For Whom the Tax Bell Tolls

March 29, 1954

Elsewhere in this issue Raymond Moley deals with the political implications of the Democrats’ attack on the Administration tax program. I shall confine myself here to their proposals for raising personal-income-tax exemptions.

President Eisenhower, in his courageous and statesmanlike TV talk, had no difficulty in exposing the transparently demagogic character of these proposals. Even a $100 increase in the personal-income-tax exemptions would mean 4 million fewer taxable returns than the present total of about 47 million, and a loss of $2.4 billion in annual revenues. A $200 increase in the exemption, as proposed by Senator George, would mean a loss of 7.6 million such returns, and a loss of $4.5 billion in annual revenues.

Let us pass over for a moment what this would mean in terms of deficits and inflation, and concentrate on its demagogic implications. Even the present personal-income tax has become a class tax, particularly so far as rate progression is concerned. The Democratic proposals would make it more of a class tax than ever. To relieve 4 to 8 million more people of the necessity of paying an income tax is to relieve that many voters of any concern about governmental extravagance and to foster in them the illusion that “the other fellow” is paying the bill.

If taxes are to be reduced any further at this time, the real place where the reduction ought to begin is precisely where no one in public life has had the courage to suggest—from the top. Personal-income-tax rates for this calendar year run up to 91 percent. Yet if the government were willing to lose as much as $2.5 billion revenues a year in some other way than by increasing exemptions by $100, it could eliminate all tax progression beyond the rate of 34 percent (which now applies to net income brackets between $8,000 and $10,000) and lose no more than that.

The present steeply progressive income-tax rates are a reflection chiefly of envy and vindictiveness. They represent a desire to punish success rather than to maximize government revenue. The workers of this country are being cruelly deceived when they are led to think that “the rich” are paying most of the taxes because of these confiscatory rates. Of the $31 billion that the personal-income tax yields, only about $1 billion comes from the rates above 50 percent. Only $3 billion, or one tenth, comes from the rates above 30 percent. In fact, if there were no tax progression at all, and the income tax never rose higher than the 20 percent rate that now applies only to the net-income tax brackets below $2,000, the total maximum revenue loss would amount to less than $5.4 billion.

It is a safe presumption, indeed, that the upper-bracket income-tax rates are already far above the rates of maximum return. If the rates were cut to a maximum of 50 percent, the income tax would within a few years (if not, indeed, even in the first year) yield more revenue from net incomes above $18,000, not less.

But the worst harm done by these rates is not that they reduce government revenue, serious as this is. The worst harm is that they discourage the most productive people from producing and earning what they would otherwise produce and earn. They deprive the nation of this production and of the new enterprises that would otherwise be launched. These confiscatory rates siphon off the cream of the very funds that would otherwise go into new investment—the new investment that not only creates new jobs but in the past has created the marvelous machines, factories, and technological advances that have multiplied the productivity and wages of the American worker beyond those of the workers of any other country or any other period in history.

It is hard for most of us to put aside our envy when the question is raised of lowering the tax rate on some income bracket higher than our own. But it is all of us who are losing income by these confiscatory rates. And therefore never send to know for whom the high-tax bell tolls; it tolls for thee.