Toward Tax Reform

It should be possible to reform the tax system to stimulate economic growth, without reducing revenues and without violating the basic principles of fairness in taxation.

--John Kennedy's Economic Message to Congress

Economic experts of both parties are agreed that, long-range, the U.S. economy needs nothing so much as wholesale tax reform. The drive for reform has been given a new push by President Kennedy's appointment of three of the most ardent reformers to three of the Administration's top economic posts.

For years, Assistant Treasury Secretary Stanley S. Surrey has damned the "provisions favoring special groups or special individuals that run counter to our notions of tax fairness." Commissioner of Internal Revenue Mortimer Caplin has long yearned to cut taxes from 91% to 65% in the highest brackets, and from 20% to 10% in the lowest brackets, chinking loopholes to stanch the loss. Walter Heller, the President's chief economic adviser, would cut the maximum rate to 60%, reduce the lowest rates from 20% to 14%. All three oppose what Heller calls "upsidedown subsidies," such as oil and mining depletion allowances and stock dividend exemptions.

Support from Treasury. The crazy-quilt tax blanket that stifles the U.S. economy has been patched up but not basically changed since the 1930s, when only one in 33 Americans paid income taxes. With one in four now on income tax rolls, the law needs a thorough overhaul. For example, were all deductions done away with, the Government could raise just as much revenue as it does now simply by taxing personal incomes by 10% and corporate earnings by an estimated 44% (instead of 52%). While nobody is seriously talking about abolishing all exemptions--least of all those for children, charities, medical costs and legitimate business expenses--there is a drive shaping up to eliminate some of the outdated and often abused tax shelters, lower the rates. Among other things, the reformers want to tighten the capital-gains law, limit the amounts that home owners can deduct for mortgage interest payments and property taxes, perhaps remove the exemptions for social security benefits.

Treasury Secretary Douglas Dillon, one of the many Republicans who favor reform, has conferred with Arkansas' Wilbur Mills, chairman of the House Ways and Means Committee and captain of the reform brigade in Congress. Dillon and Mills realize that progress will be slow and difficult; that every reform proposal will be met by howls from the affected groups. Dillon was surprised to learn that, even though the Eisenhower Administration was pledged to tax reform, the Treasury had begun virtually none of the massive staff work and computing that must precede any rewriting of the basic law.

Start in April. Dillon intends to propose some minor revisions in April, perhaps tightening expense-account allowances and chucking the $50 exemption on dividend income. But the Treasury will not be ready with any sweeping proposals for many months. After they are submitted. Mills will hold extensive committee hearings, aiming to create the climate of public opinion needed to stir Congress to action. With luck and massive help from the President, a new tax bill might have a chance in Congress next year.

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