Helping the Goose Lay Golden Eggs

THE goose that lays the golden egg," said Treasury Secretary George Humphrey, "is production. If you haven't got a payroll, you haven't got consumers." On that thesis, the Eisenhower Administration has drafted its tax program. In the process, it has also drawn a clear line of definition between its economic policies and those in force over the past 20 years.

In the '30s, when "economic royalists" and "privileged princes" were blamed by F.D.R. for the Depression, the basic New Deal tax policy was to boost taxes in the upper brackets, keep them light on the "little man," and thus try to spur consumer spending and get the wheels of industry turning again. The Republicans think there is a better way to keep the economy healthy. Their method, said Dwight Eisenhower, is "to create an environment in which men are eager to make new jobs, to acquire new tools of production, to ... design new products and develop new markets." The tax program that has developed from this basic philosophy has already aroused the Democrats' ire. Snorted Harry Truman: "A rich man's relief measure."

Actually, the most important provision of the new Republican program for businessmen grew out of the experience of the Democrats themselves, The provision: fast tax write-offs for all industry. The potency of the write-off as a means of encouraging expansion was well shown by the Democrats during World War II and the Korean war. During the Korean war period alone, some $27.8 billion worth of new defense plants and equipment was built or started, with quick write-offs covering 61% ($16.8 billion) of the total cost. Thousands of new jobs were thus created, even though the write-off was restricted to industries connected with defense.

By expanding such fast write-off allowances to all industry--and also permitting them on research outlays--the Republicans feel that they are encouraging industry to keep on expanding and developing new products.

The Republicans want to encourage expansion in another way: by helping new capital to flow into industry. They would cut the tax on dividends, which are now taxed twice--as corporation earnings and as stockholder's income. Republicans have defended the plan on the ground that millions would benefit from it, because of the wide ownership of stocks. While it is true that members of industry's many pension plans (which are big buyers of stocks) would stand to gain in the long run from lower taxes on dividends, the facts of direct stock ownership tell a different story. The Brookings Institution has found that only 4.2% of the U.S. population own stocks. A recent Harvard survey showed that between two-thirds and three-quarters of the nation's stocks are owned by the 1,600,000 families with incomes of $10,000 and UP (3% of the family units).

It is obvious that cutting taxes on dividends would directly help only a minority. The Administration could frankly admit this and point out that it is precisely this minority that it most wants to help. It alone has the money to invest in industry and thus help the expansion that would provide more jobs. Furthermore, dividend tax cuts (including exemption on the first $50 in dividends) should also encourage small investors to buy shares in U.S. industry.

While the Republican tax program is aimed at providing incentives for industry, it is not an all-industry program. Individuals have already received $3 billion in tax relief from the 10% cut made last month, may soon get more relief from lower excise taxes. Corporations got $2 billion in reductions with the death of the excess profits tax. In the first year of the new plan, stockholders and other individuals would get $510 million, industry would get about $675 million in relief. But within three years, the new plan would give individuals $1.4 billion a year in reductions, while industry's share would remain unchanged.

The new tax plan does not mean that the Republicans are overly committed to help business at the expense of individuals. The reason that Humphrey is putting the emphasis there now is that it takes longer for industry to respond to such incentives than it takes a consumer to respond to a tax cut that puts money in his pocket immediately. This is particularly true in today's economy, in which it often costs upward of $30,000 in plant and equipment to create a new job. Furthermore, if more personal income-tax cuts are needed to increase consumption, they can be enacted fast. Said Vermont's Republican Senator Ralph Flanders: "We had nearly seven years of experience with endeavoring to solve the problem of unemployment by consumer expenditures alone, from 1933 to 1940. The volume of unemployment was not decreased thereby. It seems to me . . . that it is worthwhile trying the experience of playing both ends of this game, as we are now doing."

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