Grim Arithmetic

There is no sacrifice--no labor, no tax, no service--too hard for us to bear to support a logical and necessary defense of our freedom.

That sentence in Dwight Eisenhower's speech to the Republican rally at Boston Garden last week set talk buzzing and typewriters clacking. Was it a portent of bad news? Many thought so. Treasury Secretary George Humphrey, scheduled to address the American Bankers Association convention in Washington the following day, was puzzled when he heard the President's speech on TV. But, upon checking with the boss, Humphrey learned that the "no sacrifice" remark did not signify a switch in Administration tax plans.

Reassured, Humphrey told the bankers next day that 1) "there will be no request for renewal" of the excess-profits tax, now due to expire Jan. 1, and 2) the personal income-tax cut (about 10%) set for Jan. 1 "will become effective." He added that "many further adjustments in taxes are now under consideration." The bankers applauded. Their applause would probably have been less hearty if Humphrey had made it plain that some of the "further adjustments" would be adjustments upwards.

Unbalanced Budget. Despite its whittling job on the budget, the Administration is operating $3.8 billion in the red this fiscal year. The loss of excess-profits taxes and of IQSI'S income-tax boost will cost the Treasury some $5 billion a year. On top of that, other Korean war tax increases--on corporation profits and liquor, wine, beer, cigarettes, gasoline, sporting goods and automotive vehicles, parts and accessories--are due to end April i. Total estimated revenue loss in fiscal 1955 (beginning next July): $7 billion a year. That plus the current deficit adds up to $10.8 billion. In order to balance the 1955 budget against its income prospects, the Administration would have to cut its 1955 spending program $10.8 billion below the 1954 level ($72.1 billion).

Washington officials do not believe that a slash of that magnitude is possible. They believe that the Administration will have to ask Congress to 1) postpone some of the April decreases, 2) enact new taxes to make up for at least part of the loss resulting from the January decreases, to which the Administration is now, after Humphrey's speech last week, firmly committed.

The actual prospect may be darker than the figures indicate. Since the economy is operating at very near capacity, there is little chance that revenue receipts will exceed present estimates. But any slacking off of business activity would cut the tax returns.

Unpopular Levy. What will probably emerge from the Treasury's current study of dozens of varied tax schemes is a proposal for a federal levy--possibly 10%--on manufactured goods (TIME, Sept; 28). It would be collected from the manufacturer, but passed on to the retail purchaser. Foodstuffs and medical supplies would be exempt, as would alcoholic beverages, cigarettes and gasoline, which are already taxed at special rates.

Such a tax, if it replaced the present ill-assorted collection of excise taxes on jewelry, furs, luggage, musical instruments, etc., would net perhaps $3.5 billion a year. This would still leave $7.3 billion to be made up by postponing some of the April decreases and by more paring of expenditures. Even if the unpopular manufacturers' tax is enacted, a balanced budget in the next fiscal year is unlikely.

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