for the last quarter of 1950 personal consumption expenditures are running at the rate of $197,000,000,000. If you are considering additional ways of raising revenue in the form of a national sales tax, a 2-percent tax on personal consumption expenditures will raise $3,940,000,000 in much needed revenue. Now the Secretary of the Interior just a few days ago issued his annual report, and he pointed out that many of our natural resources were rapidly being depleted, minerals and things of that kind that are irreplaceable. You gentlemen know that by wise conservation methods we can renew our forest resources and save our soil resources, but once these ores are taken from the ground they are irreplaceable. So I suggest to the committee that you review these so-called depletion allowances. Let these corporations and their individuals who are exploiting our natural resources now pay a fair share. That is no more than justice to all the American people. Then I suggest that you look into the question of public power and see that this power generated in these public power plants have the same kind of taxes that the power generated by privately financed public utilities pays on electrical energy. There is one more point. In walking down one of the streets in Washington a couple of weeks ago I noticed some very fancy bottles of liquor in a liquor-store window. I went in to find out what this liquor was costing because the bottles in which it was offered for sale were of the very finest cut and etched Bohemian glass, each of which would be a collector's item. I was wondering whether or not they were selling the bottle or selling the liquor. I came to the conclusion. after the man told me they were $16.50 a fifth, that Czechoslovakia was selling glassware in this country instead of selling liquor. I think your committee ought to investigate how much tax evasion comes by that method. Now we come to the question of tax-exempt organizations. I believe in this critical time that there should be no tax exemptions for any organization engaged in business or commercial activities as a side line or as a source of revenue. I think that you gentlemen have a terrific burden on your hands and I think you should raise enough money to balance the budget so that this burden will not be heaped on future generations. I do not agree with the last witness. I say that we do have an obligation here in America to preserve a paradise on earth if we can for future generations instead of making them a nation of tax lawyers. Thank you, Mr. Chairman. The CHAIRMAN. Does that complete your statement? Mr. PETERS. Yes. If anybody would like to question me, I shall be perfectly glad to answer. The CHAIRMAN. If there are no questions, we thank you for your appearance and the information given the committee. Mr. PETERS. Thank you, Mr. Chairman. (The formal statement follows:) STATEMENT OF PAUL O. PETERS, WASHINGTON, D. C. Mr. Chairman and members of the Ways and Means Committee, in appearing as a witness before this august body, I do not pose as an expert, nor do I represent the views of any organization. The testimony and exhibits included in this statement may be classified as personal. In view of the fact that the Federal Treasury has operated on a deficit basis for 17 out of the last 19 fiscal years, it is apparent that an increase in Federal taxes during some of the years prior to World War II would have contributed greatly toward a balanced budget in those years, and a substantial reduction in the present public debt with its heavy interest charges. To illustrate the point I have mentioned there follows a table showing the reported national income, the Treasury surplus or deficit, and the added percentage of the national income which the Federal Government would have needed to balance the budget in each of the years from 1931, with estimates for the fiscal years 1951 and 1952. $39,963, 000, 000 236, 200, 000, 000 280, 000, 000, 000 $1,923, 913, 117 -2,777, 420, 714 -1, 176, 616, 598 -3, 862, 158, 040 -3,918, 019, 161 -6, 159, 272, 358 -21, 490, 242, 732 -57, 420, 430, 365 -51, 423, 392, 541 -53, 940, 916, 126 -20,676, 170, 609 +753,787, 660 +8, 419, 469, 844 -1, 811, 440, 048 -3, 122, 102, 357 -2,698, 000, 000 6. 67 17.58 38.43 34.36 35.09 11.60 84 1.28 1.00 From the foregoing it is estimated that a balanced budget for the fiscal year 1952 will require Federal taxes in approximately 25 percent of the national income estimated to be $280 billion. A balanced budget is important because our studies reveal that every deficit dollar is doubly inflationary, because it carries an implied interest factor which some day will have to be met by additional taxes. It is appreciated that a person who recommends new and additional taxes to save our Republic from inflation and disaster will be about as popular as a cockroach in a lunch basket. Since I have been advised that the committee does not care for recommendations respecting technical and administrative changes in the revenue laws, I feel that it will be no imposition on your time to suggest that taxes for 1952 be geared to production and the national income. In fairness to all, the burden should be as equitably distributed as possible, and this I believe the Ways and Means Committee will seek to do. Just a few days ago, the Secretary of the Interior issued his annual report for the fiscal year 1950. In it he pointed out that many of our national resources were rapidly being depleted. Our renewable resources of course can be saved by wise conservation measures. It follows, as night follows the day, that those who are responsible for the depletion of our natural resources, placed in the ground by the Creator, ought now to commence paying, and paying heavily for the despoliation they are causing. Likewise those who use the resources of our public land and national forests ought to be taxed upon the basis of production, and I would extend new taxes to those who graze cattle upon the public lands. I noticed yesterday that the production of electric energy has reached a level of nearly 7,100,000,000 kilowatt-hours for the week ended February 3, 1951. The Wall Street Journal in an editorial on Thursday, February 15, entitled "Illusions About Cheapness" pointed out that the TVA and the Electric Power Board of Chattanooga, Tenn., combined pay about 11.2 percent of their revenues as taxes as compared with a little more than 20 percent paid by privately financed public utilities in the same field. The question of taxing the federally owned or federally financed power companies should be thoroughly explored as an additional source of Federal revenue. 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, COMMITTEE ON WAYS AND MEANS, 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, D. 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 views 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. TAXATION 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. Surprisingly 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 1948our 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 |