A Bad Tax Bill

July 17, 1950

For a period of either prosperity or depression, peace or war, the tax bill passed by a vote of 375 to 14 in the House and now before the Senate is on net balance a bad measure.

In the new fiscal year for which there is already an estimated deficit of $5,133,000,000 (without allowing for added costs in Korea) the bill would cut excise taxes by about $1,010,000,000. To compensate for this it would increase other taxes, chiefly on corporations, by about $1,000,000,000. This means that in a period of peak prosperity and inflation the House voted a deficit of more than $5,000,000,000.

Some of these excise taxes—notably those on railroad freight and passenger travel, and on telephone and telegraph messages—are without excuse in peace times. But the way to make possible their removal was to cut Federal expenditures by a few billions, not to place still heavier burdens on other forms of production.

Some of the cuts in excise taxes are hard to understand, especially in view of the taxes substituted for them. There is a tax on radio sets and on movie admissions but not on television sets. There is a tax on croquet balls and mallets but not on fencing equipment. A tax is retained on all railroad freight including coal, but the tax on $65 watches was removed because these are “necessities.”

The House bill attempts to compensate for these excise cuts by soaking the corporations. The real purpose of the provision to speed up corporation tax payments is to make the current inexcusable Federal deficits look smaller; in the long run this device will not add a dollar to Federal revenues.

The House bill still treats corporations as if they were separate and additional individuals, instead of merely a way in which individuals organize for production. Corporate income taxation is double taxation. To tax corporate income 38 or 41 percent, and then tax dividends by individual income-tax rates, is to tax the same income twice. This puts a heavy penalty on corporate production and discourages investment in new corporate enterprises. It strikes directly at the job-creating organism. It retards increases in real wages.

It is estimated that an average of $8,000 in capital is invested in every job in American industry today; it is precisely this capital that makes these American jobs as productive and remunerative as they are. The Ways and Means Committee’s majority report argues that it increased corporate rates by only 2 or 3 percentage points. It refuses to face the ominous long-run implications for production of a 41 percent tax takeout of corporate earnings even before the investor is asked to pay individual income tax on the dividends he receives.

The committee majority, still treating corporations as if they were individuals, taxes corporate incomes at graduated rates and proudly points out that it has reduced taxes on “small” corporations earning less than $167,000 a year and increased them only on corporations earning more. This means that a rich stockholder in a small corporation has his tax reduced while a small stockholder in a big corporation has his tax increased.

The Republican minority report, one must admit, says some excellent things: “Taxes are eating at the foundation of our free-enterprise system.” The new bill shifts “the tax from some of the consumers to a more concealed tax on all of the consumers.” “As a natural corollary to reduction of excise taxes there should be a drastic reduction in Federal expenditures.”

How true! And if military expenditures must now be increased, then a slash in nonmilitary expenditures becomes more imperative than ever. But what of acts? When President Truman on June 23 courageously vetoed a discriminatory veterans’ bonus disguised as a postal pay increase, two out of three Democrats in the House, and four out of five Republicans, voted for the added expenditure over his veto. “Federal expenditures must be immediately reduced,” say the Republican committee members. Do you reduce by more political handouts?