On the basis of proposals made by authoritative sources, including civil engineers, business and labor organizations, State and municipal planning agencies and Federal agencies interested in public work, the committee is giving serious consideration to the following points: 1. That effective and inclusive steps be taken to stimulate the expansion of private construction activity both industrial and residential. These steps would include freeing the industry of restrictive practices, reducing costs, revising the tax system and removing wartime limitations and controls. 2. That steps be taken to expedite the preparation by State and local governments of public works that might be undertaken during the immediate post-war reconversion period, to the end that these projects may be started without delay to provide jobs for veterans and displaced war workers. 3. For the reconversion period the committee's evidence indicates that State and local governments are in a better position to finance short-term projects than the Federal Government which is faced with continuing tremendous outlays resulting from the war while State and local governments have been greatly strengthened as a result of curtailed operations during the war period. Since the cost of public works falls upon the citizens in either case, there are many advantages in having local projects locally financed wherever possible. The Congress should make clear its position with respect to aid for State and local public work projects in the transition period in order that undertakings may not be delayed in the hope of securing greater Federal assistance at a later date. 4. The most effective direct contribution the Federal Government might make in the acceleration of employment in the construction industry appears to be in the role of providing incentives, through grants-in-aid, to encourage or speed up plans and arrangements. The purpose of such grants would be to hasten the initiation of projects that might otherwise be delayed beyond the period of the immediate reconversion employment problems. 5. For the longer run the Federal Government, with its critical interest in the stabilizing of employment, might well take steps to stimulate State and local agencies, and Federal agencies as well, toward the preparation of a reserve shelf of useful public work projects which can be put promptly into operation (or deferred) as economic conditions indicate. It has been suggested by the committee that a continuing Federal grants-in-aid program on a matching basis to assist in developing plans for approach to the whole public-work problem would be appropriate. This should be done without awaiting a decision as to whether such works should be paid for out of Federal or State or local funds. The committee intends to make further studies of the appropriate steps necessary to accomplish a stabilizing of the construction industry at a high employment level, and of the part which federally financed public works should play in such a program. The committee recognizes that public works represent a spending of the people's money and that a commensurate public service resulting from these outlays is the least that can be expected. This public service must be recognized as consisting not only of the utilities realized from the physical facilities provided but also of the measure of stability which their execution and timing provides for employment and industrial activity. The committee is opposed to the theory that large Government spending in itself can provide a satisfactory stimulus to sustained production and employment. It recalls at the peak of the Works Progress Administration program during the 1930's, not more than 4,000,000 people could be given employment, and that these were receiving only subsistence wages. Such Government spending went hand in hand with a low ebb of capital-plant expansion and new business creation. Moreover, the national debt at that time was less than $35,000,000,000. Today, with a national debt that may reach $300,000,000,000 at the end of the war, we may be approaching the point beyond which any substantial increase in deficit spending is likely to undermine that confidence in the national credit without which our economic system cannot remain stable. VI. POST-WAR TAX POLICY An early decision on post-war Federal tax policy is necessary to encourage bold planning for expanded and continued employment after the war. This problem should be faced by the Congress as soon as possible, not only because of its importance for post-war production and employment, but also because it presents many difficult and challenging aspects, which will require extensive investigation. Specific proposals for tax legislation are being given exhaustive study by the Joint Committee on Internal Revenue Taxation of the House and Senate and by the House Committee on Ways and Means and the Senate Finance Committee. The observations which follow, therefore, represent simply an effort on the part of this committee to appraise broad tax policies in the light of the economic problems which will be faced in the reconversion and the post-war period. Federal expenditures for many years are certain to be much higher than we have ever known before in times of peace. This may be readily appreciated when we consider that interest on the national debt alone will probably match the total Federal tax of the immediate pre-war years. Moreover, we must count on a much larger military establishment following the war than we had before the war. In the third place, the G. I. bill and other post-war obligations to which we appear committed will add substantially to the legacy of public outlays. It is on top of these additional expenditures that we shall have to superimpose the normal peacetime budget for the conduct of the Federal Government. Thus, it is not unlikely that during the first years after the war the total of Federal expenditures will approach $20,000,000,000 per annum. If spread evenly over the entire population, the post-war budget means that the cost of supporting the activities of the Federal Government alone would be over $550 a year for a family of four. State and local governments after the war are likely to need approximately $350 per family, in addition, or a total of something like $900 a year for a family of four. (See chart 3.) On the other hand, it is imperative that all such expenditures be matched by tax revenues, at least over a period of years, and that further continued growth of the national debt be checked. The urgency of this need will be emphasized by the very magnitude of the national debt at the end of the war, and by the presence of tremendous potentially inflationary forces in our financial system. Beyond the minimum requirement of halting further debt expansion, the committee believes that national fiscal policy should aim at an orderly reduction of the national debt as rapidly as financial conditions and an expansion of our national income permit. The implications should be obvious. Unless we can attain higher levels of productive employment than in any previous peacetime period, the burden of necessary taxation may prove intolerable. Unless we prepare in advance a tax program which will minimize the repressive effects of Federal taxation, we may be unable to reach the desired goal of production and employment. The starting point in such a program must be a firm determination to hold Federal expenditures down to the minimum consistent with the proper functioning of the Government. The next step must be to develop a Federal tax structure which will raise the necessary revenues and still distribute the present tax burdens in a manner which will provide adequate incentives for venture capital and business growth, and permit an expansion in consumer demand. DISTRIBUTION OF TAX BURDEN Partly as a result of the pre-war trend and partly due to wartime necessities, the Federal tax system has placed steadily increasing burdens on risk-taking enterprise. On the one hand, it puts a premium on the avoidance of risk provided by the refuge from taxation through tax-exempt securities. On the other hand, it has imposed double taxation on income derived from business dividends and has placed excessive burdens on those businesses and individuals to whom we must look for a large share of the funds required for the expansion of employment opportunities. An adequate reduction in such tax burdens will be essential. Equal consideration must be given to a lightening of the tax load on the lower-income groups which provide the great bulk of the demand for consumption goods on which employment so largely depends. Social considerations also require that Federal taxes shall not depress the living standards of those who are at a bare subsistence level. Nevertheless, if expenditures are held down to reasonable levels, the committee believes it should be possible to reduce present income-tax burdens on all income groups. Such reductions should do much to stimulate venture capital as well as to provide substantial relief for the lower and middle income groups. Other important objectives for a satisfactory post-war Federal tax program are: A tax structure which is stable and not subject to the upsetting effects of constant change; a tax structure which is fair to all elements of the population, and which permits each individual to understand what share of the tax load he is bearing; a tax structure which is simple to administer and easy for the taxpayer to comprehend. In order to carry out the above objectives, the committee believes that the Federal tax system after the war should be revised. The committee's function with respect to the Federal tax system is primarily one of analyzing present and proposed tax policies to point out those provisions in present laws which act as a deterrent to a sound and progressive economy and to recommend such policies as the committee's analysis reveals would be favorable in their total effect on economic and business conditions. PERSONAL INCOME TAXES The personal income tax should be regarded as the main reliance for Federal tax revenues after the war. In view of anticipated revenue requirements, this will mean an income tax with a broad base, a fairly high normal rate in relation to pre-war standards, and substantial surtax rates on the middle and upper income groups. Since the final impact of all taxes rests on individuals, regardless of where such taxes may be levied, the committee believes that direct progressive taxation of incomes is not only the soundest tax vehicle for a democracy but will also be the least repressive to production and employment. It believes further that all citizens, other than those below a minimum subsistence level, should bear some share of the income tax burden, and that this result will be achieved only by retaining a broad base for the personal income tax after the war. Consideration should be given to the elimination of the present double taxation of dividend income either by treating the tax on corporate income as a withholding tax and exempting dividends from the personal normal tax, or by some equivalent provision. Dividend income should, of course, continue to be subject to surtaxes. This tax reform would not only correct an inequity in the present tax structure, but will also provide an important stimulus to risk capital. Individuals whose incomes fluctuate widely from year to year should be granted the right to obtain tax adjustments by means of some income-averaging device. This change will tend to equalize the tax burden on fluctuating incomes as compared with that on stable incomes, and should also provide important tax relief to small noncorporate businesses and for workers and professional men with irregular employment. EXCISE TAXATION All of the present excise taxes should be reviewed and no doubt many, even most of them, should be repealed after the war. The special wartime excises were designed to discourage consumption (as well as to increase revenue). After the war, jobs and higher consumption levels should be encouraged, not discouraged. The impact of excise taxes is particularly severe on low-income recipients; they are the cause of much annoyance, are costly to administer, and are likely to have more repressive effects on production and employment than direct income taxes. Nevertheless, the large post-war revenue requirements, together with the impossibility of placing too great reliance upon the personal income tax, will make it necessary to retain some of these taxes, such as tobacco, liquor, and gasoline. These taxes are collected at the source, are cheap and easy to administer, and are productive of an important amount of revenue with highly stable characteristics. TAX-EXEMFT SECURITIES The Congress should take steps at once to make all future issues by State and local governments fully taxable, as i already the case with Federal securities. If a constitutional amendment should prove necessary to accomplish this, the appropriate steps should be initiated. The present refuge from surtaxes afforded by tax-exempt securities is |