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No. 129 "Social And Economic Experiments Under The Guise Of Taxation: An Analysis of the Tax Laws passed by the New Deal Administration in 1935 and 1936 . . . The real object of these measures is to use the taxing power of the Government to control and regiment business . . . When tried directly under the NRA the attempt was out- lawed by unanimous verdict of the Supreme Court." July 20, 1936.
No. 129 "Social And Economic Experiments Under The Guise Of Taxation: An Analysis of the Tax Laws passed by the New Deal Administration in 1935 and 1936 . . . The real object of these measures is to use the taxing power of the Government to control and regiment business . . . When tried directly under the NRA the attempt was out- lawed by unanimous verdict of the Supreme Court." July 20, 1936. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_129 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 129 "Social And Economic Experiments Under The Guise Of Taxation: An Analysis of the Tax Laws passed by the New Deal Administration in 1935 and 1936 . . . The real object of these measures is to use the taxing power of the Government to control and regiment business . . . When tried directly under the NRA the attempt was out- lawed by unanimous verdict of the Supreme Court." July 20, 1936. American Liberty League. American Liberty League. Washington, D.C. 1936. This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. JOIN THE AMERICAN LIBERTY LEAGU E The American Liberty League is organized to defend and uphold the Constitution of the United States and to gather and disseminate information that (1) will teach the necessity of respect for the rights of persons and property as fundamental to every successful form of government and (2) will teach the duty of government to encourage and protect individual and group initiative and enterprise, to foster the right to work, earn, save, and acquire property, and to preserve the ownership and lawfu-l use of property when acquired. The League believes in the doctrine expressed by George Washington in his Farewell Address that while the people may amend the Constitution to meet conditions arising in a changing world, there must "be no change by usurpation; for this * * * is the customary weapon by which free governments are destroyed." Since the League is wholly dependent upon the contributions of its members for financial support it hopes that you will become a contributing member. However, if you cannot contribute it will welcome your support as a non-contributing member. ENROLLMENT BLANK American Liberty League National Press Building Washington, D. C. Date........... I desire to be enrolled as a member of the American Liberty League. Name ................................. Street .................................. Town ................................. County.......................... State. Enclosed find my contribution of $........ to help support the activities of the League. social and economic experiments under the guise of taxation â˜… â˜… â˜… An Analysis of the Tax Laws'passed by the New Deal Administration in 1935 and 1936. . . . The real object of these measures is to use the taxing power of the Government to control and regiment business. . . . When tried directly under the NRA the attempt was outlawed by unanimous verdict of the Supreme Court AMERICAN LIBERTY LEAGUE Kiational Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. (129) Document No. 129 July, 1936 Social and Economic Experiments Under the Guise of Taxation Wh you have finished with this pamphlet, please pass it on to some friend or acquaintance who might be interested, calling his attention to the membership blan\ on page 14. The New Deal has prostituted the taxing power under the Constitution to accomplish social and economic ends remote from the raising of revenue. The two major revenue laws enacted during the Roosevelt administration, the Revenue Act of 1936 and the previous Revenue Act of 1935, are of significance not because of their relatively minor effect upon the budget situation but because of their bearing upon theories of government. Through the power of taxation the New Deal has sought to experiment with economic theories, regiment industry, penalize big business, redistribute wealth and otherwise interrupt and obstruct the free flow of individual initiative and business activity which are vital essentials in the American constitutional system. The two laws are in harmony with the New Deal pattern of government which, like European dictatorships, attempts to impose a rigid plan upon the economic order. Three chief principles of taxation are introduced in these revenue acts, as follows: (a) Diversion of a greater part of the national income into spending channels by punitive taxes upon undistributed profits of corporations. (b) Graduation of taxes on corporate income as a means of penalizing bigness. (c) Redistribution of wealth by higher surtaxes on individual incomes, by higher estate and gift taxes and by making subject to high individual surtaxes a larger part of corporate earnings. Effects of the application of these prinoiples are expected to be as follows: 1. Confusion and uncertainty among corporations obliged to adjust their policies to new and untried methods of taxation. 2. New license to the administration to experiment with unsound theories. 3. A threat to the solvency of corporations in future depressions because of inability to build up adequate reserves. 4. Retardation of business expansion and of employment because of the penalizing of new and struggling corporations which must reinvest earnings. 5. A relatively greater burden upon small corporations without adequate reserves as compared with those with large accumulated surpluses. 6. Penalizing through a graduation of tax rates large corporations responsible for the tremendous industrial development of recent years. 7. Drying up of sources of Government revenue by diversion of large investments into tax-exempt securities because of excessive rates on individual incomes and estates. 8. Discouragement of new business ventures because of unduly high taxation. 9. Collection of new revenues sufficient only to absorb a relatively small fraction of current Treasury deficits. 10. An increased burden of indirect taxation upon the ordinary citizen. Revenue Act of 1936 The Revenue Act of 1936, which became law on June 22, introduces for the first time the principle of a tax on undistributed profits of corporations as advocated by the President in a special message to Congress on March 3, 1936. The new law taxes that part of corporation income which is withheld from distribution in dividends to the extent of 7 per cent on the first 10 per cent withheld, 12 per cent on the next 10 per cent, 17 per cent on the next 20 per cent, 22 per cent on the next 20 per cent, and 27 per cent on all over 60 per cent withheld. The minimum 7 per cent rate applies on the first $5,000 of income regardless of what percentage it may be of total undistributed earnings. The law substitutes normal graduated rates of 8, 11, 13 and 15 per cent upon corporation income for rates of 12%, 13, 14 and 15 per cent established in the Revenue Act of 1935. 4 Corporation dividends, heretofore subject only to surtaxes in the hands of individuals, are made subject also to the 4 per cent normal individual tax. Special provisions apply to banks, insurance companies, receiverships and foreign corporations. A reduction is made in the percentage of intercorporate dividends which are exempt from taxation. The capital stock tax is reduced and the tax on excess profits retained. A "windfall" tax of 80 per cent is imposed on refunds of excise taxes invalidated by the Supreme Court. This provision is obviously, though not expressly, aimed at refunds of processing taxes collected under the AAA. As passed by the House the bill followed the President's recommendation for the repeal of all existing corporation taxes and substitution of a tax on undistributed profits, together with the imposition of a normal individual income tax upon dividends. The Senate bill retained existing corporation taxes with modifications and imposed only a moderate tax on undistributed earnings. The final law was a compromise more in harmony with the administration's program than the Senate bill, but less completely in accord with it than the House bill. The permanent revenues to be obtained from the law are estimated officially at considerably less than $700,000,000. The "windfall" tax is estimated to produce $82,000,000. Revenue Act of 1935 The Revenue Act of 1935 was enacted on August 30 of that year. It was based upon principles voiced by the President in a special message to Congress on June 19, 1935. The law introduced a graduated tax on corporation income as a substitute for the previous flat tax of 13% per cent. The capital stdok tax was increased and a graduated tax on excess corporation profits levied. As a means of hitting wealthy individuals, surtaxes were increased in income brackets above 5 $50,000. The maximum rate was made 75 per cent on income above $5,000,000 instead of a high rate of 59 per cent above $1,000,000 in the 1934 act. To both must be added the normal rate of 4 per cent. Taxes on estates were increased all along the line to a maximum of 70 per cent above $50,-000,000, instead of a high bracket of 60 per cent under the previous law. Exemptions were reduced. The higher estate taxes were in lieu of an entirely new tax on inheritances recommended by the President and approved by the House but rejected by the Senate. Gift taxes were increased so as to make them approximately three-fourths of the new estate tax rates. The Revenue Act of 1935 was estimated to yield only $250,000,000 annually of new revenue. Objective of Laws Both the Revenue Act of 1936 and the Revenue Act of 1935 are important because of the theories involved and because of their effect upon business rather than because of the revenue to be raised. The amount involved in the Revenue Act of 1936 is not sufficient to absorb as much as one-fifth of average annual deficits of recent years. The amount under the Revenue Act of 1935 would not have carried the Treasury much more than two weeks in any recent period. In both acts the administration, for political reasons, avoided the obvious ways of obtaining substantially increased revenues without serious dislocation of business, namely, the broadening of the income tax base or the imposition of sales taxes. The motive of the administration in the 1936 act was chiefly to force the spending of corporate surpluses, to hit at big corporations and to reach wealthy individuals who might be evading income taxes on earnings held as surplus by corporations under their control. In the 1935 act the motive was to satisfy radical demands for a redistribution of wealth as 6 advocated by the late Senator Huey P. Long. The plan for higher surtaxes and a new tax on inheritances was announced after the President had indicated that there would be no need of the enactment of a new revenue law. Both in 1935 and 1936 business men were upset by reason of the proposals to revolutionize taxing methods. The disturbance to business was entirely out of line with the amount of revenue involved and was the price paid by the countiy for the administration's experimentation with new theories. An alleged "breathing spell" for business was announced by the President following the enactment of the 1935 act, but, if it ever existed, it was brought to an abrupt end by the 1936 tax plan. The President's special messages to Congress in connection with the two revenue laws left no doubt that his motive was primarily to introduce new principles of taxation. In his message prior to the enactment of the 1935 act the President made known his purpose to penalize corporate bigness through the power of taxation. The President said: "The advantages and the protections conferred upon corporations by Government increase in value as the size of the corporation increases. ... As the profit to such a corporation increases, so the value of its advantages and protections increases. ... It seems only equitable, therefore, to adjust our tax system in accordance with economic capacity, advantage, and fact. The smaller corporations should not carry burdens beyond their powers; the vast concentrations of capital should be ready to carry burdens commensurate with their powers and their advantages. . . . We have established the principle of graduated taxation in respect to personal incomes, gifts, and estates. We should apply the same principle to corporations." In this 1935 message the President anticipated his 1936 proposal for a tax on undistributed profits of corporations. Suggesting a study of 7 other changes in national tax policies he said: "We should likewise discourage unwieldy and unnecessary corporate surpluses." The President in his special message in 1936 referred to his proposal for a new system of taxes on corporations as "an important tax reform." In his special message in 1935 the President dwelt upon "the disturbing effects upon our national life that come from great inheritances of wealth and power" and advocated the use of high income taxes and high surtaxes to promote a redistribution of wealth. Deploring the perpetuation of control of large fortunes by wealthy families the President said: "Great accumulations of wealth cannot be justified on the basis of personal and family security. In the last analysis such accumulations amount to the perpetuation of great and undesirable concentration of control in a relatively few individuals over the employment and welfare of many, many others. Such inherited economic power is as inconsistent with the ideals of this generation as inherited political power was inconsistent with the ideals of the generation which established our government." Referring to large incomes the President said: "The duty rests upon the Government to restrict such incomes by very high taxes." The spending theory, which underlies the tax on undistributed corporate income, was defended by Marriner S. Eccles, Chairman of the Board of Governors of the Federal Reserve System, in a speech while the 1936 legislation was under consideration. He said: "I am in accord with the principle of the new tax proposals. ... To me the principle of forcing idle money in corporations into circulation is absolutely fundamental if we are to avoid inflation. That will tend to balance the budget. Many of us would say that the way to balance the budget is quit spending. That cannot be done, and it should not be done so long as we have an army of unemployed people." A proposal to use the taxing power to force a distribution of corporate surpluses was made by Rexford G. Tugwell in his book The Industrial Discipline, published in 1933. Professor Tugwell contended that the driving of corporate surpluses into the open market would be a cure for many economic ills. An Ill'Considered Program During the consideration of both revenue laws it was apparent that the administration had failed to give thought to all phases of its program. In both cases, after an opportunity had been offered for public discussion of the bills as first passed by the House, the Senate Finance Committee was obliged to rewrite them almost in their entirety. Even in the House it was necessary to make changes to meet objections which apparently had received no consideration by the Treasury Department. A basic difficulty appeared to be that the tax proposals emanated from economic theorists rather than from tax experts. Economic Planning The administration's tax program is intended to facilitate the type of economic planning which requires Government control of industry. The punitive tax on undistributed profits of corporations weakens the authority of the management of corporations and tends to regiment industrial organizations in line with the economic policy of the Government. The graduation of corporate tax rates as an avowed means of offsetting such advantages as large corporations may have over their smaller competitors fits into the scheme of economic planning. Taxes intended to promote a redistribution of wealth, such as high surtaxes and estate taxes, are also methods of enforcing a planned economy. The effect of the revenue acts of 1935 and 1936 is to encourage the orgy of experimentation under the New Deal. The revenue laws contribute to the authority of the administration to try out theories held by most economists of standing to be unsound. Use of the taxing power to tighten the hold of the Government on industry is one method of accomplishing regulation which the Supreme Court in the NRA case refused to sustain under the commerce clause of the Constitution. The revenue laws form one of a number of devices by which the New Deal, in view of Supreme Court limitations, goes as far as it can toward European governmental systems for the control of industry. The Spending Theory The fundamental basis for the administration's proposal to tax undistributed profits of corporations is a desire to force their distribution and spending in consumption channels. Action of this kind has been advocated by Professor Rexford G. Tugwell and others responsible for the spending theories of the administration. Their contention is that a major cause of the depression was too much saving with a consequent overexpansion of the capital equipment of industry and of funds for speculative investment. They hold that there is less likelihood of "underconsumption" if the earnings of corporations are diverted to a greater extent in expenditures for consumption goods by individuals than if reinvested in industry or used in speculative enterprises. The program is designed to make corporation earnings subject through taxation to use in Government spending as well as to stimulate spending by individual recipients of dividends. In public works and in other branches of the New Deal the theory of attainment of prosperity by spending has proved fallacious. The attempt to increase expenditures for consumption goods as against investment and capital goods will do more harm than good. Surpluses in Depressions The records of American industry show indisputably that the existence of corporate surpluses 10 has been a tremendous factor in minimizing the severity of depressions. The business slump of recent years would have been even more disastrous but for surpluses which enabled corporations to meet their payrolls while operating at a deficit. During the four years from 1931 to 1934 inclusive, private industry expended from its reserves to meet operating deficits twice as much as the Federal Government borrowed to meet deficits during that same period. During 1933, at the low point of the depression, about one-fourth of the amount of cash dividends paid by corporations came from those which had no net income. The dividends were made possible by the existence of undistributed profits of previous years. Without the surpluses available during the depression thousands of corporations which managed to survive would have become bankrupt. It would have been idle to attempt to sell new securities to finance the needs of corporations under depression conditions. The sale of securities is the method suggested by the administration for meeting emergency situations in the future. New Industries The automobile industry is an outstanding example of results attained by reinvestment of earnings. Under the punitive taxes of the new law the automobile industry would have been unable to follow the course which it did. By reason of its remarkable development, chiefly by reinvestment of earnings, a tremendous amount of new employment was provided, and the public benefited greatly through reductions in prices. The automobile industry absorbed workers released because of technological improvements by other industries. A considerable part of present unemployment is due to the lack of enough pioneering industries which offer work in other lines to those affected by the march of technology. In the face of an urgent need for encouragement of new industries the administra-11 tion has been responsible for a tax law which will tend to stifle pioneering activities. Small Corporations Injured While the administration's tax program as a whole has been designed to hit the larger corporations, the effect of the tax on undistributed profits actually will be more severe upon many of the smaller corporations. In general the larger corporations have sufficient surplus to enable them to distribute current earnings. Their taxes will not be appreciably increased. In fact those corporations which distribute all of their earnings will pay a smaller tax than heretofore, although greater revenue may accrue to the Treasury from individual income taxes upon dividends. Under the administration bill as passed by the House, many of the largest corporations in the country could have avoided any corporate income tax whatever because they are in a position to distribute all their earnings. To the extent that the administration policy thus gives the large corporations an advantage, monopoly will be strengthened. The small and struggling corporations, which need to reinvest their earnings in order to gain a secure foothold, will be hard hit by the tax on undistributed profits. The new tax, indirectly at least, will tend to curb the growth of small corporations into large aggregations of capital. From a long-time viewpoint the law thus may be effective against an increased number of large corporations. The reduction in the lower brackets of the normal corporate income tax under the Revenue Act of 1936 is intended to benefit the small corporations. Under the combined normal tax and surtax upon undistributed profits the effective rate upon a corporation with a net income of $10,000 is slightly more than 10 per cent, a decrease of nearly 20 per cent from the rate under the 1935 act. However, if the corporation retains 50 per cent of its earnings, the effective rate becomes more than 14 per cent, an increase of 12 more than 11 per cent from the 1935 act. If this corporation retains all of its earnings, the effective rate becomes nearly 21 per cent, an increase of more than 61 per cent from the 1935 act. A corporation which distributes all of a net income of $50,000 will be subject to an effective rate of nearly 13 per cent, a decrease of nearly 9 per cent from the tax rate which applied under the 1935 act. If it retains 50 per cent of its earnings, the effective rate is more than 23 per cent, an increase of more than 66 per cent. If it retains all of its earnings, the effective rate is more than 30 per cent, an increase of more than 118 per cent. A corporation which distributes all of a net income of $100,000 will be subject to an effective rate of nearly 14 per cent, a decrease of about 4 per cent from the rate under the 1935 act. If it retains 50 per cent of its earnings, the effective rate is about 25 per cent, an increase of about 71 per cent, while if it retains all of its earnings, the effective rate is 31% per cent, an increase of more than 118 per cent. A corporation which distributes all of a net income of $1,000,000 will be subject to an effective rate of about 15 per cent, a decrease of four-tenths of one per cent from the 1935 act. If it retains 50 per cent of its earnings, the effective rate will be about 26 per cent, an increase of about 73 per cent, while if it retains all of its earnings, the effective rate will be more than 32 per cent, an increase of about 116 per cent. A corporation with a net income of $10,000,000 will be subject to an effective rate of about 15 per cent, the same as under the 1935 act, if it distributes all of its earnings. If it retains 50 per cent, the effective rate will be about 26 per cent, an increase of about 73 per cent, while if it retains all of its earnings, the effective rate will be more than 32 per cent, an increase of about 116 per cent. From these figures it may be seen that the larger corporations, because of the graduated normal rates, are taxed at higher rates than those 13 with a smaller volume of earnings. The smaller corporations will pay less taxes than before, provided they retain not more than 10 or 20 per cent of their earnings. The small corporations, which are obliged to retain a larger part of their earnings, will find themselves subject to a much greater increase in tax rates than their large competitors who are better situated because of accumulated surpluses. It is in this respect that the new law will handicap the smaller corporations although it is aimed in general at the larger aggregations of capital. The inequities and penalties in the law are such as to make it possible that many corporations which are in financial difficulties will choose to take refuge in receivership. Corporations in receivership or bankruptcy are subject to the same normal taxes as other corporations but are exempt from the surtax on undistributed profits. Graduated Corporation Taxes The Revenue Act of 1936 broadens the principle of a graduated normal tax on corporate income first introduced in the Revenue Act of 1935. The purpose of a graduated tax is to hit at bigness. The President frankly admitted this to be the object in his special message to Congress on June 19, 1935. The President at that time recommended the substitution of graduated rates ranging from 10% per cent to 16% per cent for the flat tax of 13% per cent which prevailed under the 1934 act. Congress refused to apply the principle as broadly as proposed by the President and limited the range of graduation from a low bracket of 12% per cent to a high rate of 15 per cent. In the 1936 act a greater advantage is given to smaller corporations by a reduction in the lower brackets, the new rates ranging from 8 to 15 per cent. In its zeal to hit large corporations the administration has ignored the fact that small stockholders feel the effect of the higher rates most severely from the standpoint of ability to pay. The ownership of most of the large cor-14 porations is very widely scattered. The application of higher rates based upon the aggregate volume of income of a corporation affects stockholders of small means relatively more than it does those with large incomes. A graduated tax on corporation income has been generally regarded as unsound. A flat tax has been considered preferable for corporation income. The individuals who receive corporation dividends are subject to progressive rates based upon the principle of ability to pay. Throughout the New Deal tax program runs a purpose to discourage the amassing of capital in large enterprises and to penalize or destroy large corporations. This policy overlooks the important part played by large corporations in industrial development and in promoting the welfare of the general public. The graduation of rates on undistributed profits is less objectionable on a basis of percentages of income retained than if it had been on a basis of amounts of undistributed profits as first proposed by the administration but rejected by Congress. The method adopted does not penalize bigness in the manner of the normal graduated rates on corporate income. High Surtaxes The higher surtaxes on individual incomes included in the Revenue Act of 1935 have been estimated to yield only $45,000,000 in additional revenue annually, an inconsequential amount compared with what might have been raised if the income tax base had been broadened. Congress refused to boost surtaxes to a maximum of 80 per cent as proposed originally by the administration, but it did go to a 75 per cent maximum on the portion of income above $5,000,000. Existing surtax rates are now far higher than during the World War. The present 75 per cent maximum is an increase from a 59 per cent top rate in the 1934 act and 55 per cent in the 1932 act. The maximum surtax in the acts of 1926 and 1928 was only 20 per cent. 15 The high surtaxes of the 1935 act were frankly intended to promote a redistribution of wealth. The best authorities agree that the rates are excessive and tend to discourage business activity and to promote investments in tax-exempt securities. In common with many other administration policies high surtax rates discourage industry rather than encourage it. The steady reduction in tax rates following the World War gave a decided impetus to industrial development. The most prosperous years were those in which rates on large incomes were relatively low. In those years a much greater volume of revenue was raised than under the present high rates. High Estate Tax Rates The largely increased estate tax rates in the Revenue Act of 1935, like high surtax rates, are intended to promote a redistribution of wealth. The avowed purpose is to break up the large estates and to take a very considerable part of them for Government spending. A Treasury spokesman told congressional committees during the consideration of the 1935 act that the effect of high rates probably would be to convert the Ford Motor Company from a family-owned corporation into one in which the ownership was more widely distributed among the public. The death of Henry Ford might mean that the heirs would be forced to sell stock in the Ford Motor Company in order to pay the estate tax. A situation wherein Edsel Ford would become only a minority stockholder would be consistent with the New Deal antagonism to great aggregations of wealth. The estate tax maximum rate of 70 per cent in the 1935 act, applying to the portion of an estate over $50,000,000, is an increase from high rates of 60 per cent in the 1934 act, 20 per cent in the 1926 act and 25 per cent during the World War. The tendency of excessive taxes on estates is to destroy capital or, in other words, to kill the goose that lays the golden egg. Liquidation of a considerable part of large estates will be neces-16 sary in order to obtain cash to satisfy tax assessments. The forced sale of large blocks of securities and real estate not only may yield less than a fair value but is likely to depress market prices of similar securities and real estate. The increased estate and gift taxes in the 1935 act were estimated to yield a little more than $100,000,000 in additional revenue annually. As yet scarcely any of this revenue has materialized for the reason that taxes on estates are not due for fifteen months after a death, and extensions of time are possible thereafter. The rates were effective August 30, 1935, on estates of persons dying after that time. Individual Incomes Under 1936 Act The redistribution of wealth is intended to be promoted also by driving corporate earnings into the hands of individuals under the provisions of the Revenue Act of 1936. In so far as these earnings reach the very wealthy, the high surtax rates will apply. Treasury officials made a point of alleged evasions of income taxes by wealthy individuals through the device of allowing earnings to remain as surplus in family-owned corporations. It was denied by other authorities that the evasion of income taxes was as great as claimed. The old law provided means of penalizing excessive accumulations of surplus by corporations. Very high penalties also have been imposed on personal holding companies established in the nature of family trusts, which penalties are in addition to the excessive penalties on the accumulation of surpluses by commercial corporations. While the new law will subject the income of the wealthy to heavier taxation, it also will have the effect of reducing the incomes of persons in moderate circumstances who own corporate securities. The dividends received by these persons as well as by the wealthy will be subject hereafter to normal taxes whereas in the past they have been subject only to surtaxes. 17 Wealth Theories While not adopting the most extreme share-the-wealth plans advocated by some groups, the New Deal nevertheless has experimented with unsound proposals for a redistribution of wealth. Most advocates of a redistribution of wealth fail to recognize that industrial progress has been greater because of a measure of concentration of wealth than it would have been if a more equal distribution had prevailed. Much of the wealth of the country is invested in such a way as to create new wealth. The income from wealth is shared with workers in the form of wages and salaries. Wealth has contributed to the comfort and happiness of millions who were not its owners. Whatever may be one's views as to a more equitable distribution of income, the tendency of many of the wealth-distribution schemes is to destroy both wealth and income. Certainly the use for unproductive purposes of Government funds derived from taxation of wealth not only tends to destroy capital but future income as well. Harley L. Lutz, Professor of Public Finance at Princeton, in an address before the American Economic Association in New York City, December 28, 1935, thus condemned the use of taxation to promote a redistribution of wealth: "Deliberate taxation to redistribute wealth necessarily involves relative disregard of established principles of fairness and equity. It is necessarily and intentionally discriminatory. A campaign to redistribute wealth through oppressive taxation must begin with the very wealthy, but it is entirely capable of arriving, before the finish, at the kind of wholesale expropriation known as 'liquidation' in Russia and 'race purification' in Germany." The Budget Situation In spite of the enactment of two revenue laws of major importance from the standpoint of IS business and industry, the effect thus far on Treasury deficits has been negligible. The greater revenues from corporate and individual income taxes under the 1936 act will not commence to reach the Treasury until March, 1937, when returns are filed on earnings of 1936. It is doubtful if total revenues derived from the acts of 1935 and 1936 by July 1, 1937, amount to much more than $500,000,000. Even after becoming fully effective, the two laws are estimated to yield regularly less than $950,000,000 a year. The permanent revenue from the 1936 act is intended to finance the new agricultural benefit program and amortize the extra cost of immediate payment of the soldiers' bonus. Without revolutionizing the taxing system and with scarcely any of the disturbance to business caused by the two most recent laws, it would have been possible to raise easily as much or more revenue. Furthermore, additional revenue equal to that contemplated by the two laws would come from increased earnings if Government policies giving industry encouragement were adopted in place of the program of constant harassment characteristic of the New Deal. A danger is that the large revenues now accruing to the Government from the new laws will encourage extravagance. By the next fiscal year revenues will be sufficiently great to cover regular expenditures at a level 50 per cent in excess of the normal total prior to the depression. Sound sense would dictate that a drastic reduction in expenditures accompanying a thorough reorganization of regular and emergency agencies should have preceded the imposition of new taxes of a permanent character. Effect on Ordinary Citizen A particularly objectionable feature of the New Deal revenue laws is the camouflaging of an extra burden upon the ordinary citizen in taxes ostensibly aimed at wealthy individuals and large corporations. Actually the net result will be to increase the 19 load upon every citizen through higher costs of all the commodities used in everyday life. Greater burdens upon corporations are reflected in higher costs to consumers who buy the commodities which they manufacture or distribute. The high taxes which seek to promote a redistribution of wealth will injure indirectly the ordinary citizen by reason of the destructive effect upon capital and upon industry in general. Taxes based upon unsound economic theories will hurt the ordinary citizen to the extent that business recovery is retarded through an harassment of existing industry and discouragement of new enterprises. Invariably attempts to manipulate or control economic processes lead to a new set of evils which injure in an unexpected way groups intended to be benefited. Theories of Government The administration has been thwarted in its attempts to extend the authority of the Federal Government through laws held unconstitutional by the Supreme Court. The use of the taxing power is a method of accomplishing by indirection what would otherwise be unattainable under the Constitution. Administration policies with respect to taxation are typical of New Deal theories of government. In neither of the two recent revenue laws has the New Deal shown any concern over the balancing of the budget. The taxing power has been invoked not primarily to raise revenue, but to increase the power of a centralized government which seeks to exert authority over phases of business and private life previously free from such diotation. The 1935 and 1936 revenue laws furnish evidence that the New Deal pattern of government is not in harmony with American institutions. PAMPHLETS AVAILABLE (2J0PIES of the following pamphlets and other League literature may be obtained upon application to the League's national headquarters. Statement of Principles and Purposes American Liberty League Its Platform Inflation The Holding Company Bill Expanding Bureaucracy Lawmaking by Executive Order Dangerous Experimentation Economic Planning Mistaken But Not New Work Relief The AAA and Our Form of Government Alternatives to the American Form of Government A Program for Congress The 1937 Budget Professors and the New Deal Wealth and Income The Townsend Plan The Story of an Honest Man The New AAA The President's 1936 Tax Proposals New Work Relief Funds Socialization of the Electric Power Industry The President Wants More Power (.leaflet) The Townsend Nightmare (leaflet) A Farmer Speaks (leaflet) Will It Be Ave Caesar? (leaflet) Our New Spoils System (leaflet) The Magi and the Showdown (leaflet) Government by Busybodies (leaflet) i Gratitude in Politics (leaflet) 28 Facts About the New Deal (leaflet) New Labels for Old Poisons (leaflet) The New Deal Boondoggling Circus (leaflet) Government by Law Still Forced to Fight Against New Deal (leaflet) The Duty of the Church to the Social Order Speech by S. Wells Vtley The Duty of the Lawyer in the Present Crisis Speech by James M. Beck The Constitution and the Supreme Court Speech by Borden Burr Inflation is Bad Business Speech by Dr. Neil Carothers PAMPHLETS AVAILABLE (continued) The Fallacies and Dangers of the Townsend Plan Speech by Dr. Walter E. Spahr What of 1936? Speech by James P. Warburg Americanism at the Crossroads Speech by R. E. Desvernine The Constitution and the New Deal Speech by James M. Carson The American Constitution Whose Heritage? Speech by Frederick H. Stinchfield The Redistribution of Power Speech by John W. Davis Time to Stop Speech by Dr. Neil Carothers The Facts In the Case Speech by Alfred E. Smith The Townsend Utopia Speech by Dr. Ray Berl Westerfield Inflation and Our Gold Reserve Speech by Dr. E. W. Kemmerer Entrenched Greed Speech by Dr. G. B. Cutten Should We Amend the Constitution to Grant the National Government General Welfare Powers? Speech by W. H. Rogers The New Inquisition Speech by Jouett Shouse It Can Be Done Speech by Merrill E. Otis The Need for Constitutional Growth by Construction or Amendment Speech by R. E. Desvernine Shall We Have Constitutional Liberty, or Dictatorship? Speech by James A. Reed An American Philosophy Speech by Jouell Shouse The Liberty League Old Friendships Destroyed Speech by Daniel O. Hastings A Federal Union National and State Responsibilities Speech by Fitzgerald Hall Constitutional Heresy Speech by R. E. Desvernine You Owe Thirty-one Billion Dollars Speech by Jouett Shouse The New Deal vs. Democracy Speech by Jouett Shouse