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We feel that these proposals for additional sales taxes, lowering of exemptions, raising of the rates on low incomes would aggravate existing poverty which now exists for the 45 percent of the low- and middle-income families that now receive less than a living wage. They would drive millions of middle-income families, now on the borderline, into substandard existence.
Now, I would like to come directly to the question that Mr. Mason asked me what is a living wage? I think that is something that we must very seriously consider.
Fortunately, it is not necessary for us, as a union without special approach to this question, to give the answer. The answer has already been prepared very carefully and very scientifically by the Federal Government. It has been prepared in the report of the Bureau of Labor Statistics which prepared this city workers' family budget, a very careful analysis of what is necessary for a minimum living wage.
Also significantly the Treasury Department has issued on December 22, 1947, a major report which they entitled "Individual Income Tax Exemptions” in which they address themselves precisely to this question, the relationship of exemptions to the minimum living standard required by the people. This was based on the report to the Bureau of Labor Statistics on the minimum budget and it also dealt with the very significant study of the Heller committee for research in social economics of the University of California, of a cost budget along the same lines which I have here.
Now in this Government-prepared document, this Governmentprepared study, it is possible to indicate the income levels that are necessary for what they call these minimum standards of living. Adjusted to present-day prices, this is what the Government report shows:
For single persons, $1,630 is required as of December 1950 prices. For a married couple, $2,330 is required.
For a family, married couple and two children, $3,550 is required.
Now this does not include any allowance for Federal income tax. That has to be added to these figures set forth by the Federal Government.
Now this minimum adequacy budget is not a luxury budget. I urge you to consider this very carefully, because you can undermine my case if you can say that what I am suggesting here is a dream world of high budget. You are going to undermine my case on that basis. It seems to me you cannot undermine my case unless you take issue that this is the minimum budget.
So let us take a look at it. Certainly it is far below what we call an American standard of living. The Federal budget that I make up and show is $450 less than the Heller budget-the University of California budget—which they call a healthful and reasonable comfortable living budget. So it is not a luxury budget.
This becomes clearer, if you wish, if you refer to the table on page 3 of my statement, which shows how much food they include in this budget. Let us take a look at some of the items.
On meat, poultry, and fish in this Federal Government minimum budget they include 116 pounds per year. That compares with 184 pounds per capita consumption in the United States in 1949.
On eggs this budget I am talking about includes 256 eggs per person a year compared with 376 per capita consumption in the United States in 1949.
On milk, referred to in pounds, the BLS budget provides 320 pounds of milk per capita per year and the per capita consumption in the United States last year, that is, in 1949, was 385 pounds.
Clearly this is not a get-fat budget.
On clothing there is nothing luxurious in this budget. Just to give you an indication of it, and you can make detailed reference to this if you should care to, it provides that the man of the house could buy one overcoat every 6% years. He can buy five shirts a year and two pairs of shoes. His wife could buy one cotton street dress a year. Her wool dress would have to last for 5 years. They could buy one low-priced automobile every 15 or 16 years.
As far as durable consumer goods are concerned, there is a provision in the budget for them but it is limited in this fashion. It includes only a cook stove, refrigerator, washing machine, iron, sewing machine, vacuum cleaner, and so forth, if it could find a way to finance them in 17 years for the stove, refrigerator, and vacuum cleaner and up to 100 years for the iron and sewing machine.
So you can see this is not a budget of a household filled with fancy new refrigerators, great big television sets, and fancy new stoves.
To repeat, according to careful studies prepared by the Bureau of Labor Statistics and detailed by the Treasury Department in its report of December 22, 1947, to maintain a limited standard of living, including no money for Federal taxation, the following annual incomes at December 1950 prices are needed: Single person, $1,630; married couple, $2,330; married couple and two children, $3,550.
Our basic point is that no taxes should be levied to reduce the standard of living of American families below such a minimum living standard.
Now I would like to go from this to a consideration of some of the facts in income distribution. I would like to address myself particularly to some of the arguments that are very popular in the present discussion about inflation, that there is a vast pool of excess purchasing power among the laboring people which has to be drained off. I am fully aware of what you can do with figures. You can use them on both sides of every argument and you can play around with them, but I think the facts and figures I want to present to you, which comé from Government sources, are beyond real debate insofar as the major point that they make.
We feel that it is a monstrous misrepresentation to contend that workers and other low-income people have excess purchasing power which must be drained off to prevent inflation. The Joint Committee on the Economic Report, a congressional committee, which in our opinion has done an excellent job in studying the low-income field, reported that in 1948, 53 percent of the American families got less than $3,000 a year--53 percent of the American families got less than $3,000 a year.
Now it is possible by use of the income data and this budget to figure out how many families there are in America whose incomes are less than enough to meet this minimum budget. Remember what I said about its food consumption, clothing consumption, and so on. In 1948 21,300,000 families got less than enough to meet this minimum budget. Of all families 46 percent suffered substandard living in one degree or another in the most prosperous year in American history.
We feel that it is difficult for anyone to justify, after looking at this over-all picture, talking about its purchasing power in the low-income brackets.
Now the next section is: Who does get the income? Perhaps it should have been entitled “Who does not get the income?"
You want to look at it in terms of fifths. Dividing your family into fifths, this is the picture:
In 1948 and 1949, the latest years for which the Federal Reserve Board data are available, three-fifths, 60 percent, of the families, and households in the middle and lower income groups received only 32 percent of the total personal income.
Now I think the words "Federal groups," "middle income,” have been thrown around in a very loose fashion in much current discussion. Let us take a look at it. The middle income in 1948 was $2,840. The middle income in 1949 was $2,700. It is misrepresenting the picture and distorting the picture to talk about the middle group and to be talking about $7,000, $8,000, $9,000, and $10,000 of income.
I noticed that when the President in his tax message referred to upper income groups he said above $10,000. That means that 97 percent of all American families are below what he calls the upper income group, and when Mr. Snyder was here he chose another dividing line which he called above the lower and middle area, $5,000. It is a rather curious mathematical definition of "middle,” because in his lower and middle are included 83 percent of all American families.
I think it is important to avoid an illusion about the actual distribution of income within our country. To put it in different terms, to put it in dollar terms rather than in fifths or 20 percent, families or households with income under $3,000, more than 50 percent of all families and households, got about 25 percent of the total personal income in 1948. If you stretch the definition of "middle" up to $4,000, 73 percent of all families and households in 1948 received 45 percent of the total share of income.
Now the further question is asked sometimes in discussing the question of taxation and also of purchasing power, what economists call the pull of demand on prices. It is the question of who has the liquid assets, who has the cash.
The President made the reference to large savings and other liquid assets, “which,” he said, “they are free to spend as they choose.”
Now it is important for us to look in to see who has the liquid assets. In 1950 the Federal Reserve survey of consumer finances reports that "nearly one-third of all consumer spending units had no liquid assets in early 1950." In other words, one-third of the families were broke at the beginning of 1950.
Sixty percent of the families and households in early 1950 either had no liquid assets or had total assets of less than $500.
We suggest that this is not possession of vast sums of excess savings and liquid assets "which they are free to spend as they choose,” to bring pressure on supply and to bring inflation.
The lower three-fifths of families by income had only one-third of the total liquid assets in early 1950.
If you want to say it another way, the top 40 percent had 67 percent of all the total liquid assets in the United States at the beginning of 1950.
This could be borne out by reference to what is happening in the savings field, what is happening to bonds. Again the Joint Committee on the Economic Report, the congressional committee, told us in their report issued in June 1950 that 11,000,000 families disposed of all the Government bonds they owned in the three relatively prosperous years of 1946 to 1949. The top 20 percent alone accounted for 97 percent of net savings in 1948, and 131 percent in 1949.
You may ask how you get 131 percent. You get it because of the dis-saving, the spending of more than they earn in the low-income brackets.
The conclusion we draw from that us that the bare or below living wage income families have no rich store of savings to cushion their low incomes. They have no hidden excess purchasing power. Taxes on these levels can only compound poverty.
Now a third variation of this question is the question of who does the spending.
Well, we have fortunately considerable data to show who does the spending in this country. The lower 60 percent of families and households accounted for less than 40 percent of the expenditures for all goods and services in 1948 and 1949. Estimates presented to the Joint Committee on the Economic Report, in January 1951, indicated that families and households with incomes under $3,000--that is about 54 percent of all the families-spent 30 percent of the total consumer expenditures in 1950. This seems to us to further emphasize the point there is no excess purchasing power in the low- and middleincome groups.
We were amazed when we read the report of the Council of Economic Advisers to read this statement on page 82, making reference to the ease with which the economy could adjust to buying less, to consuming less. It said:
Economies have not been wrecked because the people decided to do with fewer new pleasure cars and elaborate mechanical amusements, or wear their topcoats for longer or get healthier by eating less
we must stop eating so much cake
And please remember, gentlemen, the contents of this budget that I talked about before when you consider this statement.
In the appendix of the Council report, page 223, they have something else to say which was not reflected in the body of their report. They say:
There are still large numbers of families in the United States with small or inadequate incomes
allowing for Federal income taxes, the proportion of spending units below $3,000 is raised to 59 percent.
Now the next section deals with: Who pays the taxes?
On this question we come to the heart of our discussion. We find out that the incomes are already inadequate to maintain a minimum adequate living standard whose estimated cost does not include Federal income tax, but now you are faced with the problem in the alternative proposed that you had more Federal income taxes, that you had more excise taxes on these low income people, and from some quarters you are urged to adopt a general sales tax that further hits these smaller income people.
Let us take a representative case: A manufacturing worker with a wife and two children, who is earning the average weekly wage of $64. His annual income, if he works 52 weeks, is $3,300. To achieve
the minimum living standard provided by the Bureau of Labor Statistics budget, he needs $3,550 plus his income tax. Actually he needs a total income of $3,670. His income is $370 short.
This means that his family must now do without some food that they need, without some clothing or some medical care that they require, or he must rob Peter to pay Paul, or he must go into debt or he must cut down in some fashion which is difficult to find.
Now it is in this setting that we have the proposal of the Secretary of the Treasury to raise the Federal income tax of that family to $144. The proposals from the Chamber of Commerce and the National Association of Manufacturers are, in our opinion, to do much worse. They would reduce the family's exemption from $2,400 to $2,000. They would increase its tax rate and they would add a Federal sales tax to the cost of living.
Now it is possible to find out how much the total tax load is on such a person. Fortunately, careful tax studies have been made which show us the impact of State, local, and Federal taxes, direct and indirect, and please believe me we think it is extremely urgent for you in the general consideration of taxes at this level to consider the whole tax burden and the part to be played by the low-income people.
The proposal, of course, for such a person at that level is that at the present time he pays $719.50 in taxes. The proposal from the administration would call upon him to pay at least $788.50 out of his income of $3,300, for a family of four. The Chamber of Commerce and National Association of Manufacturers proposals would go much bevond that.
Now you know that the exemptions have been changed in our country over a considerable period of time, but they are being changed in two ways. They have been changed by the action of the Congress and they have been changed by rising prices, and every day as we sit here the exemptions for workers are being lowered by the process of inflation.
Now we have two charts here which are relevant to this. The first chart shows you what has happened to the purchasing power of personal exemptions. I guess that is brown over there (indicating). That shows the 1939 exemption in dollars. The blue bar shows you the present dollar exemption. The black bar shows the exemption that would be required in real terms at today's prices to maintain exemptions at 1939 real levels. The difference between the blue and the black reflects what has happened to the actual exemptions for low-income people. In other words, the exemption now is only onethird of what it was in 1939 for a single person. For a married couple the exemption now being $1,200, it would have to be $4,500 to be the same as it was in 1939.
Mr. Mason. Would the gentleman yield there?
Mr. Mason. You are comparing the exemptions in the number of dollars in these different years. Now you cannot do that because it does not give a fair comparison. You have to compare the $600 and the $1,800 that you have there in the black with the income that that same man had, and if his income is three times as much now as it was back when it was $600, then on that basis he is paying that same proportionate income in comparison to his total.