Toledo Union Journal

Banks Charged with Distorting Tax Plan

Banks and corporations have launched a "calculated campaign of confusion" in an effort to defeat an Administration proposal for a withholding tax on dividend and interest income, the AFL-CIO has charged in a "tax fact sheet."

The withholding provision in the bill passed by the House of Representatives earlier this year. It faces a hard battle in the Senate, with a flood of letters opposing the provision reflecting misunderstanding of what the withholding tax means and how it would be enforced.

One strong supporter of the withholding tax-Sen. Paul H. Douglas (D-Ill.)- has received more than 30,000 letters from opponents, many of them based on the mistaken belief that the provision would either impose a new tax or increase existing taxes.

Sen. Harrison J. Williams, Jr. (D-N. J.) said he has been "deluged with mail" but much of it revealed "an incredible amount of misunderstanding and distortion."

Noting that savings banks in some areas have taken newspaper advertising encouraging taxpayers to write in opposition to withholding. Sen. John Sherman Cooper (R-Ky.) told the Senate that the advertising is often "misleading."

To answer both the honest confusion and the deliberate distortions, the AFL-CIO made these points in its fact sheet:

Virtually all income received in salaries and wages is reported and taxed through the withholding system which has been in effect since 1942. Because there has been no comparable means of collecting taxes on income from stocks, bonds and bank accounts, the Internal Revenue Service estimates that nearly $4 billion in taxable income does not get reported-and the government loses more than $800 million a year in revenue.

This means, of course, that the people who do pay their full taxes are forced to pay more to make up for this revenue loss.

Dividend and interest withholding will impose no new tax on anyone, the fact sheet emphasizes. It simply will encourage payment of what always has been due under the existing law.

Opponents have charged that withholding will cause hardship to low-income groups, including widows, orphans and the aged.

To start with, only a small portion of dividend and interest income is received by low-income groups. And the bill provides a simple means of exemption from withholding for persons who would not be required to pay any tax because their total annual income is too low.

In addition, married couples with less than $10,000 income and individuals with less than $5,000 can obtain a refund every three months if they expect their tax bill to be less than the amount withheld.

"In our judgment," the AFL-CIO fact sheet declared, "families who have little or no tax obligation will be fully safeguarded under the interest-dividend withholding proposal. Its real objective will be to collect from the forgetful and the deliberate chiselers."

Finally, the AFL-CIO noted, if the Senate rejects interest-dividend withholding, it will "perpetuate a gross injustice" against all wage and salary earners.

Labor "fully agrees," the fact sheet declared, with this statement by Internal Revenue Commissioner Mortimer Caplin:

"An individual whose income is exclusively from wages and salaries is withheld on. Why, in the name of common justice, shouldn't dividend-interest income also be withheld on?

"We do not promote voluntary compliance by tolerating a condition, year after year, under which most people pay and watch others, similarly situated under the tax laws, get a free ride-or ride at a reduced fare. Such a condition is not only fiscally unsound- it is equitably and morally unsound."