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23 Tax Foundation's Tax Review 1 (1962)

handle is hein.tera/tafoutaxt0025 and id is 1 raw text is: TAX FOUNDATION'S JAN UR 1962, Vol. XXIII, No. I The Capacity and Limitations of Our Present Tax Structure by Dan Thiroop Smith Professor of Finance, Harvard Gradu ate School of Business A diniistration AN APPRAISAL. of the adequacy of our Federal revenue system to meet our defense require- ments might seem to be impossible without a firm projection of the expenditures which will be required for security and other essential or important purposes. In view of the uncer- tainties in international affairs, any such estimates must be subject to wide margins of error even when made by responsible officials; they are much more difficult for those not involved may find shelters in which they contentedly live with in government affairs. Fortunately, however, two general statements can be made, regardless of precise figures; they reinforce each other and indicate the need tax system. The present tax system, even if it were to produce sullicient revenue to cover growing expenditures, would also have increasingly bad effects on taxpayer morale and economic development. The passage of time has not made our tax system more acceptable. Rather, each pass- ing year has produced new schemes to avoid the full burden of the excessive rates of tax, with new complications then added to the law to thwart those who create new tax gimmicks in the form of strange and unnatural trans- actions. Various individuals for reform of the the tax law by circumventing its intended impact. 13ut our social and economic structure is weakened by the diversion of effort to build tax shelters in- stead of the national econony and by growing re- sentment of those who have maneuvered their way into refuges not available to most of us. The present tax structure is also bad because too many aspects of it came into being under the concept of the ma- ture economy-the economic fallacy which became fashion- able in the 1930's and did immeasurable harm to both economic and social struc- tures. Economically, the con- sequences were bad because the obsession with consumer income led to policies which discouraged capital invest- ment, eliciency, and enter- prise. Socially, the results were bad because the mature economy fallacy was used to help justify the expansion of Copyright 1962 hY Tax Founlation. lic., 50 Rockefeller Pla.-a, New York 20, N. Y. laterial inwi.y he re-u.sed with proper credit. This Issue in Brief Our tax system. says Dr. Smith in this Iteriewc. is had heniuise it needlessly discouraige% enterprise antd economic growth. He asserts that we ainot aill ord1 Io runinue at systemt whichl product-S suith undesirhil consequences even if it does produve sufficienat revenue. Hle says that with reasonable tax reform, tie natioll, coul(d. ir necessary. 546ecure substantially iore revenue. 11111 wIe do now and wIith Iless social and (onui dumm. 4 4111 '41I141111ir 14I~le Dr. Snith suggests cunsideration of two new tax upprouchies: (1) at tax on individual expenditures ats at partial or complete substitute for the Federal in- dividual incomie tx. and (2) the substi- lution (of ia turnover or viue-utdde( tax for the14 existing Federal corpornttion incomet1 tax. I

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