I should like to plead for the enactment of a tax of this sort, a tax upon all employees of the Federal Government, wherever employed, either in the States, the District of Columbia, or the Territories, and also upon all residents of the District of Columbia, wherever employed, with the exemptions now allowed by the Federal Government on income tax, those exemptions being $1,000 for a single man without dependents and $2,500 for a married man without children dependents, instead of the proposed exemption of $14,000.

I am sure there would be some difficulty in the District of Columbia committee reporting out such a tax bill, because some of that jurisdiction may rest with the Committee on Ways and Means.

Mr. NICHOLS. Insofar as a tax applies to the District of Columbia, it is within the jurisdiction of this committee.

Mr. WHATLEY. I was speaking about the proposal to tax Federal employees wherever employed.

Mr. NICHOLS. Of course, that is a matter for consideration of the Committee on Ways and Means, the national committee.

Mr. WHATLEY. But it would be within the jurisdiction of this committee to recommend such a tax.

The object of that would be twofold; first, it would apportion the tax according to ability to pay.

Mr. NICHOLS. You understand, of course, that the House of Representatives made rather a definite recommendation in that direction when it passed a bill attempting to confer jurisdiction upon State governments to tax the income of Federal employees and to allow the Federal Government to tax the income of State employees. That is exactly what you recommend, as I understand?

Mr. WHATLEY. Yes, sir; that is right. I think this tax might relieve one of the objections to such a tax, and one of the objections that confronted the House. That is this: If the Federal Government taxes its own employees, to that extent

Mr. NICHOLS. We do tax them.

Mr. WHATLEY. Yes. Simply double the tax on all Federal employees. They have all those States apply their present tax to Federal employees hereafter, and let the State tax apply against the tax of the Federal Government. Do I make myself clear? For instance, if Maryland next year enacts a tax or applies its income tax to Federal employees, that tax would be exempted from the tax that I

propose.

Mr. NICHOLS. In the District of Columbia?

Mr. WHATLEY. Yes. I am supposing, of course, that the person living in Maryland and employed in the District of Columbia is taxed by the District of Columbia and the State of Maryland, and in attempting to tax that Federal employee it would have preference under the proposed tax, and then the Federal Government would permit the State of Maryland tax to be deducted in toto.

Mr. NICHOLS. That is right.

Mr. WHATLEY. On the other hand, an employee of the Federal Government living in Maryland, say, in Baltimore, and employed in Maryland, could of course at the present time be constitutionally taxed by the State of Maryland. That is a debatable question, but when and if the State of Maryland taxes the Federal employee to that extent will his District of Columbia tax be reduced by the same amount.

I make that point to obviate the discrepancy there between taxing of employees simply because I happen to work in the District of Columbia. I myself am a Government employee.

When the tax is administered, it will run into constitutional and administrative difficulties by taxing an employee who happens to work in the District of Columbia at a rate higher than an employee who happens to work in Greenbelt or Baltimore or St. Louis.

Mr. NICHOLS. That is right. Certainly that is something over which the District of Columbia would not have any control. Different jurisdictions will have different rates of incomes. Federal employees in St. Louis probably would pay larger income taxes to the State of Missouri than would a Federal employee living in the State of Maryland pay to that State.

Mr. WHATLEY. To that extent I was recommending the straight taxation with the allowable deduction so that there will be an equitable offset.

Mr. NICHOLS. We could not apply a straight tax that a State government would levy against a Federal employee.

Mr. WHATLEY. I was not recommending that. I recommend that the Federal Government, in addition to the present income tax, levy an additional income tax, similar to or exactly in proportion to every Federal employee wherever employed. That would bring him up. In other words, if a Federal employee works in Missouri and pays a greater State income tax, than a Federal employee in Maryland, that matter should be equalized. It would not involve a formula or any differentiation in rate. It would involve a blanket tax uniformly levied on all Federal employees, and against that tax one would be allowed a deduction for income he may have paid in his State. If one were working in Missouri and were taxed, say, 3 percent on his income, and the Federal income tax was 4 percent on his salary, he would have to make up a deficit of only 1 percent. If he worked in the State of Oklahoma, and that State had only a 1-percent tax, he would have to make up 3 percent. That would be fair because all Federal employees are paid uniform salaries, uniform salary rates prescribed by the Classification Act of 1923, and by the proposed amendment to that act, affecting field service employees, the field employees would have their salaries made uniform proportionately.

I want to call attention to the fact that, in my opinion, an income tax in the District of Columbia will be particularly burdensome on the lower-income groups, which, according to my observation, without the benefit of a thorough survey, which I think has not been made here, reside here. There is just as much poverty and dire need here as any other place in the country, almost. There is, as I have said, a high per capita income here, but that is caused by the Federal employees who receive about $2,000 each a year for an average.

We here have a condition like they have in Tulsa, where the per capita income is perhaps as high as or higher than in any other city except Washington; and that is caused by the large number of millionaires residing there.

Mr. NICHOLS. There are not as many millionaires there as there used to be.

Mr. WHATLEY. There are not as many millionaires anywhere as there used to be. The sales tax would bear down upon those lowsalary groups heaviest. I should like to recommend that, if the sales

tax is found to be necessary, it be made to apply to luxuries only. It could apply to motor cars and we could have an excise tax on gasoline.

In connection with an income tax, I recommend the same deductions and rates as the Federal Government now employs up to the present maximum instead of the maximums and minimums heretofore recommended.

Mr. NICHOLS. We thank you very much for your statement, Mr. Whatley.

STATEMENT OF ERNEST F. HENRY

Mr. NICHOLS. The next witness is Ernest F. Henry, of the Petworth Citizens' Association.

Mr. HENRY. The Petworth Citizen's Association is an organization affiliated with the Federation of Citizens' Associations, but it has taken a different view concerning the sales tax. The Petworth Citizens' Association has adopted the following resolution:

Resolved, That the Petworth Citizens' Association, in executive meeting assembled March 6, 1939, approves the tax plan as proposed by Dr. Pond in House Document 108, Seventy-sixth Congress, first session.

I should like to explain how we arrive at conclusions in the Petworth Citizens' Association.

It

Mr. HENRY. Petworth is an area near the Soldiers' Home, between the Soldiers' Home and Rock Creek, and above Park Road. stretches out from there up to Brightwood.

Mr. NICHOLS. All right.

Mr. HENRY. Petworth has about 30,000 inhabitants, according to the 1930 census.

Petworth has had a Citizens' Association as early as any other such association in the District that I am familiar with. We have a membership of 1,300. We have monthly meetings; we have a large number of committees, and among them is a referendum committee, of which I am chairman.

A year ago we sent out a ballot to all members of our association, asking them about the kinds of taxes they would like to pay, if any; and the result was that they favored a sales tax.

Mr. NICHOLS. I wonder whether you can give me the number of ballots you sent out and the number of votes cast.

Mr. HENRY. We sent out approximately 1,300 ballots and 300 were returned, voting on the various tax items.

The sales tax was favored, I think, by a vote of 7 to 3.

Mr. NICHOLS. The sales tax was favored by a vote of 7 to 3?

Mr. HENRY. Yes, sir. The income tax was disfavored at about the same ratio.

Mr. NICHOLS. Was that a personal income tax?

Mr. HENRY. Yes; and not having anything to do with the Pond report. The Petworth Citizens' Association is made up very largely of small-home owners. We do not have any industry there. We have always taken the view that we are willing to pay any taxes necessary to provide what we want by way of civic improvements.

Mr. NICHOLS. To furnish the ordinary protection that is furnished by any good city government.

Mr. HENRY. Yes. They do not like to pay for other things that people lavish upon the Nation's Capital. They would like to have those things but they cannot afford them. If they put those things in their own budget, they would be willing to pay for them.

Our group thought it was represented by the Federation recently, because it felt that the Federation had gone on record as in favor of a sales tax in accordance with our own views. I understand it has changed its views somewhat recently.

Mr. NICHOLS. In the testimony this morning I think they have. Mr. HENRY. Yes; probably due to the committee on fair taxation, whose representative, Mr. Bernstein, spoke here.

I might say this in explanation of why the Petworth Citizens' Association is not on that committee's list as affiliated with it: We felt that the Federation represented, ordinarily, better and more permanently the views of our citizens through a permanent organization. We disliked the idea of associating with a temporary organization that might run into competition with regular civic organizations. We did, however, send a representative to one of their committee meetings concerning fair taxation. That committee were understood to be a mass meeting. I was the representative of the Petworth Citizens' Association that attended that meeting. I simply reported the facts as I found them or learned them at that meeting. There were less than 20 persons there, counting myself and 2 or 3 newspaper

men.

Mr. NICHOLS. What was the date of that meeting?

Mr. HENRY. I think it was December 1938. We were asked to send a dollar or two and a representative and to become affiliated with that committee. I am sure that is the means by which other organizations became affiliated. The name of that organization sounded good; and the members of our association has in mind that we should or could get on the band wagon and have our representatives with the others fighting for fair taxation. Actually, though, the Petworth Citizens' Association did not think they should do that in view of the fact that when I reported back to them concerning the status of the meeting to which I have referred, they felt it was not city-wide and was not representative of the general feeling of the community; and we failed to go along with that committee.

I have had numerous reasons to keep up with the progress of the committee and I realize, of course, that it is attempting to do something that it is only right it should be allowed to do-present the views of those they represent.

I do feel, though, that it is a little exaggeration to say that they really represent all the views of all those affiliated organizations. Mr. BERNSTEIN. May I ask a question?

Mr. NICHOLS. I do not think that is necessary. Let us go ahead. Mr. BERNSTEIN. The gentleman is purporting to speak for the citizens' committee.

Mr. NICHOLS. He is purporting to state the facts. He said he went to one of your mass meetings at which there were 20 in attendance and

Mr. BERNSTEIN. He is claiming to speak for the citizens' committee. He is attempting to indicate the name of a given meeting. Mr. NICHOLS. He is speaking for the Petworth Citizens' Association. He is a representative of the Petworth Citizens' Association. Mr. HENRY. Yes; and that only.

Mr. NICHOLS. He is telling how he, as a representative of the Petworth Citizens' Association, went to a mass meeting of the citizens' committee for fair taxation.

Mr. HENRY. Further, we heard from a representative of the citizens' committee for fair taxation at one of our meetings, but we failed to vote on the proposition that he suggested. He suggested that we get behind the program of his committee.

I represent, as I have said before, the views of the citizens out there by reason of having seen, through their referendum, what they want, through having attended a meeting of our association when the association passed a resolution.

I know that the Petworth Citizens' Association would like to have an income tax that would be constitutional and apply to all the citizens or residents of the District of Columbia or those who earn money in the District of Columbia, if that could be done. We have sincerely felt that it would not be done. We do not like an intangible tax. We think it is inequitable as it is applied. Our thought has been that we would continue the intangible tax, apply a limited sales tax and income tax, in connection with the latter, and there should be credit given for the full amount of the payment of the intangible tax until the constitutionality of the latter tax is determined; and in that way and when that income tax may be validated, then we would discontinue the intangible property tax.

We would eliminate the business-privilege tax as an abomination. It seems that everybody is agreed about that.

We are not particularly fond of the sales tax; nevertheless, we feel it is necessary. While it is in some ways inequitable, the inequities are no less inequitable than the intangible tax is at this time.

The consensus in our neighborhood is that the Pond report and plan seems to offer to us something of a unification of a system by which we may be able to reach out and get somewhere eventually.

We think that the 25-cent instead of the 13-cent bottom would probably be less burdensome on the low-income group; also a sales tax of that nature would be less burdensome on the businessman than the business tax is at the present time.

Any income tax as applied to all persons irrespective of State and Federal sovereignty or other legal residence, and brought down to Federal exemption basis, might be safely incorporated in a revenue plan for the District of Columbia, and the business-privilege tax could be abolished if a credit on such income tax be given for the full amount of any tax paid under the intangible tax.

A sales tax could thus be added to the revenue plan to make up only what is lost by the business-privilege tax cancelation and such further needs as are now contemplated.

To the extent an income-tax law was held valid, the intangible tax would, in effect, be canceled. Upon the income tax being held full valid, the intangible tax and its credit could be eliminated from the revenue plan.

I have felt that we did not want to do any injustice to the committee for fair taxation, but what I heard the other day led me to believe that the fair taxation committee is covering too much territory.

Mr. NICHOLS. Those in the Petworth Citizens' Association are just as much entitled to their views as are the members of the citizens' committee for fair taxation. If your views do not coincide, that is all right.