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For the Duration of the War.
Present taxes are estimated to yield $1*0 billion in the current
fiscal year, as against $ 0 | billion of expenditures. Higher taxes are
necessary (l) to assure continued effectiveness of the stabilization
program (the excess of income payments after personal taxes over available
consumer goods is estimated at $U0 billion for the present fiscal year),
and (2) to assure a sound postwar economy (if present methods of finance
continue, liquid assets in the hands of the public may amount to $200
billion at the end of the present fiscal year and $250 billion by June
Whereas Britain covers one-half of its expenditures by taxes, we
cover only about one-third; while the United Kingdom and Canada respectively
collect 112 per cent and 36 P©i* cent of their national income in taxes, we
are collecting but 32 per oent.
Most of the additional taxes should be collected where the bulk
of the purchasing power is found, that is, from taxpayers with incomes of
less than $5»000, and much of it should be collected from taxpayers with
incomes of under $3*000» But this does not establish a case for a general
sales tax. A general sales tax now would induce a tremendous pressure for
wage increases. Equity in taxation becomes the more important the lower
are the income groups which have to be reached. Exemptions should be
lowered, but the principle of granting exemptions should not be discarded.
Hence, the general approach should be along the line of the income tax, to­
gether with higher excises on non-essential products.
A good part of the additional taxes should be refundable. This
is desirable (l) as a matter of equity (refunds should be applied
particularly to the lower income groups), and (2) because refundable taxes
(or compulsory savings) are much safer from the point of view of inflation
control, particularly in the postwar period, than the bonds purchased under
the voluntary plan. The latter point is very important. We must begin to
place more emphasis on the postwar implications of current war finance.
It goes without saying that the Government should make the ut­
most effort to avoid wasteful expenditures. At this point, however, it
is better to have an all-out war effort, even though this may involve a
billion or two of outlays not absolutely essential, than to cut war ex­
penditures so drastically as to operate on a say, $75 billion -- or 75$ —
war effort.




The Transition Period.
The transition problem will depend altogether on how gradually
the war terminates, that is, on the length of the Pacific war after Germany
is defeated. Demobilization of military personnel should be gradual. But
industrial reconversion to peacetime production should be as rapid as possi­
ble. Contract cancellation should be speedy, and should be left in the
hands of the contracting agencies.
Where necessary, financial assistance will have to be given to
expedite reconversion, but by and large, the financial position of corpo­
rations will be strong.
It will be to everyone's interest in the transition period to
maintain inflation controls. For industry, a premature relaxation of con­
trols and sharply rising prices would mean an enormous increase in recon­
version costs. For labor, a rapid increase in living costs would be equally
disastrous. However, industry should not attempt to break wage scales in
this period; — the active support of labor is needed to avoid postwar in­
flation and industry itself will ultimately need high wage rates after re­
conversion in order to maintain a market for its output.
The role of fiscal policy in the transition period will be to
cut expenditures rather than taxes. Every effort will have to be made to
reduce the deficit to a minimum, so as not to aggravate the inflationary
Postwar Period.
In the postwar period, industry will be faced with the tremendous
task of employing at least 56 million people, that is, 8 million more than
were employed in July 19U0. As a result of the enormous increase in pro­
ductivity during the war years, this will mean a gross national product of
at least $160 billion at 19U2 prices.
The future of private enterprise will depend on its success in
meeting this goal. Policies will be required which in many respects will
differ drastically from'those accepted in the ^O's and ’ ’sî
Industry must show an aggressive spirit of expansion.
Individual savings at the indicated level of income are estimated
at about $20 billion, and corporate savings may amount to $10 to
$12 billion. Depending upon the level of corporate savings,
industry will thus have to make investments amounting to $20 or
$30 billion per year — a volume vastly in excess of anything ex­
perienced in previous peace years. Certainly, industry will not
succeed in this task should it continue to retain large portions
of its income. More reliance should be placed on equity financing
and the bulk of funds not actually spent for investment should be
distributed to the stockholders.

- 3 If full employment is to be achieved, there will also have
to be a vast increase in consumption — say, $110 billion as against
$70 billion in 1939
much of which will be directed to the services,
health, education, etc.
(2) Industry must be flexible and competitive. The techno­
logical advance which has been so enormous during the past years
should be reflected promptly'either in higher wages or lower prices.
Vigorous competition should assure the expansion of our economic
frontiers and the development of new products. Only if industry
lives up to these basic mores of our economic system can it succeed
in providing full employment at a level of peacetime production of
$160 billion or more.
(3) The role of fiscal policy in the postwar period will be to
encourage full employment under private enterprise.

(a) Taxes will have to be revised to encourage consumer
spending and not to discourage enterprise. In particular, we
shall have to cut consumption taxes and income taxes paid by
the lower income groups which are the bulk of business’
customers. We shall have to raise exemptions and again reduce
the number of income taxpayers to a smaller group»
The corpo­
ration income tax should be abolished (with the exception,
perhaps, of a small franchise tax) and corporate income should
be taxed to the owners of the corporation. However, provision
should be made to make it impossible for stockholders to evade
individual income taxes through non-distribution of corporate
(b) Public expenditures should be economical., If
industry does the job of providing full employment, the
Government should limit itself to essential expenditures
which do not interfere with but strengthen the activity of
enterprise. Even under these considerations, however, the
Federal Budget in the postwar period will probably be at
least $20 billion.
(c) Economic freedom requires that no citizen should
suffer unnecessary want. To assure this freedom, Social
Security should be expanded greatly as proposed under the
Wagner Bill. This will make for a higher level of employ­
ment and income than would otherwise be the case because
individuals, released from fears of future want, will be
disposed to consume more currently.

- k -

(d )
I f industry and government work hand in hand in the
task of providing f u l l employment under private enterprise,
they can jo in tly develop a fle x ib le fis c a l policy which in
times of need w ill take up the temporary slack in business
activity and at other times apply curbs against inflationary
sp irals. For such a policy to succeed, i t is absolutely
essential that the business community should participate and
have f u l l confidence in the formulation of fis c a l policy.
International Trade.
To take its place in world commerce, the basic task confronting
the United States is the maintenance of f u l l employment and a high level
of income at home. Americans w ill then be better able to buy abroad, and
American industry w ill accordingly be better able to s e ll abroad.