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29 Tax Foundation's Tax Review 1 (1968)

handle is hein.tera/tafoutaxt0032 and id is 1 raw text is: JANUARY, 1968 Vol. XXIX, No. 1 Ta x ROeview Priorities in Tax Policy For the Next Decade By Norman B. Ture Since the end of World War II, the growing con- fidence in the effectiveness of fiscal policy in achieving various objectives of public economic policy has resulted in more frequent, more complex, and more elaborate intervention of government in the operations of the economy, particularly during the past seven years. It is to be expected that a more active fiscal policy would evoke issues which were formerly barely or poorly perceived. One fundamental ques- tion is: What are the proper objectives of tax policy? In the past, the answer was: to raise the revenues needed to defray the expenses of government in the fairest, least expensive way and with minimum interference with the market processes. A response of that sort today is regarded as naive or simplistic, at best, if not in fact, simple-minded or antediluvian. In the context of the nev economics, the equation of revenue production with government expendi- tures is mere budget balancing which ignores the functional relationship between fiscal magnitudes and the level of aggregate demand. On the contrary, the new economics tells us, the rate of extraction of government revenues from the national income stream should be raised relative to the government's expenditures when the econ- omy is surging toward inflationary excess, and low- ered when the economy is moving into recession. Equality between revenues and expenditures in any given fiscal year, in this view, would have to be re- garded as purely coincidental. But before the now unpopular older view of the guide for tax policy is summarily dismissed, it might be well (1) to subject the new economics' view of the role of tax policy to critical scrutiny and (2) to put the older viewy into a somewhat truer perspective. The basic premises of the new view of tax policy. The fundamental assumptions underlying the new economics' view of fiscal policy include: (1) in the absence of an active, compensatory tax policy, the economy would be highly unstable This Issue in Brief Mr. Ture takes issue with the new eco- nomics as based on faulty assumptions, which he analyzes. He declares himself in favor of that older guide to tax policy which decrees that the proper objective of tax policy is to raise the money needed to meet government's ex- penses in the fairest, least expensive way, and with a minimum interference with the market process. Mr. Ture says that, in view of the new economics' shortcomings perhaps it is not too much to expect that during the next' decade older policy guides will be seri- ously re-examined, and will contend openly with the newer view of appropriate policy objectives. Copyright 1968 by Tax Foundation, Inc., 50 Rockefeller Plaza, New York, N.Y. 10020, Judson 2-0880 1

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