Representatives Knutson and Martin clasped hands warmly and smugly in front of the news cameras last Monday, and thereby concluded the first move in what may be a political masterstroke. Mr. Knutson's new bill to cut taxes by six and a half billion dollars had passed overwhelmingly in the House. Whether the bill was a fiscal masterstroke was a far more dubious and complicated question. The congressmen knew only that any tax cut is a popular thing today, even though its effects might be unfortunate and its benefits illusory. They were also aware that the bill would stand brightly on their public records, even though it probably would be successfully vetoed by the President.
Out of the complexities of the tax problem there emerges the one generalization that the increase in disposable income after taxes would result in a corresponding rise in prices and counter balance the possible advantages of the tax cut. A period of inflationary trends is the worst time to put more money into immediate circulation, and the best time for the government to pay off the national debt. A cut that induced savings might have some value, but the Knutson Bill frees from 10 to 30 percent of individual taxes for ready spending. And with the already rising prices, little saving is done: 1947's eighteen billion dollar increase in incomes was all spent, and this by itself forced prices up considerably. Of course the economic future of the U. S. is unpredictable, but the present seems to be the worst time to cut taxes radically.
But among the economic and political variables, there is one constant: Election Day falls on November 2. The popularity of a tax cut makes the issue a ripe plum for the politicians, who are taking every opportunity to capitalize on it. Political maneuvering in Congress is to be expected during an election year, but it is highly dangerous to mix politics with the complex problems of national finance. Any tax cut in the near future must be one not made with a view to its vote-getting consequences, and preferably one that would actively encourage savings. A bill that can be a boost to inflation smacks of a frightening irresponsibility in high places.