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In 1949 approximately $3,532,475,000 was raised through excise taxes. This is still a fertile field for new taxes, especially on luxury items which many of us common American citizens cannot afford. When one sees liquors and cordials offered for sale right here in Washington which have been imported from Czechoslovakia, and are contained in fine cutglass, etched Bohemian bottles, each of which is a collector's item, I believe that we should ring the bell hard on that kind of a luxury with a heavy tax on the bottle at least. This probably will run counter to some peoples ideas of reciprocal trade, but to me it is merely a carefully executed plan to sell Czechoslovakian flasks in the United States. The liquors are merely the cover up.
Yesterday, the witness from the Treasury's enforcement bureau, stated there were 400,000 licensed liquor dealers in the country. Well, if so, then their license fees ought to be reexamined along with the possibility of putting a further tax on the consumers of fermented and distilled spirits.
We come now to the tax exempt organizations. With our public debt now around $256 billion no organization should be tax exempt, especially on any kind of business or commercial enterprise. In late years tax exemption really means tax dodging. You gentlemen know all of these things.
I trust that you will have the courage to raise the taxes to a level that means a balanced budget. Let us face the situation manfully. If we must suffer, let us all suffer together. There can be no justification for passing on the burdens o this generations for future generations to bear with interest.
The CHAIRMAN. Without objection, the committee will stand adjourned until 10 o'clock in the morning.
(At 12:25 p. m., the committee took a recess until Wednesday, February 21, 1951, at 10 a. m.)
REVENUE REVISION OF 1951
WEDNESDAY, FEBRUARY 21, 1951
HOUSE OF REPRESENTATIVES,
Washington, D. C. The Committee met at 10 a. m., pursuant to recess, Hon. Robert L. Doughton (chairman), presiding.
The CHAIRMAN. The committee will come to order.
The first witness on the calendar this morning is Mr. Stanley H. Ruttenberg, Congress of Industrial Organizations, Washington, Ď. C. Mr. Ruttenberg, please give your name and address and the capacity in which you appear to the stenographer for the benefit of the record.
STATEMENT OF STANLEY H. RUTTENBERG, DIRECTOR OF THE
DEPARTMENT OF EDUCATION AND RESEARCH, CONGRESS OF INDUSTRIAL ORGANIZATIONS, WASHINGTON, D. C. Mr. RUTTENBERG. My name is Stanley H. Ruttenberg. I am director of the department of education and research of the national CIO. Also, I am a member of the CIO Committee on Economic Policy, and responsible for taxation as a member of that committee.
I am happy once again to have the opportunity to present the riews of the Congress of Industrial Organizations on the important matter of taxation. We fully recognize the seriousness of the present national emergency. We are in full accord with the proposal that we “pay as we go” for our mobilization program, at least as long as expenditures fall within the range of present expectations. Certainly our economy is strong enough to be able to produce the revenue essential to balance the proposed budget for fiscal 1952.
Budget balancing is always easiest when we can simply cut down expenditures to meet expected income. Although we are highly skeptical of claims that $8 or $9 billion can easily be saved by simply pruning our fiscal 1952 budget, we welcome and encourage careful scrutiny of each item.
Certainly our defense expenditures should produce a dollar of real value for every dollar spent, just as we demand of our nonmilitary expenditures. Anti-Fair Dealers find special pleasure in attacking the "all other” (nondefense) component of the budget. But it should be
" remembered that, in fiscal 1952, this category actually includes $2.5 billion of expenditures directly or indirectly related to the mobilization program, and it includes other expenditures basic to the operation of the Government and the long-run welfare of the Nation. We will not be strengthening America by destroying essential programs that are designed to protect and develop the human and physical resources of this Nation.
The main concern of this committee is the raising of sufficient revenue to meet budget needs. While we can hope that some reductions may be found feasible, we will be wise to approach our tax problem realistically by assuming that an additional $16 or $17 billion of income must be raised. We must anticipate unexpected increases in expenditures—especially for military purposes-as far more likely than we can anticipate reductions of the nondefense expendituresalready budgeted.
Raising a sum of this great magnitude is a difficult task which necessitates an examination of all possible new tax sources. But it also requires an examination of the degree to which we can increase our revenues by improving the enforcement of existing tax laws and closing all loopholes. Surprising!y large sums can be collected, as we will indicate later, by this last-named tightening process.
But in canvassing the areas in which new tax revenue can be derived, the easy road is not necessarily the right road, especially if
, it deviates from the basic principles of taxing according to "ability to pay” within the concept of “equality of sacrifice.”
The aim of all taxes is to raise revenue. But today there is much talk also of raising taxes to reduce purchasing power and thereby lessen inflationary pressures.
It is argued that all Americans ought to readily accept a lower standard of living as a contribution to meeting the needs of this emergency and that, therefore, higher taxes on low-income families are now highly justified.
This viewpoint--which is particularly attractive to the well-off-emphasizes that we must tax where spending is done, and that, since such large aggregate sums accrue to the millions of low-income families, here is where taxes should be greatly increased.
Furthermore, taxes from wage and salary earners are easiest to collect--either by direct deductions from payrolls or by the impositions of sales or excise taxes. Almost 100 percent enforcement can be assured.
The injustice of this tax theory should be apparent to all. For millions of families there is no "loose” money floating around which is bidding up the demand for goods in short supply. For millions of American families there is hardly enough income to support minimum standards of decent family life. To increase further the taxes upon these individuals simply will deprive them of the ability to buy goods. that are essential to a healthy and decent existence.
On the other hand, tax rates on middle- and high-income individuals. can be substantially increased and existing loopholes closed without curtailing their ability to buy the necessities of daily life. Even after substantially higher taxes their incomes and savings will remain adequate to assure them the ability to buy a substantial quantity of goods and services.
As proof of this fact, I should like to refer this committee to some basic findings derived from the Federal Reserve Board's Survey of Consumer Finances and from the National Income Statistics of the United States Department of Commerce. All figures refer to 1948– our boom postwar year.
They indicate (see table I attached) that the top 10 percent of our families by income-with earnings above $6,000 a year- bought 25
percent of the total amount of consumer goods purchased in 1948. This top 10 percent represents only slightly over 5 million American families. On the other hand, as can be seen from table I, the bottom 50 percent of our families--who earned less than $2,840 in 1948accounted for only 28 percent of total expenditures. This group represents 25% million families.
In other words, the upper 10 percent of our families spent approximately as much as the lower 50 percent-i. e., almost the same amount was spent by the upper 10 percent as was spent by five times as many families in the lower 50 percent.
Certainly, the incomes falling within the bracket of the top tenth could be taxed a sufficient amount to reduce their expenditures to the level of the second tenth without reducing their families to anywhere near poverty levels. This would produce $18.5 billion-more than the increased revenue we now need. We do not suggest that such a drastic step be taken. But we do suggest that here is a large area for taxing, if "ability to pay” and “equality of sacrifice" are so be given real meanings, before we seriously consider reducing still further the standards of the low-income families of America.
There are those, of course, who argue that higher taxes upon this upper 10 percent of our people would reduce incentive, initiative, and so forth. But let us not forget that incentives are essential to all individuals, not only those in the higher income brackets.
Another major area that must be carefully examined by this committee as it considers ways to raise $16 billion in additional revenue, is the corporate sector of our economy.
The profits of major corporations in the United States are at an all-time high, and they continue to rise. Table II indicates that 1950 corporate profits, before taxes, increased substantially quarter by quarter. In the first quarter, they were running at an annual rate of over $29 billion. They increased to $37 billion in the second quarter, skyrocketed to $46 billion in the third quarter, and went up further to $48 billion in the fourth quarter. The fourth quarter profit rate of
$ $48 billion annually was 65 percent greater than the average profit earned by all corporations for the 4 years immediately succeeding the end of World War II.
Corporate profits, after taxes, in the fourth quarter of 1950 were running at a record annual rate in excess of $26.5 billion-even after the excess-profits taxes enacted by Congress in the last session. This is more than 50 percent greater than the $17.6 billion rate, after taxes, in the 4-year period, 1946-49. Even though the last Congress enacted an excess-profits tax and increased income and corporate tax rates, there is still a large source of revenue to be derived from the corporate profits sector of our economy.
All indications seem to be that corporate profits during 1951 will be very close to the rate of profits during the fourth quarter of 1950. While all forecasting is hazardous, it is my feeling, after careful consideration, that 1951 corporate profits before taxes will approximate $47 billion. Certainly our corporations can shoulder a much larger tax load as their contribution to our national needs.
Let us also keep another basic factor in mind as we consider sources of raising revenue during the coming year. Certain types of taxation, such as excise and sales taxes, hit low and middle income individuals harder than they hit high income individuals. In other words, consumption taxes are borne in inverse proportion to income-the higher the income, the lesser the burden; the lower the income, the greater the burden. This is clearly shown in table III.
This table shows that taxation upon public consumption at the Federal level takes 2.4 percent or more of the income of those individuals earning less than $5,000 while it takes 2 percent or less of the income earned by individuals making over $5,000, the two extremes being individuals earning under $500 (who have 3 percent of their income going into Federal consumption of taxes) and those with incomes of $20,000 and over (who have only eight-tenths of 1 percent of their income going into Federal consumption of taxes).
Tables IV and Villustrate this same principle for excise taxes on gasoline and cigarettes. Table IV shows the total expenditure for gasoline for six cities in the United States during 1947 and 1948. This table shows also the percentage which these expenditures are of the total of the average income for the income class. It can be seen from this table that the percentage of income spent for gasoline is much higher for the lower and middle income individuals than it is for the higher income individuals.
Table V shows the estimated tax paid on gasoline and cigarettes and the percentage which this expenditure for taxes is to the total average income for the income class, again illustrating the point that consumption taxes are borne in inverse proportion to income.
Specifically, the excise taxes on automobiles, refrigerators, radios, and electrical appliances, suggested by Secretary Snyder in his testimony, are discriminatory. We in CÌO strongly oppose increasing excise taxes not only on commodities like cigarettes and alcoholic beverages, but also upon these categories of consumer durable goods. The enactment of increases of excise taxes on consumer goods inpractice will establish privileged classes in our society-privileged because these taxes increase the ability of the wealthy few to buy. Those who cannot afford the increased excises will be unable to buy. Therefore, scarce consumer durable goods items will be, in effect, rationed to the privileged class with enough income to pay the price plus the excise tax.
Excise taxes should not be used to curtail the use of scarce materials. To impose higher excise taxes is to ration commodities according to the ability to buy and not according to need. It is wholly and highly inequitous to force low income individuals out of the market to make room or high income families to buy the reduced supply of goods.
We believe that $16 billion in new Federal revenue can and should be raised now, but it must be done equitably on the basis of the principles of "ability to pay" and "equality of sacrifice.”'
We believe that this objective can be achieved by closing tax loopholes and by equitable increases in existing individual and corporate tax rates.