IN SEARCH OF A TAX POLICY
Braunthal, Alfred
In Search Of a Tax Policy By Alfred BraunthaJ In light of President Truman's «P*»ch outlining his lax program for 1*41. this article tak*s on added lignincano*. Dr. Alfred Braunlhtai is a...
...Excess purchasing power, it may be argued, ought to be drained off by the taxation wherever it appears, regardless of income brackets...
...In such a situation a policy shaped after the model of Truman's 1948 program would be both economically and socially desirable...
...Richard Armour...
...The first condition at present is amply met...
...The outcome of the elections is no guarantee for the soundness of the new Congress' tax policy...
...Even if the national debt were paid back to the last cent, a budget surplus would be desirable in an inflationary situation under conditions of full emplpoyment...
...Alfred Braunlhtai is a noitd labor economist and a frequent contributor to The Ned Leader...
...At first glance it may seem as if the economic and the social concepts of a workable fiscal policy were incompatible...
...It is also true that there is a very close relationship between tax and social policy...
...This fact can be seen at a glance in the available statistics on the distribution of the national income, the tread of corporate profits, and the trend of average wages...
...I'm never interviewed...
...Quite obviously no ¦uqcms...
...The oppsition to deficit spending during the days of the New Deal was a grave obstacle to any sound anti-depression policy...
...I'm never oven sued...
...Conservative attitudes and prejudices are much more deepseated and widespread in the realm of fiscal than in social thinking, for the simple reason that it is far more difficult to grasp the complicated relations between the volume and structure of taxes and the well-being of the common man than the relationship between, say, social security benefits and his welfare...
...So couldn't have recanted...
...Arguments of this kind were used against President Truman when, at the beginning of 1948, he recommended simultaneously the reimposition of the excess profits tax and the reduction of taxes for individuals in the lower income brackets...
...If, to take the present situation, a boom is accompanied by inflation, there is every reason to fear that the end of prosperity cannot be very far off unless effective anti-inflationary measures are adopted...
...Cap and MflUnery Workers International Union...
...THERE IS no logical connection at all between the desirability of a budget surplus and the volume of the public debt...
...In an inflationary situation, particularly, the lower income groups are likely to be less able than those in the higher brackets to adjust their income to the rising price level...
...provided that it is accompanied by other effective anti-depression measures...
...But that does not automatically imply that a legislator who in all matters of social and labor legislation follows a progressive line— as the next Congress by and large may be expected to do—will adhere to progressive principles also in the field of fiscal policy...
...If this trend should continue, it would not be desirable to accelerate it by returning to a policy of budgetary surplus...
...The business cycle consists not only of troughs, but also of peaks...
...TheEightieth Congress is entirely responsible for this deficit...
...If the Republicans had been somewhat more prudent in their policy of cutting taxes and had <iot rushed headlong into a substantial deficit (which they tried to conceal by the childish maneuver of shifting ERF expenditures of 1949 back to the fiscal year of 1943), their fiscal policy might not have lost its popular appeal...
...It will require much enlightenment, on the part of the public as well as Congress, to meet these responsibilities...
...While in a period of depression fiscal policy should operate towards creating additional purchasing power, in a period of boom it should be geared towards draining off excess purchasing power...
...Deficit spending for pump-priming purposes during a business depression is, in principle, a legitimate, sound device for encouraging business recovery...
...True, the elections signified a defeat of the social and labor policies of the Eightieth Congress...
...and it we want to discover the causes of the business depressions in order to fight them, we must carefully watch these peaks...
...Our government would be faced with the responsibility to curb inflation by tax increases large enough not only to wipe out the existing deficit, but .also to create a sizable surplus —and at the same time to alleviate the plight of the lower income groups which suffer most under the effects of inflation...
...He will be helped in his efforts by the fact that the terrible mess which the Eightieth Congress made in the field of taxation has slowly become evident even to certain conservative groups...
...But to charge the Republicans with bringing about the deficit, and betraying their own fiscal philosophy of the "balanced budget," is to ignore the real nature of the mistakes in the tax policy of the last Congress, • * • The ECONOMIC problems of our time can no longer be solved by adhering to the sanctity of the balanced budget...
...IN THE LAST few months a distinct slackening of the inflationary trend has been noticeable...
...The second condition, however, cannot be met in this postwar and "cold-war" period...
...The basic errors in the past Congress' fiscal policy are not yet understood by the public at large...
...But this change of mind is only a realization of the fact that the budget which had a surplus of $8.4 billion in 1948, was now facing a $1.5 billion deficit in 1949...
...TAere may have been many weaknesses in the administration of the New Deal but deficit spending was not one of them...
...Certainly, election demagog-aery played its part in the tax policy of the Eightieth Congress...
...But the discussion which so far has taken place about the tax policy has not been too encouraging...
...It can largely be traced to an intrinsic belief on the pert of a broad section of the public that, whether or not economic conditions are inflationary, a high budgetary surplus is not justified if it can be achieved only by keeping taxes on a high level...
...But the principle of using fiscal policies to modify devastating business cycles is not confined to periods of depression...
...One of the simplest devices for accomplishing this is to create a large budgetary surplus—either by increasing taxes or by keeping them at a higher level than would be needed simply to balance the budget...
...FAILURE...
...While in periods of economic stress the man on the street is inclined to grant extenuating circumstances for a budget deficit, a budget surplus is usually tolerated only if two conditions concur: that the public debt is extremely high and that at the same time taxes are not so high that they hurt any important group of taxpayers...
...But the huge majority for the tax cuts cannot be wholly explained by the proximity of the election date...
...And here's the reason...
...The cost of European aid and of our military needs makes such a condition impossible from the outset, A fiscal policy under present circumstances geared to a large budgetary surplus must, therefore, be extremely unpopular...
...Yet the economic expert who recommends a budgetary surplus as an antiinflationary device has to face the same "cultural lag" that he faces when he advocates deficit spending in depression periods...
...But if, as seems more likely under present economic and political conditions throughout the world, the slight setback in the price trend should be overcome and the inflationary trend resumed, strong Congressional action would be required...
...They may suffer from a deficiency in purchasing power while at the same time incomes derived from profits are excessive...
...The national debt, even if adjusted to the prewar level of prices, would have been unthought of before the war...
...Many of the people who last Spring hailed the tax reductions as a means of encouraging production and increasing purchasing power have sobered up quite a bit...
...And however much a high level of taxes may hurt those who have to pay them, it actually hurts them much less than continuing in* nation, as long as it does not interfere with full employment, . , The question may be raised as to whether the national fiscal power should be used as a lever for the redistribution of the national income, or simply as an instrument for stabilizing the national economy...
...A budgetary surplus is not always a virtue and a budgetary deficit not always a sin...
...and skepticism about the thoroughness with which the next Congress will reverse this policy is well warranted...
...Actually there is no inherent incompatibility between the economic and the social concepts of tax policy...
...1. HERE are em our aging indications that President Truman will licommend to Congress a reversal of- 'ts tax policy...
...The huge veto-overriding--4najority with which the $4.8 billion tax cut was adopted by the Eightieth Congress, and the weak opposition against this action by the public, are indicative of the conservative attitude^which still prevails in the subject of ptiblic finance...
...The Taft-Hartley Act was adopted with about the same majority as the tax law But this law was supported by public opinion which—however artificially it may have been whipped up (and obviously reversed itself during the last election)—did not respond with anything near the same enthusiasm for the tax bill...
...never quoted by the press...
...Something must be wrong with them, if they invariably .end in depression...
...THERE IS generally a very conspicuous "cultural lag" in the field of tax philosophy...
...Ha b the Research Director of the United Hatters...
...I insist I'm taken so fee granted: I never was a Communist...
Vol. 32 • January 1949 • No. 3
