Taxes Now and Victory Sooner
INFLATION AND EQUITABLE TAXATION
By MARK EISNER, member of the New York Bar, former Collector of Internal Revenue
Delivered over the facilities of the Municipal Radio Station (WNYC), October 14, 1942
Vital Speeches of the Day, Vol. IX, pp. 52-53.
FOR more than seven months, Congress has labored to enact the largest tax measure in our history. As provided in our constitution, the House of Representatives "originated" and passed the war revenue bill. The House estimated that it would increase the current federal income to an amount of six and a quarter billion dollars. It sent this bill to the Senate. Exercising its constitutional prerogative, the Upper House, after long consideration, proposed a series of amendments to this war tax law, calculated to increase the added yield to eight and one-half to nine and one-half billion dollars.
Now committees from both Houses of Congress are conferring to iron out their different versions of adequate war taxes. They will most likely agree substantially on the proposals contained in the Senate bill, which promises a larger increase. The conferees will compromise on a mutually acceptable revenue bill. It will then be presented to the Senators and Congressmen for their vote. Immediately after its adoption by both Houses, the tax measure will be forwarded to the President for his signature. If he signs the bill, as he is expected to do, it will become the tax law of our country.
Thus by orderly constitutional process the American people, through their elected representatives, tax themselves for war. Even in these times of grave emergency, it must not be overlooked that America's self taxation is molded in a heroic pattern. After the enactment of the 1942 revenue act, the federal government will receive from twenty-four to twenty-six billions of dollars in tax revenues in the current fiscal year. When local and state taxes of ten billion dollars are added to the federal taxes, the total tax bill of the American people grows to astronomical proportions. Taxes will represent a sum approximating thirty per cent of our total national income.
These figures reveal in a limited measure the determination of the nation to achieve victory no matter what the cost. The sacrifices entailed in these taxes, and in more incisive taxes, which are even now being prepared, represent our free will offering on the altar of democracy. They are not the only offering, nor the most important sacrifice. The courageous exploits of our armed forces in many parts of the world, who engage the enemies, have demonstrated, that we will gladly offer our very lives for victory.
In the current fiscal year our federal government contemplates an expenditure now estimated at seventy-eight billion dollars. It will therefore be seen that the current federal taxes will pay for about one-third of current federal expenditures. Most of our economists believe that this proportion is hardly adequate. Britains and Canadians, whose standard of living were considerably lower than ours, arecurrently paying 45 per cent and 55 per cent respectively, of their war costs.
Because adequate taxes now will bring victory sooner, the American people will cheerfully welcome further tax increases as the needs arise. The Treasury Department awaits the final passage of the current tax bill to offer to Congress for its consideration, a new taxation plan, to add six billion dollars in new taxes. This is necessary not alone to meet a larger part of the federal expenditures but even more to stem the rising inflationary tide.
We are now engaged in a global war which is fought on many fronts. All too few realize the controlling importance of the home front in the present struggle. President Roosevelt on Columbus Day minced no words in presenting a sharply outlined description of things to come. To mobilize our resources and energies for a total war effort, to maintain the morale of our armed and civilian population, we have to strengthen and defend our economy.
The strains entailed by the shifting of our industrial machine to war production and the mobilization of our full man power and other material resources have dislocated all our normal economic balances. Consumer goods are no longer available in adequate quantities to satisfy consumer demands. In 1943 when the national income will rise to one hundred and twenty billion dollars, the available supply of consumer goods and services will fall to a low of seventy billion dollars. The difference of fifty billion dollars would have started a disastrous inflationary spiral. Fortunately most of this gap between purchasing power and available goods will be closed by the tax bill and by the voluntary purchases of government securities and the savings of the people. There still remains however, the prospect of a gap variously estimated at from six to eight billion dollars, which will remain free to work havoc on our enemy.
Congress helped to control inflation when it passed the necessary legislation authorizing the President to stabilize wage rates and farm prices. The prompt enactment of controls on the rising cost of living was a necessary step in the right direction. However, standing alone on our statute books, it can not do the necessary job of reducing the pressure on prices of consumer goods. The law does not dry up the increased spending power of the consumer, nor does it provide more goods to absorb the consumer demand. Furthermore in recent months, several studies have revealed that the maximum demands for consumer goods will arise from those in the lowest income brackets. Many consumer units which have never before had sufficient earnings to provide adequately for the elementary necessities of life, today are receiving compensation for their war work which enables them to buy these necessities. In the middle income groups,the same thing applies. Many consumer units or families, now have the means to buy better and more food, clothing, housing as well as some minor luxuries. While in the cases of these families, the goods they can now afford to buy are not necessities and the goods such as certain foods, some clothing, houses, refrigerators, washing machines and automobiles are no longer manufactured and easily available, they continue to scramble for the rapidly diminishing stock piles, with their newly acquired riches which represents for them excess funds.
Human nature being what it is, this scramble for goods can not and perhaps should not be stopped. For in a sense, these people are entitled to the rewards for their labors, and their labors will most certainly be improved by their rewards.
Thus we are confronted with a dilemma that can only be resolved fairly by equitable taxation. If consumption is to be reduced, it must first be reduced by those who consume more than they need, or those who waste their earnings on things they don't really need and luxuries. Taxes and enforced savings can be made to prevent this with the least possible harmful effect on the productive efficiency of our humble workers in every category of our war enterprise. "Taxes now and victory sooner" then becomes a real slogan to hasten the success of our nation in its struggle "for the restoration and perpetuation of faith and hope and peace throughout the world." This objective so clearly stated by our President in his fireside chat of last Monday evening is worth every sacrifice. I believe the American people are fully ready for any sacrifice, including the surrender of their full excess purchasing power to achieve an early victory.
The tax bill which is now about to be enacted is only a beginning in the direction of a full war time tax program. Originally the Treasury proposed that Congress enact a withholding tax on all salaries and wages in excess of a minimum exemption, and the House incorporated such a tax in its bill. The Senate however in its version of the law rejected the withholding tax, substituting a victory levy of five per cent on all gross income above $624 yearly, addingcertain rebate provisions. The current tax bill raises the normal income tax rate from four to six per cent and surtax rates ranging from thirteen to eighty-two per cent graduated according to amount of surtax income. Personal exemptions are reduced to five hundred dollars for single, and twelve hundred dollars for married persons, with a credit of three hundred dollars for each dependent.
Corporation taxes are similarly increased to a total of normal and surtaxes of forty per cent, while excess profits are raised to ninety per cent. The present measure freezes social security taxes at one per cent on employers and employees and increased excise taxes on liquors, beer, wines, cigarettes, cigars, lubricating oil, slot machines, photographic apparatus and bus, train and plane fares.
It will be readily seen that there remain considerable areas of taxation on which the present bill has not encrouched. The bill also provides for a joint Congressional study of compulsory savings, to be ready for consideration by the national legislature before December first. The action taken by Congress in freezing the social security taxes cuts off an immediate source of federal income, which might have helped further to prevent inflation. Such treasury proposals as withholding taxes, joint returns, spendings taxes, as well as sales taxes or excises upon additional products would most certainly tap enormous new sources of revenue.
Congress will probably proceed to write a new revenue bill immediately after election. Despite the previous hesitancy of our legislators and their delay in enacting adequate taxes, I believe that they have been convinced that we must tax now for victory sooner. If we delay our attack on the Axis, on every front, with every resource at our command, we give to our fiendish enemy the chance to consolidate his present gains, to develop the resources of the countries now under his heel and to fight a long defensive war, which will end up by ruining us as well as him. If on the other hand, we go "all out" now, in matters of taxation as in everything else, we will deliver the punches while he is slightly off balance, and get in the knockout before he gets his second wind. Hence, "Taxation now, and Victory Sooner."