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November 17, 19^1 Chairman Eccles H&rtin Erost Attached is a rsvisod statoraent of your vio\?e on the tax program* MKtrhs Hovembor 17, 19I4I Chaira&n Socles has requested that the following stateiaent of his views on the suggested tax program be presented to the Treasury* Estimates of tho nagnitudo of the inflationary gap and judgments of the appropriate timing of a tax policy designed to deal with it nust necessarily ho subjoct to a isride norgin of uncertainty and possible error. Currently the lovol of retail sales and business activity in general soeias to be flattening out* In addition, thorc is sono evidence that increased income is being utilized for repaysaent of dobt because of the fooling that tho ineroacos aro temporary in character. Tho restraining influence of those factors will soon bo followed by the effect of the heavy increases in income tax collections under thefievenueAct of 1S&1* Altogether, T*Q should have nore certainty of iirsnodiato inflation than TO now have before vre can justify rushing through a tax program ^iich hits principally at th© low income groups. On the basis of the available facts it is difficult to foresee tho development of a dangerously inflationary situation in the months %?hieh lie iiarsediately ahead* The necessity for hacte in securing the specific anti-^inflationary part of the Treasury program is not so groat as to require tho sacrifice of balance and equity in a revenue act. This applies particularly to those sections of the program coaling with increased taxos on corporations and Individuals in the higher income groups and the portion dealing with loopholes* The Administration should present th« treasury's tentative program as a vdaole and defend it as a whole• If* hoover, a choice between the different parts of the program beco2300 necessary, increased taxation on corporations and individuals of higher income and the closing of loop* holes should coma firsts Soiao delay in tho enacteent of tho withholding tax would not have serious ©conos&e consequences* Having in mind roporcussione upon public norale and public attitude toward tho progress of tho defense program increased taxes on corporations and individuals and the closing of loopholes are necessary conditions to & withholding tax, A 15 per cost Y^ithholding tax, such as has been proposed by the Treasury, is too drastic if it is adopted asatax* thus taking fron the loir incom© groups a persaonont contribution for defense* Such a diversion of purchasing power from low income groups might be justified if tho enaction consists in considerable part of compulsory savings irhich are returned at son© appropriate tine to those low income groupst provided also that even this temporary exaction is properly timed and is part of an entire procram idiich also Imposes increased ta^es on corporations and individuals of higher incomes. It Kay not be politicgdlly possible to secure the enactment of the full program desired* But the iidudnistration should be plainly on record on the point that it does not propose increased taxation of short purses without corresponding increased taxation of the longer purses, including corporate purses* In the latter connection it is felt that no tax premium should be put upon further accumulation of corporate surpluses* Of course, in the end some concessions from recorded position M y have to be made in order to secure action on the part of Congress*
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