View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

EDITORS* ADVANCE TEXT
For Release - 12:30 P.M.
Thursday, March 29.

AM iMERQgarCY TAX PROGRAM

*

*

*

A Statement on National Policy
by

THE RESEARCH AND POLICY COMMITTEE
of the
COMMITTEE FOR ECONOMIC DEVELOPMENT

March 1951




T

H E TRUSTEES of the Committee for Economic Development
established the Research and Policy Committee "to initiate
studies into the principles of business policy and of public
policy which will foster the full contribution by industry and
commerce to the attainment and maintenance of high and secure
standards of living for people in all walks of life through maximum
employment and high productivity in the domestic economy." (From
CED By-Laws)

CED's Research and Policy Committee of businessmen assigns
questions for study to qualified scholars, drawn largely from leading
universities. Under the By-laws "all research is to be thoroughly objective in character and the approach in each instance is to be from
the standpoint of the general welfare and not from that of any special
political or economic group."
The monographs prepared by the scholars, after consultation with
the Research and Policy Committee, are published as books by
McGraw-Hill Book Co., Inc.
Statements on National Policy are issued by the businessmen of
the Research and Policy Committee. These statements are based on
thorough study and discussion of relevant material including the
research monographs.
Neither the statement by the Program Committee, which follows,
nor any other statement by the CED Research and Policy Committee
claims either indirectly or by inference to represent the views of the
Trustees or of the businessmen and others throughout the country
who are affiliated with CED. They have not participated in the background discussion between businessmen and economists leading
toward the development of the statements.
Statements on National Policy are offered by the Research and
Policy Committee as an aid to clearer understanding of steps to
be taken in reaching and maintaining high levels of productive employment and a steadily rising standard of living. The Committee is
not attempting to pass on any pending specific legislative proposals;
its purpose is to urge careful consideration of the objectives set forth
in the statement and of the best means of accomplishing those
objectives.

RESEARCH AND POLICY COMMITTEE
MEYER KESTNBAUM, Chairman

CLARENCE FRANCIS

FOWLER McCORMICK

PRESIDENT
HART SCHAFFNER & MARX
CHICAGO, ILLINOIS

CHAIRMAN OF THE BOARD
GENERAL FOODS CORPORATION
NEW YORK, NEW YORK

CHAIRMAN OF THE BOARD
INTERNATIONAL HARVESTER COMPANY
CHICAGO, ILLINOIS

BEARDSLEY RUML, Vice Chait

PHILIP L. GRAHAM

W. A. PATTERSON

NEW YORK, NEW YORK

PRESIDENT AND PUBLISHER
THE WASHINGTON POST
WASHINGTON, D. C.

JOHN D. BIGGERS
PRESIDENT
LIBBEY-OWENS-FORD GLASS COMPANY
TOLEDO, OHIO

JAMES F. BROWNLEE
PARTNER
J. H . W H I T N E Y & CO.
NEW YORK, NEW YORK

JOHN M. HANCOCK
PARTNER
LEHMAN BROTHERS
NEW YORK, NEW YORK

GEORGE L. HARRISON
CHAIRMAN OF THE BOARD
NEW YORK LIFE INSURANCE COMPANY

PRESIDENT
UNITED AIR UNES
CHICAGO, ILLINOIS

PHILIP Dr REED
CHAIRMAN OF THE BOARD
GENERAL ELECTRIC COMPANY
NEW YORK, NEW YORK

NELSON A. ROCKEFELLER
NEW YORK, NEW YORK

NEW YORK, NEW YORK

S. BAYARD COLGATE
CHAIRMAN OF THE BOARD
COLGATE-PALMOLIVE-PEET COMPANY
NEW YORK, NEW YORK

S. SLOAN COLT

HARRY SCHERMAN

ROBERT HELLER

CHAIRMAN OF THE BOARD
BOOK-OF-THE-MONTH CLUB, INC.
NEW YORK, NEW YORK

PRESIDENT
ROBERT HELLER & ASSOCIATES, INC.
CLEVELAND, OHIO

S. ABBOT SMITH
PRESIDENT

PRESIDENT

JAY C. HORMEL

BANKERS TRUST COMPANY
NEW YORK, NEW YORK

THOMAS STRAHAN CO.
CHELSEA, MASSACHUSETTS

CHAIRMAN OF THE BOARD
GEO. A. HORMEL & CO.
AUSTIN, MINNESOTA

H. CHRISTIAN SONNE*

PRESIDENT
DES MOINES REGISTER & TRIBUNE

AMORY HOUGHTON

COWLES MAGAZINES, INC.
NEW YORK, NEW YORK

CHAIRMAN OF THE BOARD
CORNING GLASS WORKS
CORNING, NEW YORK

PRESIDENT
AMSINCK, SONNE & COMPANY
NEW YORK, NEW YORK

GARDNER COWLES
and

JAY E. CRANE

THOMAS ROY JONES

DIRECTOR
STANDARD OIL COMPANY
NEW YORK, NEW YORK

PRESIDENT

WAYNE C. TAYLOR
WASHINGTON, D.C.

J. CAMERON THOMSON

DAYSTROM, INCORPORATED
ELIZABETH, N. J.

PRESIDENT
NORTHWEST BANCORPORATION
MINNEAPOLIS, MINNESOTA

HARLOW H. CURTICE

ERNEST KANZLER

EXECUTIVE VICE PRESIDENT
GENERAL MOTORS CORPORATION
DETROIT, MICHIGAN

CHAIRMAN OF THE BOARD
UNIVERSAL C.I.T. CREDIT CORPORATION
DETROIT, MICHIGAN

W. WALTER WILLIAMS

(N.J.)

PRESIDENT
CONTINENTAL, INC.
SEATTLE, WASHINGTON

D. W. FIGGIS

ROY E. LARSEN

CHAIRMAN OF THE BOARD
AMERICAN CAN COMPANY
NEW YORK, NEW YORK

PRESIDENT

MARION B. FOLSOM

FRED LAZARUS, JR.

J. D. ZELLERBACH

TREASURER

PRESIDENT
FEDERATED DEPARTMENT STORES, INC.
CINCINNATI, OHIO

PRESIDENT
CROWN ZELLERBACH CORPORATION
SAN FRANCISCO, CALIFORNIA

EASTMAN KODAK COMPANY
ROCHESTER, NEW YORK




TIME, INCORPORATED
NEW YORK, NEW YORK

THEODORE O. YNTEMA
VICE PRESIDENT—FINANCE
FORD MOTOR COMPANY
DEARBORN, MICHIGAN

* Because of absence from the country, Mr. Sonne has not participated in formulating
these proposals and is therefore taking no position with respect to this statement.




RESEARCH ADVISORY BOARD
SUMNER H. SLICHTER, Chairman

HAROLD D. LASSWELL

LAMONT UNIVERSITY PROFESSOR
HARVARD UNIVERSITY

PROFESSOR OF LAW
YALE UNIVERSITY

ROBERT D. CALKINS, Vice Chairman

DEAN, GRADUATE SCHOOL OF

VICE PRESIDENT AND DIRECTOR
GENERAL EDUCATION BOARD

HARVARD UNIVERSITY

EDWARD S. MASON
PUBLIC ADMINISTRATION

GARDINER C. MEANS

DOUGLASS V. BROWN

ECONOMIST

PROFESSOR OF INDUSTRIAL MANAGEMENT
DEPARTMENT OF BUSINESS AND

WASHINGTON, D.C.

THEODORE W. SCHULTZ

ENGINEERING ADMINISTRATION
MASSACHUSETTS INSTITUTE OF TECHNOLOGY

PROFESSOR OF ECONOMICS
THE UNIVERSITY OF CHICAGO

DAVID F. CAVERS

JACOB VINER

PROFESSOR OF LAW
HARVARD UNIVERSITY

PROFESSOR OF ECONOMICS
PRINCETON UNIVERSITY

RALPH A. YOUNG

NEIL JACOBY
DEAN
COLLECE OF BUSINESS ADMINISTRATION
UNIVERSITY OF CALIFORNIA

DIRECTOR
DIVISION OF RESEARCH AND STATISTICS
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM

RESEARCH STAFF
Research Director
HOWARD B. MYERS

Associate Research Director
HERBERT STEIN

Assistant to Research Director
SYLVIA STONE

Secretary of
Research and Policy Committee
ROBERT F. LENHART

Staff Member
ARTHUR W. VINER




SUBCOMMITTEE ON
FISCAL, MONETARY AND DEBT-MANAGEMENT POLICY
J. CAMERON THOMSON, Chairman
PRESIDENT
NORTHWEST BANCORPORATION
MINNEAPOLIS, MINNESOTA

JOHN D. BIGGERS
PRESIDENT
LIBBEY-OWENS-FORD GLASS COMPANY
TOLEDO, OHIO

S. BAYARD COLGATE

TECHNICAL ADVISORS
ROBERT D. CALKINS
VICE PRESIDENT AND DIRECTOR
GENERAL EDUCATION BOARD
NEW YORK, NEW YORK

NORRIS DARRELL
SULLIVAN AND CROMWELL
NEW YORK, NEW YORK

E. A. GOLDENWEISER

CHAIRMAN OF THE BOARD

PRINCETON, NEW JERSEY

COLCATE-PALMOLIVE-PEET CO.

WESLEY LINDOW

NEW YORK, NEW YORK

CARLYLE FRASER
PRESIDENT
GENUINE PARTS COMPANY
ATLANTA, GEORGIA

VICE PRESIDENT AND ECONOMIST
IRVING TRUST COMPANY
NEW YORK, NEW YORK

HARRY J. RUDICK
LORD, DAY AND LORD
NEW YORK, NEW YORK

PHILIP L. GRAHAM
PRESIDENT AND PUBLISHER
THE WASHINGTON POST
WASHINGTON, D.C.

BEARDSLEY RUML
NEW YORK, NEW YORK

ANNA LORD STRAUSS

SUMNER H. SLICHTER
LAMONT UNIVERSITY PROFESSOR
HARVARD UNIVERSITY
CAMBRIDGE, MASSACHUSETTS

JACOB VINER
PROFESSOR OF ECONOMICS
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY

NEW YORK, NEW YORK

RALPH A. YOUNG

WAYNE C. TAYLOR

DIRECTOR
DIVISION OF RESEARCH AND STATISTICS
BOARD OF GOVERNORS OF THE

WASHINGTON, D.C.

FRAZAR B. WILDE
PRESIDENT
CONNECTICUT GENERAL
LIFE INSURANCE COMPANY
HARTFORD, CONNECTICUT

FEDERAL RESERVE SYSTEM
WASHINGTON, D.C.

STAFF CONSULTANTS
PAUL W. McCRACKEN
SCHOOL OF BUSINESS ADMINISTRATION

THEODORE 0. YNTEMA
VICE PRESIDENT—FINANCE
FORD MOTOR COMPANY
DEARBORN, MICHIGAN

UNIVERSITY OF MICHIGAN
ANN ARBOR, MICHIGAN

JAMES E. SCOTT
WASHINGTON, D.C.

Sl 2. U l l l t 1 1

I• THE TAX PROBLEM IN THE EMERGENCY

.

1

II. THE FEDERAL BUDGET FOR FISCAL 1952
Expenditures

.

.

.

.

.

8

.

.

.

.
.

Vhere to Raise the Money
Taxation of Corporate Profits .

.

*

»

•

11
# 1 7
•

24

Taxation of Individual Incomes

25

Excise Taxes

26

•

.

.

Miscellaneous Revisions of the Tax System
APPENDIX TABLE




28
31

AN EMERGENCY TAX PROGRAM FOR 1951

I. THE TAX PROBLEM IN THE EMERGENCY
In the decisions about taxes that must be made this spring the
nation comes squarely up against a major problem* How can taxes play
their necessary part in restraining inflation without at the same time
seriously impeding the growth of production?
Taxes are already very high* Now we need still higher taxes higher than we have ever had before, even at the wartime peak*
Higher taxes are needed as an element in a program to check
inflation - which is, of course, one of the nation1 s main economic
objectives. But there is also a danger in higher taxes* The danger
is that extremely high taxes - especially if long continued and badly
distributed - will interfere with the growth of production, which is
also one of our main economic objectives.
In the past the tremendous growth of the American economy has
permitted a substantial increase in government expenditures to be
absorbed without extremely high tax rates. But with greatly enlarged
defense requirements the problem of reconciling adequate taxation with
dynamic production has become acute. It is likely to remain so for
some time and perhaps become even more critical if defense requirements
increase. We urgently need, but do not have, a balanced policy for
dealing with this problem.
In our opinion the key to this problem lies in two facts:
First, taxes are only one element in the necessary program for
controlling inflation. Taxes help control inflation by reducing the




-

-

demand for goods and services. But there are other ways to reduce demand.
The government's demand can be reduced ty economy in government expenditure.
Private demand can be restrained by restriction of credit and by promotion
of private saving. Our goal should be taxes high enough to serve as part
of an adequate total program to control inflation. The program should be
balanced in the sense that it does not rely on any one element - such as
taxes - to the neglect of other measures that could restrain inflation with
less impairment of production.
Second, different kinds of taxes differ greatly in their effects upon
inflationary pressure and upon production. That is, per dollar of revenue
yield, some taxes have much more anti-inflation effect and less anti-production effect than others. Therefore the possibility of developing a strongly
anti-inflationary tax program without serious detriment to production will
depend in large degree upon the kinds of taxes that are imposed.
We do not wish to suggest that the nation can now get along without a
big tax increase. We believe that a tax increase should be enacted as soon as
possible. But we do wish to point out that taxes can be too high as well
as too low. In fact, there is a danger that taxes will be at the same time
too high and too low - higher and more harmful to production that would be
necessary if effective action were taken with respect to government expenditures, credit expansion and saving and yet not high enough to control inflationary pressure in view of the other policies that are actually followed.
If, in addition, the taxes we impose are of a kind that put great restraint
upon production and relatively little restraint upon inflation, we shall




- 3 have taxed ourselves at great cost for little benefit*
What is our present situation? In the past eight months we have
had both a rapid increase of prices and a surplus in the Federal cash budget*
Taxes were more than high enough to balance government spending; the tfudget
surplus was at the rate of about $2 billion a year. Nevertheless, prices
(consumers1 price index) rose about 7% in the eight months, mainly as a
result of a great increase in business and consumers' expenditures financed
by an expansion of bank credit and a reduction in the desire to save. Now,
in an effort to retard the inflation, general price and wage ceilings have
been imposed. But direct price and wage controls will not work well and
may not work at all unless they are backed up by measures to curb the
excessive demand for goods and services.
If we are going to bring inflation under control we shall need much
stronger restraint on the pressure of inflationary demand than we have had
in the past eight months. But in one important respect our position is
going to deteriorate quickly unless vigorous steps are taken, for while we
have been running a cash budget surplus in the past eight months, the Budget
estimates show a $13 billion deficit for the next fiscal year, which begins
July 1, 1951.
One conclusion which might be drawn from these facts is that since the
Budget shows a $13 billion deficit for next year, and since the $2 billion
surplus we have been running has been inadequate by itself to control inflation, we need a tax increase big enough by itself to provide a still larger
surplus. Such a conclusion would be a serious mistake. It would neglect




- 4 the potentialities of methods other than higher taxes for restraining inflation and would therefore place an unnecessarily and dangerously great burden
of taxes upon the economy*
In our opinion, an adequate and balanced financial program would consist of the following parts:
1. Maximum possible economy in government expenditure, whicji would
reduce Federal cash expenditure by some $6 billion from the $74
billion proposed for fiscal 1952.
2* Prompt enactment of a $10 billion tax increase.
3* Tight restriction on the expansion of bank credit*
A national program to encourage private savings*
This program, fully carried out, would yield a cash surplus of two
to three billion dollars in fiscal 1952. Thus it would maintain the antiinflationary influence of the budget but would not rely exclusively upon
higher taxes to do this* At the same time, it would greatly strengthen the
defense against inflation at the points where the defense has been weakest namely) control of the expansion of credit and the promotion of savings* This
kind of a balanced program would assign to higher taxes their necessary part
in checking inflation when defense expenditures are rising rapidly. But it
would not expect high taxes to compensate for failure of the government to
economise, to control credit and to promote saving*
This policy statement is mainly devoted to recommending ways to carry
out a 1 pay-as-you-go* policy in the Federal budget for the fiscal year 1952
by curtailing government expenditure and raising taxes** However, before

* Footnote by Beardsley Ruml: "A program to provide adequate defense without
inflation is highly desirable* To this end, a "pay-as-you-go" ideal for
national fiscal policy is important. However, the "pay-as-you-go" ideal
has not yet been sharply defined for precise policy decisions in every sector.
For example, I doubt whether the budget to which "pay-as-you-go" applies
should include as expenditures disbursements for purchase of interest-bearing
assets or disposable inventories*



- 5 proceeding to these recommendations we vish to emphasize again that sound
budget policy is only one element of a sound economic policy for rearmament;
by itself it is not sufficient. In particular, our recommendations for
the budget are intended as part of a total program which would include
much more vigorous action than has yet been taken to restrict credit and
promote savings.
Since the outbreak of the Korean war in June, effective restraints
upon the expansion of bank credit have not been imposed, apparently because
monetary action was dominated by the desire to assure a stable government
bond market and to avoid higher interest rates on government securities.
The failure of recent money-debt policy is shown by the $9 billion increase
of bank loans in the second half of 1950*
A recent statement by the Treasury and the Federal Reserve gives
reason to hope that the desire to keep interest rates on government securities
at arbitrarily cheap levels will no longer be a barrier to anti-inflationary
money-debt policy. The offering of a new long-term nonmarketable bond to
yield 2-3/4 percent - announced this month (March 1951) - is a step towards
the more flexible management of the Fedefkl debt that is urgently needed.
The adequacy of money-debt policy cannot be judged by the terms announced
on a particular issue of Federal securities. It can only be judged by its
success in curbing the growth of credit and the money supply, and thereby
contributing to the control of inflation. The essential point, which must
be the continuing test of policy, is that the expansion of the total amount
of credit and the money supply should be limited.
In 1948 the Research and Policy Committee of CED recommended establishment of a Commission on National Monetary and Financial Policies, to study the




- 6 money-debt problem.-^ We believe that such a commission, established by
Congress and including both public members and qualified private citizens,
could now serve an extremely useful function. Objective study, leading to greater
public understanding of the issues involved, can contribute to more effective
monetary policy in the present inflationary situation* The interest of the
general public in money and debt policy has greatly increased. Public opinion
is likely to be increasingly influential in determining policy in these fields
and it id therefore more important than ever that the public be well informed.
In addition to examining current policy, the Commission should take a long
look ahead to consider the possible debt management policies that might be
appropriate if still greater defense or war expenditures should force large
deficits upon us. One thing we have certainly learned in the past ten years
is that unless a long view is taken, the debt management policies that seem
expedient in a particular emergency situation may pile up difficult problems
for the future.
One aspect of stabilization policy that has been seriously neglected
is the promotion of voluntary private saving. Anti-inflationary policy
requires an effort to keep the community as a whole from trying to buy more
goods and services than are available. In this effort the government has
certain clear responsibilities — to economize in its own expenditures, to
raise taxes, to tighten credit. But the action of private individuals can
be decisive in the success or failure of this effort. As members of a free
society engaged in a struggle for survival each of us has a responsibility
to assist - by saving.

1/ Monetary and Fiscal Policy for Greater Economic Stability. December, 1948,
pp. 37-38.




A national program of education is needed to bring home to our people
their individual responsibility to save. For such a program we should enlist
the cooperation of the leadership that exists in our communities. The government should cooperate by instituting an aggressive campaign for the sale of
savings bonds. The program should be more than a drive for savings bonds —
all forms of savings should be encouraged.




II. THE FEDERAL BUDGET FOR FISCAL 1952
The expenditures of state and local governments are a large element
in the total non-military demand for products and labor. We cannot tax the
state and local governments in order to restrain their expenditures. In
fact, as long as interest on state and local government securities is exempt
from Federal income taxes, an increase in Federal income taxes will make it
easier for states and localities to borrow. Maying interest on future issues
of municipal securities subject to Federal income tax, as we have repeatedly
recommended on other grounds, would help to deter deficit financing by states
and localities. Tightening the supply of credit will also be helpful. But
beyond this we should be able to count upon the voluntary cooperation of the
states and localities to reduce or defer their less urgent expenditures as
their contribution to the national anti-inflation program.
The budget figures in this statement refer to the Federal cashconsolidated budget, more conveniently called the cash budget. The cash
budget is the oest single available indicator of the net economic impact —
the net inflationary or deflationary effect — of Federal payments and
receipts. It is therefore the best single guide to overall budget policy,
which should be concerned with achieving a certain net economic impact — in
1/
present conditions an anti-inflationary impact.

1/ The other budget in common use is the administrative-control budget, which
is a guide to Congress and the administration in controlling operations of
particular Government agencies under particular appropriations. The main
difference between the cash budget and the administrative-control budget is
that the cash budget includes the operations of the social security trust
accounts. Since the trust accounts ordinarily receive more money than they
pay out, the cash budget ordinarily has a larger surplus or smaller deficit
than the administrative-control budget. For fiscal 1952 the cash deficit
would be about $3 billion smaller than the deficit in the administrativecontrol budget. For reconciliation of the two budgets, see appendix table,
page 30.




- 9 In the second half of 1950 there vas a cash surplus of about
$1 billion. The first quarter of 1951 will show a substantially larger
surplus. Jtost of this will be due to the seasonal peak of tax collections in the first quarter. But this summer, unless taxes are raised,
deficits will appear. According to the President's Budget the cash
deficit in fiscal 1952 will be $13 billion with present tax rates. ^
There is no official estimate of the division of this total within the year.
Presumably the rate of deficit will be less than $13 billion in the first
half of the fiscal year — possibly around $11 to $12 billion — and more
in the second half — possibly around $14 to $15 billion.
Vhat we apparently face, therefore, is a shift from a surplus in
fiscal 1951 to a deficit estimated in the budget at $13 billion in fiscal
1952.
We recommend that expenditures be reduced and taxes be raised
sufficiently at least to balance Federal cash expenditures in fiscal year
1952 as a whole. The tax increase should come in one step and should be
made as quickly as possible. It is already later them would have been
desirable. Last November we recommended that both individual and corporate
taxes be raised effective January 1, 1951* However, only corporate taxes
were raised. Now prompt action is imperative. The higher taxes should
go into effect as early as possible in the second quarter of 1951, to
moderate the shift from the current surpluses to a deficit this summer.

The deficit actually shown in the Budget document is $12,759 million.
However, this allows for $240 million net receipts of trust funds under
the proposed health insurance trust fund program.




- 10 There is, of course, considerable uncertainty as to what cash expenditures will be in fiscal 1952 and therefore as to how much tax increase is
needed to balance the budget. Over half of the $74 billion budget estimate
for fiscal 1952 is accounted for by a round figure of $40 billion for the
Department of Defense; this figure will almost certainly be different when
it comes to be .supported by a detailed appropriation request. There are
widely varying estimates of the amounts by which Congress may cut the appropria*tion requests. Even after the regular appropriations are passed, which may
not be before July 1, the actual expenditures in the following twelve months
will be uncertain.
In this situation, and given the imminent prospect of large deficits,
it seems to us wise to raise taxes quickly by the amount necessary to balance
the estimated expenditures after minimum allowance for economies. If we set
tax rates to balance the budget in the expectation that maximum economy will
be achieved, we run a real risk of a deficit, which in our prospective situation would be very bad. On the other hand, if in setting taxes we count on
only a smaller amount of economy, we have a chance of achieving a surplus,
which would be welcome. Any economies actually achieved beyond those counted
on in setting taxes this year can be considered in setting taxes next year.
It seems to us a reasonable minimum goal to hold cash expenditures
in fiscal 1952 about $3 billion below the $74 billion estimated in the Budget.
Ve believe thatia much greater reduction, probably twice as large, is possible.
We strongly urge and support every effort to achieve the larger figure in
order to produce a budget surplus. But we recommend a tax program that would
at least balance the budget even though m x f l m possible econorny were not
alfu
achieved.




- 11 On this basis we recommend prompt enactment of a $10 billion tax
increase. This should be the last levy applicable to 1951 incomes and
sales, unless some drastic event not now foreseen should occur. A $10
billion tax increase should balance the cash Budget for fiscal 1952 as
a whole. If promptly enacted it will prevent a deficit this summer when
we are struggling to achieve stability in prices and to strengthen confidence in the value of the dollar.
Expenditures
The need for government economy is clear. Our tremendous productive machine, running at full tilt, is still incapable of meeting all the
demands that are placed upon it. Ve shall all have to do without things
we want, things to which we feel entitled and for which we would be willing
to pay. High taxes and credit controls are imposed to compel us, as
individuals and businesses, to restrain our expenditures; we axe exhorted
to recognize our responsibility as citizens to save. It is intolerable
that the Federal government, which next year will spend about one-fourth
of the national income, should not share in the general belt-tightening.
(Federal, state and local expenditures will account for about one-third
of the national income I) In fact, the government's responsibility is
greater than even its large percentage share would indicate.

The govern-

ment is in a position of leadership. The extent to which it demonstrates
self-restraint will have a great influence upon the willingness of the
public to accept the taxes and other restraints necessary to our economic
and political strength.




- 12 Whenever a reduction in any part of the budget is suggested someone will arise to claim that great damage to the nation will result.
We should be quite clear wh£t the costs are of not reducing the less
urgent and essential expenditures in the budget. The main point is that
if the government uses more of our national output we shall have to use
less privately, in our homes and businesses. A man can work either on
a government public works project or on a private home-building project;
he cannot do both at the same time. The more manpower, materials and
productive capacity the government uses, the less we shall be able to
use privately. In fact, the net cost will be more than the shift of output from private to government use. For if we fail to economize in government spenling, we shall have higher taxes, which will retard total production, or more inflation, with all its evil consequences.
No one can reasonably expect that he will escape a share in the
costs of failure of the government to economize. The costs will be widely
distributed — either by inflation or by taxes — and everyone will be
exposed to them.
The President1 s Budget recommended cash expenditures of $74 billion
for fiscal 1952. It is helpful to an understanding of this figure to break
it down into four parts:




Defense and related items, including foreign aid

$51.9 billion

Interest and trust funds

9.2

Veterans1 pensions and readjustment benefits

3.8

Other non-defense items

9.1
$74.0

"

"
"

- 13 The figures In the Budget have become so large that the $9*1
billion for non-defense items looks small. But the significant fact
about this figure is that it is one-third higher than the actual
expenditures in the same category in 1948. The nation did not suffer
from inadequate domestic government services when $6.8 billion was spent
for these items in 1948. In our opinion, it does not need and cannot
afford more in the critical conditions of fiscal 1952. If we divide
this category into those major functions which have increased and those
which have decreased since 1948 we find $3.4 billion of increases and
$1.1 billion of decreases. Rolling back the increased functions to their
1948 levels would thus reduce the total by over $3 billion, even with
allowance for somewhat higher costs.
Every item in this non-defense category should be reexamined.
For example, is it necessary that in a year of high farm incomes, expenditures for aid to agriculture should be almost three times as high as in 1948?
We do need a redirection of public works expenditures to emphasize projects
essential to national defense. But do we need an increase of fl.4 billion 9 5 - above the 1948 level of expenditures for civil public works (excluding
06
atomic energy)? The policy of the Federal National Mortgage Association in
selling mortgages out of its portfolio is estimated to yield $530 million of
net receipts to the Treasury in fiscal 1952. This is certainly appropriate
policy in the present situation. But it could be pushed farther, since it
will still leave FciMA holding $750 million of insured mortgages at the end of
the period.




- 14 The opportunities for-saving are obviously less in the categories
of interest, social security and other trust funds, veterans1 pensions and
veterans' readjustment benefits. The amounts of these expenditures are
determined mainly by existing contract or by legislative standards in longterm programs* However, in the case of the $1.6 billion for veterans1
readjustment benefits, more rigorous administration of the standards could
result in considerable economies.
The big challenge of the budget is in its defense component, which
as here defined includes the following items:
Military Services
Department of Defense
Other

$41,491 million
$40,OCX) million
tt
1,491

Foreign Military and Economic Assistance
Present Mutual Defense Assistance
2,500
Program
Proposed Military and Economic
3,000
Assistance
ECA
1,200
Other
412
Expansion of Defense Production

7,112
w
n

t
v
tt

1,100

Stabilization and Production Controls

304

Civil Defense

330

Defense Housing

100

Atomic Energy
Dispersal of Government Agencies

1,277
164
$51,378

n

A rapid build-up of our military strength and assistance to strengthen
our allies are imperative. This is obviously going to cost a lot of money.
It is also true that in the past rapid increases in the military estahlish-




- 15 ment have been accompanied by important waste of money, materials and manpower. That is, more efficient management was possible, and would have permitted achievement of as much or more military strength at much less cost.
Vhen defense expenditures are in the neighborhood of $50 billion, as they soon
will be, the savings from moderate gains in efficiency can be measured in
billions of dollars.
Most of the figures in the defense category are round estimates of
the costs of carrying out a program the size and character of which have not
yet been made public. In any case, efficiency in national defense cannot be
achieved by overall policy statements. It can only be achieved by more
efficient continuing processes. It will require action both in the Congress
and in the Administration, starting at the National Security Council which
must determine that the programs are tailored to the requirements of our
strategic situation. The work of the Congressional Appropriations Committees
can be most usefully supplemented by investigating subcommittees, which can
examine particular parts of the program closely and thus keep pressure on the
whole program. The Office of Defense Mobilization has an important part to
play in screening procurement schedules, preventing wasteful procurement
practices, and bringing industrial engineering talent to work on the problem
of designing specifications for equipment that will meet military needs at
least cost. But the greatest responsibility is on the officials of the
Department of Defense; without their vigilant efforts to save manpower,
.materials and money there will be no substantial economies.
The $7.1 billion provided in the 1952 Budget for foreign aid is
an increase of $2.6 billion over the 1951 figure. In view of the great




- 16 recovery in Western European production, and the notable improvement of
the world's balance of payments with the United States, there is a.
serious question whether so large an increase in our aid is required.
If the Western European nations are to make their maximum contribution
to mutual defense, they will still need assistance from the U. S. But
in order to avoid excessive burdens upon the U. S. we must be careful to
recognize not only the increasing need for defense assistance but also the
dwindling need for recovery assistance.
Special attention should be given to the $1100 million of expenditures included in the budget for the expansion of defense production.
Clearly, the defense program calls for an expansion of productive capacity
in many industries. Clearly, also, where the necessary expansions cannot be
privately financed because of their specialized character, government
financing should be available. But there is no evidence in the Budget
to suggest that these specialized cases will amount to $1.1 billion in
fiscal 1952. We believe that if the present and prospective requirements
are clearly spelled out, and with accelerated amortization available, much
of this $1.1 billion may be unnecessary — especially the

million

that is estimated to take the form of loans. If programs of this kind are
not carefully restricted we may find ourselves paying high taxes to finance
government expenditure for investment that cannot be financed privately
because taxes are so high.
The Budget includes $330 million for civil defense. Recent
official statements indicate that this amount will be substantially
reduced because the shelter program has been revised*




We believe that a reduction of some $6 billion in the total

- 17 budget is possible - barring some development which requires a change
in the underlying programs- and should be strenuously sought.
Where to Raise the Money
The main requirement of a 1951 tax measure is that it be promptly
enacted and adequate to balance the budget. Beyond this the most important
objectives are a fair distribution of the tax burden, maximum restraint on
inflation and minimum impairment of production.
Fairness in the tax program is important not only because fairness
is valuable for its own sake, but also because national unity is essential
and will be strengthened by a general feeling that the tax burden is fairly
distributed. This means several things, not entirely consistent, it means
that the taxes should be fair, in an "objective" sense, and also that they
should correspond to the conunity's generally held ideas of fairness. It
means that taxes should recognize differences in ability to pay and that
those with more ability should pay more; it also means that taxes should
recognize the right of an individual to have his earnings substantially reflected in his income after tax. It means that the tax system should avoid
arbitrary discrimination among persons, lines of activity or forms of business
organization*
The tax program for 1951, to be most effective in restraining inflation,
should exert its main impact on restraining consumption expenditures* To
have any anti-Inflationary effect the taxes must restrain expenditures of
some kinds — either consumption expenditures or investment expenditures*
Since investment expenditures are only about 20% of total private expenditures,
and since the maintenance of a high rate of real investment is important for
the expansion of production, it is clear that the tax program should be mainly




- 18 directed to holding down consumption expenditures. This means that an impact
on low and middle incomes is unavoidable, because it is these incomes that
provide the largest part of consumption expenditures.
In the taxes we now enact we must seek to avoid excessive impairment
of incentives to investment, work and efficient operation of businesses. This
means that we should not take away in taxes too much of the additional earnings that result from greater contribution to the productive process. This
problem, which has for some time been serious with respect to investment
and managerial incentives, is now becoming increasingly serious with respect
to work incentives. Ve are certainly going to be in a position where taxes
will take 20 to 30% of the additional income earned by the average working
man for longer hours or greater effort. Ve must now proceed with great care
to avoid unnecessary reductions of the incentives to work at all income levels,
as well as incentive to save and to invest.
In the light of these objectives and after considering the alternatives,
we believe that the following combination of tax increases would best serve
the present emergency needs for temporary additional revenue:
1. Individual Income Tax — An additional 5% tax on taxable income
after present exemptions and the present tax.
2. Corporate Profits Tax — A new Defense Profits Tax which would
bring the combined income tax rates on profits in excess of
$25,000 to 50% (compared to the present 47%). The excess-profits
tax would be in addition to this.
3. Excises —




(a) An increase in the manufacturers excise tax on
automobiles to 20% (from 7%) and on refrigeratorsf
television sets and other consumers' mechanical

• 19 ^

durable goods to 25% (from 10%)•

*

(b) An increase in the present Federal excises on
alcoholic beverages, tobacco and gasoline.
(c) A new excise tax of 5% on retail sales of items
not now subject to Federal excises, excluding
food, housing, fuel, utilities and certain
items difficult to tax. The main categories
of goods subject to the new excise would be
clothing and house furnishings.
•Footnote l r Beardsley Ruml and John M. Hancock: "In my opinion excise takes
a
would have little or no effect in restraining the consumption of items under
present circumstances, in the interests of equity and flexibility it seems
to me preferable to impose a retail excise tax at a flat rate on all items
to be taxed, with the exceptions of liquor, tobacco, gasoline and transportation of freight. The excise tax on freight transportation, now 3%, should
not be increased; in fact it should probably be removed.11
* Footnote by Harlow H« Curtice: "I dissent from the recommendation on excise
taxes, because in the interests of equity and flexibility, and avoidance of
dislocation of production and employment, it seems to me preferable to raise
the necessary revenue through a uniform retail excise tax or a uniform excise
tax on all end products of manufacture with the exceptions of food and food
products, which should not be taxed, and alcoholic beverages, tobacco, gasoline and transportation of freight, which should continue to be taxed at present high rates. An excise tax such as recommended on automobiles of 20% and
on refrigerators, television sets and other consumers1 mechanical durable goods
of 25% is an arbitrary discrimination against these lines of business. Additional excises should be equitably imposed with consumers1 durable goods bearing
only their fair share, rather than an increased discriminatory load.
"Furthermore, I do not agree with the premise that excise taxes should
be used to control the production of items using material in short supply, since
to superimpose a control by taxation on top of material regulations is not onlyunnecessary but contains elements of danger to the national economy*
"Emergency defense tax increases, whether excise or income, should
be definitely labelled as such, and they should carry with them a provision for
their automatic termination, when the reason for their adoption has ceased to
exist."
•footnote by Theodore 0. Interna: "These special excises on consumers' durable
goods are highly discriminatory. They fall on items which are most important
in improving the national standard of living. They cannot possibly be justified except for temporary demand-supply relations. Because of the danger that
these excise taxes on consumers9 durables will be frozen into the tax structure,
it is my opinion that a general excise or sales tax is preferable to such
special discriminatory levies as a means of raising revenues."




• 20 Miscellaneous Revisions — A number of other tax revisions which
would improve the tax system and increase the revenue should be
made now if that can be done without delaying enactment of the
main revenue measures. Among these revisions are taxation of
future issues of state and local securities, provision for partial
collection at source of individual income tax on dividends, and
taxation of cooperative businesses. However, if consideration of
these and other "loopholes* would cause delay, the main revenue
increase should be enacted first and the loopholes taken up later
in 1951.
The yields of these increases in a full year, at 1951-52 levels of
national income, would be approximately as follows:
1. Individual income tax

$ 3.85 billion

2. Corporate income tax

•.

1.00

"

3. Excises:
autos, refrigerators, etc
liquor, tobacco, gasoline
new retail excise

1.10
1.40
2.75

"
"

4. "Loopholes11

_?

•

f10.10

9

9

(excluding
"loopholes")

Before proceeding to discuss each of these recommendations we wish
to indicate the considerations which lead to this particular balance among
the various revenue sources.
The taxation of corporate profits is already very close to the maximum
limits that would be safe even in a temporary emergency, and far beyond the
limits that would be tolerable for any protracted period. Since the outbreak
of fighting in Korea, corporate taxes have been increased twice; these two
increases provide $6 billion of the |9 billion tax increase enacted in that



period. The taxes now in effect will take about 50% of all corporate profits,
and much more in many cases* Moreover, taxes, including the excess profits
tax, now take 77% of any additional earnings made by a great many corporations.
According to Treasury estimates, corporate profits before taxes in
1951 will be about $43 billion, of which present Federal taxes would take
$21 billion. From the remaining $22 billion .must come dividends, on which
the stockholder will be taxed at full individual income tax rates, and corporate savings from which to finance economic expansion. Some perspective
on these figures may be gained by noting that personal incomes in 1951
are estimated at about $245 billion, of which existing Federal individual
income taxes and excises will take about $30 billion. Personal incomes,
after present taxes, are about ten times as large as corporate profits
after present taxes.
However, these aggregate figures reveal only part of the reason why
higher corporate tax rates can no longer be looked to as a major source of
additional revenue. The aggregate figures do not show the losses of efficiency that result from having a large part of the nation's business done
by corporations that can retain, after taxes, only 23# out of any dollar
they may earn by being more efficient. Moreover, the basic unfairness of
the corporate tax system is not a matter of overall statistics but of the
relative treatment of different individuals.
One of the main defects in the taxation of corporate profits is that
it violates the principle of progressive taxation — which is that individuals with higher incomes should be taxed at a higher rate than individuals
with lower incomes. A dollar of corporate profit is taxed at the same rate
regardless of the income of the stockholder, whether it be $1000 or $100,000.




- 22 The excess burden resulting from taxing corporate profits first at the
corporation level and second at the stockholder level is thus much greater
on the low-income stockholder than on the high-income stockholder* Take
the case of a retired married couple whose entire income is $1000 earned,
before taxes, by a corporation in which they have a small investment* The
corporate profits tax will take about half their income, whereas if their
income had come from any other source it would not have been taxed at all*
Compare this with a stockholder subject to a tax rate of 75%. If the
corporate rate takes 50% of his earnings from corporate investment and he
pays 75% individual tax on the remainder, his total tax on corporate earnings is 87*5%. He is still taxed unfairly on corporate earnings as compared
to the 75% he would pay on other income, but the excess is not nearly so
great as in the case of the low-income stockholder*
In our opinion, a further increase in corporate taxes as large as
the one billion dollars we recommend can only be justified by the existence
of an emergency* Most of the 1951 revenue needs must be met from other
sources — which means essentially from direct taxation of individual incomes
and from excises*
The question which then arises is how much reliance to place on individual income taxes and how much on excises*
We believe that the direct individual income tax is the fairest
kind of tax and should continue to be the backbone of the Federal revenue
system* We recommend another large increase in the income tax for 1951*
In considering how far to go with increased individual income taxation one feature of the individual income tax system is now very important*
The individual income tax as now constituted is essentially a system of
high marginal rates on a relatively small part of total incomes* Thus,
according to Treasury estimates for 1951, out of a total personal income




- 23 of $245 billion, the income subject to tax will be about $90 billion. The
tax rate on this taxable part starts at 20% now, and rises very rapidly to
50% on a taxable income of $16,000 and to still higher rates on higher incomes. To pat the picture in individual terms, a married couple with two
dependents having an income of $3,300 would have an income subject to tax
of $600. On this $600 under present law their tax would be 20% or $120.
Thus, in order to tax away less than 4% of their total income we put a
tax of 20% on their last $600 of income* And this 20% rate or an even
higher rate Will apply on any additional dollars they may earn by longer
hours or harder work.
A marginal rate of tax exceeding the average rate is a necessary
feature of a progressive income tax. However, it is clearly wasteful of
incentives. As long as the rates are moderate, this defect is outweighed
by the advantages of a progressive income tax. But when rates are as high
as they already are, it is desirable to go slow in raising marginal rates
further and find part of the revenue in ways less damaging to incentives.
There are two principal ways in which substantial amounts of revenue
can be raised in addition to increasing income tax rates — one is by reducing income tax exemptions and the other is by increasing excises. Revenue
needs for fiscal 1952 do not call for both of these steps. The choice between them is not black and white; there is much to be said on each side.
In our opinion, the balance of considerations favors an increase and extension of excises, for the following reasons:
1. The excise method is safer from the standpoint of incentives than
the reduction of exemptions, which would expose another layer of income-earners
to the high marginal rate of income tax.




- 24 2. The excise tax is somewhat more effective in restraining expenditure since it leaves open to the taxpayer the choice of reducing his tax by
reducing his expenditure.
3.

To some extent excise taxes can be selectively directed to pro-

ducts that use materials in especially short supply and thus can assist in
reducing excess demand for these products.
4* Excises can reach some of the incomes that are not reported for
income taxation even though large enough to be taxed.
The tax increases we recommend are designed to meet a temporary emergency situation. Our present vexy large expenditures for defense may prove
to be a two or three year bulge required to provide initial and reserve
equipment for expanded forces and to enlarge productive capacity, in this
case the emergency tax increases should be reduced or repealed after the
peak of expenditures has been passed. On the other hand, if a high level
of expenditures proves to be necessary for a longer period, all of the tax
increases made since Korea should be reconsidered in an effort to develop a
more rational tax structure with which we can live not just for two or three
years but for a decade.
Taxation of Corporate Profits
In considering any further taxation of corporate profits we should
seek to avoid unnecessary exaggeration of the evils of this kind of taxation*
The most damaging and unnecessary feature of our present corporate taxes is
the very high marginal tax rate imposed under the excess profits tax. Total
corporate taxes now take about 50% of total corporate profits. But corporations that have "excess profits" according to the arbitrary standards of the
act pay in taxes 77% of any additional earnings. For these corporations,




- 25 extra efficiency, extra enterprise are worth only 23 cents on the dollar. And
the most efficient and enterprising corporations, whose growth is in the
national interest, retain only 23% out of any additional earnings to finance
growth, and of course even less after payment of dividends*
In order to avoid these depressing effects on production we recommended
last fall that an increase in corporate taxation take the form of a moderately
increased rate on all profits rather than a very much higher rate on a part
of profits defined as excess* However, an excess profits tax was enacted*
This Act will expire on June 30, 1953. We hope that in the light of further consideration and experience the act will not be renewed* Meanwhile,
in raising corporate taxes now we should avoid increasing the 77% marginal
rate*
The system we suggest would increase the tax of all corporations but
would not raise the marginal rate of any above 77%* The rates would compare
with the present rates as follows:
Present Law
Normal tax on all profits *
Surtax on income above $25,000
Defense Profits Tax on all profits

Proposed

* 25%

16%

22%

22%

-

12%

Tax on "excess profits" - including above * * 77%

77%

Maximum limit on tax as % of total income * . 62%

65%

a/ In November, 1950, this Committee recommended a 15% Defense Profits
Tax without an "excess profits" tax* Since we now have an "excess profits" tax, the Defense Profits Tax on all profits should not be as higjh
as 15%.
Taxation of Individual Incomes
We recommend a 5% additional tax rate on individual income in excess
of the present exemptions and tax. Thus for a family with $600 of taxable




- 26 income above present exemptions the present tax is $120. The additional
tax would be 5% of $480, or $24. For taxpayers in the first bracket the 5%
tax on income after tax is the equivalent of a 4% tax on income before tax.
This is a simple and fair way to take account of the fact that what
is now available for additional taxation is the income after the present tax.
A flat addition to the present tax has widely different effects upon the
take-home income — the income left after tax — depending upon the proportion already going in tax.^ The superficially even-handed system of a
moderate flat addition to present rates has very uneven effects on the income that counts — namely income after tax.
The system we propose would reduce by 5% in all brackets the amount
of an additional dollar of earnings retained after tax. It would reduce
total income after tax by a percentage which rises gradually towards a
maximum of 5%, as is shown in the tablet
Effect of a 5% Tax Levied on Income Above Exemptions and Present Tax
(married person — 2 dependents)
Net Income
$

3,000

10,000
50,000

100,000
500,000

Income after Tax,
Present Law
$

2,880
8,408

31,116
48,088

97,544

Additional Tax
$

24
300
1,436
2,284
4,757

% Cut in Income
After Tax
0.83*
3*57%
4.61J6
4-75%
4*88%

i l c s Taxes
fcie
The increased corporation and individual income taxes recommended by
the Committee would yield almost $5 billion of revenue. The remaining revenue
1/ Thus a flat 4 point addition to present tax rates would reduce income after
tax by .8% for a faMly (4 persons) with $2,900 of net income after (present)
tax, 8.1% for a family with $50,000 of net income after tax and 20.4% for a
family with $90,000. From the standpoint of incentives the effect on marginal
rates is more important. For a family with $50,000 of net income after tax, a
4 point addition to present tax rates would reduce take-home income per dollar
of additional earnings by 14%•



- 27 requirements — slightly over $5 billion — should be raised from excises.
Federal excises are now levied on items that account for about 25% of
consumers1 expenditures, at rates ranging from 4% to 40% in terms of retail
price* Another 50% of consumers1 expenditures consist of items, such as food
and housing, that should not now be taxed in order to safeguard the very
lowest incomes or items that are difficult to handle administratively —
such as domestic service* This leaves about 25% of expenditures not now
taxed and potentially eligible for new Federal taxation — the main items
being clothing and household furnishings*
Vithin the category of items now subject to Federal excises we recommend
Increases in two classest
a* Alcoholic beverages, tobacco and gasoline — These items are the
main revenue producers among Federal excises. Ve have previously recommended
that in the ultimate "normal" Federal tax system these should be the only
Items subject to excises* Ve believe that rates in this class could be increased sufficiently to raise their yield by about 30% — $1.4 billion — without undue burden upon consumers*
b* Automobiles, refrigerators, television sets and other consumers9
durable mechanical goods — The production of these items will have to be
curtailed because of heavy defense requirements for the materials used in
their manufacture* Increasing excises on this class of goods will help reduce
the excess demand for the remaining civilian supplies* Raising the tax on
automobiles from 7% to 20% and on the other items from 10% to 25%, at the
manufacturers1 level would yield about $1*1 billion**
Except for these cases we see no reason for widening or even preserving
the discrimination against producers or consumers of the items now /subject to
*See footnotes by Messrs. Curtice, Hancock, Ruml and Yntema on page 19*




- 28 tax. Therefore, we suggest a tax on the eligible items not now taxed — which
would cover mainly items in the following categories: clothing, house furnishings, transportation, personal care (such as haircuts, clothes cleaning)fand
recreation. In addition to sales of new items the tax would apply to sales
of second-hand items in the same categories and to second-hand sales of
items already subject to Federal excises — such as automobiles. A tax rate
of 5% of the retail price would raise about 2.75 billion dollars. We suggest
imposition of the tax at retail for the sake of uniformity and visibility.
However, if there should be strong administrative reason for imposing the tax
on any of these items at the manufacturers level this could be done, with
appropriate adjustment of the rate.
It is, of course, fundamental to tax policy and stabilization policy
that the new or increased excises should be excluded from the measurement of
the cost of living in any controls that link permitted wage increases to the
cost of living. The purpose of linking permitted wage increases to the cost
of living is to permit achievement of equitable relations between wages and
other private shares in the national income. It is not to enable anyone to
escape the share of the defense burden that Congressional tax legislation
would impose upon him. Similarly, increased corporate profits taxes should
be excluded in any consideration of allowable price increases.
Miscellaneous Revisions of the Tax System
The need for additional revenue and higher rates of tax makes it more
important than ever to subject each special tax exemption or concession to
scrutiny and to require its justification if it is to be continued. One exemption which in the opinion of this Committee is unjustified is the exemption




- 29 of interest on state and local government bonds from Federal income taxation*
Also, we believe that steps should be taken to subject the income of cooperative
business organizations to taxation more jcomparable to that imposed on other
forms of business.
All possibilities of reducing tax avoidance and tightening up tax
enforcement should be thoroughly explored. One step in this direction would
be a requirement for withholding part of the individual income tax on dividends at the source.
There are a number of cases where unjustified privileges and opportunities for avoidance have been alleged to exist. The Committee has not
studied all of these cases. Certainly, we are not suggesting that every
alleged "loophole" is an actual loophole requiring correction. However, we
do suggest that all these cases should be carefully considered by Congress.
Important as we believe reform of the tax system to be, we do not
believe that it should be allowed to delay prompt enactment of measures to
raise $10 billion of added revenue. If the reforms cannot be agreed upon in
time for inclusion in the revenue act that is needed now, action on them
should be postponed until the revenue act is completed. There will then be
time during the rest of 1951 to consider these revisions and make them applicable as of January lf 1952.
In deciding to have a large defense program America has necessarily
decided to accept certain sacrifices. The size of the defense program as
now for seen will not, in the aggregate, necessitate great sacrifices. There
will be absolute reductions in the supplies of some kinds of things that consumers want. Some individuals are already having to reduce their total level
of consumption. But in the main the sacrifice will take the form of not being




- 30 able to buy more even though ve produce more. This is a real and necessary
sacrifice, but certainly not unbearable.
In this statement ve have presented a program which would, in our opinion,
distribute the necessary burdens in ways that would not result in unnecessary
sacrifices. The central problem is one of balance: balance between direct
and indirect controls, between budget policy and money, debt and savings
policy, between higher taxes and reduced expenditures, and balance among
different kinds of taxes.




ADDITIONAL FOOTNOTES
Comment by Mr* S0 Sloan Colt on recommendation for "tight restriction on the
expansion of bank credit": "All non-essential and speculative types of credit
should be vigorously curtailed, but I have reservation to the tight restriction
of bank credit in a bread and indiscriminate manner* Some bank credit expansion
may be necessary if higher levels of total industrial output are to be attained*
Certainly the military program is already beginning to call for a substantial
increase in credit for defense production, and this can be provided most
expeditiously by the existing machinery of the banking system* Finally, bank
credit requirements are subject to seasonal fluctuations, for which allowance
must be made."

Comment by Mr* S.fiLoanColt on increase in bank loans in 1950s ttIt seems
doubtful that any policy of credit restraint short of very drastic action could
have prevented a substantial increase in bank loans in the second half of 1950,
in view of the normal seasonal increase in the need for bank credit, the rising
volume of production and sales, the understandable desire of business to maintain
production at peak levels and the world wide scramble for basic raw materials
and other goods* It is clearly evident that these factors, together with resulting
higher prices, contributed substantially to the large demand for bank loans. It
is not so easily demonstrated that the increase in bank loans contributed significantly to the price inflation in this period*"

Comment by Mr* Carlyle Fraser on recommended increase in tax limit on corporations:
"I believe that the excess profits tax is basically so unsound that it would be
unwise to raise the maximum combined tax limit from 62% to 65% of total income* On
the contrary, I believe that the maximum limit should be reduced to 60% in order to
moderate the most extreme impact of the excess profits tax when added to the other
very high corporate taxes*"




- 31 APPENDIX
RECONCILIATION OF ADMINISTRATIVE CONTROL JOIXiET AMD

CASH-CQPPQIWTO WI

Estimates for Fiscal 1952
(Millions of Dollars)

Receipts
Administrative Control Budget
Inclusion of other Government Accounts:
Trust Accounts
Partially-owned government corporations
Clearing Account
Exclusion of intra-government payments:
Transfers to Trust Accounts
Internal interest payments
Internal capital transfers
Internal reimbursements for services
Deductions from employees salaries
for retirement funds

Expenditures

Deficit

55,138

71,594

16,456

48,620

•5,043
* 103

-3,577
+ 103

+

4

8

8

-1,058

-1,058
->1,035
15
19

-1,035
15
19

-

311

-

311

Exclusion of non-cash transactions:
Net accrual of Interest on savings bonds
Seigniorage on silver
Expenditures made in bonds
(redemptions +)

-

325

29

•

325
29

66

4

66

Cash-Consolidated Budget

61,291

J/Data from Budget of the United States for fiscal year 1952.




74,050

12,759

CED
MARION B. FOLSQM, Chairman

•TREASURER
EASTMAN KODAK COMPANY

JAMES F. BROWNLEE, Vice-Chairman
PARTNER
J, H . WHITNEY ft CO.

WALTER D. FULLER, Vice-Chairman

HARLOW H. CURTICE

EXECUTIVE VICE PRESIDENT
GENERAL MOTORS CORPORATION

DONALD K. DAVID

DEAN
GRADUATE SCHOOL OF BUSINESS
ADMINISTRATION
HARVARD UNIVERSITY

PHILIP D. REED, Vice-Chairman

CHAIRMAN OF THE BOARD
GENERAL ELECTRIC COMPANY

J. CAMERON THOMSON, Vice-Chairman
PRESIDENT
NORTHWEST BAN CORPORATION

THOMAS ROY JONES. Treasurer
PRESIDENT
DAYSTROM, INCORPORATED

CHAIRMAN OF THE BOARD
STANDARD OIL COMPANY (NEW JERSEY)

STANLEY C. ALLYN

PRESIDENT
NATIONAL CASH REGISTER COMPANY

GEORGE S. ARMSTRONG

PRESIDENT
GBORGE S. ARMSTRONG ft COMPANY. INC.

JOHN W. BARRIGER, III
LOUISVILLE

GEORGE M. HUMPHREY

E. C. SAMMONS

PRESIDENT
M. A. HANNA COMPANY

ROY C. INGERSOLL

HARRY SCHERMAN

ADMINISTRATOR
ECONOMIC STABILIZATION AGENCY

PRESIDENT
PRUDENTIAL, INSURANCE COMPANY OF AMI

HENRY R. JOHNSTON

HARPER SIBLEY

ASSOCIATE DIRECTOR
FORD FOUNDATION

NEW YORK, NBW YORK

R. R. DEUPREE

CHAIRMAN OF THB BOARD
THE PROCTER & GAMBLE COMPANY

WILLIAM H. JOYCE, JR.

H. CHRISTIAN SONNE

PRESIDENT
THE CINCINNATI STREET RAILWAY COMPANY

M. H. EISENHART

CHAIRMAN OF THE BOARD
BAUSCH & LOMB OPTICAL COMPANY

DWIGHT D. EISENHOWER

PRESIDENT ON LEAVE
COLUMBIA UNIVERSITY

MARK F. ETHRIDGE
and

CHAIRMAN OF THE BOARD
THB COCA-COLA EXPORT CORPORATION

WILLIAM BENTON

D. W. FIGGIS

CHAIRMAN OF THB BOARD
AMERICAN CAN COMPANY

SARAH G. BLANDING

R. EARL FISHER

PIEDMONT. CALIFORNIA

RALPH E. FLANDERS
UNITED STATES SENATE

W. HAROLD BRENTON

c. SCOTT FLETCHER

PRESIDENT
BRBNTON COMPANIES

PRESIDENT
ENCYCLOPAEDIA BRITANNICA FILMS INC.

HENRY P. BRISTOL

PERCTVAL E. FOERDERER

CHAIRMAN OF THE BOARD
BRISTOL-MYERS COMPANY

PHILADELPHIA. PENNSYLVANIA

HARRY A. BULLIS

HENRY FORD, II

JOHN W. CARPENTER

WILLIAM C. FOSTER

PRESIDENT
FORD MOTOR COMPANY

CHAIRMAN OF THB BOARD
GBNBRAL MILLS. INC.
PRESIDBNT
TBXAS POWER AND LIGHT COMPANY

EVERETT NEEDHAM CASE
PRESIDENT
COLGATB UNIVERSITY

ADMINISTRATOR
ECONOMIC COOPERATION ADMINISTRATION

CLARENCE FRANCIS

CHAIRMAN OF THB BOARD
GBNBRAL FOODS CORPORATION

CHARLES S. CHESTON

PHILADELPHIA. PENNSYLVANIA

FRANK A. CHRISTENSEN

PRESIDENT
THB CONTINENTAL INSURANCE COMPANY

and

FIDELITYFTCASUALTY COMPANY

W. L. CLAYTON

ALEXANDER FRASER

NEW YORK, NEW YORK

CARLYLE FRASER

PRESIDENT
GENUINE PARTS COMPANY

ALFRED C. FULLER

ERNEST KANZLER

CHAIRMAN OF THE BOARD
UNIVERSAL C. I. T. CREDIT CORPORATION

HENRY P. KENDALL

CHAIRMAN OF THE BOARD
THE KENDALL COMPANY

MEYER KESTNBAUM

PRESIDENT
HART SCHAFFNER ft MARX

ROY E. LARSEN

PRESIDENT
TIME. INCORPORATED

FRED LAZARUS, JR.

PRESIDENT
FEDERATED DEPARTMENT STORES. INC.

ELMER L.LINDSETH

CHAIRMAN OF THE BOARD
BURLINGTON MILLS CORPORATION

THOMAS B. McCABE

s. BAYARD COLGATE

•CHAIRMAN OF THBNBOARD
GOLGATB-PALMOLIVB-PBET CO.

JOHN L. COLLYER

JOHN M.HANCOCK
PARTNER
LEHMAN BROTHERS

GEORGE L. HARRISON

CHAIRMAN OF THE BOARD

and

PRESIDENT
THB B. P . GOODRICH COMPANY

CHAIRMAN OF THE BOARD
NEW YORK LIFE INSURANCE COMPANY

S. SLOAN COLT

H. J. HEINZ, II

PRESIDENT
BANKERS TRUST COMPANY

PRESIDENT
H . J . HBINZ COMPANY

ARTHUR H. COMPTON

ROBERT HELLER

PRESIDENT
ROBERT HELLER ft ASSOCIATES. INC.

CHANCELLOR
WASHINGTON UNIVERSITY

EDWARD B. COSGROVE

PAUL G. HOFFMAN

PRESIDENT
CFTFIN GIANT COMPANY

DIRECTOR
FORD FOUNDATION

GARDNER COWLES

PFTFTSIDENT
PK$ MOINES REGISTER AND TRIBUNE

and

69WLES MAGAZINES, INC.

LOU HOLLAND

PRESIDENT
HOLLAND ENGRAVING COMPANY

CHARLES R. HOOK

3AY B. CRANE

J.)

f , G. CRAWFORD


7#$TF*FOM PRODUCTS. INC.


PRESIDENT
J . P. STEVENS ft CO., INC.
NEW YORK, NEW YORK

CHAIRMAN OF THB BOARD
THE QUAKER OATS COMPANY

CHARLES P. TAFT

FOWLER McCORMICK

WASHINGTON. D. C.

CHAIRMAN OF THE BOARD
[NTBRNATIONAL HARVESTER COMPANY

WAYNE C. TAYLOR
MAXWELL M. UPSON

RALPH McGILL

CHAIRMAN OF THB BOARD
RAYMOND CONCRBTB PILE COMPANY

JAMES H. McGRAW, JR.

CHAIRMAN OF THE BOARD
THE WHIRLPOOL CORPORATION

EDITOR
THE ATLANTA CONSTITUTION
NEW YORK. NEW YORK

FRED MAYTAG, II

PRESIDENT
THB MAYTAG COMPANY

GEORGE H. MEAD

HONORARY CHAIRMAN
THB MEAD CORPORATION

EUGENE MEYER

THE WASHINGTON POST

DON G. MITCHELL

PRESIDENT
SYLVANIA ELECTRIC PRODUCTS. INC.

GEORGE L. MORRISON
and

LOUIS C. UPTON

ALAN VALENTINE
WASHINGTON, D. C.

L. A. VAN BOMEL

PRESIDENT
NATIONAL DAIRY PRODUCTS CORPORATION

JOHN H. VAN DEVENTER
BREWSTER. NEW YORK

THOMAS J. WATSON, JR.

EXECUTIVE VICE PRESIDENT
INTERNATIONAL BUSINESS MACHINES
CORPORATION

ROY BARTON WHITE

PRESIDENT
THE BALTIMORE AND OHIO RAILROAD COMPANY

GEORGE WHITNEY

C. HAMILTON MOSES

CHAIRMAN OF THB BOARD
J . P. MORGAN ft COMPANY

MALCOLM MUIR

PRESIDENT
CONNECTICUT GBNBRAL LIFE INSURANCE CO.

PRESIDENT
ARKANSAS POWER ft LIGHT COMPANY
PRESIDENT AND PUBLISHER
NEWSWEEK

FRAZAR B. WILDE

W. WALTER WILLIAMS

W. A. PATTERSON

PRESIDENT
CONTINENTAL. INC.

MORRIS B. PENDLETON

DIRECTOR
OFFICB OF DEFBNSB MOBILIZATION

NEIL PETREE

MANAGING DIRECTOR
AMERICAN GAS ASSOCIATION

MALCOLM PIRNIE

MALCOLM PIRNIB BNGINEERS

VICE PRESIDENT-FINANCE
FORD MOTOR COMPANY

GWILYM A. PRICE

JAMES W. YOUNG

PRESIDENT
UNITED AIR LINES

PRESIDENT
PLOMB TOOL COMPANY
PRESIDENT I
BARKER BROTHERS

PRESIDENT
WESTINGHOUSE ELECTRIC CORPORATION

REUBEN B. ROBERTSON

CHAIRMAN OF THE BOARD
THE CHAMPION PAPER AND FIBRB COMPANY

NELSON A. ROCKEFELLER

CHAIRMAN OF THB BOARD
ARMCO STEEL CORPORATION

NEW YORK. NBW YORK

JAY C. HORMEL

SCOTTSDALB. ARIZONA

CHAIRMAN OF THB BOARD
GEO. A. HORMEL ft CO.

JOHN P. STEVENS, JR.

CINCINNATI. OHIO

PRESIDENT
GENERAL BAKING COMPANY

PHILIP L. GRAHAM

ELMER T. STEVENS

PRESIDENT
CHAS. A. STEVENS ft CO:

PRESIDENT
SCOTT PAPER COMPANY

GEORGE M. GADSBY

PRESIDENT AND PUBLISHER
THE WASHINGTON POST

FRANK STANTON

PRESIDBNT
COLUMBIA BROADCASTING SYSTEM

JOHN STUART

U. W. CLEMENT

PRESIDENT
THB FULTON NATIONAL BANK OF ATLANTA

ROBERT GORDON SPROUL

PRESIDENT
UNIVERSITY OF CALIFORNIA

J. SPENCER LOVE

CHAIRMAN OF THE BOARD

ERLB COCKE

JOSEPH P. SPANG, JR.

PRESIDENT
GILLETTB SAFETY RAZOR COMPANY

ANNA LORD STRAUSS

CHAIRMAN OF THB BOARD
THB FULLER BRUSH COMPANY
PRESIDENT
UTAH POWER ft LIGHT COMPANY

PRESIDENT
AMSINCK, SONNB ft COMPANY

PRESIDENT
THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY

ANDERSON. CLAYTON ft CO.
CHAIRMAN OF THE BOARD
THB PENNSYLVANIA RAILROAD COMPANY

S.ABBOT SMITH

ASSISTANT ADMINISTRATOR FOR OPERATIONS
ECONOMIC COOPERATION ADMINISTRATION

JAMES A. FARLEY

PRESIDENT
VASSAR COLLEGE

SIBLEY FARMS, INC.

MORRIS EDWARDS

PRESIDENT
FIRST NATIONAL BANK OF PORTLAND

PRESIDENT
LIBBBY-O WENS -FORD GLASS COMPANY

F J»
iL L

PRESIDENT
THOMAS STRAHAN CO.

THB LOUISVILLE TIMES

JOHN D. BIGGERS

NLIW YORK. NEW YORK

HARRISON JONES

CARROL M. SHANKS

CHAIRMAN OF THE BOARD
THE COCA-COLA COMPANY

FRANK N. BELGRANO, JR.

UNITBD STATES SENATE

ERIC JOHNSTON

CHAIRMAN OF THE BOARD
BOOK-OF-THB-MONTH CLUB. INC.

JOHN S. DICKEY

CHAIRMAN OF THE BOARD
ALLBGHENY LUDLUM STEEL CORPORATION

WfMMNT

PRESIDENT
UNITED STATES NATIONAL BANK OF PORTLAND

PRESIDENT
BORG-WARNER CORPORATION

PUBLISHER
THE COURIER JOURNAL

HILAND G. BATCHELLER

« s r »OIL COMPANY ( N .
#eo
SF/TTTMKD

LOUIS RUTHENBURG

CHAIRMAN OF THB BOARD
SERVEL. INC.

CHESTER c. DAVIS

PRESIDENT
DARTMOUTH COLLEGE

FRANK W. ABRAMS

ft

AMORY HOUGHTON

CHAIRMAN OF THE BOARD
CORNING GLASS WORKS

CHARLES E. DENNEY

CHAIRMAN OF T H R BOARD
THE CURTIS PUBLISHING COMPANY

PRESIDENT
CHICAGO. INDIANAPOLIS
RAILWAY COMPANY

B O A R D OF TRUSTEES

RAYMOND RUBICAM

BEARDSLEY RUML

NBW YORK, NBW YORK

CHARLES E. WILSON

H. CARL WOLF

THEODORE O. YNTEMA

SENIOR CONSULTANT
J . WALTER THOMPSON COMPANY

J. D. ZELLERBACH

PRESIDENT
CROWN ZELLERBACH CORPORATION

HARRY W. ZINSMASTER

PRESIDENT
ZINSMASTER BREAD COMPANY

GEORGE F. ZOOK

PRESIDENT
AMERICAN COUNCIL O N EDUCATION