The Need for a Reappraisal of American Tax Policies

Abstract

American tax policies are in need of reappraisal and reform. The ratio of our total taxes to the gross national product (GNP) is lower than the ratio of many other leading nations, but we place an unduly high responsibility on personal and corporation income taxes for revenue. Other nations commonly rely much more heavily on indirect taxes. Not only do the countries of western Europe draw upon indirect taxes to a greater extent than we do; they also provide tax conces sions to European business firms which give them a tax ad vantage over American firms. Here personal income tax imposes serious burdens on the middle- and upper-income population; income tax is levied at high rates which burden business; depreciation and investment allowances are com paratively low. The wisdom of income tax reductions as a spur to economic growth was demonstrated by the Kennedy- Johnson tax-abatement programs. Now we are faced with tax increases to meet the challenge of war finance and infla tion. In such a situation, we should keep in mind our long- range needs and the desirability of income tax cuts to strengthen our competitive position in world trade and to im prove our investment climate. We should also consider the economic advantages of a form of indirect taxation which is spreading over Europe. This is the value-added tax.