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jfsuyuAs i^StH/s &0 ■L'frUOL^ ^ ^ l i ^ f u , '*Ls&WL£, cy V^LL My dear Mr* Presidents i ^ y *&l4S -t M S < * ^ d v u V-& s & u ^ aJ > We have noted with concern comments in the press and elsewhere^'"^ based upon so u rces unknown to u s , v h lc h w rongly in te r p r e t co n ta in e d in our r e p o r t to you dated May 5, 1949. upon reread in g se e a s c le a r to u s , we think it While may be the that a n a ly s is r e p o r t, h e lp f u l , v e r y b r i e f l y to add th e fo llo w in g comments? T§xes* The reports that our analysts indicates the undesirability of tax .increases at this time are wholly incorrect. Our report to you resj firmly on the need for avoiding a deficit, and this end cannot be accomplish without tax increases. We believe that the economic situation still p e r m i ^ ® , | I)* ■ ■ O r;’* ' of tax increases, and that the budgetary situation makes this essential. X ^i Our report of May 5 merely raised for your considerstion the question of * £ whether it would be feasible to modify the January tS* program, in view of current business conditions, so that the total amount of tax increases proposed would not be as large as the January program which contemplated v. about U billion of tax increases, plus additional increases to be obfcaiae through advancing the date of increases of OASI contributions to July 194,9,X' and aleo levying health taxes. The only specific .suggestion for *odiflcati4^ contained in our memorandum of May 5 to you was that the proposal to advanc*^! trie date of increase of OASI contributions to July 1949 be withdrawn and. the effective date of health taxes be deferred until payments of healtf^ 4 /1$i benefits begin. We left the way open for consideration of ific&tio^ in the tax program if, and only if, these could be made consistently with a balanced budget, and we recognise fully that substantial tax increases are necessary for this purpose. v t. -'| This, of necessity, contemplates i n c r e a s e d & ^ •'U'l-&14, Qlf 'fa£CMKt\ O' 1 In corporation or personal taxes, and we also recoamended the restoration of ^ the levels of estate and gift taxes. W« repeated, also, the reeaaawdatlon - 2 t h a t the e x c is e t a x on tr a n s p o r ta tio n be e lim in a te d , bu t v i t h i n framework the o f a t o t a l l e v e l o f government revenues adequate to balan ce th e b u d get. Thus the substan ce o f our su g g ested m o d ific a tio n o f the January ta x program was th a t the need was no lo n g e r so u rg en t to o b ta in a l a r g e su rp lu s a s an a n t i - i n f l a t i o n a r y measure, but th a t the need i s s t i l l u rg e n t to avo id a d e f i c i t and c o n s id e r a tio n should be g iv e n to w hether t h i s purpose can be accom plished w ith ta x in c r e a s e s n o t q u it e so e x te n s iv e as th o se pronosed in January. E x p e n d itu r e s. C ontrary to some o f the cu rre n t erroneous r e p o r ts , our r e p o r t to you o f May 5 did n o t recoasmend o r contem plate t h a t ex p en d itu res be c u t in l i e u o f t a x in c r e a s e s o r th a t any m o d ific a tio n s in yo u r January t a x program be made c o n tin g e n t upon corresponding r e d u c tio n s in your January budget o r in any subsequent re q u e sts f o r funds t h a t you have made to th e C on gress. We reco gn ized even d u rin g the more i n f l a t i o n a r y situ a tio n , p r e v a i lin g some months ago t h a t yo u r budgetary r e q u e s ts were founded upon n a t io n a l n e c e s s i t y and th a t they'*represen ted e s tim a te s a t the lo w e s t l e v e l s c o n s is t e n t w ith th e n a tio n a l w e lfa r e and s a f e t y . I t would c e r t a i n l y be i n c o n s is t e n t to s t r i p th e se r e q u e s ts fu r th e r now t h a t the i n f l a t i o n a r y p r e ssu r e s have been reduced, fee have made no s t u d i e s , and c o n seq u e n tly no recommendations, po in ted toward r e d u ctio n o f any o f the r e q u e s ts th a t yeu have made from tim e to tim e. Our comment about ex p en d itu res in our memorandum o f Hay 5 m erely made the p o in t t h a t , a v o id e d , c o n s id e r a tio n o f any m o d ific a tio n ®f s in c e a d e f i c i t should yo u r January ta x program depends'upon w hether s u b s t a n t ia l a d d itio n s to yo u r budget Can be a v o id e d , and upon whether th e Congress i n d ic a t e s a c le a r d i s p o s i t io n n o t to add. la r g e sums in any area which you have n o t r e q u ested . How f a r th e ^ ta lk abcu t - 3 extreme s la s h e s in the in te r n a t io n a l program oobhss from our memorandum o f Hay 5 memorandum t h a t , more f e a s i b l e you i s in d ic a te d by the * ¥ ith a le s s e n in g o f i n f l a t i o n a r y to consider these programs o f n a tio n a l and in fla tio n a r y to world policy w ith o u t in the purpose of statem ent in th a t pressures it becomes terns of general requirements the competing consideration of impact.* B e s p e c t f u lly y o u r s ,
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