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(Sec IV-StaUuncmu Sclenu" OrW Friday. Jem. 22, 1954
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WASHINGTON, Jul 21 (AP)
Following'is the complete text ef
the. tax proposals set forth; by
President Eisenhower in his
budget message to Congress to
day: ;
Our whole system of taxation
seeds revision and overhauling.
It has grown haphazardly over
many years. The jtax system
should be completely revised, :
Revision of the tax system is
needed to make tax burdens
fairer for millions of individual
taxpayers. It Is needed t6 restore
normal incentives for sustained
production and economic growth.
The country's economy has jcon
tinued to grow during recent
years with artificial support
from recurring inflation. This is
not a solid foundation for pros
perity. We must restore condi
tions which Will permit tradi
tional American initiative and
production genius to push oh to
ever higher standards of living
and employment. Among these
conditions, a fair tax system with
minimum restraints on small and
growing businesses is especially
important j '
Next Important Step
I believe that this proposed tax
revision is the next important
step we should take in easing our
tax burdens. After it is com
pleted, further reductions in ex
penditures can be applied to our
two objectives of balancing the
budget and reducing tax rates.
A year ago I asked the secre
tary of the treasury to under
take a complete review of the tax
system and make ! recommenda
tions for changes. The committee
on ways and means of the House
of Representatives! had already
started constructive examination
of the tax laws with the same ob
jectives. Extensive hearings; were
held by the committee during
the late spring and summer.
The proposed revision are the
result of a year's intensive work.
The collaboration between? con
gressional and treasury staffs in
the development of a tax revision
bill has been very close. It may,
I hope, provide a precedent for
similar collaboration in other
fields of legislation. f
I shall not list j here all the
detailed points developed for the
revision of the tax Jaws. The fol
lowing recommendations cover
the major points. !
Reduce Inequities j
They will substantially reduce
the i more glaring inequities,
thereby helping vast numbers of
our people m their individual
tax burdens. They will reduce
the more serious ' restraints on
production and economic growth.
They will promote investment,
which provides new and better
methods of production and 'cre
ates additional payrolls and more
jobs. -i -
The revisions wilf also make
the law simpler and surer, with
benefits to both -taxpayers and
the government iThey will in
many ways prevent abuses by
which some taxpayers now avoid
their rightful share of tax bur
dens by taking unfair advantage
of technicalities. ; -
1. Children taming over 600
dollars. At present, parents can
not claim as a dependent any
- child who earns over 600 dollars
a year. This discourages children
in school or college from earn
ing as much as they can to help
! in their, supports I recommend
that a parent should be permitted
to continue to claim a child as
a dependent regardless . of the
child's earnings if he is under 18
or away from home at school, as
- long as he is in fact still sup
ported by the parent. SUch de
pendents should, of course, con
tinue to pay their own income
tax on earnings above 600 dollars.
Split Income Proposed
PRESIDENT DWIGHT D. EISENHOWER
gencies which occur in too many
families. I recommend that a tax
allowance be given for medical
expenses in excess of 3 per cent
of income instead of 5 per cent
as at present I recommend fur
ther that the present ceiling of
1,250 dollars for a single person
with a maximum ceiling of 5,000
dollars for a family should be
doubled so that the maximum for
a family will be 10,000 dollars.
However, to avoid abuses in me
dical deductions, I recommend
that the definition of medical ex
penses be tightened to exclude
both ordinary household supplies
and certain indirect travel ex
penses. Uncertainties Assailed
ancies and will avoid any change
in the tax status of. an annuity
Double Taxation Hit
2. Heads of families.- At pres
ent, a widow -or widower with
dependent children is denied the
full benefit of income-splitting
available to married couples. It
seems unfair to tax the! income
of a surviving parent with de
pendent children at higher rates
than were applied to the family
income before the death of one
of the partners in a marriage. I
recommend that ; widows and
widowers with dependent chil
dren be allowed to split their in
come as is now done by married
couples. i j
This same tax treatment should
be authorized for single people
supporting dependent parents.
Furthermore, the present require
ment that dependent parents must
live with their children! for the
children to qualify for this tax
treatment should be removed. It
is often best for elderly people
to be able to live in thoir own
homes nd the tax laws should
not put a penalty on family ar
rangements of this sort!
i
3. Foster children as 1 depend
ents At present, foster children
and children in process ; of adop
tion may not be claimed as de
pendents. I recommend that such
children be allowed as! depend-
: ents.
i j
Would Aid Child Care
4. Expenses of child; care
Some tax allowance can; properly
be given for actual costs of pro-
vi dine care for the small children
i of widows or widowers who have
: to work outside the home. The
same tax privilege should be
given to working mothers who.
, because their husbands art in
capacitated, provide the princw
-pal support of their families. t
, $. Medical expensesv The pres
ent tax allowances for unusua
medical expenses are too limited
: te cover the many tragic enter-
. Medical Insarance and sick
benefits far employes. Insurance
and other plans adopted by em
ployers, to protect their employes
against the risks of sickness
should be encouraged by remov
ing the present uncertainties in
the tax law. It should be made
clear that the employer's share of
the costs of proving such protec
tion on a group basis will not be
treated as income on which the
employe is liable for tax. This
principal should be applied to
medical and : hospital insurance
as well as to full or partial con
tinuation of earnings during a
sickness.
There should be no tax dis
crimination between plans in
sured with an outside insurance
company and those financed
directly by the employer. At
present payments received by
a person while sick are en
tirely nontaxable if made under
an insured plan. This makes it
possible for a person subject to
high tax rates to have a much
larger net income while on sick
leave than while at work. To pre
vent abuses, 1 1 recommend that
a limit of 100 dollars a week be
placed on tax-free benefits, but
this exemption should be ex
tended only to plans meeting cer
tain general standards.
7. Pension and Profit-Sharing
Plans for Employees The condi-i
tions for qualification for special!
tax treatment of employers' pen-j
sion plans I are too Involved J
Such plans are desirftbje. I
recommend i that - the rules be
simplified and that greater dis
cretion be given in establishing
plans for different groups of em
ployees, so long as there is no!
discrimination in favor of keyl
executives or stockholders.
9. Doable Taxation of Dirld
ends At present, business in
come is taxed to both the cor
poration as it is earned and to
the millions of stockholders as
it is paid out of dividends. This
double taxation is bad from two
standpoints. It is unfair and it
discourages investment I recom
mend that a start be made in the
removal of this double taxation
by allowing stockholders a cre
dit against their own income
taxes as a partial offset for the
corporate tax previously paid.
This will promote investment
which in turn means business ex
pansion and more production
and jobs.
f Specifically, I recommend tha
the credit be allowed on an in
creasing scale over the next 3
years. For this year, I recom
mend that a credit of S per cent
be allowed; for 1955, a credit of
10 per cent; and, ia 1956 and
economic growth, increased pro
duction, and improved standards
of living. It will help the manu-
acturer in buying new machine
ry and I the storekeeper in ex
panding and modernizing ms
establishment it will neip ine
armer set new equipment All
of this means many more jobs.
Asks More Freedom
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Specifically. I recommend that
business be allowed more free-J
dom in using straightrline depre
ciation and in selecting other
methods of depreciation. Larger
depreciation charges should be
allowed in the early years of life
of property by use of the declin-
ng-balance method of deprecia
tion at rates double those per
mitted under the straight-line
method. Other methods which
give larger depreciation in early
years should be accepted, so long
as they- do not produce deduc
tions which exceed those avail
able tinder the declining-balance
method, i
The new methods of depre
ciation should be allowed for in
vestments . in buildings, equip
ment and machinery made after
January 1, 1954. This would in
clude farm buildings and equip
ment and new construction of
commercial and industrial build
ings and rental housing.
Faster ! depreciation, it should
be noted, will merely shift the
tax deductions from later to
earlier years. It will not increase
total deductions. The change
should, in fact, increase govern
ment revenues over the years
because of the stimulation which
it will give to enterprise and ex
In' addition to the tax treat
ment, of . depreciation, which is
important for all business, there
are other features of the tax law
which are of special importance
to small; business
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Would Aid Research
13. Research and development
expenses At present, compan
ies are j often not permitted to
deduct currently for research or
development expenses. This rule
is especially burdensome to small
concerns because large compan
ies with established research
laboratories can usually get im
mediate; deductions, I recom
mended! that all companies be
given an option to capitalize or
to write off currently their ex
penses arising from research and
development work. Our tradition
of initiative and rapid technical
improvements must not be hamp
ered by adverse tax rules,
14. Accumulation of earnings.
At present, the penalty tax on
the burden of proof Chat a reten
tion of earnings is unreasonable.
15. Taxation of partnership.
The tax law applicable to part
nership is complex and 'uncer
tain. I recommend that it be sim
plified and made definite. It
should be possible Ho form part
nerships and make changes in
them without undue tax compli
cations. I
Option Proposed
I
16. Optional tax I treatment for
certain corporations and partner
ship. Small businesses should
be able to operate under what
ever form of organization is de
sirable for their particular cir
cumstances, without incurring un-
Lnecessary tax penalties. To se
cure this result, -I recommend
that corporations Iwith a small
number of active stockholders be
given the option to be taxed as
partnerships and i that certain
partnerships be given the option
to be taxed as corporations.
17. Corporate reorganizations.
The tax law applicable to reor
ganizations and recapitalizations
of corporations is also complex
and uncertain. This part of the
law should be simplified and
made sufficiently definite to per
mit people to know in advance
the tax consequences of their ac
tions: 1
The owners of; small corpora
tions frequently find it necessary
to rearrange their interests in a
corporation in anticipation of es
tate taxes, to secure new capital,
or to make stock 'available for a
new management group. I recom
mend that the tax law permit
tax-free rearrangeents of stock
holders' interests m corporations.
so long as no corporate earn
ings are withdraw. Such changes
will remove some 01 tne tax
pressures which I force the sale
of independent companies to larg
er corporations. At the same time,
the law should be tightened to
prevent abuses by which corpor
ate earnings ae withdrawn
through the issuance and redemp
tion of corporate securities. It
should also be amended to avoid
abuses through the purchase 0
corporations to" acquire their
rights to loss carryovers.
Budget in Brief
By ASSOCIATED PRESS
. SPENDING li
1354: $70,902,000,000
1935: $6570.000,000
Down $5,332,000,000 l
INQOME
1954: $67,628,000,000
1955: $62,64X000.000 .
Down $4,986,000,000
DEFICIT
1954: $3,274,000,000 $
1955: $2,928,000,000 ?
Down $346,000,000 p
YEAR END DEBT
1954: $269,750,000,000 I
1955: $273,000,000,000 $
Up $3,250,000,00 .:
Would Restrict Trusts
Under present law, the value
of a future j pension to a survivj
ing widow ! or i child of an em
ployee is included in the,- busf
band s taxable estate, even
though the survivors may not
ive to receive the full benefits
and there may be no cash availr
able to pay the tax. I recom
mend that such value should not
be included in an estate but that
the survivors continue to pay tax
on the pension in the same man
ner that it was taxed to the per
son first receiving it
At the same time, to avoid un
fair competition with ordinary
tax-paying businesses, I recom
mend that pension trusts be re
stricted in the same manner as
tax-exempt I foundation. They
should also be subject to rules
in regard to percentage distri
bution, of their assets comparable
to those applying to "regulated
investment companies. x -
8. Taxation or Annuities un
der the present tax law, a per
son buying an annuity, is taxed
on a relatively large part of each
payment until his cost ia fully re
covered, at which time the full
amount becomes taxable. The
tax rule is so strict that often la
person is j not likely to get his
capital back tax free unless he
lives beyond his life expectancy.
I recommend that the tax treat
ment of annuities be determined
on the basis of the life ' expect
ancy of the person' receiving it
This will permit the hundreds of
thousands of people who buy an
nuities to recover their capital
free of tat over their lift expect-
later years, 15 per cent To avoid excessive accumulations of cor
shifts in the payment dates of porate earnings operates to. dis
eorporation dividends, these cred- courage the growth of small
its should apply to dividends re- companies which are peculiarly
ceived after July 31 of each year, dependent on retained earnings
To give the full benefit immedi- for expansion. The tax in some
lately to small stockholders, I rec- form is necessary to prevent
lommend that the first 50 dollars avoidance of individual taxes by
of dividends be completely ex- stockholders, but I, recommend
empted from tax in 1954 and that that; the law be changed to
the first 100 dollars be exempted make the government assume
in 1955 and later years.
Simple Penalty Asked
10. Estimated Returns. The
burden on those required to file I
estimated tax returns should be
reduced by increasing the num
ber of optional ways in which an
individual can estimate his tax
without being subject to penalty
for an underestimate. I recom
mend also that the penalties re
sulting - from underestimates be
simplified by being stated as a
6- per cent interest charge on'
deficiencies.
11. Filing Date. To reduce
the burdens of preparing and fil
ing returns in the early months
of the year, I recommend that the
March 15 filing date for individ
uals be changed to April 15.
In the taxation of business the
same objective of fairness, sim
plicity, and reduction of tax bar
riers to production and normal
economic growth are important
The present tax law should be re
vised on the basis of these stand
ards., 1
Particular attention should be
given in the revision of the law
to the problems of small and
growing business concerns. I
cannot emphasize too strongly the
social and economic importance
of an environment which will en
courage the formation, growth.
and continued independent exist
ence of new companies.
Extend Carryback
18. Loss carryback. At pres
ent, losses may ;be carried back
and offset against prior earnings
for 1 year and xarried forward to
be offset against future earnings
for 5 years. I recommend that
the carryback be extended to 2
years. This will benefit- estab
lished companies which become
distressed. The 5-year carry
forward should be continued to
permit new businesses to offset
their early losses against, later
profits. ijj
19. Soil conservation expenses.
At present, only limited and
uncertain tax deduction are al
lowed for soil conservation ex
penses on farms. I recommend
that such deductions be allowed
up to 25 per cent of the farmer's
gross income, v
20. Accounting Definitions.
Tax accounting .should be brought
more nearly in line with accepted
business accounting by allowing
prepaid income to be taxed as it
is earned rather than as it. is re
ceived, and by allowing reserves
to be established for known fu
ture expenses.
21. Multiple surtax exemptions,
consolidated returns, and? inter
corporate dividends. I recom
mend that the law be tightened
to remove abuses from the use of
multiple corporations in a! single
enterprise. 1 also recommend that
the penalty tax on consolidated
returns and intercorporate! divid
ends be removed over at 3-year
period. 1
5
Modification Asked
22. Business income from for
eign sources. I recommend that
the taxation of income from for
eign business investments be mo
dified in several respects. The in
vestment climate and business en
vironment abroad are much more
important than our own tax laws
in influencing the international
flow of capital and business.
Nonetheless, our capital apd man
agement know-how can be help
ful in furthering economic devel
opment in other countries; and is
desired by many of them. Our tax
laws should contain no penalties
against United States investment
abroad and within reasonable
limits should encourage i private
investment which should supplant
government economic aidv
Specifically, I recommend the
following new provisions:' in our
taxation of business income from
foreign sources:
(a) Business income from for
eign subsidiaries or from segre
gated foreign branches which op
erate and elect to be taxed as sub
sidiaries should be taxed it a rate
14 percentage points lower than
the regular corporate rate. This
lower rate of tax should apply
only to earnings after January 1
1954. r
(b) The present definition of
foreign taxes which may be cred
ited against the Umted States in
come tax should be broadened to
include any tax other thtn an in
come tax which is the pnncipa
form of taxation on business in a
country, except turnover! genera
sales or excise taxes, and social
security taxes. This country, but
its tax laws, should not bring in
direct pressure on other countries
adapt their tax i system and
rates to ours. j ; i
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Would Drpp limitation
(e) The overall limitation on
foreign tax credits should be re
moved. .This limitation discour
ages companies operating profit
ably in one foreign country from
starting business in another for
eign country where operations at
a loss may be expected in the first
few years. :
(d) Regulated investment com
panies- concentrating on foreign
investments should be permitted
to pass on to their stockholders
the credit for foreign taxes which
would be available on direct in
dividual investments.
23. Payment dates of corpora
tion income tax. Over the past
several years, corporation income
tax payments have been gradual
ly shifted forward into the first
two of the regular quarterly
dates. By 1955, the entire tax will
be due in two equal installments
in March and June.
The irregularity of tax receipts
increases the problems in manag
ing the public debt and is an un
settling influence in the money
markets. The irregularity of tax
payments also may make it harder
for corporations to manage their
own financing.
I recommend that, beginning
in the Fall of 1955, a start be
made in smoothing out corporate
income tax payments by requir
ing advance payments in Sep
tember and December before the
end of the taxable year. Each
of these payments should! be
made at 5 per cent of the amount
due for the entire year in 1955,
tightened to prevent abuses by
which a; small minority of tax
payers avoid their fair share of
taxes by misuse of expense ac
counts and other improper prac
tices. 1
25. General Simplification f
Tax Laws and Other Revisions
The revision of the tax laws
should be comprehensive. Many
unnecessary complications have
developed over the years. The
entire internal . revenue code
needs rewriting and reorganiz
ation, j
Jointly, the j treasury depart
ment and the staff of the con
gressional committees have de
veloped many ; recommendations
for changes other than, those
which 1 have described here.
Some of these relate to the es
tate and gift tax, and the admin
istrative provisions of the excise
taxes.
The review of the present tax
system f in the treasury depart
ment has not yet lead to final
conclusions in many other situa
tions that require further study
before any recommendations for
change! can be properly . made.
These subjects include the tax
treatment of capital gains and
losses, Ithe special problems of
the oil and mining industries,
the tax: treatment of cooperatives
and organizations which arc
whollyS are partially tax exempt,
as well as the provision of re
tirement income for people not
covered by pension plans,
i
Fairer System Sought
The i tax reforms and revisions
covered by the foregoing 25 re-
rUinff tn 2!5 nr ent srh in 10W 'y"'uui ma&c ine income
Hi uJ I i " y8tem to individuals
and later years.
i
Estimates Suggested
These advance payments will
require estimates of income for
the year somewhat comparable to
those now required of individ
uals. Though estimates of prof
its are difficult to make accur
ately, no payments will be I re
quired before the middle of the
ninth month of a business year.
24. Administrative Provisions
The administrative features of
the tax laws are unnecessarily
complex. Different provisions
have been adopted over the years
to deal with particular problems,
with little regard to consistency.
Specifically, I recommend that
the parts of the law covering as
sessments, collections, interest
and penalties, the statute of lim
itations, and other administra
tive provisions be simplified and
brought together in one puce.
This will result in savings to both
taxpayers and the government
An effective and fair adminis
tration of the tax laws is vital
to every individual in the coun
try. The Internal Revenue Serv
ice has been revitalized during
the past year and .being , organ
ized and managed on a basis that
will assure fair and equal treat
ment to all taxpayers ... j
Regulations Tighter
The regulations and adminis
tration of the tax laws are being
and less burdensome on produc
tion and continued "economic
growth. After their adoption,
further reductions in government
expenditures will make possible
additional reductions in the defi
cit and tax rates. 1
I do not believe that the budge
tary situation justifies any tax
reductions beyond those involved
in the proposed tax revision and
in the tax changes which oc
curred on January 1. According
ly, I repeat my recommendation
of last May that the reduction in
the general corporate income tax
rate be deferred for another
year. I
Excise taxes provide a rela
tively; small proportion of our to
tal tlx revenues. In the fiscal
year 1955. they are estimated to
produce 10 billion dollars at ex
isting rates as compared with 20
billion dollars from corporation
income taxation and 30 billion
dollars from individual income
taxes. Of this 10 billion dollars,
more than half comes from the
excise taxes on liquor, tobacco
and gasoline. -
Because of the present need
for revenue. I recommend that
the excise taxes scheduled to be
reduced on April 1, including
those on liquor, tobacco, automo
biles, and gasoline, be continued
at present rates; and that any
adjustments in the other excise
taxes be such as to maintain the
total yield which we are now re
ceiving from this source!
Comb In ! lest the Thrillin
of the toS4 Chikain
Changes Advocated
12. Depreciation. A liberaliza
tion of the tax treatment of de
preciation would have far-reach
ing effects on all business and be
especially helpful in the "expan
sion of small business whether
Conducted as individual proprie
torships, partnerships, or corpor
ations. At present, buildings,
equipment, and machinery are
usually written off uniformly
pver their estimated useful lives.
The deductions allowed, especial
ly in the early years, are often
below the actual depreciation.
This discourages long-range in
vestment on which the risks can
not be clearly foreseen. It dis
courages the early replacement
of old equipment with new and
improved equipment And it
makes it more difficult to secure
financing for capital investment.
particularly for small business or
ganizations. .
I recommend that the tax
treatment-of depreciation be sub
stantially , changed to reduce
these restrictions on new invest
rment, which provides a basis for
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g Neiv Power
Pontidc
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OINIIAL MOTORS IOWIST MJCID SIGHT
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OWIR ;STIIRINO rati effort p to
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Mora paworfwl than ever for If 54,
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ft's ficWofid foofin, and
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'Ufine fabrics and bright . metals
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Come in for the facta.
DOJJ.AJl FOR DOLLAR
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Distmfltsnod now strli.
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Mw aalaf mat two J faitariaVs. '
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yOU CAST BEAT A
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mmiAC
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Salem, Ore.