Whose Taxes, Whose Economy?
Seligman, Ben B.
Make no mistake about it—the great American economy is stumbling over its feet. Between 1958 and 1962, according to the Council of Economic Advisers, the gap between what we produced and...
...and investment spending has not gen...
...ment, Castro nor Keating, conservative nor liberal have been placated...
...Those earning from $20,000-$50,000 would get back $820 per return...
...The brightest gem in the debate came from the NAM which remarked querulously that JFK's measures were "over-oriented toward a quick pick-up in economic recovery...
...and business investment has dropped from 10 or 11 per cent of real GNP to only 9 per cent...
...As Reston remarked, its sole accomplishment has been to heighten frustration for the President, as indeed for the rest of us...
...Interest rates are still too high to help home buying and vacancy rates in rental housing—one of the more recent centers of strength —reportedly have been rising...
...These figures are harbingers of unease—most economists would agree on at least this much...
...Said the CEA in its last report to the President: "Consumption has not generated the profitable markets needed to stimulate investment...
...Even the international "dollargap" exists no more: with the remark able recovery of Western Europe it has been turned over to the historians to write about...
...Yet the myth of the fiscal cure continues to grip Ad ministration experts, with only soft murmurings offered whenever the question of structural change in the econ omy is raised...
...The feedback stimulus flowing from rocket construction and similar enterprises is not nearly so sharp as that which used to stem from steel and autos...
...In the meantime, the traditional industries turn toward luxury markets patronized by an upper middle class, driving another wedge between the affluent and the dispossessed...
...Congress thus far has been wary: all the elementary lectures delivered by Kennedy's economics professors appear to have had little effect...
...Power balances power, said he, to the point of paralysis...
...To give the economy in its present flagging condition an effective boost requires at least double what Kennedy wants to do...
...Thus, as James Reston recently reported in the New York Times' International Edition, the malaise of drift is the most easily discernible note in Washington these days...
...For corporations a reversal of normal and surtax taxes was proposed so that the initial impost would be 22 per cent instead of 30 per cent, with an eventual reduction of the total corporation rate from 52 to 47 per cent...
...BEN B. SELIGMAN...
...Even the CEA, which has a penchant for burying distasteful economic signs in verbiage, has had to concede that "in the past five years, total demands have not been adequate to promote rapid growth of incomes...
...as compared to the previous February the unemployed had gone up another 400,000...
...All the latter can do now is to press the pants of the wealthy or fill their cocktail glasses or merely wait to be called to dig a ditch...
...Yet virtually the only measure the Kennedy Administration could dream up was the rather tepid tax proposal...
...Compromise has remained what it really is—low-level politics...
...This may seemingly sound munificent, but note—tax reductions in the $5000-$10,000 category comes to $165 per tax return as compared to $286 per taxpayer in the $10,000-$20,000 group...
...Radical facts confront both moderates and conservatives and both quarrel with each other as to how best to deny their existence...
...The Administration may have thought it was doing just this, but the facts seem otherwise, for those with incomes under $5000 are to be given a 20 per cent slice of the tax benefits, while the $5000-$10,000 taxpayer is to receive a 44 per cent share of the cutbacks...
...The United States Chamber of Commerce muttered that the tax cuts for middleincome families were illusory and was promptly advised by Douglas Dillion that it didn't know what it was talking about...
...Moreover, long term unemployment of 15 weeks or more was now in excess of one million, while manufacturers' placements of new orders declined...
...With a capitaloutput ratio of 3:1, perhaps two-thirds of our unused capacity will remain unused, for even if the $10 billion were all spent on consumption, it would call into play not more than $30 billion in capital...
...Instead we have before us a phased program of $13.5 billion spread over 3 years, with but a $2 billion tax cut for year one Much more important, it would appear, is an effort directly to stimulate activity via urban renewal, area redevelopment, mass transportation, a proper retraining program and public works of various kinds...
...As a substitute, his tax message offered a series of complicated changes that the Treasury insists would really reduce depletion allowances by a fourth...
...and Kermit Gordon feared that a balanced budget would have dire consequences...
...For one thing, the American consumer does not seem disposed to engage in relatively more spending than he has in years past...
...Walter Heller argued against puritanism in economics...
...flationary threat has long since evaporated...
...Most of the witnesses testifying before the Joint Economic Committee on Kennedy's economics did not think so...
...The 44 percent figure tossed about by Administration experts hardly tells the whole story...
...Virtually all the indices now suggest sluggishness: the ratio of consumer expenditure to potential Gross National Product stands at about 63 per cent as compared to 67 per cent in 1958...
...Thus, there would be no new investment to make the company approach viability...
...erated the incomes needed to promote strong gains in consumption...
...The specific proposals I have mentioned are necessary for meeting America's needs, but few in Washington, or elsewhere, seem to care...
...The final thrust of Kennedy's tax and fiscal policies might just about equal the wage bill for these increased jobs...
...Real estate operators also are perturbed because this will give home owners smaller deductions...
...But most important, industry has been limping along at about 80 per cent of capacity for many months now...
...Meanwhile, much legerdemain was applied to corporate levies and socalled tax reforms...
...Had the economy been operating at full blast, each family in the United States could have enjoyed at least another $4000 in goods and services...
...Why has this been so...
...Between 1958 and 1962, according to the Council of Economic Advisers, the gap between what we produced and what we could have produced amounted to almost $1000 per person, a total of $170 billion...
...Ever since 1950 the proportion of disposable income spent by the consumer has hovered around 93 per cent...
...There simply isn't enough starch in the Administration program to keep it stand ing...
...But the labor force will have increased at the end of 1963 by over one million, and another million jobs will have to be provided to make a real dent in unemployment...
...The JFK philosophy of compromise finally has come to dead rest—neither labor nor manage...
...The 27½ per cent gross income deduction from net income was left alone...
...Greater allowances for charitable contributions made a little loophole larger: already the total of such deductions could build the churches of America more than twice over...
...Tax measures that bore down heavily on expenditures are still on the statute books, although the in...
...Moreover, with at least $90 billion in idle capacity, the likelihood of new capital formation seems dim...
...Maybe so, but with Lyndon Johnson sitting in the Senate, one wonders how far that scheme will get...
...The new exotic war goods utilize proportionately less capital and labor, and their highly specialized shape has less of a multiplier effect than most of us realize...
...the demand for goods and home construction is about half the potential GNP as compared to 55 to 60 per cent in earlier years...
...Make no mistake about it—the great American economy is stumbling over its feet...
...But can tax cuts—at least the kind suggested by the Administration—really get us away from the brink of depression...
...The reforms themselves were little more than a potpourri of piddling changes that were unlikely to establish greater equity, a broader tax base or simplified tax administration...
...The new minimum $300 standard deduction, for example, was meaningful only for those with taxable incomes under $3000...
...Senator Harry Byrd immediately demanded that he be fired...
...To these must be added the peculiar development of a compartmentalized economy in which a huge defense and space sector is partitioned off from a relatively affluent portion, and a few tidbits trickle down to the poor...
...There has been no visible increase in spending on durable goods, one of the more popular signs of economic vigor...
...One economist, James Knowles of the Joint Economic Committee, has argued that we are suffering from an artificially induced deflation...
...One would think that to really stimulate demand, substantial relief for low-income taxpayers would be offered...
...Willard Wirtz warned of an in crease in unemployment...
...The combination of budget deficits and tax cuts in the first year might reach about $4 billion, so that with a multiplier of 2%, the total impact might be evaluated at around $10 billion...
...But the one great gap—those mineral depletion allowances on which Texas oil millionaires subsist—Kennedy did not dare touch...
...Social service agencies, however, are upset because of the 5 per cent gross income floor to be placed under all deductions...
...No longer are we in possession of deferred purchasing power such as prevailed after World War II and Korea...
...At any rate, the tax program is just another illustration of the Administration's record of evasion and compromise on fundamental issues, all disguised as New Frontier dynamics...
...Perhaps this explains why unemploynn.: nt last February rose to 6.1 per cent of the work force...
...Thus the need for a massive attack on our economic ills was clearly indicated...
...In effect, said he, a cultural lag has been imposed, for the responses required by the inflation of the 1940s and early 1950s are still being voiced...
...It has failed utterly to solve any problem, whether foreign or domestic...
...The total number of unemployed had increased to 4.9 million...
...The Independent Petroleum Association labeled the rather mild depletion reform as "a drastic setback to national security [and] contrary to the objective of stimulating growth...
Vol. 10 • April 1963 • No. 2
