Federal Finances and the Economy

Abstract

The dominant fiscal policy of the "New Eco nomics" since 1961, in the form of massive tax cuts which reallocated income in the wrong directions, failed grossly to restore full resource use or serve priority needs. Both require ments for economic equilibrium at full resource use and the perilous deficiencies in the public sector require that the total federal budget be lifted from 186 billion dollars in fiscal year 1969 to 200 billion in calendar year 1970, and 250 billion in calendar year 1975. As of the time of writing (April 1968), as suming the spending program proposed by the President for fiscal year 1969, and in view of the inadequate rate of economic growth and excessive idleness of plant and manpower, tax in creases are not justified. But with spending adequately in creased, large tax increases would be essential to contain infla tion. These, which should be very progressive in nature, on both economic and social grounds, should close loopholes, lift the corporate income tax, and increase personal income tax rates from the middle of the income structure upward. Meanwhile, the exemptions should be lifted very substantially, to lessen the excessive nationwide tax burden on those lower down in the income structure.