How to Make Jobs

Something big and new is happening to American thinking about taxes. This week the Committee for Economic Development launched an assault on the U.S. tax structure. In a 47-page brochure (expertly written by the Book-of-the-Month Club's Harry Scherman), the C.E.D. attempted to put a new face on the U.S. tax system, with full postwar employment as the criterion.

Only seven weeks ago C.E.D.'s tax proposals might have hit like a bolt from the blue. For the plan asserts that the Federal Government must rely mainly on individual--not corporate--income taxes for the minimum $16 to $18 billion of revenue needed in the first peacetime year. But Economist Beardsley Ruml had scooped C.E.D.--the Falstaffian treasurer of R. H. Macy & Co. had bluntly said it first in July (TIME, Aug. 7). Ruml had also stated that high corporate taxes were more harmful to employment than high individual levies. But C.E.D. did not care that a little bloom was off its peach.

C.E.D.'s major recommendations:

P: The personal income tax should provide at least half of total federal collections. But peacetime rates must be lower than 1944 rates.

P: Double taxation of dividend income should be eliminated, by making the corporate income tax a withholding tax on dividends; and by subjecting dividend income to surtaxes only when in stockholders' hands.

P: Income from all future security issues of state and local governments should be made fully taxable.

P: All federal excise taxes (except liquor, tobacco and gasoline) should be abolished.

P: Corporate income-tax rates (currently 40% normal) should be cut to the same rate as the proposed standard tax on in dividual incomes (16 to 20%).

P: Business should be allowed to carry forward losses from operations to apply against earnings for a six-year period.

To support its recommendations, the C.E.D. plan goes into more detail than did Ruml in condemning the high corporate levy as harmful to employment.

The present tax, says C.E.D. , stunts the growth of a small company. Reaching into the stream of business operations, the tax grabs vital funds where & when they would be most likely to create more jobs, increase wages, or reduce the price of goods manufactured. This does not mean that corporate earnings remaining after payment of the proposed normal 16 or 20% tax would go taxfree. Paid out as dividends to individuals, such sums would be taxed in shareholders' hands.

Excise Taxes are attacked also from the viewpoint of their effect on volume of business and therefore on jobs. The very nature of excise taxes, the C.E.D. points out, imposes them principally on those goods and services most widely in demand.

As a result, prices of these goods and services are raised. Higher prices then reduce purchasing power. C.E.D. estimates that its proposed changes in excise levies would add $3 billion to consumer purchasing power.

Throughout its report, C.E.D. reiterates its theme that job-creation must be the standard by which new tax laws must be written. Assuming its proposals would help business employ 55 million people, 40 million of these would pay income taxes under C.E.D. proposals. Even so, $77 billion of the nation's $140 billion of income (principally that of the lower-paid group) would escape direct taxation.

Practically Painless. Currently, a man with a wife & two children, and earning $2,000 a year, pays $45. Under C.E.D. proposals, he would pay nothing. Earning $4,000 a year, he would pay $360, against $505 at 1944 rates. With a $10,000 income he would pay $1,800, against $2,245 at present. On $100,000 income, the tax would be $42,430 instead of $68,565.

Despite its resolute insistence on a budget balanced annually, the C.E.D. would accept an increase in the federal debt "under clear conditions of slump in industry and trade." The C.E.D. maintains that its tax schedules would make possible sizable debt retirement at $140 billion and a balanced budget at a lower level of national income. But inasmuch as the revenue yield of their tax plan is calculated to average only about $18 billion at $140 billion national income, it looks as if C.E.D. were prepared to accept deficit financing when national income falls below $140 billion.

In many respects the C.E.D. plan parallels much of labor's tax thinking. The C.I.O. also is opposed to excise and sales taxes, and a number of top labor economists are known to subscribe generally to the principles of C.E.D. 's tax program.

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