LIBERAL REASONS FOR TROY TAXES
Hamilton, Walton
Liberal Reasons For Tory Taxes PRODUCTION, JOBS AND TAXES, by Harold M. Groves. New York: McGraw-Hill Book Co., Inc. $1.75. Reviewed by Walton Hamilton AFANFARE of trumpets acclaims Harold...
...But from such a factual search the author turns away with the statement that the excess profits tax is a "crude weapon" with which to fight monopoly...
...On the contrary, the measures now being taken to carry out the Baruch-Hancock plan of reconversion call for an even greater regimentation of production...
...He ignores entirely the demand for security which is to be had by abating competition and maintaining an united front...
...all income from capital should be treated alike whatever the form under which it accrues...
...How his patient could be got into condition to take his medicines the author does not say...
...and again from a factual inquiry Groves turns away...
...Harold Groves deals with taxation as a thing apart, not as an aspect of a going society...
...Of his sincerity, intellectual integrity, devotion to the public interest I have not the slightest doubt...
...And I, for one, would find it hard to speak at all, unless I knew something of the executive, his business, the prevailing worries, the conditions of his industry...
...The emerging book is competent, well reasoned, aloof from reality, impatient to reach its answer, indulgent to make-believe, too concise for easy reading, and downright wrong...
...Each of its areas has its own distinctive pattern of rivalry and restraint...
...So again the argument demands an appeal to reality...
...but his general theme is that the lighter the tax load, the greater the chance that executives will be up and doing...
...THE author proposes that the corporation and the personal income tax be made one—and that one shall be the personal income tax...
...they are no more a levy on profit-takers than are rent or wages or advertising outlay...
...He admits'that monies saved from taxes may find outlet in any one of a number of different ways...
...Maybe it should...
...they think of themselves as instruments of progress and democracy...
...And Leon Henderson, who tried heroically to hold the price-line against the forces of inflation, will testify to a like effect about the administrative process...
...A score of such observations are set down...
...instead the remission of a tax will capitalize a privilege...
...or better still, its limitation to the correction of gross inequalities in the distribution of wealth...
...Its argument, however straight, traverses a uniform landscape...
...We are thus assured, alike in solo and chorus, that the Committee on Economic Development, with its intricate array of boards and advisory councils and procedures of supervision, exists for no other purpose than that intellectual inquiry shall be free...
...Yet the fact is that the national economy, in which taxes must operate, is not all of a kind...
...Farbenindustrie...
...If, as he implies, lower taxes are the only bait by which our corporate executive can be bribed to serve the public interest, his whole book becomes a damning indictment of the business system...
...Reviewed by Walton Hamilton AFANFARE of trumpets acclaims Harold Groves' new book...
...Profits decreed by a cost-formula-for-price, a gentleman's agreement, a custom of following the leader, by Groves' own logic invite such an attack...
...The corporation tax could be entered upon the books as the cost of law and order...
...In his pages there is little concern with the realities amid which we live...
...It is to him good as a wartime tax, because the freezing of industry causes the accumulation of unearned income at strategic points...
...In this fairyland all—or very nearly all—is perfect competition...
...There is no mention of the cartel...
...The fiction of a difference between stocks and bonds -—outmoded in corporate practice and no longer secure at law—should disappear from fiscal policy...
...a single paragraph crowds the miscellany of sheltered industries, planned capacities, production quotas, stereotyped prices into a simple—and seemingly abnormal —thing called monopoly...
...That depends upon an inquiry too far-reaching to be pursued here...
...If the death-tax is to be guarded against evasion, its equivalent should be invoked in respect to gifts...
...A trio of instances make it clear that some element in a superb craft has gone astray...
...Lacking that special competence, I must appraise the Groves-Ruml proposals in terms of the operations of the national economy...
...it lies rather in a failure to relate their discussions to the age and the culture within which their problems lie...
...you refine it...
...Like a good deal of the recent work of Alvin Hansen and Sumner Schlichter, it provides liberal reasons for reactionary policies...
...Here, then, is the great vice in a virtuous book...
...An income which fluctuates over the years should not be subject to a larger take than one of the same aggregate amount whose flow is regular...
...It is in accord with good sense—and the folkways of industry—to regard the tax bill as an expense of production...
...And a number of his propositions attest a wisdom as idealistic as it is hardhead-ed...
...But he bridges the gap by assuming the interest of executives in the expansion of their own concerns...
...For the tax is only one of the many things which make for expansion or stagnation...
...THE book is a phenomenon of our strange time...
...It is because they put sheer speculation in the seat reserved for the facts-of-life that Harold Groves and the "liberal economists" serve a cause whose livery they would never willingly wear...
...And if such suggestions seem to indulge fictions, so does an art of accountancy which maneuvers figures to create* the impression that taxes are paid at the expense of profits...
...and reader and reviewer must concur...
...Alike they Confuse the business system with an abstraction called "free enterprise...
...Their fault is not in faith or attitude...
...No physician can prescribe for a specific ill unless he understands how the human organism, in all the variety of its interrelated parts, operates...
...The formula for a dynamic industrial system has many terms...
...To establish the causal relation between low taxes and many jobs would seem to me an unpromising venture...
...And strong trends move relentlessly toward private Government, the law of the industry, the self-police of business...
...So why not use the tax to siphon off unearned gains—and thus promote the health of the national economy...
...Groves has far too deft a hand not to set down qualifications...
...There is no reason for thinking of taxes as different from any other kinds of cost...
...in his argument the current trend towards the concentration of economic power—stronger than ever in the history of the country—finds no lodgment...
...but an act of faith is necessary to help Harold Groves to his conclusion...
...Yet, in spite of the stuff of which it is made, the argument seems to falter and vex...
...The author admits that managers and stockholders as often as not form separate groups—hence that the men who make the decisions may not be the ones who feel the incentive...
...The proposals seem fanciful amid such phenomena as basing points and closed patent pools ; RCA, ALCOA, Republic Steel, General Motors, and Western Electric...
...The economy would have to be freed from its rigidities before the Groves' proposals could even have a chance to create jobs...
...The same zeal to reach home without touching all the bases attends the discussion of excess profits...
...There is no mention of the War Production Board, the Reconstruction Finance Corporation, the Defense Plants Corporation, and their roles in the provision of capital...
...And directly on its heels, under the same respectable sponsorship, comes a new Ruml Plan to serve the common good—by removing corporate taxes...
...But we are not called upon to give it up just because of the conventional way the corporation keeps its books...
...Substitute a theology of how the economy is supposed to operate for an account of how it does operate—and the trick is done...
...It is true that the tax is measured by profits...
...ALIKE haste to arrive without making the trip prompts the discussion of incentives...
...That Harold Groves speaks with authority in his chosen field goes without saying...
...great alliances like ATT-ITT, du Pont-ICI, and Standard Oil-I.G...
...And a sales-tax, the greatest iniquity of all, is to be avoided...
...Instead, where any of these major restraints hold sway, a reduction of taxes would almost of itself pile up unearned income...
...Harold Groves, oblivious to this larger question, would abate taxes in the pious hope that somehow or other, in some way or other corporate executives may be baited into a bit of industrial expansion...
...For competition is not there to provide opportunity...
...Where they are dominant, the Groves' recipe for production and jobs will not work...
...The host of technical problems invites the thrusts of a tax-expert like Randolph Paul or Fred Rodell...
...Thurman Arnold, the greatest of all trust busters, will tell you that the Sherman Act is a crude weapon with which to fight monopoly...
...Here are intelligent men...
...The question then becomes what areas of industry have become—as the apologists for big business put it —"rationalized...
...The author would lift the tax a year after the end of the war...
...What should be done with the corporation tax is not for me off-hand to say...
...A contribution to the maintenance of Government is an obligation which, with perfect propriety, might be placed on the corporation—even to the exclusion of the personal income tax...
...the bondage of the return to the calendar should be ended...
...The current system is a crazy-quilt, whose pieces bear the marks of various ages, tax theories, occasions which are gone...
...alike they talk generally of risk and risk-bearing when the need is to explore the institutions of investment...
...and among them the tax rate is not particularly important...
...A rigid price-structure, the want of an experimental attitude, the lack of access to technology, a distorted pattern of freight rates, the heavy hand of tradition, the bureaucracy of business, the cartelization of investment are all far more significant...
...And wherever the national economy is frozen, there exists a necessity to keep privilege from being capitalized into gratuitous dollars...
...Yet the net effect of their work is to serve up apologetics for those who seek to lay the hand of paralysis upon the industrial system...
...Yet our tax experts ¦—lacking a detailed knowledge of a bewilderingly intricate industrial system—manage to link lower corporation taxes with an increase in jobs...
...SUCH instances reveal the book...
...But a hardening of the structure of business is no mere wartime phenomenon...
...But why is the question of a tax as urge or brake ever raised...
...and Groves presents no evidence that the rigidities which the war has accentuated will be loosened at its close...
...Three separate preludes—by a business tycoon, an impresario of research, the author himself—-herald the pageant of arguments, while an imposing series of names proclaims the high auspices under which the work was done...
...Especially since they are likely to accumulate at points where progress is sterile and the spirit of enterprise does not dwell...
...Yet, in driving to his goal, he assumes that the corporation tax comes out of the pockets of those to whom dividends are paid...
...Against one or more of such factors a reduction in taxes is downright impotent...
...The scene is an America which long ago ceased to be or never was...
...The fact—the inescapable fact—that for a decade and a half the capitalistic system has, in peace as well as war, operated on a subsidy provided by the Government is ignored...
...So why not attack with all the tools at hand ? If a weapon is crude, you don't discard it...
...It hadn't occurred to me that as yet we knew enough about what makes the business man tick to speak with certainty...
...they call themselves progressive...
...Or, by a convenient hypothesis, it could be set down as a payment to the Government for an equity which it holds in the capital...
...For us the question—the insistent question—is how a new gigantic plant capacity, just built at public expense, can be kept in production against the insistent cry of business that in the cause of solvency it must be liquidated...
...But, if in the rhetoric of accountancy taxes are charged against, it does not follow in the logic of business practice that they are paid out of, net income...
...A rational tax base requires a longer span than a single year...
...for its impact falls directly upon the standard of life...
Vol. 8 • August 1944 • No. 34
