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To curb such abuses. Congress last year knocked down the old "Cohan Rule." named after Songwriter-Impresario George M. Cohan. Back in the 1920s Cohan told a court that he kept no records of his expenses, and the courts finally ruled that details were unnecessary and "skeleton" notes would suffice. Under the new law, the taxpayer has to provide documentation to show that claimed travel and entertainment expenses were "directly related to the active conduct of the taxpayer's business."
Armed with this definition, Caplin has proposed regulations that all T. & E. deductions be itemized if they amount to more than $25. At first he put the figure at $10, knowing that it was unreasonably low, so as to give himself room for strategic retreat when the protests boiled forth—so they did. Even after the switch to $25, the Caplin proposals bring grumbles from businessmen, already overburdened with tax paperwork. But Caplin is happy about the tightening up. "The hunting lodge, the yacht, the safari," he says, "they're going to be out. But I can see $24.95 specials developing all over the country." A few restaurants already offer tape recordings and photographs to document diners' expense accounts.
Loophole Closer. Another enforcement tool that Caplin wanted Congress refused to grant: tax withholding on dividends and interest. Caplin figures that unreported income from these sources results in a $1 billion revenue loss each year.
The IRS is rapidly setting up an electronic computer system to search out tax evasions, intentional and unintentional. Says Virginia's Harry Byrd, chairman of the Senate Finance Committee: "It's the biggest single loophole closer that has ever been enacted." In one 30-ft. by 40-ft. room at the National Computer Center in Martinsburg, W. Va., some 400 miles of magnetic tape will store basic information about 82 million separate tax accounts—each taxpayer identified by a number. Fed into the computers will be information that the Government normally collects from some 120 various documents, such as employers' reports of wages paid. The machines will compare this information with what the taxpayer reports on his return. Scheduled for full nationwide operation in 1966, the system has already begun handling returns from taxpayers in seven Southeastern states.
The Pragmatic Approach. No matter how ingenious or tough enforcement becomes, it cannot dent the complexities and inequities of the tax code—that task requires legislation. Some idealistic tax reformers would like to see the code com pletely rewritten, but pragmatic President Kennedy explicitly rejects that approach in his tax message. "An attempt to solve all tax problems at once by the inclusion of even more sweeping reforms," he says, "might impair the effect of rate reduction. This program is designed to achieve broad acceptance and prompt enactment."
Kennedy's program calls for lowering individual income tax rates from the present 20-91% range to 14-65% over the course of three years—a tax cut of $11 billion (see table). For many taxpayers, notably those who itemize their deductions, the lower rates would be partly offset by Kennedy's proposed revisions, but even so, every taxpayer would get at least some lightening of his load.