Spending and Taxing

March 23, 1959

The spenders and the inflationists are in the saddle, both in Congress and in an influential part-of the press. Actual advocacy of inflation (as typified by Sumner H. Slichter) becomes constantly more open, as does advocacy of still more reckless spending. And now a new type emerges—the defender of increased spending in all directions who professes at the same time to be against inflation, and who therefore proposes even more burdensome taxation.

Take, for example, a column by Walter Lippmann in The New York Herald Tribune of March 5. “Neither the Administration nor the Congress,” he writes, “shows any sign of being willing to vote the taxes which are absolutely essential if the budget is to be balanced. As of now, both parties regard as untouchable the income-tax rates which were fixed in 1954, the date of the Eisenhower reduction”; these are accepted as “sacrosanct.”

What Lippmann is saying, in effect, is that every dollar of the $77 billion (really $93 billion) that the President is proposing to spend in the fiscal year 1960 is a sacrosanct and untouchable expenditure. Not once does he suggest in his article that any saving is possible anywhere. Every dollar, he implies, that either the Administration or the Democrats want to spend is essential to meet our “needs.” Among these he specifies not only national defense, but foreign aid and “education and public facilities.”

COST OF NONDEFENSE

Let us look at this budget; and let us, for the sake of argument, grant the spenders’ tacit assumption that there is no waste whatever in any category of our military expenditures and that all of these are indeed untouchable—except in an upward direction. We still find that nondefense expenditures proposed for 1960 come to a record $31.2 billion, compared with $21.2 billion in 1954. This is an increase of $10 billion. But the spenders apparently cannot think of a single place to cut it.

Lippmann thinks we are “too soft and too timid to tax ourselves enough.” I suggest that we are, on the contrary, too soft and too timid to call a halt to the preposterous handouts to special pressure groups. We are spending more than $6 billion a year for farm subsidies alone. These raise food prices for city workers at the same time as they bring into existence huge unsalable farm surpluses that we try to dump abroad. If we swept out the whole farm-subsidy program it would save $6 billion, bring us a far healthier economy, and vastly improve our foreign relations. Veterans’ aid at $5 billion a year is shamelessly swollen. We have little to show except suspicion and resentment (e.g., Bolivia) for the $62 billion we have lavishly distributed since World War II in foreign aid. All this is not to mention Federal aid to education, Federal housing, aid to “distressed areas,” and the rest.

CONFISCATORY RATES

Now let us look at the soft and timid income-tax rates that Lippmann is so eager to raise. Personal income-tax rates now rise to the confiscatory level of 91 percent. How much higher would he raise them? And how much additional revenue would the increase in rates bring in? The Tax Foundation has pointed out that in 1956 (the latest year for which data are available) all the rates above the lowest-bracket level of 20 percent brought in only 14 percent of the total income-tax yield; the other 86 percent came from the 20 percent rate. We also know that all rates over 50 percent brought in less than $800 million, or only 2½ percent of the total income- tax yield.

It does not follow that halting the top income-tax rate at 50 percent would mean the loss of this small revenue. On the contrary, there is every reason to suppose that with such lower rates actual revenues would increase. The government’s revenues in 1954 were $64.7 billion. Three years after the tax cuts were made which Lippmann now deplores, revenues rose to $71 billion.

Those who want to raise tax rates even further now, instead of cutting government extravagance and waste, forget how much our existing personal and corporate tax rates already retard potential economic growth, and how dangerous to our productivity a still further rate increase would be.