In 1932 a gift tax, a large group of manufacturers' excise and other miscellaneous taxes were enacted. In 1933 the capital stock tax, the excess-profits tax and taxes on beer, and in 1934 the alcoholic beverage taxes were added. Rates of the estate and gift taxes were increased and exemptions were decreased.
Numerous changes were made in the income taxes beginning in 1932. Personal exemptions were reduced. Rates of both individ ual and corporation taxes were increased. The corporation tax was converted from a flat percentage to a graduated tax. The earned income credit, the deduction of capital losses and the carry-over of losses were restricted or eliminated but later re stored in whole or part. Dividends were made subject to the personal normal tax even though they came from corporations that had paid corporation income taxes, and 15% of inter corporate dividends were made taxable. Corporations filing con solidated returns were for a while subject to an additional tax and later the privilege of filing such returns was limited to railroad and street and interurban railway corporations. Impor tant changes were also effected in the taxation of non-resident aliens and foreign corporations. With a view to rendering the individual income fax more effective, special taxes were imposed on personal holding companies, and the tax on corporations ac cumulating surplus to avoid surtax on shareholders was strength ened. In 1936 a tax was imposed on undistributed profits, which was reduced in 1938 and eliminated in 1939. The compensations of the officers and employees of the States and their political sub divisions became taxable under the individual income tax in 1939. Under the Social Security Act of 1935 taxes were imposed for old age insurance and unemployment compensation purposes. For old age insurance an income tax was imposed on the wages of workers in industry and commerce and an excise tax on the pay rolls of their employers. The rate of tax is identical in the two cases and is imposed on each, the employer and employee, at the rate of 1% during the calendar years 1939-42, 2% for 1943-45, 21% for 1946-48, and 3% for 1949 and thereafter. Old age insur ance for the employees of carriers is provided separately under the Carriers Taxing Act which imposes an excise tax on the car riers and an income tax on their employees, each at the rate of 2i% during calendar years 1937-39. These rates are scheduled to
increase of I% at three-year intervals, reaching a maximum of 3i% in 1949.
The Social Security Act imposes an additional tax on the pay rolls of employers of eight or more at the rate of 1% in 1936, 2% in 1937 and 3% thereafter, to finance a Federal-State system of unemployment insurance. A credit equal to 90 per cent of the Federal tax is allowed for taxes paid into approved State unemployment insurance funds. A similar excise tax of 3% is imposed on carriers and an income tax of 3% on representatives of employees of carriers under the Railroad Unemployment In surance Act of 1938.