would escape the condemnation which was attached to the Wisconsin statute.

The imposition upon the husband under this bill of a tax computed by adding the earnings of the wife to his own could, of course, be largely eliminated if this bill should be amended to provide that so far as salaries were concerned, so far as the income from personal service was concerned, each spouse should report his or her own earnings. That would, we think, completely eliminate any question of validity, so far as the taxation of salaries is concerned. We suggest. that this committee should consider the advisability of adopting such an amendment.

With respect to the States which require the inclusion in the community property of the earnings of the wife's independent property, of course, that objection could still be made to the bill, and it cannot be said with any certainty what the result would be.

Mr. HILL. Will you explain what you mean by that statement? Mr. MONARCH. I mean by that statement that the objection could be made that the husband was required to pay a tax, measured not only by his own income but by income from property over which he had no control. Speaking now of income from the wife's independent property, which we understand in some community-property States is added to the community property. That objection would not obtain in other States where we understand the situation is different, and the income from the wife's independent property is never brought into the community.

We would also suggest that the committee consider the advisability of striking out the words on lines 5 and 6, "Property of a marital community shall be considered as the property of and ". The justification for this legislation, as we understand it, is that the husband has the control and management of the income which is to be taxed, and it seems to us that the bill would lose none of its force and none of its scope if the reference to his control and management of the property, as distinguished from the income, were eliminated, and it might conceivably avoid some complaint that the control and management of the property was no justification for a tax upon the income.

Mr. FREAR. And in direct conflict with the laws of the communityproperty States today, which say that the property belongs to both. Mr. HILL. For the benefit of those present, would you restate the proposed amendments or suggestions?

Mr. MONARCH. The suggestion I made earlier was an amendment which would provide that the earnings of each spouse, earnings from personal services, such as salary, wages, and compensation, should be taxable to the individual spouse who contributed the service and earned the income, rather than going into the community estate and taxing the one who had control and management over the aggregate. The other suggestion which has been made was that the words beginning on line 5

Mr. HILL. Beginning after 1933?

Mr. MONARCH. Yes; and striking out the remainder of that line and all of line 6 up to and including the word "and", making the bill read: "That for the purpose of determining the income-tax liability of any individual during any taxable year beginning after

December 31, 1933, income of a marital community shall be considered as the income of the spouse who has the management and control thereof, and so forth ", leaving out the reference that the property of the marital community should be attributed to the husband. When you analyze the situation in the community-property States, it is the enjoyment of the income which the husband has which appears to be the justification of this legislation.

It is therefore suggested that the committee consider adding in line 8, after "control" the words "or enjoyment ", making it read management and control or enjoyment ".

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In our brief study of this legislation it has occurred to us that there might be a way to accomplish what the committee desires under a wholly different approach to this question than is presented by the bill, and we offer for the consideration of the committee an alternative proposal for the whole bill. It is based on this theory: That community property, as we understand it, is built up during the marriage by the earnings of the individual spouses and, in some cases, the earnings from their property. In every case, the community property is identified with one or the other of the spouses, through whom it finds its way into the community. Our thought was if the identity could be preserved and the income from that property which had found its way into the community through a particular spouse could be attributed to that spouse, then you would avoid any objection such as can be made to this bill that there is a building up and adding of one person's income on top of another's with a consequent larger tax than would otherwise be the case. We therefore have suggested that in the case of salaries, the spouse who earns the salary should be taxable. In the case of earnings from other property of the separate spouse, which finds its way into the community, that the earnings be attributed to the spouse through whom it came into the community, and that with respect to community property which has been acquired by accumulations built up over years, that the income from such property should be attributed to each spouse in proportion as he contributed to the acquisition of the property.

We have submitted a copy of these suggestions to the Treasury Department, and we understand that they are studying them. Of course, it should be stated that these suggestions have not received the mature consideration which would be necessary to give a formal and final approval. We think they have possibilities and that they would remove definitely the objections that have been made here. Further study may show that there are some objections that are not apparent at this time. It may even result that the administrative difficulties would be too great to justify it. We think the suggestions have possibilities and we submit them for what they are worth. (The memorandum referred to is as follows:)

Notwithstanding any State law dealing with the marital community:

(a) Salaries, compensation, wages, etc., arising from the personal services of each spouse shall be considered as his individual income;

(b) The earnings from community property, so-called, shall be attributed to and considered as the income of the spouse through whom the property came into the community;

(c) Where the earnings of both spouses are used to acquire community property, the earnings of such property shall be attributed to each spouse in the same proportion as his earnings entered into its acquisition.

Mr. MONARCH. So far as the taxation of the salary to the one who earns it is concerned, we think that any question of the validity of such legislation is foreclosed in view of the decision in Lucas v. Earl, which dealt with the California husband and wife who made an agreement to divide their earnings. The Supreme Court in that case held that it was competent for Congress to require that the earner of income pay the tax upon it, no matter what disposition was made of it after it was earned. We think, in view of that decision, there can be no question of the validity of attributing the earnings to the spouse who performed the service.

Mr. FREAR. These are new suggestions, and I can see that they are helpful, particularly in that one case where language may be stricken out, unless the purpose would be to identify what is known as property under the community State laws. I do not known whether that is the purpose; I never saw this before I sat here yesterday. As I understand from that proposition which you say was upheld by the Supreme Court of the United States, it is, in effect, that a husband who receives $50,000 salary today would be taxed on the $50,000 outside of his exemptions?

Mr. MONARCH. It is all attributed to him.

Mr. FREAR. Under the community-tax States, as I understand, that $50,000, with the other, is divided equally between the spouses? Mr. MONARCH. They each have an interest in it.

Mr. FREAR. What I mean to say is, their tax is based upon the division of that $50,000 to each?

Mr. MONARCH. That is true, and the reason for that is that the statute, as it now stands, makes the tax dependent upon ownership and requires that the income be attributed to those who own it. The purpose of this amendment would be to make a different test and attribute the earnings from personal service to the one who earns it, irrespective of who may own or control it by operation of law, contract, or assignment.

Mr. FREAR. That seems to be the purpose of the bill, to reach the one who has the $50,000 salary, or whatever it may be, so he cannot divide it into two parts and escape the surtaxes which go with the higher brackets.. The alternative, as I view it, and I may be mistaken, if the community States, by reason of the advantage which it is urged they have in this, are able to prevent the collection of what is estimated at 40 to 60 million, the other 40 States, in order, necessarily, to be placed upon an equal footing, ought to adopt the community-tax laws, and would be saved thereby between two or three hundred millions and maybe more, to the people of my State and the other States. This gets to be a selfish State situation. There is no criticism intended; everyone representing the States has the right to be here. But is not that the alternative, that the other 40 States would necessarily have to adopt the community State laws? Mr. MONARCH. That would result in uniformity.

Mr. FREAR. The only way the Treasury Department could recoup would be by increasing the tax rates.

Mr. MONARCH. That is right.

Mr. FREAR. So that the tax rates would then reach back into the community States and they would have the additional rates to pay, where, as it is today, they get the same rates as the other 40 States. Mr. MONARCH. That is true.

Mr. HILL. Following that thought that Mr. Frear has presented, as an alternative, why not tax the incomes of husbands and wives on the theory of the common law? Why not fall back on the common law, instead of having the 40 States adopt the communityproperty law? That would be another way of solving it.

Mr. MONARCH. I do not believe I understand what you mean. Mr. HILL. Under the common law, the property which the wife brings into the marital union becomes the property of the husband, does it not?

Mr. MONARCH. That is right.

Mr. HILL. If you put all the States back on that basis for tax purposes, you would have equality.

Mr. MONARCH. I do not understand how the Federal Government could put them back on that basis.

Mr. HILL. If the Federal Government can tax the incomes of spouses in community-property States on the same basis as if they were under the common law, why cannot you tax the spouses in all

the States on that same basis?

Mr. MONARCH. If you could find some basis for classification that would accomplish that, it could be done. Offhand, I do not think of any basis for classification on which the reverse of what is sought to be done here could be accomplished. There is a difference in the community-property States which would justify a different classification than is now in existence. If there is a similar basis for a classification which would require all States to report on the commonlaw theory of ownership in relation to property of the spouses, then such a classification might be adopted and put all States on the same basis.

Mr. HILL. Do you recognize the right of a State to determine and fix the status of property rights between the husband and wife? Mr. MONARCH. Certainly.

Mr. HILL. And that power in the State is exclusive of the Federal Government?

Mr. MONARCH. So far as their interests between themselves, as affecting their rights in and to property are concerned, yes.

Mr. HILL. That is what I am talking about. The State has the exclusive power to determine the status of property rights between husband and wife.

Mr. MONARCH. Yes.

Mr. HILL. Now, in these community-property States, the States have done that very thing. In non-community-property States, the States have likewise determined and fixed the status of property rights between husband and wife. Since they have that exclusive power, and through the exercise of that power they have determined what property is in the ownership of the wife and what property is in the ownership of the husband, what authority is there for the Federal Government to come in and say they will disregard that determination by the State for taxation purposes?

Mr. MONARCH. I do not understand this legislation proposes to upset the rules of property of the community-property States or that it attempts to disturb them in any way. It says that hereafter, instead of looking to the owner to determine who is going to account for income we will look to the one who has the management and

control, and perhaps enjoyment, if it be decided to include enjoyment. That is not in conflict with the concept of property rights. Mr. HILL. Do you think the Federal Government has the right under the sixteenth amendment to levy income taxes upon any basis than ownership of property and of income?

Mr. MONARCH. Yes.

Mr. HILL. Will you give us a few instances?

Mr. MONARCH. The revocable trust cases are instances of that, where property formerly owned has been transferred but a string has been kept on it. In the Corliss-Bowers case, the husband had created a revocable trust.

Mr. HILL. Revocable or irrevocable?

Mr. MONARCH. A revocable trust, for the benefit of his wife. He did not get the income, but he had the right to get it by revoking the trust. For that reason, the court said the income could be attributed to him.

Mr. HILL. Do you think that is analogous to the situation as between the property rights of spouses in a community-property State? Mr. MONARCH. I think there is some analogy; I recognize there is some difference.

Mr. HILL. The analogy is rather strained or remote, is it not?

Mr. MONARCH. I think the analogy is in this, that whereas in the revocable trust the husband does not actually enjoy the income, but has a right to enjoy it, in the community-property States, while the wife has a vested right, perhaps, in the income, nevertheless the husband is enjoying it.

Mr. HILL. Now, suppose I should receive an income of, say, $15,000 and I should give you $5,000 of it, I would be charged with the tax upon the income of $15,000. I have it in my power to give you that this year and not give it next year. I have absolute control of it. That is true in the case of the revocable trust. The creator of the trust says, "I create a trust here, the proceeds of which will go to my wife, but I retain the right and the power to revoke that trust at any time; I have absolute control of it." He could revoke that trust whenever he felt like it, or at least within the terms of the trust, and that is certainly dissimilar in every respect from the situation as between the spouses in the communityproperty States, where the husband has no right, no vested property right in the wife's part of the community estate, but under the law of the community-property State, he is vested with the right of management and control, subject to revocation by the legislature of the State. In other words, he has no right to revoke the actual vested property right of the wife in the community estate, whereas under the trust example you gave he has a right to revoke her interest in the trust estate. That is fundamental, is it not? Mr. MONARCH. Not necessarily. If the enjoyment is there, what difference would it make where the right was?

Mr. HILL. What do you mean by "enjoyment"?

Mr. MONARCH. I mean if the husband in the community-property estate is vested with the power of control and management to the extent that he can directly exclude the wife from all benefit from the income.