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Tax Review JANUARY, 1966
Vol. XXVII, No. 1
Federal Tax Reduction-
The Prospects and the Issues
By Leonard E. Kust
I WILL BEGIN on a positive and optimistic note: The
prospects for Federal tax reduction are good. I am
not speaking of 1966 or even the next year, but let
me say that the prospects for tax reduction by 1970
are good. Hence discussion of the issues involved
is timely and pertinent.
We have, in the report of the President's Com-
mittee on the Economic Impact of Defense and
Disarmament, published last July, as near to an
official announcement of further tax reduction as
we are likely to have until a specific proposal is
presented to the Congress. While the more recent
indications are that there will be no new tax reduc-
tion in 1966 Ind there is, because of the Vietnam
war, even talk of a tax increase, I think the report
of the Committee still represents the Administra-
tion's longer term expectations.
The report of the Committee, the chairman of
which was Gardner Ackley, chairman of the Council
of Economic Advisers, assumes a continuing full
employment economy, unchanging expenditures for
defense, space and atomic energy, and an increase
of $15 billion in non-defense expenditures, in esti-
mating an excess of revenues under our present tax
system of $25-$30 billion by 1970, which must be
devoted either to increased expenditures or tax re-
duction between 1965 and 1970. One could con-
clude that it is unlikely that the assumptions will
in fact materialize and that, therefore, tax reduction
is conjectural. Given the economic and fiscal theo-
ries which prevail in the Administration, however,
failure of the assumption of a full employment
economy would merely fortify the need for tax re-
duction. While defense expenditures are increasing
as a consequence of the step-up of the Vietnam war,
this increase is at least presently not expected to
exceed $5 billion a year. The unanticipated increase
in defense expenditures may delay the timing of a
tax reduction by a year or so, but defense expendi-
tures are not a threat to tax reduction unless the
world situation changes seriously. As to non-defense
expenditures, even with all the will to increase
welfare expenditures which critics of the Adminis-
tration may attribute to it, such expenditures can-
This Issue in Brief
Mr. Kust suggests that if the corporate in-
come tax rate cannot now be very substan-
tially reduced in the interest of increasing
investment and economic growth, there is
still need for fundamental revision of the
taxation of corporations.
Because such a suggested reduction in
the corporate tax burden must be gradual to
avoid imbalances, he says, consideration now
should be given to substituting a tax on value-
added for about one-half of the corporate
income tax.
Mr. Kust also suggests a 50 percent ceil-
ing on individual income tax rates instead of
the present 70 percent rate on top incomes
-and a substantial increase in individual
exemptions. He says that under his plan ex-
emptions would diminish to zero as income
increased to prescribed levels.
Copyright 1966 by Tax Foundation, Inc., 50 Rockefeller Plaza, New York, N.Y. 10020, Judson 2-0880
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