Economic Fence Mending

The President's nine hundred page tax bill, an omnibus measure designed to give a more Republican look to the nation's economic policy, has cleared the House of Representatives and will soon be up for vote in the Senate. Passed by a narrow margin over Democratic proposals, the bill would give the nation an estimated $1.4 billion in tax relief.

With Congressional elections this fall, both parties are thinking in terms of tax cuts. Republicans, at least, have their 1952 campaign pledges to honor. But often election year talk and actualities pull in opposite directions. Despite the peace in Korea, there has been no let up in the world tensions that make demands on American spending. Economizing on defense, foreign aid, and a multitude of inexpensive but important government services is penny pinching of a very dangerous kind. The "burdens of world leadership" are more than mere patriotic oratory; they are real pains that every American must necessarily feel in his pocketbook.

Although demands for heavy spending continue, politicians of both parties are determined to reduce the taxpayer's responsibilities. The current issue is not whether to cut taxes, which seems to be assumed, but how to cut them. In its general outlines, the Administration bill tends toward a theory of relief for the business community. One of the more important parts of the proposal would allow the taxpayer to deduct ten percent of his dividend income from his tax bill. The measure, of course, would extend benefits in many other ways; it would permit additional deductions for educational expenses and medical fees. But the main benefits would come to that eight percent of the nation's families who own stocks.

The philosophy behind the proposal is simple enough. The Administration hopes to invigorate the economy by making conditions more favorable for private investment. As expansion becomes possible, they argue, new jobs will bring the economy, back toward the goal of full employment. The hitch lies in the present economic situation. Many Republicans, characterizing the current business downturn as a "rolling readjustment," feel that the fear of dwindling market is unreal and that businessmen will not be frightened out of making investments. But most analyses indicate a more serious economic situation. Inventory, employment, and output indexes have shown increasingly ominous signs; would-be investors tend to hold back.

Valid as the "trickle down" theory may be, it cannot work in a sacred or sluggish economy. Direct aid to consumers, through an increased exemption plan like the one the House rejected, is far more effective medicine for this kind of ailment. Raising exemptions above the present $600 would increase general buying power. And as consumption grows, business can be expected to extend its capacity to meet increased demand. Benefits to the great mass of the public, in the ability to buy more and better things, are direct and immediate.

The bill that the Democrats proposed in the House of Representatives was not a good one. By extending mass tax relief and not making adequate provisions to shift the burden elsewhere, it would have left the government too short on funds for effective operation without sharply increasing the national debt. But direct consumer relief is a sound tax approach, both from the standpoint of bolstering a faltering economy, and maximizing social benefits. If taxes must be cut, a program based on increased exemptions is far more satisfactory than the Administration's new bill.