Evening star., 1948-02-16
Truman Gives No Sign
He Supports Tax Cut
After Farm Price Fall
Extraordinary Drop
Seen Forcing President
To Take Outright Stond
BY Dapid Laurence e

A new phase Of the debate be-
tween President Truman and the
Republicans in Congress over
whether there should be tax reduc-
tion is about to begin.
Now that farm prices are coming
down, there are hints that the tax
reduction will not be practicable be-
cause receipts from taxes will not
come up to the estimates.
But Mr.. Truman took the position
last year, when he vetoed the tax
reduction bill of the Republicans,
that it was unwise to lower the rates
on taxes when the infiationary
pressures were in full swing. He gave
the impression that he would feel
otherwise if drop in prices oc-
CURED. His exact words were:
'The time for tax reduction will
come when general inflationary
pressures have ceased and the struc-
ture of prices is on more stable
basis than now prevails. How long
it will take for this point to be
reached is impossible to predict.
Clearly, 1t has not been reached as
yet. Tax reduction now would add
to, rather than correct, maladjust-
ments in the economic structure
ss*"
Despite many gloomy predictions,
there is no convincing evidence that
a recession is imminent"
Farm Price Drop Unexpected.
Mr.. Truman assumed last year
that there would be a continuation
of the boom throughout 1948 and
that there would not be any down.
turn in business. Now he Is face
to face with the most extraordinary
drop in farm prices the Nation has
witnessed in 100 years. If he takes
the position that this is irrelevant
and that taxpayers need no relief
this year, it will be because he
thinks that receipts from taxes will
fall and that the expected surplus
for the next fiscal year will be
substantially less than predicted.
Actually tax relief is needed by
many persons in the white-collar
class who have not had enough
increase in wages to meet living
costs as they relate, not only to the
products Of the farm, but to other
items where high wages have boil
stored the price of manufactured
goods to higher levels than prewar
days.
The doctrine which the Republi-
cans have followed is that a re-
duction in taxes serves as means
of underpinning good business con-
ditions. In the '20s every time
tax rates were reduced, the gross
receipts to the Treasury increased
materially.
The Presidents message vetoing
the tax bill last year plainly indi-
Gates that tax revision can be effec-
tive in correcting economic mall
adjustments. But If the admin
istration now takes the view that
tax reduction is impracticable be-
cause receipts may drop off, it will
be apparent that there is no real
intention on the part of the Demo-
cratic Party's standard bearer to
reduce taxes.
Government Costs Stay Up.
Curiously enough, no word has
come from the administration that
it might reduce the expenses of
Government. Usually when re-
ceipts fall off in private business
and profits drop, the management
cuts expenses to make both ends
meet. So far as the Truman Ad-
ministration is concerned, 1t keeps
on increasing its spending so that
this years actually exceeds last
years in many items, apart from
international aid.
Failure to handle the tax problem
satisfactorily can induce an eco
nomic recession. What Is needed
today is sharp reduction not only
in individual income-tax rates-so
that people can begin to save money
for investment and help Americas
huge enterprises to get the working
capital they need-but also in cor
poration rates. The Government
today takes approximately 40 per
cent out of every corporations
earnings. While this is smaller than
during the war, 1t is too large per-
centage to take as the volume Of
business drops off and profits come
down.
Much of the so-called profits of
1947 arose from inventories which,
in many consumer-good businesses,
will now show loss. This, in turn,
will affect profits adversely. But a
sound tax policy which PER- hts busi-
nesses to operate with 20 per cent
tax, as was the case during the de-
preston decade of 1929 to 1889, will
do much to stimulate business con-
fldence and will prevent unemploy-
ment.
The economic structure is not as
elastic as it has been in other post
war periods. There is no way now
for the leaders of organized labor
to agree to wage reductions, for. if
they do, most of them will be un-
seated by radical leaders. So the
consequence will be a maintenance
of high wage rates and considerable
unemployment-a situation that
could be ameliorated if corporation
surpluses were built up by giving
business a better break in relation
to the share it can retain after
taxes.
The key to a recession and the
prevention Of economic distress lies
in a reduction of wartime tax rates
to q peacetime basis, whereupon rev.
enues will not drop but will actually
rise, as has happened before.
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