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rather full statement of the progress of this program. That has been prepared and is being cleared with the General Accounting Office and the Bureau of the Budget, and that is coming up. It gives a very complete story on the progress to date under this program, mentioning the specific work that is being done in various areas, but I would be very glad this morning to go into those if you want me to.

Mr. Gary. No; I imagine the Coast Guard will discuss that project when they are up here.

Vir. CAKE. Yes, sir. Mr. Gary. We will go into that in some detail because that is kind of an experimental project, in a way, or, rather, more of a model project.

Mr. MAXWELL. Yes; that is right. If we find that the proposals can be established for the Coast Guard, we think we can do it for many of the others.

Mr. CAKE. Yes; that is true. It has wide implications from the standpoint of accounting in the Government.

NUMBER OF PERSONS EMPLOYED

Mr. Gary, I notice you show here in this table, “Average positions." We have asked for tables showing the actual number of employees.

Mr. MAXWELL. Yes, sir.

Mr. Gary. That will be up a little later on. What is the number now?

Mr. MAXWELL. We have 243 employees right now at the moment. That includes temporaries and is exclusive of vacancies.

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REIMBURSING FEDERAL RESERVE BANKS

Mr. Gary. Mr. Maxwell, will you give us some additional detail on this reimbursement program to the Federal Reserve banks? That is something new. Who has been paying for this service for the collection of social-security tax and income tax, and what service do they render that you reimburse them for?

Mr. MAXWELL. Up to January 1 of this year, the taxpayers paying the old-age and survivors insurance, social-security-tax accumulated deductions from employees' wages for a period of 3 months. At the end of the third month, they filed a return-within 30 days after the third month, and attached a check thereto for the amount of taxes withheld from the employees as well as their own portion of the social-security tax.

Beginning January 1, the employers will deduct as usual from the employees' salaries, but at the end of the month-or within 15 days after the end of the month they will be required to deposit that money with the Treasury, and it will be done through the Federal Reserve banks. In other words, the taxpayer is required now to pay this social-security tax within 15 days after the end of each month, to the Federal Reserve banks, for which he will get a depository receipt. He will hold that receipt until he files his return. At the end of the quarter he will file his return and attach thereto the depositary receipts; he will be given credit on his tax return on the basis of the receipts which had been given to him.

Mr. Gary. They will pay the money monthly into the Federal Reserve Bank beginning January 1 instead of quarterly as heretofore?

Mr. MAXWELL. That is right. That is similar to the procedure which has been followed in the past for income-tax deductions which have been withheld from the employees' salaries. So, by doing the same for both the social-security tax and income-tax deductions, we will be able to combine the tax return into one form—so that Internal Revenue will receive but one tax return instead of two. It will require the taxpayer to file one tax return. Moreover, it will give to the Treasury the earlier use of the money collected from these social-security deductions, which will be worth about 1,4 million dollars annually figured at the lowest rate of interst on which the Treasury now borrows money; if figured on a higher rate, it would be worth as high as $3,000,000—but we use the low rate as a conservative basis for making the computation. The first combined tax returnthe first which will be made on the combined basis throughout the United States under this procedure will be for the first quarter of this calendar year, and will be filed next April.

Mr. Gary. Have they been paying the withheld income tax through the Federal Reserve banks?

Mr. MaxwELL. They have been paying it up to the present time to depository banks which, in turn, transmitted it to the Federal Reserve banks.

Under this new procedure the taxpayer has the option of either sending it directly to the Federal Reserve banks or sending it through a depository bank.

There is another change which is somewhat material too. Heretofore we have reimbursed depository banks by permitting them to hold depository bonds—2 percent depository bonds—whereas in the future, under the new arrangement, they will not have those depository bonds. They will now handle this work, you might say, to promote customer relations. If banks desire to handle collections, arrangements will be made for them to be designated as a depository, as in the past but without any reimbursement for their services. On the other hand, if they do not want to act as a depository their tax-paying customers must send their taxes directly to the Federal Reserve banks or to some other bank designated as a depository.

Mr. Gary. Why should not those payments go to the collector of internal revenue like their income-tax payments?

Mr. MAXWELL. Ever since the withholding tax procedure has been in effect we have cleared them through the Federal Reserve banks since we feel that it is the best and most economical method. If paid to a collector, the collector of internal revenue would be required to establish or set up an individual account for each taxpayer and record each payment. Under this procedure, instead of crediting payments currently to an account and checking with the quarterly tax return when it comes in, it is easier to compare the depository receipt which is attached to the return. It was felt that this was the most economical procedure to follow.

Mr. Gary. So this puts additional work on the Federal Reserve banks that they have not been performing in the past?

Mr. MAXWELL. Yes; to the extent that the new procedure includes the social-security-tax payments.

Mr. Gary. Did you pay them for handling income tax in the past?

Mr. MAXWELL. Yes; we have had a separate appropriation for this up until 2 years ago when the amount was consolidated with, our regular appropriation.

Mr. Gary. But you have been paying them for handling income tax in the past?

Mr. MaxwELL. Yes; that is right. The additional amount we are requesting this year is because of the additional amount of work involved arising from the extension of the monthly-payment plan, which just about doubles the number of items handled.

Mr. CAKE. And also the Government gets earlier use of the money under this system..

Mr. Maxwell. Yes; that is right. We have, as you know, an appropriation of $175,000 to cover 6 months of this fiscal year for this purpose. The additional amount that we are asking for now is to take care of the full year's requirement which would make it $328,000 on an annual basis.

CHANGE IN LANGUAGE Mr. Gary. You are asking for a change in language to put that new policy into effect?

Mr. MAXWELL. Yes; and we have also made it general so that in the event it is thought later desirable to apply this principle to other taxes, it could be done.

Could I add, Mr. Chairman, that it was explained when we came up for the supplemental appropriation for 1950 that there would be considerable advantages accruing to the Bureau of Internal Revenue in handling one return instead of two returns as was previously done.

Mr. GARY. But there will be additional burdens in handling 12 reports instead of 4?

Mr. MAXWELL. No; the collector of internal revenue will still handle four quarterly returns, but each quarter they will handle a combined return instead of two separate returns.

Mr. Gary. What you mean is that they have been reporting quarterly heretofore, and now you require them to report monthly?

Mr. MAXWELL. For income taxes, the taxpayers have been paying monthly and filing a quarterly return, but on social-security taxes they have only been filing a quarterly return and paying quarterly. Under the old system, that means two tax returns made quarterly to the collector of internal revenue---a social-security return and a withheld-tax return. Under the new procedure, the return will be combined into one, so that the collectors will handle only one return quarterly.

Mr. Gary. They will not have to make up a return for the payment.
Mr. MAXWELL. That is right, they will not.
Vir. Gary. They just put the money into the bank.
Mr. MAXWELL. Yes sir, and get a receipt.

Mr. Gary. And then they account for it in their report on a quarterly basis?

Mr. MaxwELL. Yes sir; and attach the receipt to their quarterly tax return as evidence that they have made payment. Then the collector will get the return with the copy of the original receipt.

Mr. Gary. I still do not see why that could not be handled through the collector's office.

Mr. MAXWELL. When the matter was originally studied back in • 1943—when the withholding procedure was first developed-it was felt that this method was much more economical to the Government than having monthly payments go through the collectors' offices requiring them to maintain an accounting record with each taxpayer, and then later matching the two of them together.

Mr. Gary. Now by the change of language you make it applicable to all taxes?

Mr. MAXWELL. Yes, sir; that is correct, on the assumption that it might be applied later on to other taxes.

Mr. Gary. But if you did by any chance extend it to all taxes you would practically eliminate the collectors' offices?

Mr. MAXWELL. The collectors still would have many other duties; and not all tax collections could be effected this way; there are instances where a taxpayer does not pay his taxes when due and personal contact is necessary. Also, under the withholding procedure, the taxpayer has the option in case of his last payment for each quarter to send a check to the collector

Mr. Gary. He would still have the duty of receiving and checking returns, and it looks to me that you are duplicating work.

Mr. MAXWELL. To the extent that the Federal Reserve handles those checks, the collector does not have to. He does not have to handle the collections of the checks from the depository nor record the payment, nor be concerned with bad checks and the records in connection with those which bounce.

Mr. Gary. You can handle your present program or your contemplated program under the present language?

Mr. MAXWELL. That is right. Mr. GARY. The only effect of the change in the language would be to permit you to make changes in the future?

Mr. MAXWELL. Let me clarify that, Mr. Chairman. The language which we propose here would permit us to include the social-security tax.

Mr. Gary. You can do that anyway. You are striking out the word "withheld.” They are withheld now, are they not?

Mr. MAXWELL. No; beginning January 1 of this year they are going to be withheld. Let me put it this way. The taxpayer is withholding it, but not paying it to the Treasury for social security taxes. We have been reimbursing the Federal Reserve banks for that purpose, and beginning January 1 it will be withheld and it will be paid to the Federal Reserve banks. This was made general to cover any general future possibilities.

Mr. Gary. To strike out the word “withheld” it seems to me relates purely to any future changes you want to make.

Mr. MAXWELL. That is right.

Mr. Gary. You can leave the word "withheld” in there and still do what you contemplate doing now.

Mr. MAXWELL. Yes; but "pursuant to the Current Tax Payment Act of 1943," should be taken out. That applies only to the current income tax.

Mr. Gary. There are several other appropriations for the Bureau of Accounts, and I think it would be better if we complete one of them now. Have you any questions, Mr. Fernandez, on this phase of the appropriation?

Mr. Gary. To make changes in that, Mr. Ol

GOVERNMENT LOSSES IN SHIPMENT ACT

Mr. FERNANDEZ. I have only one question, Mr. Chairman.

Mr. Maxwell said in his statement that $27,900,000 had been saved in premiums to the Government during the 12 years that the Government Losses in Shipment Act has been in effect. Is that net saving, or is that the gross saving in premiums against which should be charged the expense of administering the Government Losses in Shipment Act?

Mr. MAXWELL. I think that it could be very well said, Mr. Fernandez, to be the net saving, for this reason: The $27,000,000 is based on the shipment of over 3 trillion dollars in securities on which we have a record. During the war, there were a number of agencies which were exempted from reporting their shipments, like the War Department, the Navy, and the Military Establishment, so that the actual saving would be much larger than $27,000,000. We have only figured the saving on the items reported to us, and it is based on the lowest premium in effect in 1938 when the account was established. If we figured it on the average premium, it would have been higher, so that we feel that is a very conservative figure.

· Mr. FERNANDEZ. But still, against that should be charged the cost of administering the act.

Mr. MAXWELL. That is very small. The act provides a maximum of $10,000 a year, but we have actually had two clerks and sometimes less than that.

Mr. FERNANDEZ. Is your estimate of appropriations then $150,000?

Mr. MAXWELL. No; not for administrative expenses. That $150,000 is to cover losses.

I'm sorry, I thought you were talking about the personnel and similar administrative costs.

The losses against that account could be offset, too. Mr. FERNANDEZ. So that both the administration and the losses should be offset; is that correct?

Mr. MAXWELL. That is correct.

Mr. CANFIELD. Mr. Maxwell, you tell us today that, except for the work in connection with withheld social-security taxes, it is estimated the volume of work required to be handled by the Bureau in 1951 will be about the same as the previous year; is that correct?

Mr. MAXWELL. Yes, sir; that is the original prediction.

SAVINGS MADE BY MANAGEMENT-IMPROVEMENT PROGRAM

Mr. CANFIELD. You summarize your statement with this expression:

These amounts represent a gross increase of $178,780, which is offset by the reduction of one employee, amounting to $3,878, and $3,730 representing a reduction of 1 day's pay for all employees in excess of 52 weeks, which is required to be paid in the fiscal year 1950.

I realize that your Bureau is comparatively very small, but I understand from the Secretary that the management-improvement program of the Department reaches out into all bureaus.

Would you say that as a result of all combined efforts you have been able to reduce your personnel only one employee for this new fiscal year?

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