Mr. VINSON. If the gentleman were convinced that the increased tax on tobacco was reflected in the price actually obtained by the producer, I presume his views would be somewhat changed as to the fairness of that increase. Mr. MILLS. If it could be demonstrated that this extra cent per package was coming out of the producer, I would have a very different view. Mr. DOUGHTON. What is the percentage of increase recommended on tobacco? Mr. MILLS. One-sixth. Mr. DOUGHTON. That would be an increase of sixteen and twothirds per cent on the present tax? Mr. MILLS. That is correct, on cigarettes. Mr. HAWLEY. Mr. Mills, you say you believe that all taxes on consumptive articles are passed on to the consumer. Docs not that depend on the market, whether they are passed on or not? Mr. MILLS. There may be exceptions, and that might require some qualification. I think as a general proposition it is undeniable. It is subject to this qualification. They may be placed at so high a rate that in order to move the goods the manufacturer or retailer or the wholesaler may have to absorb part of the tax, but generally speaking, I think a consumption tax is passed on to the ultimate consumer. I can find plenty of exceptions, Mr. Hawley. I was laying down a general rule, and I am convinced in this instance, so far as the tobacco tax is concerned, it is paid by the smoker. Mr. CRISP. And you are generally convinced too that practically all of the tariff duties are passed on, when they can be, to the ultimate consumer? Mr. MILLS. I do not know whether they are all passed on, but unquestionably a good part of them are. Mr. CRISP. Whenever they can be. I also am firmly of that opinion. Mr. MILLS. The only question there is whether in the long run the taxpayer does not get a much greater indirect benefit than the cost of the tax. Mr. CHINDBLOM. Turning for a moment to the question of the reduction of the personal exemption. It is estimated that this reduction would bring 1,700,000 new taxpayers on the rolls, in addition to the approximately 1,900,000 now on the rolls. Mr. MILLS. That is correct, Mr. Chindblom. Mr. CHINDBLOM. The effect would be to release, in the case of a single person $500 and in the case of the head of a family $1,000, for taxation purposes. Mr. MILLS. Correct. Mr. CHINDBLOM. Would not that be paid by present taxpayers in the highest brackets which they are paying? Mr. MILLS. They would in the normal taxes. Mr. CHINDBLOM. Is it possible to estimate how much of the increased revenue would come from the new taxpayers and how much of it would come from the old taxpayers? Mr. MILLS. I think about $12,000,000 would come from the new taxpayers and about $12,000,000 from the existing group of taxpay ers with incomes under $5,000. The $39,000,000 figure I used, Mr. Chindblom, represented the amount that would be derived from all income groups by reason of the decreased exemptions calculated at the proposed higher normal rates, and of that amount I understand that about $12,000,000 would be contributed by the new group of taxpayers and $27,000,000 by the old; of the latter, about $12,000,000 represents the increase for present taxpayers with incomes under $5,000, and $15,000,000 the increase for the rest of the present taxpaying group. Mr. CHINDBLOM. But the increase would apply up to the full amount of income subject to normal tax, would it not? Mr. MILLS. The increase runs right through the entire income subject to normal tax. I mean, any married man with an income of $100,000 gets an exemption of $1,000 less, and he pays, of course, the normal tax on that $1,000, so that the decreased exemption is reflected through the entire income list. Mr. CHINDBLOM. And it benefits, as a matter of fact, the higher taxpayer really more than the smaller taxpayer? Mr. MILLS. I do not know that it benefits anyone. Of course, reducing the exemption increases the tax and the increase is greater for individuals with incomes large enough to be taxed at the highest normal rate than for those with small incomes. Mr. MCLAUGHLIN. May I ask Mr. Mills' attention to one feature of the inheritance tax? I am not familiar with the higher rates on the very large incomes, but as I understand these lower brackets, $500,000 is exempt. Mr. MILLS. $100,000 under the present law, $50,000 under the 1921 act. It is $100,000 under the present act. Mr. MCLAUGHLIN. I must have in mind, then, the earlier law, but it has seemed to me that the rates on those lower brackets are too low. A very large exemption is permitted on all the expenses of administration, maintenance of the family during administration is deducted, and then a very small rate is imposed upon what is left. Under the old law, as I have it in mind, there would have to be an absolute transfer of $100,000 to call for a tax of $500, and it is very little different under the law as it is now. As I say, I was wrong. I had in mind the previous one. But there has been a material change. Mr. MILLS. I suppose the rates on the smaller estates are comparatively low, Mr. McLaughlin. Mr. MCLAUGHLIN. I beg your pardon? Mr. MILLS. I think the rates on the smaller estates are comparatively low. That is a matter of policy, I suppose, for the Congress to determine, but there is no money in estate taxes to meet the immediate emergency. Mr. MCLAUGHLIN. Well, six years is given, as I remember the law, in the settlement of an estate. Mr. MILLS. No; the return has to be made within one year of death, and in order to get the benefit of the tax paid to the State, three years is given from the date of making the return, so it really, in effect, gives four years to pay the taxes. Mr. MCLAUGHLIN. Have you given thought to increasing any of those rates? You have not made it in your recommendation here. Mr. MILLS. No. Mr. MCLAUGHLIN. Have you considered it? Mr. MILLS. No; we have simply considered going back to the 1921 act, Mr. McLaughlin. Mr. TREADWAY. Mr. Mills, I understood you to say that Doctor Adams and Mr. Alvord made, at the request of the Treasury officials, an investigation by going to Canada, of manufacturers' taxes there. Is that correct? Mr. MILLS. A very brief investigation. Mr. TREADWAY. They represented the Treasury. Neither of them are at present in the Government employ, as I recall, but they did go as official representatives of the Treasury? Mr. MILLS. Well, I do not know. I think that Mr. Alvord paid all his own expenses, and while he went at our request, I do not know that he went as our representative. Mr. TREADWAY. But you did request their both going? Mr. MILLS. We could not very well request them, but we did suggest we would appreciate it very much if they could find the time to go. Mr. TREADWAY. Can you give us any idea as to when it would be convenient for those gentlemen to appear and give us any report? Mr. MILLS. No. Mr. TREADWAY. Did they make an official report to you? Mr. MILLS. They made a report, but I do not think we could fairly say it is official. These gentlemen were kind enough to give us their time and the benefit of their advice. Mr. TREADWAY. A written report? Mr. MILLS. There is a very brief summary. I do not know that I should want to-if you are leading up to the suggestion that the written report be incorporated in the record, I do not want to incorporate it in the record in fairness to Doctor Adams and Mr. Alvord, because they had to prepare it very hurriedly, and they came to us and explained the memorandum verbally, and the memorandum they prepared is in a rough state. I do not think it is fair to either one of these gentlemen to put a rough memorandum in the record, particularly when they went there and voluntarily gave their time and effort in order to help out this department. Mr. RAGON. Is that Mr. E. C. Alvord? Mr. TREADWAY. Yes. Mr. RAGON. He is slated to appear before the committee on Monday, January 25. Mr. CRISP. Either one of those gentlemen will appear if asked. Mr. TREADWAY. I think it would be desirable to have them in now rather than at the end of the hearing. Personally, I would like to get their reaction on what investigation they made in Canada before that time. The CHAIRMAN. We will have Mr. Alvord in a day or two, and we can extend his time. Mr. TREADWAY. And Doctor Adams as well? The CHAIRMAN. If the committee wishes. Mr. CHINDBLOM. There will be a considerable discussion here of portions of the administrative features and other features of some of these taxes. For instance, it has been brought very forcibly to the attention of some of us that by reason of the slump in value of securities and property generally, estates are in a very desperate situation for the payment of the estate taxes, due to peculiar conditions which resulted after the deflation in 1929 and since then. Is it your purpose, Mr. Mills, to discuss those questions later on? Mr. MILLS. It is not my purpose to discuss that particular question, because my father died at the height of the boom, and his estate would be affected by any such legislation, and therefore as to that particular point which you have in mind, the Treasury does not propose to make any recommendation of any kind. But as to the other administrative features, we are entirely at the disposal of this committee at any time, whether in open or executive session. I understand that Mr. Gregg, representing the department, is working with Mr. Parker, and Mr. Bartholow of our department is working with representatives of the committee on the administrative sections. But, of course, any time that the committee would want either Mr. Ballantine or myself on any of the administrative sections, preferably Mr. Ballantine, because he is a much better tax expert than I am, we are at the disposal of the committee. The CHAIRMAN. We will be glad to avail ourselves, Mr. Mills, and probably will. Mr. ALDRICH. Have you got a figure there showing the total number of income-tax payers in 1929, 1930, and 1931? Mr. MILLS. Yes. Mr. ALDRICH. I wanted to find out how great a reduction in the number of income-tax payers there has been. Mr. MILLS. I have given you the figures generally speaking in the statement which we made, in which we covered taxpayers under $5,000, taxpayers between $5,000 and $100,000, and $100,000 and over. Mr. ALDRICH. You do not include under $5,000 in those figures? Mr. MILLS. The statistics of income, Mr. Aldrich, give you the complete figures. Mr. ALDRICH. Is that brought up to 1931? Mr. MILLS. That is brought up to the returns filed in 1931. Mr. MILLS. Would you like that table put in the record? It has already been published. Mr. ALDRICH. Well, I can look at that table. The CHAIRMAN. If there is no objection, Mr. Mills, put it in the record. (The table referred to, as published in Statistics of Income (preliminary report) compiled from income-tax returns for 1930 filed to August 31, 1931, follows:) Individual returns for 1913 to 1930, showing number of returns, net income, tax before tax credits, tax credits, and tax 1 For general explanations, see pp. 1-2. The changes in the provisions for filing returns in the various revenue acts are shown on p. 4. Data for net incomes under $5,000 estimated each year beginning 1917. • Income period for 1913 includes 10 months, Mar. 1, to Dec. 1. Figures are estimated on the basis of the number of returns filed and the average net income in each class. Revised figures, due to the revision of the estimated number of returns of net income under $5,000. Includes credit of 25 per cent of tax on earned net income and credit of 121⁄2 per cent on capital net loss and excludes credit for income and profits taxes paid to a foreign country or a possession of the United States and credit for income tax paid at source. Includes war excess-profits taxes on $101,249,781 on individuals and of $103,887,984 on partnerships. € 25 per cent reduction provided for in sec. 1200 (a) of revenue act of 1924. Mr. CROWTHER. I would like to ask Mr. Mills if they have given any consideration to section 101, "Capital net gains and losses," as to which there has been considerable discussion as to its repeal. Mr. MILLS. Mr. Chairman and gentlemen, a great deal of consideration has been given to that controversial question. The Treasury |