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31 Tax Foundation's Tax Review 1 (1970)

handle is hein.tera/tafoutaxt0034 and id is 1 raw text is: Tax Review JANUARY 1970 Vol. XXXI, No. 1 The Control of Government Expenditures By Arthur F. Burns This year the Congress has devoted a great deal of attention to tax legislation. Besides aiding the fight against inflation by extending the income tax surcharge temporarily, the Congress has been heav- ily engaged in writing a tax reform bill that is of major significance to the American public. If the bill survives in something like its present form, some troublesome inequities under existing law will finally be corrected. However, the relative tax burden borne by individuals and corporations will also be changed, with corporate income tax liabilities gradually going up about 5 billion dollars by 1975 and individual income taxes coming down 12 bil- lion dollars. This projected shift in the tax structure will favor consumption at the expense of capital formation. Such a development will be useful in the short run by helping to cool off the business investment boom that is still under way, but it may damage prospects for the long-term growth of our economy. We surely cannot afford to take capital formation or economic progress for granted. If our economy is to grow and prosper in the future, as it both can and should, business enterprise may well need the stimulation of an improving tax climate. In recent times, our nation has moved rapidly towards the welfare state, such as various European countries previously developed. Unlike these coun- tries, however, we also devote an enormous part of our resources to meeting the needs of an intricate and far-flung defense system. Thus far, the prodigi- ous productivity of American industry has made it possible to finance liberally both our defense needs and the social services of government. But in order to continue to support the growing scale of our public consumption without doing injury to private consumption, the productivity of our factories, mines, farms, construction enterprises, and service trades may have to improve more rapidly than in the past. This will not be accomplished without substantial and increasing investment in new and better tools of production. The projected shift in the structure of taxation therefore seems undesir- able to me, and I trust that the President's Task Force on Business Taxation will soon point the way to better balance in our tax system. I do not know at precisely what point the burdens of taxation will materially serve to check our na- tion's economic progress, but I also do not think it This Issue In Brief With the $200 billion Federal government spending mark likely to be crossed in the next fiscal year, says Dr. Burns in this Review, the need for expenditure reform may be even greater than the need for tax reform. Pointing to recent expenditure reforms and proposing others, Dr. Burns discussed revenue sharing with the states; bloc grants; a ceiling on expenditures, and zero-based budgeting. In this connection he suggested reap- praisal of earmarking funds, institution of new programs on a pilot basis, and strict enforcement of five-year projections for new programs. Copyright 1970 by Tax Foundation, Inc., 50 Rockefeller Plaza, New York, N.Y. 10020, Judson 2-0880 1

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