Red into Black?

As President Truman sent his 1950-51 budget to Congress this week (see NATIONAL AFFAIRS), the businessmen's Committee for Economic Development put out a budget of its own. There was a great difference. Harry Truman's budget forecast a deficit of $5.1 billion; the C.E.D. showed how the U.S., by cutting both expenditures and taxes, could cut that deficit to $2.7 billion. And if business, now on the upgrade, improved enough to cut unemployment to roughly the 1948 level, C.E.D. figured that there could even be a presidential budget surplus of as much as $1.5 billion.

C.E.D.'s budget experts were headed by J. Cameron Thomson, president of Northwest Bancorporation, and Eastman Kodak Treasurer Marion Folsom, onetime director of the Congressional Committee on Postwar Economic Policy. They based their calculations on the so-called "cash-consolidated" budget, which shows actual governmental income & outgo, including unemployment compensation and old-age pensions. President Truman's "administrative" budget excludes these trust account operations and, consequently, is lower. Thus C.E.D. estimated current spending at $46.7 billion, compared to the President's estimate of $43.3 billion. Regardless of the technical differences between the two budgets, C.E.D. wants to cut the President's budget expenditures by $3.8 billion.

Trimming the Fat. This could be chiefly done, said C.E.D., by cutting EGA by at least $1 billion; relief and government in occupied areas by $650 million; veterans' readjustment programs by $800 million; RFC home mortgage purchases by $650 million; and by holding down public works projects on which spending has nearly doubled in two years (from $1.6 billion to $3 billion) and threatens to grow bigger.

In addition, C.E.D. would spur the current improvement in business by tax reductions. Its biggest recommended tax cuts: 1) $1 billion by reducing double taxation of dividends, 2) $1 billion by dropping excise taxes on transportation, communications, etc. Small cuts were recommended to help new and small businesses survive and prosper.

Trimming the Zero. To show how new businesses are hit by current taxes, C.E.D. cited the imaginary example of a new corporation that had lost $350,000 during its first three years, and made $350,000 during the next four. Though profits would only have wiped out losses, the company would have had to pay $114,000 in profits taxes on its net zero profits of the seven years. C.E.D.'s recommended change: permit a company to deduct the losses of one year from profits of the five following years.

Another "obstacle to the growth of small and medium-sized business," said C.E.D., is that companies earning $50,000 or more annually pay 38% tax, but those below $50,000 pay 53% on every dollar earned between $25,000 and $50,000, in effect, pay a penalty because they are small. This penalty should be eliminated.

Summed up C.E.D.: As it stands, "The federal tax system interferes with economic growth and efficiency. We could collect just as much money without many of these bad effects."

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