Current collection of a spendings tax during the period when the expenditures are being made would be desirable for three reasons:
 There are three possibilities of current collection -- withholding, payment on anticipatory calculation, and payment on current estimate.
 Major difficulties in the application of the withholding principle to the income tax arise from the circumstance that a consistent ratio of spendings to received income at various income levels would have to be presumed. Available statistical evidence indicates that there are no such consistent ratios. Instead there is wide dispersion around the calculated average for each income level.
 The withholding principle would be applied to spendings tax collection, but only at the cost of many maladjustments. To hold these maladjustments within limits where they would not impose undue hardship upon taxpayers with high ratio of saving to received income the fraction of the tax withheld should be fairly low. Proposals for income tax withholding have generally not gone beyond one-half of the lowest-bracket tax rate; three-quarters of the lowest-bracket rate would probably be a practicable maximum to avoid the less extreme maladjustments involved in income tax withholding. For a spendings tax, not more than one-half of the lowest bracket rate, calculated against gross income (minus personal exemptions) could be withheld.
 Withholding would be still more difficult if the minimum allowance were in the form of an exclusion rather than an exemption, since it would be difficult to determine whether to withhold and how much to withhold for persons near the exclusion level. The problem could be simplified by preparation of tables for employers, indicating weekly amounts to be withheld for given weekly salaries and dependency situations, but this would not avoid wide discrepancies between withheld spendings tax and ultimate calculated spending tax liability.
 The withholding principle could not well be applied to many individuals whose major income is from sources other than salaries or wages. If current collection is to be applied to them, it must be by either the anticipatory calculation or current estimation method described in the following sections.
ANTICIPATORY CALCULATION AND COLLECTION
 Current collection of a spendings tax could be based upon a calculation of anticipated spendings, submitted by the taxpayer to the Collector's Office at the outset of the year in which the spendings will be made and the tax liability accrue.
PAYMENT ON ANTICIPATORY CALCULATION
 In January of each year, the taxpayer would estimate his probable spendings for the year. The form provided for this return /1/ would be of the "short" type, combining into single items various elements of income and deductions that in the regular report are separate items. No supporting schedules would be required for this "anticipation" report. No tax oath would be required on these estimates.
 The tax would be calculated on this "anticipated" spending for the entire year. Thus the full application of the progressive rate schedule would be taken into account.
 The tax collected during the current year should be only a fraction of this "anticipated" tax, in order to reduce the necessity for subsequent refunds resulting from anticipated spending substantially exceeding actual spending. Four-fifths in suggested as a practical fraction.
 To induce taxpayers to make a full return of anticipated spending, and hence of anticipated tax liability, a one percent rebate might be allowed on the anticipatory payments. Because of the spread of the payments over the year, this would amount in effect to a two percent rebate on tax liability. Under-reporting of anticipated spending would sacrifice part of this saving. This rate is not out of line with that on tax anticipation notes.
 The 80 percent of the anticipated tax would tax be distributed by the taxpayer over twelve monthly or four quarterly periods -- according to whether the tax was to be collected monthly or quarterly. The distribution need not be uniform, but may conform to such seasonal variation in income receipts as the taxpayer anticipates.
 Twelve (for monthly payment) or four (for quarterly payment) payment slips would be attached to this return by perforation. The taxpayer would fill these out with his name and address, and enter the amount to be paid for each month or quarter. Also attached by perforation would be a payment record slip, to be kept by the taxpayer, covering the payments for the twelve months or four quarters.
 Before the end of January (or March for quarterly payments), the taxpayer would send in the return with all payments and record slips attached to it. The collector's offices would stamp a file number for each return on each return, on the payment slips attached to it, and on the record slip. Then the return itself would be detached and filed. The first payment slip, covering the enclosed first payment, would also be detached. The remaining payment slip and the record slip, all bearing the file number, would be returned to the taxpayer.
 Thereafter, before the close of each month, or quarter, the taxpayer would mail a payment with the appropriate payment slip. To make the plan practicable for small taxpayers without checking accounts, the Post Office would sell, perhaps without charge, special tax postal money orders. Thus a considerable part of the tax would actually be collected through the Post Offices, with the special postal money orders giving the Treasury a credit against the Postal Department.
 As of March 15th in the following year, the taxpayer would prepare a regular spendings tax return. He would enter as file number the one already given him for his anticipatory return in the proceeding year. The payment record slip from the anticipatory return would provide him with this number. From tax liability as calculated on this regular return would be deducted the payments already made on the basis of the anticipatory return. Only the balance remaining would have to be paid at this time. If the anticipatory payments involved an over-payment, the taxpayer would be entitled either to a refund or to a credit slip which could be applied on the anticipatory payments being made in this next year.
 To cover the situation of abrupt changes in a taxpayer's income and spending positions during the period of anticipatory tax payment, he would be permitted to file an amended return in the course of the year giving the revised anticipated spending, the revised anticipated tax liability, and a revised schedule of monthly or quarterly payments for the balance of the year to cover the change.
 This anticipatory collection system could be made a complement to a current "withholding" collection system by requiring the anticipatory returns only form taxpayers who were not having their tax withheld by employers. It could be consolidated with a "withholding" system by a requiring the submission of employees' anticipatory returns through employers who would withholding the tax calculated on the returns.
 Such an anticipatory pre-collection of spendings tax could be put into effect for 1943 income on a voluntary basis, coupled perhaps with a provision for a higher rebate than one percent. The experience gained by this voluntary system would facilitate the application of a compulsory anticipatory correction, if this were subsequently deemed desirable.
PAYMENT ON CURRENT ESTIMATE
 Most taxpayers can estimate their expenditures for a past month or past quarter with a margin of error, as against ultimate definitive calculation, of not more than one-fourth or one-fifth. Such estimates can be made the basis of current monthly or quarterly collection of spending tax.
 In order to accommodate the factors of a progressive rate schedule and personal exemption, the taxpayer would have to multiply a quarterly estimate of spendings by four (twelve for monthly estimates), calculate the annual tax on such figure, and divide the result by four (twelve for monthly returns).
 Any cumulative over- or under-estimate upon these quarterly (or monthly) returns would be compensated by a tax paid or a refund made on the definitive return in the following year.
 To induce taxpayers to estimate their quarterly spendings as closely as possible and make prompt returns, a rebate could be allowed on each prompt return, the percent of each rebate so graduated that is amounted to 2 or 3 percent calculated on an annual basis.
 To facilitate filing and reference in the Collector's offices, all four quarterly (or twelve monthly) returns might be attached by perforation. The entire set, with only the first filed out, would be sent in on the occasion of the first return. The set would be given a single filing number, and all but the first be returned to the taxpayers. The subsequent returns would thus be prenumbered for filing when they came in. These filing numbers could also be used for the definitive returns in the following year.
Treasury Department, Division of Tax Research