Inflation and Federal Taxes
THE ATTITUDE OF THE AMERICAN PUBLIC
By MARK EISNER, Member of the New York Bar and former Collector of Internal Revenue
Radio address delivered over the facilities of the Municipal Broadcasting System, WNYC., July 16, 1942
Vital Speeches of the Day, Vol. VIII, pp. 671-672.
APRIL twenty-seventh of this year the President of the United States sent a special message to Congress on the subject of inflation. The following evening, in a historic address to the nation, President Roosevelt referred to this message as "a seven-point program." He spoke of it as a program of general principles which, taken together, could be called the national economic policy for attaining the great objective of keeping the cost of living down."
Congress was told, "1) We must, through heavier taxes, keep personal and corporate profits at a low, reasonable rate; 2) We must fix ceilings on prices and rents; 3) We must stabilize wages; 4) We must stabilize farm prices; 5) We must put more millions into war bonds; 6) We must ration all essential commodities which are scarce; and 7) We must discourage installment buying, and encourage paying off debts and mortgages." The President urged Congress to enact the necessary legislation to bring the entire program into operation. He pleaded with the nation to bear the resulting restrictions upon their economy with patriotic self-denial. "The only effective course of action," the President pointed out," is a simultaneous attack on all factors which increase the cost of living, in one comprehensive, all embracing program covering prices and profits and wages and taxes and debts."
Since the President spoke these words, the American people have been waiting for Congress to make an all-out attack on inflation. Unhappily, our national legislators have been more concerned with serving the specific interests of their immediate constituencies. For more than six months they have been writing a war tax measure. Even today, as I speak to you, while the measure is now before Congress, it will not be employed to help stop the inflation spiral until next January, if then. Congress has all but wrecked price control by withholding appropriations, crippling the organization, and restricting the powers of the price administrator. The farm bloc in Washington has deliberately manipulated an advantage for farm products which put most foods out of bounds for price control.
It matters very little, as far as our national economy is concerned, what reasons are responsible for the failure of Congress to act. Whether it be timidity or selfishness, or just plain stupidity and cussedness, or politics, the net effect on the cost of living of the ordinary wage earner is the same. The rising costs of food and other commodities and services
not under a price ceiling are already very much in evidence. Unless drastic measures are taken immediately, the price situation will necessarily become much more acute by the end of this year. Every man, woman, and child in America will be seriously affected. It is not so much that our high standard of living will be radically lowered, but that avoidable and unnecessary hardships will be visited upon large sections of our population.
This is the inevitable result of uncontrolled inflation. Most people are not quite sure about the meaning of this word. In our free economy, we have inflation when there is a disproportionate excess of money or credit or both over the amount of goods available for purchase. Thus when the quantity of the purchasing medium available to buy things with, exceeds the normal money quantity of the things to be bought, we have a condition of inflation, unless the excess money and credit are drawn off.
This is precisely the situation in which our country now finds itself. Our national income in 1942 will total about one hundred and seventeen billion dollars, of which sum about thirty-one billion will be drawn off by taxes and savings. It is estimated that only sixty-nine billion dollars in civilian goods will be available for purchase, while eighty-six billion dollars in money will seek to acquire these goods. The difference of seventeen billion dollars will play havoc with costs of commodities, and represents the estimate of the extent of the distention or inflation of our economy in 1942.
Congress might have drained some of this excess purchasing medium by the prompt enactment of a war tax measure. Early this year it could have moved toward the treasury proposal for a withholding tax on salaries and wages. It could have imposed added excise taxes and made all taxes payable on a monthly basis in advance. By these methods alone it could have succeeded in stemming the inflation tide, at least to the extent of the greater part of the tax income which it will derive from the bill which the House now has before it.
The present tax bill is variously estimated to yield some six to seven billions in federal revenues. The effects of this drain on consumer spending will not be felt until next year. By next year, when the national income will be even larger, it is expected that available consumer goods will be further reduced. A drain of six or seven billions will be wholly
inadequate to prevent even further inflation. Our representatives in Congress who serve on the Ways and Means Committee, were occupied for more than six months in writing the present tax bill. Today they say quite frankly, that next year they will engage in writing yet another tax bill to yield even more revenues. It would seem in all reason, that these legislators would serve their country best in this time of great emergency by preparing adequate revenues for war purposes and to influence our economy right now, instead of postponing the inevitable. "Too late and too little" as a habit is no less fatal in economic provision and prevision than in the battlefield.
What is the attitude of the American public toward more incisive taxes and greater sacrifices for the war effort? We have long known about the remarkable fervor and patriotism of the great mass of the American people. We are responding to every call with a genuine will and wholeheartedness which put our enemies on notice that they will not be permitted to prevail. Only last week we had concrete evidence of this spirit in a scientific poll which was conducted by Dr. George Gallup. Dr. Gallup's investigations have revealed that "in the battle against inflation, the people are ahead of the Government." The American people would make most American families pay an income tax. They would enact a Federal sales tax of two or three per cent on everything that people buy. They would fix wages. They would deduct ten per cent from all pay envelopes for the purchase of war securities. In May, Dr. Gallup's poll revealed that seventy-four per cent of the people favored federal control of wages and prices.
These opinion polls once again demonstrate the will of the people of America to make all the necessary sacrifices for victory. However, it must not be overlooked that the people take for granted the assumption that there will be an equality
of sacrifice. They desire more incisive taxes, bearing down equitably upon everyone. They would resent taxes and other sacrifices which impose a disproportionate load upon any one group. Unfortunately, the effects of inflation, which is a ruinous form of taxation, do not fall with equal weight upon all. Inflation has been known to make the poor poorer and the rich richer. It shifts the economic burdens upon those least able to bear them. It dislodges the lower middle classes, and works especial hardships upon the professional workers and all those who are dependent upon a fixed wage. It increases the cost of the government of the war effort.
England and Canada have taken drastic measures to avert ruinous inflation. They have enacted taxes and set up other economic controls which act as a brake on the inflation spiral. Their supply on consumer goods has been dwindling. They have, therefore, adopted a course which has successfully syphoned off their national buying power. In England, taxes have been made so incisive as to withdraw more than half of the national income from the hands of civilian consumers.
It is estimated that our national income, in the calendar year 1943, will rise above one hundred and twenty billion dollars. Even if the current federal tax bill is enacted as it was presented to the House this Tuesday, the net federal revenues are not expected to yield more than twenty-two billion dollars in 1943. When we add the yield of nine billion dollars from local taxes to this sum, we note that all told from local and federal taxes some thirty-one billion dollars will be taken from the American taxpayer. This amount will represent only a little more than one-fourth of the national income. It will leave much more money in the hands of some consumers than is healthy for our entire price structure. Secretary of Commerce Jesse Jones has just stated that, "The American people will have over thirty billion more income in 1943 than the value of things for which the money can be spent." This he called the "potential inflationary gap."
It has been stated by the O.P.A. that one-third of retail grocery sales are not subject to price controls. The effects of the rise in prices of these commodities must be felt by all the other products, whether or not their prices are subject to controls. Legally or illegally, by means of black-market transactions, or by applying pressure upon the price administrator to lift the ceiling, prices of commodities will rise when plentiful purchasing media competes for limited supplies of these products. If runaway inflation is to be averted action must be taken to "stabilize" prices of all commodities as well as services. Mr. Bernard Baruch, Chairman of the War Industries Board during the last World War, has long been advocating such a course, the establishment of an overall ceiling not to permit anything in the economic structure to move upward in response to the ready availability of money and the comparative scarcity of the product.
The economic policy outlined more than ten weeks ago by the President, still waits enactment by Congress. The steps taken thus far by our legislators, especially the taxing measures, are wholly inadequate. It is the patriotic duty of every American citizen to urge Congress to get down to the business of winning the war. Our legislators have a profound responsibility to the nation in this matter of life and death. Without petty politics, without undue regard to narrow sectional or class interests they must rise to their responsibilities as the leaders of a great democratic Cause; they must move to "a simultaneous attack on all the factors which increase the cost of living." Those Congressmen who fear the effect on their constituents of courageous action in the halls of Congress, really insult the intelligence and the patriotism of the people they represent.