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Tax Policy League
309 E ast 34th Street
New York
Report of Committee on
TAX POLICY TO AID ECONOMIC RECOVERY
AND PERMANENT PROSPERITY
Presented at the Annual Meeting of the
TAX POLICY LEAGUE
Held at the Palmer House, Chicago. Decemhar gfit

To speed rather than impede economic recovery and permanent prosperity,
four essentials of public spending and taxation are:
I. Economy in governmental expenditures - national, state and local - must
he constructive in nature, and must not add needlessly to unemployment, nor
force the elimination of services essential to the public welfare.
II* On the contrary, achievement and maintenance of a high level of permanent prosperity must " e promoted " y adequate governmental expenditures for
b
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social security and for well-planned, well-timed and well-administered public
works and community facilities and services "beneficial to business and to health
education, recreation and culture*
III. Balancing of revenues and expenditures - especially " y the Federal
b
Government- must he cyclical, not annual# Abnormal outlays must, therefore,
he financed mainly by borrowing, with more rapid amortization than heretofore
in periods of prosperity.
IV. Tax revenues for permanent prosperity must be derived as largely as
practicable from community-created wealth and from income which, if privately
retained, would not promptly be sport for the production or consumption of
needed goods or services•



I and II
(a) If a demand for wor&rs can be created which will keep even pace with
the supply of workers, most of oar economic problems will have "been solved.
Depressions in a surplus economy are characterized " y the existence of
b
more workers seeking jobs than of jobs seeking workers. Prosperity will be
permanent when we achieve the practically uninterrupted existence of all the
opportunities for well-paid work that the labor market can absorb#
Obviously, this condition cannot prevail unless we can get rid wholly
of cyclical depressions, and provide adequate cushions for seasonal and
technological unemployment. And obviously the best assurance of steedy,
profitable employment for management and labor and capital is an economic
order so rationally planned and organized that agriculture and trade and
industry and professional and personal services can never quite catch up
with tleir opportunities to create and dietribute the goods and satisfactions
which a surplus economy demands.
The chief essential is to stop wasting in idleness and misdirected efforts
our greatest economic asset - our ability to produce.




(t>) Gross inequity in the. distribution of /buying power and unwis e.uae of
surplus incomes were amon|» t;e major_ causes of the protracted depression
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from which we ought now to " e permanently emerging*
b
In the prosperous years preceding the crash of 1929, factories were
"built and farms were developed capable of producing vastly more goods than
could be consumed with purchasing power as then distributed, Rationalized
mass production ?/as thus impeded by irrational wealth distribution. Curtailment of construction and of output and of employment was the inevitable
result.
Instead of thus foolishly cultivating destitution, a device was needed
which, while permitting the greatest possible measure of individual initiative,
would prevent production from being too soon or too largely diverted from consumers1 goods and services into factories, skyscrapers,.hotels and other
excess facilities for competitive manufacture and trade.
Such a device to reduce the probe-tdlity of future cataclysms can be
found in a sane application of the powers of public finance and taxation.
Suppose we had had wisdom enough six or eight- years ago to maintain a high
and steadily rising general standard of living, partly by increased social
security, and partly by expenditures on well^planned public works and services adequate to offset technological unemployment. Such a program - of
great benefit to our now dormant capital goods industries - could have been
easily financed from taxation, with hardship to none and happiness for all,
by collecting only a fraction of "le added incomes and economic rent which
ii
this policy would have produced.




(c) To maintain productive ability at its maximum^ and to divert it from
harmful to "beneficial uses, themajor alternatives appear to he an extreme
measure of governmental control over the production and distribution of wealthy
or a system of taxation rational enough to prevent unemployment and render
much of such control unnecessary•
We the people of the United States are now embarked on a pregnant
experiment involving a theoretically voluntary union of capital and labor
and government, to raise wages, shorten working hours, abolish child labor,
fix prices and limit profits.

Some good has resulted. But to imagine

that, by law or code, wages will be provided generous enough to assure for
the masses of the people purchasing power adequate to prevent future "overproduction"f would be to anticipate a premature arrival of the millenium.
Either the anticipation of better times of the fear of worse times will bring
irresistible demands for the ao-Jidonment of many of the self-imposed restraints of the "New Deal". With our constantly growing power to produce,
we may then have a new orgy of rugged individualism even worse than that of
1928-1929, and a subsequent collapse greater than that of 1930-1934, The
possibility of such an orgy and collapse will be very much mitigated if we
have the good sense, by a wise combination of income and inheritance and
land-value levies, to provide public revenues adequate to employ all available brain and brawn which private business cannot profitably use*
To stop our economic panic we must stop our economy panic. There is
no virtue in a planned scarcity. Unless wealth abolished .poverty, poverty
may abolish wealth. Economic salvation by taxation may avert our being
stampeded into attempts to attain economic salvation by fascism or communism.




(d) When productive capacity remains idle, society loses in wealth
much more than it saves in wages and taxes.
The range of profitable public spending is wide and inexhaustible•
Everywhere are communities that can become more convenient, safe, sanitary and
beautiful; in every state are regions that can be made more usable and accessible
for production and pleasure* areas denuded of forests or subject to soil erosion
or to devastation by flood that need reclamation or protection; grade crossings
to be eliminated; roads that should become parkways; institutions that need
modernising; rivers that ought to be freed from the pollution of sewage and
factory wastes; slums to be abolished and housing and sanitary conditions to be
bettered; educational, cultural and recreational facilities and servicers that
require enlarging and improving to meet the needs of an era which is demanding
less toil of children and is providing more generous measures of voluntary
leisure for adults than the world has ever known®
Through these and other betterments will government - national, state
and local - enable its constituents to contribute*to and enjoy a steadily rising
standard of American life* For the nation as a whole, the net cost of these
public works and services would be nothing, or less than nothing, if financed
through the employment' of productive ability that would otherwise be unused*




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(e) Social security for every citizen, financed as far as necessary
through the power of taxation, could be made an important factor in assuring
nationwide sustained purchasing power.
Adequate social security - including old-age pensions, health insurance, unemployment compensation, and widows' and orphans1 pensions - should
:

oo provided.
The idea of security for the aged has taken hold to such an extent

during the last few years that some form of old-age pension legislation has
"been enacted in more than half of the forty-eight states. What is now needed is an extension of this prosperity-spreading device to cover the entire
Union, and the generous application of its benefits to all dependent citizens
over a specified ago.
The reason why most social security laws hitherto enacted have
furnished inadequate relief has been the seeming need for economy. But
beneficial spending, rather than short-sighted thrift, is the need of the
present age; for we must find an avenue through which, without doing damage,
we can pour into consumption sums sufficient to provide stabilized nationwide prosperity. The amount of the payments, if comparatively small at the
start, should be increased and maintained at steadily higher levels as
conditions improve through the fuller use of our productive capacity.
S uch a system of social security would have the double advantage
of removing from the masses of the people their dread of dependence on private charity, and of making it sife for the average family to contribute to
the general welfare by spending liberally for current needs and satisfactions.




Ill and p/
(f) A major factor in causing and continuing the depression of
1930-1934 has been the assumption that there is an essential relationship
between a balanced budget and a fiscal year.
During the prosperous period preceding 1930, the Federal budget was
unwisely limited on the income side. A scientific system of taxation would
not have reduced the levies on surplus incomes, but would have used such
readily available funds to retire more rapidly the public debt and to pro~
vide public employment wherever private unemployment became ominous.
Similarly, when the depression drift occurred and private initiative
was unable to stem the tide, a speedy and courageous unbalancing of the
Federal budget on the expenditure side could have substituted distribution
for destruction of wealth.
In the present crisis and until widespread prosperity is restored,
chief reliance must be had on public borrowing, rather than on increased
taxes, as sources of emergency revenues. There must be avoidance, on the
one hand, of unsound and ruinous tax-limitation laws in the various states,
and of recourse to general sales taxes and other levies which hamper business recovery. Unwise taxes in time of depression increase the need for
relief.and aggravate the very conditions'which wise public spending might
remedy,
A properly coordinated system of state and national financing would
provide adequate sums for normal and emergency expenditures without undue
burden on any group, and would enable all to contribute their fair share
to the general welfare.




(g) Income and estate taxes, greater in aggregate amount but inflicting less hardship than aV present, should "become the main sources of
national and state revenues when prosperity is restored.
The individual income tax offers the best medium through which urgently needed readjustments of the nation's economic structure can be attained.

In addition to being broader in bese, perhaps, and more steeply graded^

the income tax should be more scientifically assessed and collected, to
avbid the loopholes through whidli much tax-paying ability is escaping the
levies intended.
No approximation to a dead level of net incomes would be eitiier
necessary or desirable to accomplish the purpose proposed. Enough of a.
spread between minimum and maximum earning and saving power should be left
to provide incentive for the mental and physical efforts which are still
necessary, even with all our technological advance, to meet the needs and
supply the joys of modern civilization. Under conditions of widespread
and sustained pro^ perity, the burden^ of such taxes would be vastly less
than their benefits*
Advocacy of high rates in the upper brackets of income taxes i c
f
not to be justified on any "soak the rich" theory, nor solely 6n the "ability to
pay" theory, The proposal is based primarily on the importance of obviating
the evils of.an otherwise constantly mounting burden of public e&Q.
private debt. It* Is essential that saving in excess of the needs for newcapital be discouraged*
Larger revenues from inheritance taxes should be used to supplement
the income tax in this vital task of spreading prosperity and correcting
the maldistribution of wealth*. Under such a system, the repeal of general
sales and "nuisance" levies and other regressive forms of taxation could be

speedily accomplished.


(h) Burdens on tenants and small home owners should be lessened by
deriving a larger percentage of the real estate tax from the maintenance
and increase of land values resulting from publio Improvements a?d com*"
munity growthf and by an increased share for local governments of state
collected taxes*
The whole system of real estate taxation, which provides the bulk
of local revenues, should be thoroughly examined*

Assessment and collect-

ion procedure should be perfected. Land and improvements should be separately assessed, and consideration should be given to the proposal for the
partial or complete exemption of improvements with a corresponding increase
in the taxation of land values. Such a policy, coupled with efficient
zoning regulations, would have a tendency to stimulate desirable construction and would reduce land speculation.
In a rational system of taxation, the principle of ability to pay
would be combined in just proportion with the principle of payment for
benefits received, Land values and resulting rents afford a striking illustration of the diversion of naturally or socially created wealth to the
enrichment of private individuals or to the encouragement of speculation.
Under prevailing systems of real estate and property taxation, local governments collect from holders of land much less than the benefits which public
expenditures and the growth of population confer upon such landowners. At
the same time we handicap home building, local industry and trade by imposing needless taxes on improvements, machinery and personal property.




(Jk) There must be much more scientific and mutually helpful coordination
then now exists among the tax systems of the Federal, state and local governments.
Overlapping taxation results in needless costs of collection.

Some taxes

cannot be efficiently administered on a local, or even state-wide basis. Variations in state policies with respect to corporate income, gasoline, liquor
and inheritance taxes have brought chaotic conditions of interstate competition, tax evasion, bootlegging (of liquor and gasoline) and other evils. The
situation with respect to inheritance taxes has been much improved as a result of the Federal provision which permits inheritance taxes paid to the state
to be credited to the taxpayer up to 80$ of the Federal estate tax, This
provision speedily brought about substantial uniformity in state inheritance
tax laws. Unfortunately, this desirable effect has been largely nullified by
the Eevenue Act of 1932, which substituted for Federal rates of 1 to 20$, rates
of 1 to 45$ without permitting a credit on state taxes on the additional levy.
A coordinated Federal and state liquor taxation program should be adopted,
under which all taxes on manufacture would be administered by the Federal
Government, with distribution of part of the yield to the states. Taxes on
distribution should be levied by the states, with part of the yield shared
with the localities.

Consideration should be given to the proposal for mak-

ing the gasoline tax a Federally collected producers tax. The major portion
of the yield therefrom should be returned to the states. The states should
distribute enough of their share of the tax to the local governments to finance
a substantial part of the local highway and street construction and maintenance
costs. She corporation income t s h o u l d be administered by the Federal Government and the proceeds should be shared with the states.
State and Federal aids for certain functions should be provided on a sound
equalization basis. Heal estate taxes should be administered by units no smaller thaa a county, and there should be state supervision of assessment and collection procedure. Personal property, general sales and poll taxes (except
possibly as a filing fee In connection with personal net income taxes) should
be abolished. Tax limits and uniformity clauses should likewise be abolished.
 number of state-eollected taxes should be shared with local governments.
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