The Hard Way

Few weeks ago needle-witted Tom Connally, senior Senator from Texas, blithely predicted that the 1941 tax bill would "just jerk 'em out of their shoes." Although the jerk won't come until March 15, 1942, last week the U.S. and Congress got their first clear look at the Treasury's new forceps. The public, with only a few painful gulps, stood up to the frightful sight like a brave little man, but Congress fainted dead away. Later it opened one eye to ask for plenty of anesthetic during the operation.

The dentist who stood ready to extract the public's worldly goods was bald Treasury Secretary Henry Morgenthau Jr. Mr. Morgenthau gravely spread before the House Ways & Means Committee the biggest tax bill in the world's history. He arrived on Capitol Hill with no less than eight advisers.*

Mr. Morgenthau outlined four objectives: 1) to pay for a reasonable proportion of expenditures; 2) to provide that all sections of the public shall bear their fair share of the burden; 3) to help mobilize U.S. resources for defense by reducing the amount of money that the public can spend for comparatively less important things; 4) to prevent a general price rise, by keeping monetary purchasing power from outrunning production.

Hence Mr. Morgenthau's tax bill, the first of its kind in U.S. economic history: deliberately designed to cripple private purchasing power and consumption by U.S. citizens.

The Bad News. The Treasury's proposals were aimed to collect about $3,600,000,000 more in taxes than this year's estimated revenue of $9,000,000,000. Income taxes were to be made sharply higher (see Table) through the imposition of a new surtax which starts at 11% and mounts with each $2,000 income increase to 75% (as at present) on highest-bracket incomes. To this surtax was to be added a special defense supertax. Result: 4% normal tax plus surtax plus supertax. Heaviest increases would hang on incomes from $5,000 to $25,000.

In addition regular corporate income taxes were to be upped from 24% to 30% by a new surtax. Base of the excess-profits tax (which takes up to 50% of a corporation's remaining income) was broadened. The net effect of all these income taxes would be virtually to suspend the profit motive for the duration (see p. 77). And gift and estate taxes would be broadened and boosted.

Yet all these taxes would raise only $2,800,000,000 of the Treasury's extra $3,600,000,000. For the remainder the Treasury turned to increased excise taxes: 8-c- on cigarets, now 6 1/2-c-, $4 per gallon on liquor, now $3; 2 1/2-c- per gallon on gasoline, now 1 1/2-c- a new 5% tax on transportation tickets and telephone bills; and other new taxes of 2-c- on checks, 2-c- per thousand on matches, 10% on furs, $15 per alley on bowling alleys, 10% on phonographs, etc.

Timider Alternative. Congressmen, sensitive to the slightest possible future bruise on the electorate's good will, began to get chills and fever. Further, most of them are middle-incomers themselves; the extra tax would cut into their savings for reelection expenses. So the bill threatened their jobs in two ways.

Wise old (77) Representative Robert L. Doughton of Laurel Springs, N.C. had displayed his usual foresight. Ready was the Congressional tax expert, round-faced Colin F. Stam, with a much less direct approach to the voters' wallets. Mr. Stam brought in a list which tapped the middle-incomers much more lightly by income taxes but clipped everyone much more thoroughly via indirect or nuisance taxes (see Table, p. 22). True, Mr. Stam's income taxes do not pretend to bring the U.S. in as much new revenue as the Treasury's ($1.1 billion against $1.5 billion), but there again Congress had the comfortable feeling that the Treasury's estimates of tax returns are much too low.

The struggle was on. Mr. Morgenthau had further the bad taste to recommend definitely and pointedly something the President had always delicately skirted--the actual slashing of numerous non-defense expenditures. Mr. Morgenthau pointed a finger directly at the cost of CCC and NYA, mentioning incidentally that both projects seek youths of 21 who are possible recruits for Army enlistment; also at public works, relief, the farm-parity payments in the bill now in conference between the chambers, to which the Senate has added $450,000,000. This week the White House passed word to House leaders to reject the Senate's $450,000,000 addition.

The U.S. press generally hailed the new tax proposals, prayed that Congress would have the nerve to cut out the non-defense plush trimmings and tax the sap out of the citizenry. Probability was that Congress would finally whip itself into such a hypnotic frenzy of patriotism and concern that it would pass a much-less-cowardly-than-average tax bill.

Fact was that something a great deal bigger than any tax bill was going on: an economic revolution in the U.S., in which the nation was beginning a tremendous production boom in the terrible luxury of arms--a boom which was actually a kind of depression, since there would be less & less of the things that prosperity means. Instead of two cars in every ga rage, there would be anti-aircraft guns along the coasts. The U.S. was going into a 1929 boom that already paled 1929; but by the end of the year many a citizen would be more reminded of 1932.

Columnist Ray Clapper, of Scripps-Howard, thought the Administration's attitude was sound, the Treasury tax proposals "severe." Said he: "Thank God for that. If this Government hasn't the guts to stand for heavy taxation in this crisis it hasn't the guts to do anything. The same goes for the American people. . . . There is no such thing as defending ourselves short of taxes."

* Last week Wall Street Journal Newshawk George Bryant good-naturedly asked Mr. Morgenthau, "What would you do if you were ever caught by yourself?" The Secretary good-naturedly acknowledged that he didn't know.

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