VII Joint Versus Separate Returns Of Husband And Wife

The Problem. -- Eight western and southwestern States have community-property laws, which generally provide that each spouse acquires ownership of half of the income earned by the other as well as of half of the income from community property. Some income may belong to each spouse separately, for example, income from property acquired before marriage, and income from inheritances, gifts, etc. In such States each spouse returns for Federal income tax purposes his income from non-community sources, plus half of the community income. If husband and wife filed a joint return, it would subject all but those having the smallest incomes to higher surtax rates and halve the possible "earned-income" credit. Numerous attempts of the Federal Government to require husbands and wives living in these States to file returns according to the requirements for husbands and wives living in the other States have been overruled by the United States Supreme Court.

In the forty non-community-property States the husband must file the return for his entire net income if it is all his. If the wife has a bona fide separate income of her own, they have the option of filing separate returns or a joint return. The husband may not legally arbitrarily assign a part of his income to his wife in order to reduce their total tax liability, though he may make her a bona fide gift, which, however, under the 1934 Revenue Act is now subject to the Federal gift tax though liberal exemptions are permitted. The wife may report separately income arising from such gifts, and in this way their combined tax payments may be reduced eventually if not immediately. The number of husbands and wives filing separate returns is a very small percentage of the total. (See Table 62, page 234, in Appendix to this Chapter).

It is obvious that this situation leads to inequities between those families that make joint returns and those that make separate returns, whether they live in community-property States or in the non-community-property States. In the community-property States, however, a larger proportion of the returns of the two spouses are more nearly equalized so that these States may be said to get a greater tax advantage, relatively. This problem has been under consideration by Congress for many years and has been studied at some length by the Treasury, the Ways and Means Committee, and the Joint Committee on Internal Revenue Taxation. /17/ Following is an extract from a report of the last-named committee, prepared by Mr. L. H. Parker, Chief of Staff, which indicates something of the extent of the discrimination.

"Memorandum on Federal Taxation of Community Property and Community Property Income

"Eight States -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington -- have community-property laws. The residents of such States, if married, enjoy substantial advantages over the married residents of all the other States (in cases where such residents have substantial amounts of property or income) in respect to the Federal income, estate, and gift taxes. These advantages may be described as follows:

"1. Income-tax Advantage

"The husband and wife in a community-property State by filing separate returns pay substantially less income tax than a husband and wife similarly situated in a non-community-property State where the net income is greater than that included within the first income-tax bracket for normal tax purposes.

"For instance, suppose a married man with no dependents has a net income derived from salary of $100,000. His tax in a non-community-property State amounts to $30,100. In a community-property State, however, the husband's salary may be divided between the husband and wife and reported on separate returns, in which case the total tax shown on both returns will amount to only $17,400. That is, in the non-community-property State, the total tax in this case is 73 per cent more than in the community-property State. The same result obtains in the case of interest received on community property, and a similar result in the case of dividend income.

"One phase of this advantage is not generally understood; i.e. the fact that it is confined principally to the persons with substantial incomes. This can be brought out by the following table for the case of a married man with no dependents:

Table 15.       Tax Advantage in Community-Property States

Net Income       Total tax,         Total tax,     Percentage
                 non-community      community-     excess of tax
                 property State     property       in non-community
                                    State          property State

$    3,000       $       20         $       20            0
     4,000               60                 60            0
     5,000              100                100            0
     6,000              140                140            0
     7,000              210                180           17
     8,000              300                220           36
    10,000              480                300           60
    20,000            1,680              1,160           45
    50,000            8,600              5,240           64
   100,000           30,100             17,400           73
   500,000          263,600            231,400           14
 1,000,000          571,000            527,400            8
10,000,000        6,241,100          6,182,400            1

"The above Table is computed under the rates imposed by the Revenue Act of 1932, however, the relation between the tax in the non-community- and community-property States is not substantially changed by the rates in the revenue bill of 1934.

"The table brings out some important facts which can be used to refute arguments advanced in favor of permitting a lesser tax in community-property States. For instance, it is often said that the tax reduction is fair enough in view of the disadvantages suffered by a man in a community-property State. How can this be true when it is realized that only more prosperous individuals secure any tax relief under our present system in these community-property States? If Tax relief is justified, why should not all taxpayers, rich or poor, be entitled to proportionate tax reductions? This is not the case. For instance, in 1930 the total number of taxable returns filed in the State of Washington amounted to 33,814. Of these, 18,927 showed net incomes of less than $4,000; 8,308, net incomes of from $4,000 to $6,000; 6,545, net incomes of from $6,000 to $100,000; and 34, net incomes of over $100,000. In view of these figures and making allowances for the returns of single persons, it is believed that material advantage accrues to less than 20 per cent of the income -- tax payers of Washington. However, when the benefit is secured, it is substantial and seriously affects the Federal revenue.

"Further income-tax advantage may also accrue to the residents of the community-property States in the case of losses on sales of property due to allocation on the separate returns of such losses. A substantial advantage also existed under prior laws and will exist with the passage of the revenue bill of 1934 in connection with the earned-income credit, for in community-property-States the limit to which earned income was recognized was $60,000 against $30,000 in the non-community-property States under the Revenue Act of 1928, and will be $28,000 against $14,000 under the revenue bill of 1934." /18/

Table 15 was calculated under the Act of 1932; Table 15a is inserted to show the differences under the Act of 1934.

Table 15a
                             1934 Rates

Net Income       Total tax,         Total tax,     Percentage
                 non-community      community-     excess of tax
                 property State     property       in non-community
                                    State          property State

$    3,000       $       20         $       20            0
     4,000               60                 60            0
     5,000              100                100            0
     6,000              140                140            0
     7,000              200                180           11
     8,000              280                220           27
    10,000              455                300           52
    20,000            1,645              1,150           43
    50,000            8,925              5,616           59
   100,000           30,650             18,626           59
   100,000           30,650             18,626           65
   200,000          264,000            233,550           13
 1,000,000          571,450            529,500            8
10,000,000        6,241,425          6,184,424            1

While the chief point at issue is one of equity it was estimated that incidental revenue of $40,000,000 to $50,000,000 annually is lost because of the community-property laws of the eight States in question, more than half of the loss being in income taxes and the rest in estate taxes.

Constitutional Questions Most Important. -- In view of the studies and the hearings referred to above it is hardly justifiable to go into much detail here, hence only a few of the main points not already mentioned will be summarized or indicated. This course is justified on the further ground that most of the difficult and nearly all of the controversy are over interpretations of constitutional law and sunrises as to what the Supreme Court might do with various proposed solutions. Discussion of most of these matters should be left to the legal experts, though reference to a few legal interpretations may be necessary in order to understand a proposal that is to be suggested below.

Poe v. Seaborn (282 U.S. 281) appears to hold that the Federal Government may not require a joint return from husband and wife in a community-property State because it was not the intent of Congress to require a spouse to pay an income tax upon income belonging to another. The moot point left undecided is whether Congress has that power. Hoeper v. Tax Commission (284 U.S. 206) dealt with the Wisconsin income tax law (i.e. in a non-community-property State), which authorized assessment against a husband of a tax based on a total of the husband's and wife's incomes. This resulted in subjecting the combined income to higher rates, though each spouse was required to make proportional payment of the total tax. This was held contrary to the due process of law guaranteed by the fourteenth amendment.

The Treadway Bill. -- Representative Treadway of Massachusetts late in the last session of Congress introduced the following bill into Congress:

"A BILL Relating to the taxation of community-property income "Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. That for the purpose of determining the income-tax liability of any individual during any taxable year beginning after December 31, 1933, property of a marital community shall be considered as the property of, and income of a marital community shall be considered as the income of, the spouse who has the management and control thereof under the law of the jurisdiction in which the marital community exists, and such spouse shall alone be entitled to the deductions and credits allowed under the internal-revenue laws which are properly allocable to such property or income." /19/

The crux of the issue presented in this proposal is whether or not "management and control" without legal ownership is a sufficient legal basis for requiring payment of income tax.

It was contended by the proponents of this measure, including the staff of the Joint Committee, that, although the Court had never squarely met the issue presented by this bill, nevertheless, certain decisions, including some dealing with income from trusts (Corliss v. Bowers, 281 U.S. U.S. 366, 378; Reinecke v. Smith, 289 U.S. 172; Burnet v. Wells, 289 U.S. 670) /20/, led them to believe that it would uphold the proposed solution.

Treasury Position and British Practice. -- In December 1933 the Treasury Department recommended: "That the Ways and Means Sub-Committee consider whether a husband and wife living together should not be re-required to file a single joint return, each to pay the tax attributable to his share of the income." This very brief statement or suggestion of policy is in accord with that of the British.

"The income of a married woman living with her husband in Great Britain is treated as the income of her husband, the latter paying the tax on the aggregate income insofar as the tax is not collected at source. Either husband or wife may apply for a separate assessment and pay the tax separately, but the Government does not forego its right to hold the husband ultimately responsible for the wife's tax. The separate assessment does not reduce the total amount of tax payable by both husband and wife, since their incomes are considered jointly for purposes of the graduation of the tax. The only effect is to divide the tax between them in approximate proportion to their respective incomes.

"Application for separate assessments on the husband and the wife must be made by the husband or the wife before July 6 in any year of assessment for which the application is made. If persons marry during the year of assessment, an application for separate assessment regarding, that year should be made before July 6 in the following year. The authorities may request separate statements of income from both husband and wife and, in addition, a statement of the total combined income.

"The total amount of relief given husband and wife may not exceed the amount allowed if a single assessment were made. Earned-income relief is granted separately in the assessments on earned income of the husband and wife. Personal and family allowances are taken in proportion to their respective assessable incomes. Life-assurance relief is granted to the spouse by whom the premiums are paid." /21/

But at the May Hearings of the subcommittee on the Treadway Bill the Treasury expressed preference for the solution proposed in this bill, particularly because of the administrative difficulties that would be involved if its earlier suggestions were adopted.

Opposing Point Of View. -- On the other hand, the Chairman of the subcommittee, Congressman Hill of Washington (a community-property State) contended strongly and persistently against the constitutionality of all the proposals to require joint returns in o community-property States. Moreover, he argued that the Treadway solution would be unfair to the citizens of such States inasmuch as residents of other States would not be subject to similar requirements, and furthermore that husbands and wives in many other States can now achieve the advantages of community-property States through contracts and gifts between husband and wife, and, in addition, that the laws of community-property States subject their citizens to certain peculiar disadvantages. The Treasury representative admitted the validity of part of these arguments.

Summary Restatement Of Problem. -- There is no doubt that the Federal income tax law as at present interpreted and administered permits a substantial discrimination in favor of some citizens of community-property States. Nor is there any doubt that the permission to file separate returns by citizens of other States usually results in a discrimination, though generally a lesser discrimination, against those married couples living in the same State who must file a single return. The larger the family income and the less equally it is dividend between husband and wife, the greater the surtax discrimination will be, and this discrimination is made still greater by the restriction of only one "earned-income" credit for a husband and wife in case of a joint return.

New Solution Suggested

General Option To File Separate Returns. -- In view of the doubt of the constitutionality of taxing income to someone other than the actual legal owner, as in the Treadway and other proposed solutions requiring joint or single returns, it might be worth while to consider the feasibility and probable constitutionality of giving husband and wife (and head of family), whether living in a community-property or other state, the option of filing two returns in all cases, each for half of the total family income, or they might be permitted to make any other division of the total.

If no changes were made other than the granting of this option, this arrangement would result in a substantial reduction in revenues, which the Treasury cannot well afford at this juncture. But if a man with a taxable income of over $100,000 (his wife having no separate income, or the two reporting the same aggregate income jointly) is subject, under the 1934 Act, to a surtax of 52 per cent upon the bracket between $100,000 and $150,000, there would be no difference in total tax paid on the income in that bracket if he and his wife each paid the same rate (52 per cent) upon each half of the bracket ($50,000 - $75,000). Similarly with respect to income of other amounts. That is, rates might be maintained as they are but brackets halved. Credits for dependents could be divided equally and "earned-income" credit for each individual reporting would need to be halved, also, unless the aggregate of such credits were to be increased.

Table 16 indicates further the modification of the 1934 Act as just suggested. (First approximation) What may be called the third approximation, that is, how both rates and brackets may be modified, is indicated in Table 20, page 117.

Table 16 Illustrative Schedule of Rates, Exemptions and Credits under "New Proposal"

                Act of 1934
                Surtax Schedule
                For Husband and Wife
Rate                                        Bracket

4%                              $4,000 -              $6,000
5                                6,000 -               8,000
6                                8,000 -              10,000
7                               10,000 -              12,000
8                               12,000 -              14,000
9                               14,000 -              16,000
11                              16,000 -              18,000
13                              18,000 -              20,000
15                              20,000 -              22,000
17                              22,000 -              26,000
19                              26,000 -              32,000
21                              32,000 -              38,000
24                              38,000 -              44,000
27                              44,000 -              50,000
**                              ******                ******
**                              ******                ******
55                             300,000 -             400,000
56                             400,000 -             500,000
57                             500,000 -             750,000
58                             750,000 -           1,000,000
59                            1,000,000 and over

                New Proposal -- First Approximation
                Surtax Schedule
                For Husband
Rate                                          Bracket

4%                              $2,000 -              $3,000
5                                3,000 -               4,000
6                                4,000 -               5,000
7                                5,000 -               6,000
8                                6,000 -               7,000
9                                7,000 -               8,000
11                               8,000 -               9,000
13                               9,000 -              10,000
15                              10,000 -              11,000
17                              11,000 -              13,000
19                              13,000 -              16,000
21                              16,000 -              19,000
24                              19,000 -              22,000
27                              22,000 -              25,000
**                              ******                 *****
**                              ******                 *****
55                             150,000 -             200,000
56                             200,000 -             250,000
57                             250,000 -             375,000
58                             375,000 -             500,000
59                             500,000 and over

                New Proposal -- First Approximation
                Surtax Schedule
                For Wife
Rate                                          Bracket

4%                              $2,000 -              $3,000
5                                3,000 -               4,000
6                                4,000 -               5,000
7                                5,000 -               6,000
8                                6,000 -               7,000
9                                7,000 -               8,000
11                               8,000 -               9,000
13                               9,000 -              10,000
15                              10,000 -              11,000
17                              11,000 -              13,000
19                              13,000 -              16,000
21                              16,000 -              19,000
24                              19,000 -              22,000
27                              22,000 -              25,000
**                              ******                 *****
**                              ******                 *****
55                             150,000 -             200,000
56                             200,000 -             250,000
57                             250,000 -             375,000
58                             375,000 -             500,000
59                             500,000 and over

Exemptions and Credits

     Personal Exemptions: $2,500 divide between husband and wife as

     Each Dependent: $400

     Earned Income Credit: 10 per cent of $3,000 - $14,000. If
separate returns are filed, each may get full credit.

Exemptions and Credits

     Personal Exemption: $2,500 divided between husband and wife as

     Each Dependent: $400 divided as desired.

     Earned Income Credit: 10 per cent of $3,000 - $14,000 divided
as desired.

     Or brackets might be left as they are and rates changed to
bring in the same total revenue, or both rates and brackets might be
changed to provide approximately same revenue results as illustrated
in table 60, p 177.

     Single person might same schedule of rates and bracket as
husband and wife; or other adjustment might be made as suggested in
text, p. 179 ff.

Removal Of Discriminations In Community-Property States And Also In Other States. -- By the modifications suggested all married couples having the same aggregate incomes and credits, might pay the same income taxes whether living in a community-property or other State and whether the family income was contributed to equally or very unequally by husband and wife. This equality would be attained by requiring those couples now reporting separately to pay somewhat higher taxes than they now pay. The majority, that is, those whose aggregate income are too low to reach the surtax brackets, would not be affected, except slightly favorably, as will be indicated below.

Effects On Taxpayers, Revenues, And Consequent Adjustments. -- If the Government desired to raise no additional revenue through this suggested modification which is made primarily to prevent existing discriminations, then the whole scale of rates might be lowered slightly, or the beginning points of the surtax brackets might be set somewhat higher than indicated in Table 16. /22/ The end result would be that husbands and wives with the largest incomes who heretofore have been reporting most nearly equal shares of aggregate income would, under the new arrangement, pay somewhat larger taxes to make up for somewhat smaller taxes by those in the reverse situation. Those making joint returns heretofore would receive most benefit from the change, but their numbers being greatly in excess of the community-property and other separate reporters of income, the average reduction per tax-payer would be less than the average increase for those subject to increases. /23/ The great mass of taxpayers not subject to surtaxes would benefit slightly by the general reduction of were made by raising the starting point for surtax brackets instead of by reducing rates.

TABLE 17. -- Showing the Taxes Under the New Proposal by Income Classes, Compared with Taxes Calculated under 1934 Act Unmodified.


Income Class                   Man & wife & 2 dependents; tax
                               computed in strict accordance with
                               1934 Act /2/

$2,000                                  -
3,000                                   -
4,000                                 $12
6,000                                  84
8,000                                 184
10,000                                343
15,000                                831
20,000                              1,469
25,000                              2,327
50,000                              8,621
100,000                            30,162
200,000                            86,563
500,000                           263,464
1,000,000                         570,898
5,000,000                       3,090,865

                                       B /2/

Income Class                   Man & wife & E dependents; all family
                               income divided into 2 equal parts;
                               $1,000 personal exemption + $400 for
                               1 child allowed each; first $1,500 of
                               income considered "earned"; surtax
                               brackets reduced 1/2. (New proposal
                               -- first approximation) /3/

$2,000                                  -
3,000                                   -
4,000                                 $36
6,000                                 116
8,000                                 244
10,000                                416
15,000                                932
20,000                              1,588
25,000                              2,470
50,000                              8,820
100,000                            30,476
200,000                            86,892
500,000                           263,808
1,000,000                         571,252
5,000,000                       3,091,224

                                       C /2/

Income Class                   Man & wife & 2 dependents; all family
                               income divided into 2 equal parts;
                               $1,250 personal exemption + $400 for
                               1 child allowed each; first $1,500
                               considered "earned"; surtax rates
                               used to keep total tax yield
                               unchanged. /1/ (Now proposal sample

$2,000                                  -
3,000                                   -
4,000                                 $16
6,000                                  96
8,000                                 176
10,000                                256
15,000                                604
20,000                              1,058
25,000                              1,592
50,000                              6,143
100,000                            21,847
200,000                            71,328
500,000                           260,196
1,000,000                         596,130
5,000,000                       3,331,031


Income Class                   Single person; $1,000 personal
                               exemption; first $1,500 considered
                               "earned": surtax rates used to keep
                               total tax yield unchanged. /1/ (New
                               proposal -- sample adjustment)

$2,000                                $34
3,000                                  74
4,000                                 114
6,000                                 234
8,000                                 404
10,000                                594
15,000                              1,214
20,000                              2,094
25,000                              3,234
50,000                             11,164
100,000                            36,054
200,000                            98,524
500,000                           293,494
1,000,000                         630,974
5,000,000                       3,390,964


                               Amount by which tax of a single
                               person (D) exceeds that of combined
                               tax of husband and wife having same
                               aggregate income, under new proposal
                               as adjusted in (C)

$2,000                                $34
3,000                                  74
4,000                                  98
6,000                                 138
8,000                                 238
10,000                                338
15,000                                610
20,000                              1,036
25,000                              1,642
50,000                              5,021
100,000                            14,207
200,000                            27,196
500,000                            33,298
1,000,000                          44,844
5,000,000                          59,933

/1/ Surtax rates applied to 1926 income with rates and brackets adjusted as indicated in Table 20.

/2/ Note that tax shown is the combined tax for husband and wife.

/3/ Rates and brackets as in Table 16.

Table 20 shows who rates and brackets of the Act of 1934 might be adjusted to give effect to the new proposal without making important changes in the total revenues received by the Government. If a special adjustment were made so as not to change the present status of single persons, as mentioned below, exemptions for single persons would have to be increased, or the rate would have to be somewhat higher, or the beginning points of the several brackets place somewhat lower.

TABLE 18 Estimates of Yields of the Individual Income Tax on Heads of Families a) if They Filed Combined Returns and b) if They Filed Separate Returns, Assuming the Revenue Act of 1934.

Normal        Yield if Returns Combined =            $1,027,892,788
Year          "     "    "     Separate =               721,405,534
(1926)        Loss  "    "     Field Separately =      $306,487,254

Prosperity    Yield if Returns Combined =            $1,450,883,512
Year          "     "    "     Separate =             1,027,971,142
(1928)        Loss  "    "     File Separately =       $422,912,370

Depression    Yield if Returns Combined =              $369,839,426
Year          "     "    "     Separate =               255,759,240
(1931)        Loss  "    "     Filed Separately =       114,134,186

TABLE 19 Estimates of Yields of the Individual Income Tax on Heads of Families a) If They Filed Combined Returns and b) If They File Separate Returns, Assuming the Rates of the 1918 Revenue Act with Treatment of Income as It is under the Revenue Act of 1934.

Normal        Yield if Returns Combined =            $1,106,736,225
Year          "     "    "     Separate =               801,895,896
(1926)        Loss  "    "     Field Separately =      $304,830,329

Prosperity    Yield if Returns Combined =            $1,771,039,775
Year          "     "    "     Separate =             1,333,312,068
(1928)        Loss  "    "     File Separately =       $437,727,707

Depression    Yield if Returns Combined =              $385,040,944
Year          "     "    "     Separate =               269,738,828
(1931)        Loss  "    "     Filed Separately =       115,302,116

TABLE 20 Estimate Surtax Rate Scale Necessary to Maintain Revenue from Individual Income Tax, After Halving Returns of all Heads of Families.

Assuming Revenue Act of 1934 as Modified by New Proposal.

Surtax Brackets Under        Surtax Rates           Surtax Rates to
Revenue Act of 1934          Act of 1934       Keep Total Tax Yield

$4,000 - $6,000                   4%                       4%
6,000 - 8,000                     5                         5
8,000 - 10,000                    6                         6
10,000 - 12,000                   7                         8
12,000 - 14,000                   8                        10
14,000 - 16,000                   9                        12
16,000 - 18,000                  11                        14
18,000 - 20,000                  13                        16
20,000 - 22,000                  15                        18
22,000 - 26,000                  17                        21
26,000 - 32,000                  19                        24
32,000 - 38,000                  21                        27
38,000 - 44,000                  24                        30
44,000 - 50,000                  27                        33
50,000 - 56,000                  30                        36
56,000 - 62,000                  33                        39
62,000 - 68,000                  36                        41
68,000 - 74,000                  39                        44
74,000 - 80,000                  42                        47
80,000 - 90,000                  45                        51
90,000 - 100,000                 50                        56
100,000 - 150,000                52                        58
150,000 - 200,000                53                        59
200,000 - 300,000                54                        60
300,000 - 400,000                55                        61
400,000 - 500,000                56                        62
500,000 - 750,000                57                        63
750,000 - 1,000,000              58                        64
1,000,000 - over                 59                        65

Surtax Brackets Under        Surtax Rates           Surtax Rates to
Revenue Act of 1934          Act of 1934       Keep Total Tax Yield

$4,000 - $6,000                   4%                        4%
6,000 - 8,000                     5                         5
8,000 - 10,000                    6                         6
10,000 - 12,000                   7                         7
12,000 - 14,000                   9                         9
14,000 - 16,000                  11                        11
16,000 - 18,000                  13                        13
18,000 - 20,000                  15                        15
20,000 - 22,000                  18                        17
22,000 - 26,000                  21                        19
26,000 - 32,000                  24                        22
32,000 - 38,000                  27                        25
38,000 - 44,000                  30                        28
44,000 - 50,000                  33                        31
50,000 - 56,000                  36                        34
56,000 - 62,000                  39                        37
62,000 - 68,000                  41                        41
68,000 - 74,000                  44                        45
74,000 - 80,000                  47                        49
80,000 - 90,000                  51                        52
90,000 - 100,000                 56                        56
100,000 - 150,000                58                        58
150,000 - 200,000                59                        59
200,000 - 300,000                60                        60
300,000 - 400,000                61                        61
400,000 - 500,000                62                        62
500,000 - 750,000                63                        63
750,000 - 1,000,000              64                        64
1,000,000 - over                 65                        65

     Note: No single scale of rates can be devised to overcome the
effects on revenue of splitting the returns of heads of families in
years of varying types of business conditions. This is shown by the
differences in the estimated surtax rate scales for the three years
1926, 1928, 1931. To be conservative the scale of rates estimated
for either 1926 or 1928 should be adopted rather than that estimated
for 1931 in order to assure the Treasury of no loss revenues on
account of the proposed reform.

     In connection with this table see notes, Tables 36 and 37,
pages 199 and 200, also Text pp. 110 ff.

Heads Of Families And Single Individuals. -- Several points not treated above in the discussion of the central idea should now be considered. The head of a family who has no spouse should be permitted to make two returns or to pay taxes on that basis. If no special adjustments are made, the suggested modification would increase the taxes on single persons except those with incomes not subject to surtax. Moreover, with the halving of surtax brackets many additional single persons would become subject to such taxes, though at the lowest rates.

A fundamental question that cannot be answered satisfactorily, except possibly by each person for himself, is how marital status should affect tax liability. Should a single person be subject to the same tax as a man and his wife together considered as a unit, or the same one of them when the man and wife share the total income equally so that each has the same as the single person, or should he be taxed on some basis different from either of these? If the latter, then on what basis? Under the old concept of the woman or wife as the chattel of the man or husband, the woman might be disregarded in considering income taxes, except perhaps as the burden of supporting her might be offset by some credit. True, some little account might be taken of her non-pecuniary services. With the infiltration of modern western concepts of equality, however, ideas of proper tax status have gradually changed. Moreover, aside from the question of equality, some countries -- for example, France, Germany and Italy -- put special extra income or other taxes upon single persons.

It should be noted that in the suggested solution for removing the tax discriminations between different married couples, even without any special modification for single persons, not only is no additional tax placed upon those below the surtax level (which means most single persons) but the additional payment required of single persons is very small for all having taxable incomes of less than $5,000 or $6,000 though the percentage increase may be greater than in the higher brackets.

There is no way to get exact tax justice between either single and married persons, or different single persons, or different married persons. Dependents, actual and contingent, are of all degrees of dependency; health, standards of living, price levels, economic and other fluctuations of various kinds, governmental regulations and services, and hundreds of other factors varying with time and place condition taxpaying ability and benefits derived from governmental services in various and changing ways. Tax and other laws cannot properly be fitted to individual cases but should be approximate adaptations to the generality of situations. To the present writer it appears that the present law discriminates in favor of most single persons with large incomes as compared with most families with aggregate incomes of the same amount. The proposal to put a single person on a parity with a married man or his wife who share their combined income equally appears more reasonable than the present arrangement in the majority of cases.

Possible Adjustments. -- The main issue in the present proposal, however, is the one related to married persons (and heads of families). If Congress does not at this time want to remove what seems to the writer the existing discrimination in favor of single persons, it may preserve the present relative situation of single persons by making special adjustments for them. It can set up for them a special set of rates and exemptions as it sees fit. For example, it could leave standing present rates and exemptions for single persons while making the suggested modifications for husbands, wives, and heads of families. Or it might provide the same rates as for married persons, and, instead of a flat personal exemption for single persons, this exemption might be increased progressively in some proportion to the increase in income by a factory or combination of factors sufficient to secure the desired scale of taxes. A somewhat similar suggestion of increasing the exemption by 10 per cent of the increase in income was made in connection with a joint-return proposal by Mr. L. H. Parker, Chief of the Staff of the Joint Committee. /24/ It should not be difficult to achieve the desired result by one of several different available methods.

Constitutional And Administrative Questions. -- Certain legal and administrative points may be mentioned, though they should be checked by legal and administrative experts, who will doubtless to divide total family incomes into two parts, equal or otherwise, is to avoid the constitutional difficulty of requiring any one to pay tax on another's income, or a tax on one's own income higher than it would otherwise be because of a requirement that it be combined with another's income in making the assessment of tax liability. The option provision of the new proposal is so obviously advantageous that it is assumed that in most cases husband and wife living together will exercise it. Not to choose the option would involve paying higher taxes than are paid now by surtax payers. It should be noted that the options is not one of paying taxes under the present terms of the 1934 law or under the new terms suggested but rather of filing two returns instead of one under the terms of the 1934 Act adjusted as explained above.

A condition of being permitted to choose the option of filing separate returns should be an agreement incorporated in the return of each spouse to the effect that (1) each would accept liability for the total tax assessed upon both, or (2) each spouse would agree to accept liability for as much of the aggregate of taxes as he or she would have been subject to had the option not been chosen. This appears necessary in order to safeguard the revenues in case one spouse owned insufficient available resources upon which to place a lien to insure collection of taxes.

In some cases where incomes of husband and wife are approximately equal anyway, there may be little advantage in choosing the option, particularly where incomes are so small that surtaxes are low, but this would be of no disadvantage to the Federal revenues.

It might be well to give the Commissioner the discretion of requiring the option once chosen to be continued from year to year without change except by his consent, and he might be given adequate discretion, also, to revoke the option in any case where he found it was being availed of for purposes of unjustifiable tax avoidance.

Another Proposal. -- Another somewhat similar, though different, proposal for lessening the existing discriminations between those reporting income jointly and those reporting income jointly and those reporting separately is to tax each spouse on income from his own property plus one-half of the other income earned by both, in both community-property and other States. /25/