues of bonds, debentures, or      
    Schedule A, Title           certificates of indebtedness, etc.,  
    VIII of the Revenue         by any corporation and corporate     
    Act of 1926,                securities with interest coupons     
    as amended.                 or in registered form.               

d.  Processing of certain oils  Coconut oils produced wholly in the  
    Section 602-1/2 of          Philippine Islands or any possession 
    the Revenue Act of          of the United States, or wholly from 
    1934, as amended.           materials grown or produced in such  
                                possessions or imported before       
                                June 10, 1934, or purchased under a  
                                bona fide contract entered into prior
                                to April 26, 1934, or produced from  
                                materials so purchased.              
                                Coconut oils not produced as         
                                listed above.                        
                                Palm oil, palm-kernel oil, and       
                                combinations                         
                                or mixtures thereof.                 

a.  Paraffin, petroleum         Importation of paraffin, petroleum   
    wax products                wax products.                        
    Section 601(c)(4) of                                             
    the Revenue Act                                                  
    of 1932.                                                         

a.  Coal, coke, etc.            Importation of coal, coke, etc.      
    Section 601(c)(5) of                                             
    the Revenue Act                                                  
    of 1932                                                          

a.  Lumber                      Importation of lumber except flooring
    Section 601(c)(6) of        made of maple (except Japanese       
    the Revenue Act             maple) birch and beech.              
    of 1932.                                                         

a.  Copper and copper           Importation of copper, copper        
    concentrates                concentrates, articles containing    
    Section 601(c)(7) of        4% or more of copper by weight.      
    the Revenue Act             Importation of articles in which     
    of 1932.                    copper is component material of      
                                chief value.                         
                                Importation of copper ore, and       
                                certain articles enumerated in the   
                                Tariff Act of 1930.                  

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[Part 2 of 2]

                              Exhibit 4

    Miscellaneous excise taxes ranked in the order in which they
   should be eliminated, showing legal citation, measure and basis
                           of tax and rate

    Group A - Taxes weighted against the general public and which
                     should be eliminated first.

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      Tax and legal citation                  Rate              

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a.  Toilet preparations         5% of sale prices.              
    (items subject to                                           
    5% tax only).                                               
    Section 603 of                                              
    the Revenue Act                                             
    of 1932.                                                    

a.  Matches                     Paper matches in books,         
    Section 612 of the          per M --- 1/2 of 1 cent.        
    Revenue Act of              Fancy wooden matches or wooden  
    1932, as amended.           matches having dyed stems,      
                                per M --- 5 cents.              
                                Other matches, per M --- 2 ***  

a.  Electrical energy           3% of sale price.               
    Section 616 of the                                          
    Revenue Act of                                              
    1932, as amended.                                           

c.  Admissions                  1 cent for every 10 cents or ***
    Section 500(a) (1)          tion thereof.                   
    of the Revenue Act                                          
    of 1926, as amended.                                        

b.  Automobile trucks           2% of sale price.               
    Section 606(a) of                                           
    the Revenue Act                                             
    of 1932.                                                    

a.  Lubricating oils            4 cents per gallon.             
    Section 601(c)(1)                                           
    of the Revenue                                              
    Act of 1932,                                                
    as amended.                                                 

a.  Lubricating oils, imports   4 cents per gallon.             
    Section 601(c)(4) of                                        
    the Revenue Act                                             
    of 1932.                                                    

a.  Telephone, telegraph,       Telephone conversations:        
    radio, cable facilities.    Charge 50 cents and less than   
    Section 701 of              --- 10 cents.                   
    the Revenue Act             Charge $1 and less than $2 ***  
    of 1932.                    Charge $2 or more --- 20 ***    
                                Telegrams - 5% of amount of *** 
                                Cable and radio messages - ***  
                                per message.                    
                                Leased wires, etc. - 5% of ***  

c.  Issues of capital stock.    With face value, on each $10 ***
    Schedule A, Title           fraction thereof --- 10 cent    
    VIII of the Revenue         Without face value:             
    Act of 1926,                (a) Actual value less than ***  
    as amended.                 2 cents on each $20 ***         
                                thereof.                        
                                (b) Actual value more than ***  
                                10 cents on each $100           
                                tion thereof.                   

c.  Issue of bonds              10 cents on each $100 of ***    
    Schedule A, Title           or fraction thereof.            
    VIII of the Revenue                                         
    Act of 1926,                                                
    as amended.                                                 

d.  Processing of certain oils                                  
    Section 602-1/2 of                                          
    the Revenue Act of                                          
    1934, as amended.                                           

                                3 cents per pound.              

                                5 cents per pound.              

                                3 cents per pound.              

a.  Paraffin, petroleum         1 cent per pound.               
    wax products                                                
    Section 601(c)(4) of                                        
    the Revenue Act                                             
    of 1932.                                                    

a.  Coal, coke, etc.            10 cents per 100 pounds.        
    Section 601(c)(5) of                                        
    the Revenue Act                                             
    of 1932                                                     

a.  Lumber                      $3 per M feet.                  
    Section 601(c)(6) of                                        
    the Revenue Act                                             
    of 1932.                                                    

a.  Copper and copper           3% ad *** or 3/4 of 1 cent,     
    concentrates                whichever is lower.             
    Section 601(c)(7) of                                        
    the Revenue Act             3 cents per pound.              
    of 1932.                                                    

                                4 cents per pound of copper     
                                content.                        

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                         FOOTNOTES TO TABLE

     a. Expires on June 30, 1937.

     b. Expires on July 31, 1937.

     c. Important changes in rate or base become effective after June
30, 1937.

     d. Enacted by Revenue Act of 1932 or subsequent acts, and is
without expiration date.

                          END OF FOOTNOTES
 
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