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Full text of "Investigation of concentration of economic power; monograph no. 1[-43]"

Northeastern University 




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School of Law 
Library 



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^^3d Sessfo^n^^l SENATE COMMITTEE PRINT 

INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



TEMPOEARY HATIONAL ECOIS'OMIC 
COMMITTEE 

A STUDY MADE FOR THE TEMPORARY NATIONAL 

ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS, 

THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION 

NO. 113 (SEVENTY-FIFTH CONGRESS), AUTHORIZING 

AND DIRECTING A SELECT COMMITTEE TO MAKE A 

FULL AND COMPLETE STUDY AND INVESTIGATION 

WITH RESPECT TO THE CONCENTRATION OF ECONOMIC 

POWER IN, AND FINANCIAL CONTROL OVER, 

PRODUCTION AND DISTRIBUTION 

OF GOODS AND SERVICES 



MONOGRAPH No. 20-21 
TAXATION, RECOVERY, AND DEFENSE 



Printed for the use of the 
Temporary National Economic Comjnittee 



^ 



UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGTON ;• 1940 



'"^RTHEASTFRM ifMn/rDcrTy ornnni .*. 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM H. KING, Senator from Utah 

WALLACE H. WHITE, JR., Senator from Maine 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

THURMAN W. ARNOLD, Assistant Attorney General 

♦WENDELL BEROE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

*SUMNER T. PIKE, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

*EWIN L. DAVIS, Chairman '- -^ 

Representing the Federal Trade Commission ^ j-j 

ISADOR LUBIN, Commissioner of Labor Statistics "* ' 

*A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor C^ 

JOSEPH J. O'CONNELL, JR., Special Assistant to the Genera! Counsel y -^ 

•CHARLES L. KADES, Special Assistant to the General Counsel j , f 

Representing the Department of the Treasury /-^ 



Representing the Department of Commerce 

* * * 

LEON HENDERSON, Economic Coordinator 
DEWEY ANDERSON, Executive Secretary 
THEODORE J. KREPS, Economic Adviser - 



• Alternatesi 



Monograph No. 20 
TAXATION, RECOVERY, AND DEFENSE 

H. DEWEY ANDERSON 



REPRINTED 

BY 

WILLIAM S. HEIN du CO , INC 

BUFFALO, N. Y. 
1968 



ACKNOWLEDGMENT 

This monograph was written by 

H DEWEY ANDERSON, Ph. D. 

Executive Secretary 

Temporary National Economic Oojnmittee 

The Temporary National Economic Committee is greatly indebted 
to the author for this contribution to the literature of the subject 
under review. 

The status of the materials in this volume is j)recisely the same as that 
of other carefully prepared testimony when given by individual untnesses; 
it is information submitted for Committee deliberation. N'o matter what 
the official capacity of the witness or author may be, the publication of 
his testimony, report, or monograph by the Committee in no way signifies 
nor implies assent to, or approval of, amy of the facts, opinions, or recom- 
mendations, nor acceptance thereof in whole or in part by the meinbers 
of the Temporary National Economic Committee, individually or col- 
lectively. Sole and undivided responsibility for every statement in 
such testimony, reports, or monographs rests entirely upon the respective 
authors. 

(Signed) Joseph C. O'Mahoney, 
Chairman, Temporary National Economic Committee. 



TABLE OF CONTENTS 

Pasw 

Letter of transmittal xv 

Preface xvii 

PART I 

The Dynamics of Our Econoni}- 3 

The problems of our economy 4 

Idle men and machines 6 

Idle capital 18 

Foreign trade 21 

The economic situation and modern tax theories 24 

Tax theory and economic life — a summary 32 

Tax theory and the preparedness progi'am 38 

PART II 

The Needs of Government — An Analysis of Government Expenditures 43 

Purposes of Government expenditures 43 

Government expenditures in 1937 and 1938 4G 

Trends in expenditures of Federal, State, and local governments 52 

Federal Government expenditures from 1915 to 1940 58 

Federal Government expenditures for 1939 64 

Social welfare 68 

Public works 70 

National defense 71 

Interest and services on the national debt 72 

Regulation of the economy 72 

General government 73 

Prospects for the immediate future 74 

PART III 

The American Revenue System 77 

The revenue system described 77 

Total revenue system 80 

The Federal revenue system 82 

The State tax system 83 

The local tax system 83 

Trends in tax revenues 84 

Sources of Federal revenues 8d 

Progressive Federal taxes - 93 

Individual income tax ^ 97 

Dividends tax .. 110 

Estates tax 110 

Gift taxes 121 

Federal taxes on corporations 122 

Corporation income 127 

Unjust enrichment - 128 

Excess-profits 128 

Capital-stocks 120 

Federal stamp taxes 129 

Bonds and stock Issues 131 

Capital stock transfer 131 

Future deliveries of produce 131 

Silver bullion i 131 

Regressive taxes 131 

Federal tobacco taxes 132 

Cigarettes 136 

Smoking and chewing tobaccos 136 

Cigars 136 

Cigarette papers and tubes 136 

V 



VI TABLE OF CONTENTS 

The American'JRevenue System — Continued. 
Sources of Federal revenues — Continued. 

Regressive taxes — Continued. Page 

Federal liquor taxes 137 

Fermented malt liquors ^ 139 

Distilled spirits — domestic 139 

Liquor occupations :_ 139 

Distilled spirits rectification 140 

Container, export, and case stamps 140 

Wines and cordials . 140 

Floor taxes 140 

Brandy used for fortifying wines 140 

Consumers' necessities taxes 140 

Sugar 141 

Electric power 142 

Coconut oils 1 143 

Federal charges on telephone and telegraph tolls 143 

Toilet preparations , 143 

Tax on mechanical refrigeration 144 

Taxes on oleomargarine 144 

Match taxes • 144 

Consumers' luxuries taxes 145 

Admissions to places of amusement 146 

Social club dues 146 

Radio sets and phonograph records 147 

Sporting goods 147 

Playing cards 147 

Safe-deposit boxes . 147 

Firearms, shells, cartridges 147 

Furs 147 

Cameras 147 

Chewing gum 147 

Brewers' wort, etc 147 

Repealed excise taxes 148 

Federal taxes on automobiles, etc 148 

Federal taxes on automobile accessories, gasoline, and oil 150 

Gasoline s 150 

Lubricating oil 152 

Tires and tubes 154 

Pipe-line transportation of oil and gasohne 154 

Crude petroleum 154 

Federal taxation for conservation and social security 154 

Bituminous Coal Act 157 

Agricultural Adjustment Administration 157 

Carriers' Taxing Act 157 

Social Security Act 157 

Prohibitive Federal taxes 158 

-Adulterated butter, etc . 159 

Narcotics 159 

National Firearms Act 161 

PART IV 

The' Social-Economic Effects of the Revenue System ; 165 

Who pays the tax bill? 165 

The per capita tax burden 165 

Taxation and national income 165 

Effect of taxation on different economic classes 171 

The shifting and incidence of taxation 177 

The rate structure and its efifect 181 

Tax evasion and avoidance 185 

Tax exemptions 189 

Does the revenue system retard recovery? 200 

Fear, lost incentive, danger to investment funds" 200 

Loss of purchasing power 220 

Is the revenue system adequate? , 223 

To meet Government needs . 223 

To deffav the cost of new services -. , 224 



TABLE OF CONTENTS VII 

The Social-Economic Effects of the Revenue System — Continued. Page 

The balanced Budget 229 

The preparedness program and taxation. 235 

The tax experience of World War I 240 

The Keynes plan 242 

The Flynnplan 245 

The flexible finance plan 246 

The prepared ness and war tax proposals compared 249 

Tax recommendations 253 

The bases of reform 253 

Specific recommendations 258 

New tax sources 259 

Specific changes in tax laws 261 

Changes in personal income taxes 262 

Changes in the corporate income tax 263 

Gift and estate tax changes 265 

Pay-roll taxation 266 

Tax incentives 266 

General conclusions ! 269 

APPENDIX A 

The Economic Structure of the United States 271 

Production and distribution in the United States 271 

National wealth . 271 

Wealth of the States 275 

Population 281 

National labor force 288 

National income 295 

Income of the States 298 

Levels of income 303 

Income levels by geographic regions 304 

Incomes received by different types of communities 304 

Consumption 307 

Expenditures of f amihes and single individuals 310 

Who owns the United States? 314 

The organization of economic activities 315 

Role of corporate enterprise 318 

APPENDIX B 

Supplementary Data on Government Expenditures 327 

APPENDIX C 

Supplementary Data on Government Revenues 343 



SCHEDULE OF TABLES AND CHARTS 

TABLES 

■P«ffe 

1. Employment lost in depression, nonagricultural, 1929-38 7 

2. Production, man-hours, man-hours per unit of production, and output 

per man-hour in all manufacturing industry, selected years, 1899- 

1938 - - 7 

3. Production, employment, and productivity in 54 manufacturing indus- 

tries, loss or gain 1936 compared with 1929 8 

4. Corporation earnings during prosperity — I 10 

5. Corporation earnings during prosperity — II - 10 

6. Corporation earnings during depression — I 11 

7. Corporation earnings during depression — II 11 

8. Number of individual stockholders and dividends received, 1927 12 

9. Estimated number of unemploved in the United States, and number 

employed on W. P. A. projects, 1936-39 13 

10. Average annual employment in durable and nondurable goods, 192^38. 15 

11. Effect of depression and recovery on employment in specific indus- 

tries 15 

12. Share of each tenth of Nation's consumer units in aggregate outlay for 

consumption, gifts and personal taxes, and savings, 1935-36 17 

13. Bank deposits and capital funds and their use for investments, loans, 

and surplus, 1923-38 18 

14. Federal tax revenue, 1913-37: internal revenue and customs ■ 22 

15. Production of movable goods in the United States, and proportion 

exported, selected years, 1909-35 23 

16. Political jurisdictions of the United States and their employees 

(except employees on work relief) , 1935 ^ 46 

17. Functions created by State laws in California 47 

18. Federal and estimated State and local general government expendi- 

tures, fiscal year ending in 1938 - 49 

19. Percentage distribution of expenditures — Federal, and estimated State 

and local, fiscal year 1938 51 

20. Governmental expenditures. Federal, State, and local, 1923-38 52 

21. Percentage of Government expenditures by levels of government, 

1923-38 - 53 

22. Federal expenditures, 1915-40 (excluding debt retirement) 58 

23. Functional break-down of Federal expenditures, 1931-39 61 

24. Federal employees in executive branch, December 1932 and 1937 64 

25. Federal expenditures by functions (for year ending June 30, 1939) 66 

26. Tax-revenue system of the United States, fiscal year 1938 80 

27. Distribution of total tax collections, by level of government, for 

selected fiscal years, 1912 to 1938 '- 84 

28. Tax revenues collected by Federal, State, and local governments and 

percentage change, selected fiscal years, 1912-38 88 

29. Total Federal tax revenues, calendar years, 1930-38 (progressive and 

regressive) 91 

30. Progressive sources of Federal tax revenue, 1930-38 94 

31. Individual income, dividend, estate, and gift tax collections, 1930-38-- 98 

32. Individual net income-tax Tates, 1939-40 99 

33. Distribution of income-tax returns, net incomes reported, and tax 

assessed, compared with the increase or decrease in these items, 1929- 

36 ..: 104-105 

34. Average individual net income and income tax paid in 1936, by income 

group _ _ 180 

35. Federal and State income taxes levied, and net income reported, Cali- 

fornia, 1936, by income classes 109 

36. Proportion of net income taken by Federal and State income taxes 

levied in California, 1936 (based on net income reported in taxable 
Federal returns) _ 110 

nc 



X SCHEDULE OF TABLES AND CHARTS 

Page 

37. Effect of Federal estates tax and California inheritance tax 112 

38. Federal estates tax returns, gross estates and net taxes, by size of net 

estates, 1930-37 1 14-115 

39. Net Federal estate taxes as percentage of gross estates, bv size of net 

estates, 1930-37 1 118 

40. Corporate income, unjust enrichment, excess profits, and capital stock 

tax collections, 1930-38 : 122 

41. Distribution of corporate income tax returns, net income reported, 

taxes assessed, and percentage change, 1929-36 123-124 

42. Average corporate net income, and income tax paid in 1936 by income 

groups '. '_ 128 

43. Federal stamp taxes, 1930-38 129 

44. Regressive sources of Federal tax revenue, 1930-38 132 

45. Federal tobacco taxes, 1930-38 134 

46. Federal liquor taxes, 1930-38 137 

47. Federal taxes on consumers' necessities, 1 030-38 141 

48. Federal taxes on consumers' luxuries, 193U-38 145 

49. Federal taxes on automobiles, parts, and accessories, 1932-38 . 148 

50. Federal taxes on automobile tires, inner tubes, gasoline, and oil, 

1932-38 150 

51. State gasoline tax i-eceipts, average tax rate, and consumption in the 

United States, 1925 and 1930-37 152 

52. Federal taxation for economic adjustment, conservation, and social 

security, 1933-38 155 

53. Prohibitive Federal taxes, 1930-38 159 

54. Tax collections and national income, 1913, 1923-39 168 

55. Effect of the American tax system on the various income classes, 1939. 173 

56. Proportion of income, savings, consumption expenditures, and taxes 

borne by the several income classes (1939) 175 

57. Estimated distribution of tax-exempt securities by classes of holders, 

June 30, 1937 190 

58. Amounts of certain investments in estate-tax returns, 1926-36, 108,503 

estates by size of net e.%tate 193 

59. Real property and improvements exempt from taxation, 1923-37 198 

60. Corporation taxes, 1937 203 

61. Selected costs and percent of total sales of certain listed corporations, 

1937 207 

62. Taxes as percentage of gross income 208 

63. Tax and income data for selected corporations 210 

64. Yearly summaries of individual income-tax returns, net income, and 

tax assessed, with percentage change from previous year, 1929-36-- 214 

65. Government and private debt in the United States, 1921-39 216 

66. Interest on debt related to national income paid out, 1921-39 216 

67. Government debt and interest charges. United States, 1921-39 219 

68. Tax revenues expended for public schools, by level of government, for 

selected years, 1909-10 to 1935-36 225 

69. Average annual Federal expenditures for the 10 years preceding and 

following the major wars of the United States 236 

70. Expenditures for military purposes by the United States for selected 

years, 1915-39 237 

71. State revenues from general and selective property taxes, 1937 and 

selected prior years 254-255 

72. Estimate of tax base for "added value" taxation 260 

CHARTS 

1. Estimated number of unem.ployed and number emploj-^ed bj- W. P. A., 

1936-39 - 14 

2. Governmental expenditures by level of government. United States, 

fiscal year ending 1 938 50 

3. Governmental expenditures. Federal, State, and local. United States, 

1923-38 54 

4. Governmental expenditures, Federal, State, and local, United States, 

percentage distribution, 1923-38 _ 55 

5. Expenditures of the United States Government, 1915-40 " 59 

6. Functional break-down of Federal expenditures, 1931-39 62 

7. Expendituresof the UnitedStates Government by function, 1931-39. Faces 62 



SCHEDULE OF TABLES AND CHARTS XI . 

Pasre 

8. Expenditures of the United States Government, by function, fiscal 

year ending June 30, 1939 i 67 

9. Tax revenue system of the United States, type of tax, by level of 

government, fiscal j'ear 1938 81 

10. Tax collections in the United States, selected fiscal vears, by level of 

government, 1912-38 85 

11. Tax collections in the United States, selected fiscal years, by level of 

government, 1 9 1 2-38 - 86 

12. Progressive and regressive taxation, total Federal tax reveniies, 

1930-38 . - - -- 92 

13. Individual income, dividend, estate, and gift-tax collections. United 

States, 1930-38 -• 95 

14. Corporation income and profit taxes, United States, 1930-38 96 

15. Percentage of individual income-tax payers a!nd taxes paid, l^j' vears, 

1929-36 106 

16. Percentage of individual income-tax payers and taxes pafd, bv net- 

income class, 1929-36 107 

17. Federal estate and State inheritance taxes, California, 1936 113 

18. Estate-tax returns, value of estates, and net taxes. United States, 

1930-37 116 

19. Estate taxes in the United States, 1930 contrasted with 1937 117 

20. Net Federal estate taxes as percentage of gross estates, by estates 

classes, 1930-37 I ----- 119 

21. Net Federal estate taxes as percentage of gro.ss estates, bv size of 

estates - 120 

Corporate net incomes and income taxes assessed, 1936 125 

Corporate income taxes. United States, 1929-36 126 

Federal stamp .taxes. United States, 1930-38 130 

Regressive Federal taxes. United States, 1936-39 133 

Revenue from Federal tobacco taxes, United States, 1913-38 135 

27. Revenue from Federal liquor taxes, United States, 1913-38 13S 

28. Federal taxes on consumers' luxuries and necessities. United States, 

1930-38 142 

29. Federal taxes on automobiles, United States, 1932-38 14& 

30. Federal taxes on automobile tires, gasoline, and oil, United States, 

1932-38 151 

31. State gasoline tax receipts, average tax rate and consumntion of gaso- 

Une, United States, 1925 and 1930-37 1 153 

32. Federal taxation for conservation and social security. United States, 

1933-38 ■ 156 

33. Prohibitive Federal taxes, United States,. 1930-38 - 160 

34. Comparison of National income, total tax collections and total busi- 

ness gross capital formation. United States, 1923-38 166 

35. Tax collections and national income, bv level of Government, United 

States 1913 and 1923-39 ' , 167 

36. Effect of the American tax system on various income classes, 1939 — 174 

37. Income, savings, expenditures and taxes paid, bv income levels, United 

States, 1939 - - 176 

38. Over 65 billion dollars of tax exempt? securities. United States, .Tune 

30, 1937 191 

39. Distribution of tax-eJ<empt securities, nature of securitv bv tvpe of 

holder. United States, June 30, 1937 192 

40. Tax returns on 108,503 estates in the United States, type of investment 

by size of estate, aggregate 1926-36- : - 194 

41. Tax returns on 108,503 estates in the United States, number of returns 

by size of estate, aggregate 1926-36 195 

42. Corporation taxes and ineomes. United States, 1937 204 

43. Taxes and income in the United States, selected corporations for 

selected years . . 211 

44. Government debts compared with private debts, ITnited States, 

alternate years, 1921-39- . - ^ 217 

45. National income paid out and interest charges on public and private 

debt as a percentage of income paid out, United States, 1921-39 218 

46. Tax revenues expended for public schools, for selected vears, bv level 

of government. United States, 1909-10 to 1935-36 227 

47. Expenditures for military purposes, Uhited States Government, for 

selected years, 1915-39 238 



XII SCHEDULE OF TABLES AND CHAHTS 

APPENDIX A 

TABLES 

Page 

1. Total and per capita wealth of the United States, 1922-37 272 

2. Classification of wealth in the United States, 1929 and 1936 - 274 

3. Total wealth of the United States, by States, 1929 and 1936 276 

4. Per capita wealth of the United States, by States, 1929 and 1936..... 277 

5. Per capita income in the United States, by States, 1929 and 1936- .-_ 278 

6. Growth of population in the United States, 1750-1930, and estimated 

to 19801 281 

7. Percentage distribution of population of the United States, 1930, and 

estimated to 1980 -_-- 285 

8. Age distribution of the population of the United States, 1930, and 

estimated to 1980 286 

9. Estimated number of private families in the United States, 1920-80, 

and annual change 286 

10. Estimated labor force in the United States, 1940-80- 288 

11. Number and percentage distribution of all gainful workers by occupa- 

tional categories, 1870-1940. 290 

12. Decennial increase of workers by census categories, compared with that 

of the total population and the total gainfully employed, 1870-1940- . 294 

13. Realized national income, total and per capita, in current dollars and 

constant dollars of 1926 purchasing power, 1922-38 295 

14. Realized national income by States, 1929 and 1938 300 

15. Realized private production income of States, 1929 and 1938 301 

16. Distribution of families and single individuals and of aggregate income 

received, by income level, 1935-36 303 

17. Average incomes of families in five geographic regions, based on sam- 

ple data, 1935-36 1 304 

18. Average and aggregate incomes of nonrelief families in six types of 

community, 1935-36 _' 305 

19. Aggregate outlay of American consumers for consumption, gifts and 

personal taxes, and savmgs by income level, 1935-36 307 

20. Average outlay of single individuals for consumption, gifts and personal 

taxes, and savings, by income level, 1935-36 310 

21. Average outlay of American families for consumption, gifts and per- 

sonal taxes, and savings, bj' income level, 1935-36 ^ 311 

22. American enterprises, number and workers, 1935 - 316 

23. United States business population, 1900-1938 317 

24. Indexes of United States business population, 1900-1938 318 

25. Proportion of national income produced and volume of business done 

by corporations and other form.s of enterprise, 1937 319 

26. A sample of all manufacturing industries comprising 84 of 308 indus- 

tries — 32,445 manufactxiring concerns employing 3,534,836 wage 
earners in 1933 . .'. 320 

27. Smallest and largest groups, as percentage of total number and total 

volume of business 323 

28. Number, size, and character of corporations, 1931-32 324 

29. Distribution of dividends by net income classes, before and after pay- 

ment of Federal income tax, 1929 and 1936 325 

CHARTS 

1. Total and per capita wealth. United States, 1922-37 273 

2. Per capita wealth of the United States, by states, 1936 279 

3. Per capita income in the United States, by states, 193o 280 

4. Growth of population of the United States, 1850-1930 and estimated 

to 1980 282 

5. Population of the United States by age groups, 1930 and estimated to 

1980 284 

6. Estimated number of private families. United States, 1920-80 287 

7. Estimated labor force of the future. United States, 1940-80 289 

S. Percentages of gainfully employed, bv occupational groups. United 

States, 1870-1940 - - 292 



SCHEDULE OF TABLES AND CHARTS XIII 

Pag* 
9. Increase in population and in gainful employment, 1940 over 1870, by 

occupation ^^ 295 

10. Total and per capita national income, United States, 1922-38 296 

11. Realized national income in the United States, percentiages by States, 

1938 299 

12. Realized private production income in the United States, percentages 

by States, 1938 _• . 302 

13. Average incomes of families in' five geographic regions, United States, 

1935-36 . 305 

14. Annual incomes of non^elief families, by occupational groups. United 

States, 1935-36 306 

15. Incomes and savings of families and single individuals, bv income 

levels. United States, 1935-36 \ 369 

IG. Income and savings of single individuals,- by income levels. United 

• States, 1935-36 312 

17. Incomes and savings of American families, by income levels, 1935-36.- 313 

18. Comparison between sinallest and largest business groups, by class 

of activity and value of product 322 

APPENDIX B 

TABLES 

1 . Social welfare— expenditures, 1939 .-^ 32T 

2. Interest and service on debt — expenditures, 1939 328 

3. Public works — expenditures, 1939 32S 

4. National defense — expenditures, 1939 330 

5. Regulation of the economy — expenditures, 1939 330 

6. General government — expenditures, 1939 ^ 332 

7. Comparison of total Federal employees in executive branch, December 

1932 and December 1937 334 

CHARTS 

1. Revenue and expenditures. United States Government, fiscal year 

ending 1938 I... 336 

2. Expenditures of the United States Government, for social welfare, fiscal 

year ending June 30, 1939 J 357 

3. Expenditures of the United States Government, for public works, fiscal 

year ending June 30, 1939 ._.. 338 

4. Expenditures of the United States Government, for national defense, 

fiscal year ending June 30, 1939 339i 

5. Expenditures of the United States Government, for regulation of the 

economy, fiscal year ending June 30, 1939 340 

6. Expenditures of the United States Government, for general government, 

fiscal year ending June 30, 1939 341 

7. Intergovernmental grants by level of government, United States, fiscal 

year enriing 1938 342 

APPENDIX C 

TABLES 

1. Individual income tax returns, net income, and tax paid, 1929 343 

2. Individual income tax returns, net income, and tax paid, 1930 344 

3. Individual income tax returns, net income, and tax paid, 1931 344 

-4. Individual income tax returns, net income, and tax paid, 1932 345 

5. Iiidi\idual income tax returns, net income, and tax paid, 1933 345 

6. Individual income tax returns, net income, and tax paid, 1934 346 

7. Individual income tax returns, net income, and tax paid, 1935.- 346 

8. Individual income tax returns, net income, and tax paid, 1936 347 

9. Corporate net income, taxes paid, and amount remaining after tax, 1929 

(by net income classes) 347 

10. C<jrporate net income, taxes paid, and amount remaining aftertax, 1930' 

I by net income classes) 348 

11. Corporate net income, taxes paid, and amount remaining after tax, 1931' 

(by net income classes) 343. 



XIV SCHEDULE OF TABLES AND CHARTS 

Page 

12. Corporate net income, taxes paid, and amount remaining after tax, 1932 

(by net income classes) 349 

13. Corporate net income, taxes paid, and amount remaining after tax, 1933 

(by net income classes) 349 

14. Corporate net income, taxes paid, and amount remaining after'tax, 1934 

(by net income classes) - 350 

15. Corporate net income, taxes paid, and amount remaining after tax, 

1935 (by net income classes) 351 

16. Corporate net income, taxes paid, and amount remaining after tax, 

1936 (by net income classes) 352 

17. Individual net income, tax paid, and amount - remaining with tax- 

payers, 1929-36 353 

CHART 

1. Income-tax returns, net income, and tax assessed, United States, 

1929-36 355 



LETTER OF TRANSMITTAL 



Hon. Joseph J. O'Mahoney, 

Chairman, Temporary National Economic Committee, 
United States Senate, Washington, D. C. 

My Dear Senator: I have the honor to transmit herewith a stud}^ 
on Taxation, Recovery, and Defense by Dr. H. Dewey Anderson. 
It lays bare the elements of our national tax jumble. It considers the 
interrelated and cumulative operation of federal, state, and local 
taxes, thereby avoiding the distortion of emphasis which inevitablv 
creeps into discussions of individual tax laws or tax proposals. It 
studies the interaction of tax policies upon concentration of economic 
power. 

Is there a tax pattern or is the aggregate of taxes a haphazard 
result of historical pressures? In what ways do taxes tend sub- 
stantially to aggravate the problems caused by concentration of 
economic power? Which taxes galvanize "sterile savings into action 
and stimulate employment of men and machines? Which absorb 
the purchasing power of the poor, thereby throttling precisely the 
mass market which is necessary to sustain mass production and full 
employment? These are some of the vital questions placed under 
the spotlight of penetrating scrutiny in this monograph. 

The Temporary National Economic Committee was singularly 
fortunate in securing the services of Dr. Anderson. He is not only 
the author of a volume entitled Our California State Taxes which 
has attracted widespread interest and attention, but for many years 
previously had been in touch with tax and budget matters, both as a 
member of the California legislature, financial adviser to the governor 
of California, and as State Relief Administrator. At a considerable 
personal sacrifice he accepted this invitation to do the higlily neces- 
sary and difficult job of making this study. He has brought to the 
heatedly controversial field of taxes, in addition to his training and 
exp>erience, an incisiveness of thought, an objectivity of point of view, 
and an indefatigable energy which have inspired the entire research 
staff of the Committee. 

Several reviewers have given generously of their tirhe and effort to 
the reading and criticism of this study, especially Dr. Gerhard Colm, 
Principal Economic Analyst, Bureau of the Budget, and Dr. Harold 
Groves, Professor of Public Finance, University of Wisconsin. Their 
helpful suggestions and kindly criticisms are hereby gratefully 
acknowledged. 

They bear, of course, no responsibility for any part of the study. 

Respectfully submitted. 

Theodore J. Kreps, 
Economic Adviser, Temporary National Economic Commuiee. 

October 11, 1940. 



PREFACE 

This stuclj^ presents facts and conclusions concerning Taxation, 
Recovery, and Defense arranged in four sections: 

Dj'^namics of The Economy: The problems of the economy to 
whose solution the tax system should contribute; and, modern 
tax theories and our economic problems. 

The Needs of Government: An analysis of Government 
expenditures. 

The American Revenue System. 

The Social-Economic Effects of the Revenue System. 

Tills design seeks to fix the place of taxation in the economy, in 
terms of the problems of idle men, idle machines, and idle capital, 
upon which tax policy and the revenue system have recognizable 
effects. 

Many of the statistics presented are drawn from original official 
sources, and are offered the reader as the essential bases for sound 
thinkmg. Competent authorities have been consulted, and our find- 
ings constantly checked against their studies. Realizing the lack of 
"reader interest" in the usual tax study, an effort has been made to 
enliven the text by providing suitable graphic illustrations. 

This monograph is one of a series on taxation prepared for the 
Temporary National Economic Committee in its study of the con- 
centration of economic power in the United States. It is the basic 
study of the series, seeking to present a comprehensive summary of 
the place of taxation in our economy. It does iiot duplicate the 
methods, treatment, or findings of the other monographs, each of 
which treats in some detail particular aspects of our tax problems. 
Together, this series offers the interested reader a rather substantial 
body of information on the problems of taxation and economic 
development. These other studies are: 

Concentration and Composition oj Individual Incomes, by 
Adolph J. Goldenthal. 

Financial Characteristics of American Manufacturing Cor- 
porations, by Charles L. Merwin, Jr. 

Taxation of Corporate Enterprise, by CUfford J. Hynning. 

Who Pays Taxes? the Allocation of Federal, State, and Local 
Taxes to Consumers' Income Brackets, by Gerhard Colm and 
Helen Tarasov. 

Industrial Reemployment Plans, by Arthur J. Dahlberg, 

Taken by itself, the present volume will have served its purpose if 
it has assembled for convenient use the essential data needed to 
understand the status of the revenue system, posing fundamental 
problems which tax policy can help to solve, and suggesting the more 
adequate approaches to their solution. 

The author has had the able assistance of Jane Greverus, who has 
collaborated on the research from its beginning. Philip Blaisdell has 

261085— 40— No. 20 2 xvir 



XVIll PREFACE 

contributed much to the solution of especially difficult economic 
problems. Robert Keysmith made the excellent illustrations used in 
the text, and Dorothy Wallace prepared the manuscript. 

This study has been critically reviewed by Dr. Gerhard Colm of the 
Fiscal Division, liureau of the Budget and Dr. Harold M. Groves, 
professor of finance at the University of Wisconsin, who have offered 
many suggestions wliich have m.arkedly improved the m.onograph. 
They are not to be held responsible, however, for its errors of fact or 
judgment, which are the author's alone. 

This monograph has also been reviewed by Mr. Ellsworth Alvord for 
the Business Advisory Council of the Department of Commerce. 
The criticisms offered were unfortunately not in publishable form, 
but have been taken into account in all questions of fact. Mr. 
Alvord's viewpoint and mine were in some instances so fundamentally 
divergent that an acceptance of his position would have required an 
abandonment of my own, which, in view of the facts presented, seemed 
unwarranted. 

Manifestly, a work of this kind, written under pressure and pre- 
pared in 7 months' time, is not the carefully revised and well-organized 
product which might have resulted from longer deliberation. The 
work suffers from this condition, yet its information was sufficiently 
important to the deliberations of the committee to require publication 
at this time. The figures and computations used have been double- 
checked mechanically to insure accuracy, and it is believed that a 
body of substantial facts has been assembled from which suitable 
inferences have been made. 

Dewey Anderson. 

Washington, D. C, September, 1940. 



PART I 
THE DYNAMICS OF OUR ECONOMY 



THE PROBLEMS OF THE ECONOMY TO WHOSE 

SOLUTION THE TAX SYSTEM 

SHOULD CONTRIBUTE 



MODERN TAX THEORIES AND OUR 
ECONOMIC PROBLEMS 



THE DYNAMICS OF OUR ECONOMY 

The tax system now operating in the United States is the result of 
the pressures of pohtical, social, and economic groups, each seeking its 
own advantage, often at the expense of the others and frequently with 
little regard for the common good. 

Economists recognize the tax system as an important factor in 
fiscal policy and economic recovery. Politicians use particular tax 
proposals to satisfy their constituents. Managers and owners of 
business enterprise, seeking profits, urge reduction of their taxes and 
curtailment of Government expenditures to prevent the continued 
regulation of business activities. The people generally recognize the 
increasingly important role which Government plays in their daily 
lives, and are disquieted by the fear that it is costing too much and 
that a day of reckoning will come. 

These various attitudes indicate our national understanding of the 
relationships of taxation to the fundamental economic problems 
which have been piling up for the past several decades, and which 
have resulted in an accumulation of idle men, machines, and capital. 

These fundamental problems are the living substances of sorjal 
controversy. In their sa'tisfactory solution lies the assurance of 
future wellbeing and growth for our citizens, and the stability of our 
economic life. Tax theory and tax policy must be considered as they 
affect them, for only a consideration of current social-economic problems 
will indicate present inadequacies in the tax system and their proper 
correctives. 

In appendix A is analyzed the structure of the American economy 
within which the tax system operates, and to whose prosperity it 
should be made to contribute. The analysis covers the productive 
and distributive mechanism and the organization of our economic 
activities. It gives necessary information on national wealth, the 
wealth of States, population and labor force, national income and in- 
come received by the various income levels of the population, the 
expenditure patterns of the American people, the organization of the 
business community, and the role of large-scale enterprise in economic 
life. Such data are fundamental in any consideration of the dynamics 
of our economy, for it is out of the existing structure that present-day 
problems arise. 

In a word, the fiscal policy and tax system of the Nation should 
evolve out of its economic and social requirements, and not be super- 
imposed upon them. 

3 



THE PROBLEMS OF OUR ECONOMY 

Tn tlic present century, the American economy has fast approached a 
maturity expressed in the private ownership and use' of our land and 
resources; the slackening in the rate of population inciease; the 
development of cities, trading, and industrial centers; the growth of 
industrial poM^er and its concentration in the hands of a relatively few 
owners; the dependence of 90 out of every 100 nonfarm families on a 
job for their livehhood; the completion of the rail and road trans- 
portation system; the extension of telephone, telegraph, and radio 
communication to even the most remote sections of the country; 
the construction of main electric power lines and the extension of 
service to all except remote rural areas; the rise of national income to 
hitherto unknown heights, calculated in terms either of total in- 
come or income per capita of population; and the formation of vast 
capital, resulting largely from high profits and speculative gains of 
financiers and industrialists exploiting a virgin economic territory. 

Few Americans were willing or able to discern certain disquieting 
signs of the trouble which broke out with catastroj)hic eft'rcts in 1929. 
In retrospect it is possible to list these signs as follows: 

1. The physical frontier had been reached; its major resources 
had passed into private hands, and. along certain lines and in 
some areas, had been developed to capacity, or to the utmost 
economic advantage. This resulted in relatively high capitaliza- 
tion and costs which excluded most people from ownership, and 
definitely ended the pioneer period. 

2. Franchises, leases, and patent rights covering valuable 
natural resources or industrial processes had become almost ex- 
clusively the property of business concerns whose ownership was 
in relatively few hands. 

3. Technology was so higlil}^ developed that the range and 
quantity oi consumers' goods exceeded the purchasing power of 
the buying public. 

4. The distribution of income had become so imeven that 
even in 1929 over a third of the population had too little money 
to buy a full complement of the barest necessities of life. 

5. The unequal distribution of income resulted, by about 1915, 
in a surplus of funds available for investment. This surplus con- 
tinued to pile up, which meant a concentration of excess pur- 
chasing power in relatively few hands, and the production of more 
consumers' goods than could be sold at a profit. 

6. All during the prosperous 1920's the national income in- 
creased rapidly, primarily from two causes: Construction to meet 
the housing needs of a greatly increased population and the 
expanded use of the automobile. But by 1926 the housing needs 
of those able to pay for housing were largely met, and the effects 
of a declining rate of population growth were beginning to show 



CONCENTRATION OF ECONOMIC POWER 5 

themselves. Likewise, new-car demand depended upon used- 
car sales, and purchasing power was not sufficiently diffused to 
continue this process uninterruptedly. 

7. Technolog}'^, one of the several influences affectuig foreign 
trade, spread to foreign countries, so that they were able to make 
goods which they had formerly imported from us. This was a 
major factor in the decline of our foreign trade. 

8. As inventories accumulated during the 1920's', various 
devices were used to stimulate buying. Installment selling was 
extended rapidly, and became an appreciable factor in current 
domestic trade. 

9. Yet inventories continued to accumulate, resulting in sharp 
drops in wholesale prices in 1928. 

10. Agricultural production was abnormally expanded during 
the World War, and after the war the relatively inelastic domestic 
demand failed to move agricultural products. The slackening 
in rate of population increase also had its effect (wliich will 
become more noticeable as time passes). Consequently, agri- 
culture suffered a price collapse in 1926 from which it has never 
recovered. Agricultural distress, much of it long-term in nature, 
radiates through the whole economy. On the other hand, one 
major cause of low farm prices is the low purchasing power of 
urban groups. 

Are these the "growing pains" of a dynamic society in which pros- 
perity and depression have alternated since colonial days, or are they 
evidence of fundamental changes? Economists are ranged in opposing 
camps interpreting what has occurred and what lies ahead according 
to their different schools of thought. But they are fairly well agreed 
on the facts, and none can gainsay that new factors and emphasis set 
this period apart from any that has preceded it. 

Recovery from previous depressions has required the investment of 
new capital, the employment of more workers, and the production of 
more goods. But by 1940, although industrial production had 
reached its 1929 peak,' 20 percent fewer workers were employed. 
Instead of 429,000 unemployed as in 1929. the most conservative 
estim.ate in September 1939 was 8,190,000.2 

The c\irrent national hicome available for distribution in 1938 was 
21.4 percent less than in 1929 (table 14, appendix A, p. 49); the per 
capita income was 17.9 percent below that year (table 5, appendix A, 
p. 17); while the income from private production was 30.9 percent 
less than in 1929 (table 15, appendix A, p. 53). There were 9,559,000 
naore persons and 4,462,937 more families in the United States hi 1940 
than in 1930. 

Since production has not advanced beyond 1929 levels, antl eni.ploy- 
ment and the national income are still, after 10 years, far below 
norm.al, the changes of the past 20 years appear to be fundanxental. 
The Harvard-Tufts economists summ.arized the situation as follows: 

Had the national income grown between 1929 and 1937 at the same average 
annual rate as it grew between 1920 and 1929, it would have been nearly 40 
percent larger in 1937 than in 1929. Instead, it was 15 percent smaller! If any 

' Federal Reserve Board index of production. 

'' National Industrial Conference Hoard, Studies in Enterprise and Social Progress, New York, 19.39, p. 42. 



5 CONCENTRATION OF ECONOMIC POWER 

demonstration were needed that a basic change has come over the structure 
of the American economy, surely this is conclusive proof.^ 

It may be that, as some economists contend, the national economy 
is now on the verge of an "intensive"' development as contrasted with 
the "extensive" growth up to 1930 (in some respects an arbitrary 
division point), and that the advent of new industries will carry the 
national income to higher levels than ever before. On the other 
hand, it may be that the forces at work seriously limit such chances, 
and make it necessary to adopt other remedies to reestabhsh full 
employment and widespread purchasing power. Or recovery may be 
achieved temporarily through a preparedness and military program 
which will skyrocket national income and eliminate unemployment. 

It is fairly well recognized, however, that sustained recovery is 
possible under the system of private enterprise only if: 

1. Investment approximately equals the volume of savings. 

2. Total consumption is sufficient to remove from the market 
currently produced consumers' goods. 

3. The incomes of large economic groups, such as farmers and 
wage earners, show an upward trend, with small fluctuations. 

4. The policies of Government (regulatory and tax) are 
economically sound in view of the long-and short-run circum- 
stances of economic life.* 

Fiscal policy is involved in all four requirements of economic 
recovery, and the tax system exerts either a beneficial or harmful 
effect upon them. In fact, economists, businessmen, and public 
oflBcials are becoming increasingly conscious that the tax system 
should be used to facilitate recovery. But certain basic economic 
problems must be analyzed if such use of taxation is to be effective. 

IDLE MEN AND MACHINES 

Expert testhnony before the Temporary National Economic Com- 
mittee brought out the following startling economic losses sustained 
in the United States from 1929 to 1938: 

Man-years of employment lost 43, 500, 000 

Salaries and wages lost in nonagricultural occupations $119. 000, 000, 000 

Dividends lost $20,000,000,000 

Gross farm income lost $38,000,000,000 

Lost national income (adjusted for price changes) ^ $133, 000, 000, 000 

The Bureau of Labor Statistics estimates of total man-years of 
employment lost since 1929 are given in table 1. These data are com- 
piled from monthly averages and only approximate the actual annual 
conditions. They understate the facts, as they assume that the total 
number of people available for work in the years since 1929 are identi- 
cal with the number in that year, whereas there were approximately 
6,000,000 more gainful workers in 1938 than in 1929. Since the table 
as prepared ignores this population increase, tfie 43,500,000 man-years 
lost since 1929 indicate only the loss in employment of the labor force 
of 1929. The loss in work-years, considering the increased popula- 

' An Economic Program for American Democracy, by seven Harvard and Tufts economists: Richard V. 
Gilbert; George H. Hildebrand, Jr.; Arthur W. Stuart; Mnxine Yaple Sweezy; Paul M. Sweezy; Lorie 
Tarshis; and John D. Wilson; Vanguard Press, New York, 1938. p. 23. 

* These conditions, stated somewhat differently, appear in Lewis H. Kimmel's Recent Trends in the Cost 
of Government. National Industrial Conference Board Bulletin, vol. I, No. 7, August 31, 1939, p. 72. 

» Hearings before the Temporary National Economic Committee, 7.5th Cong., 1st sess., pt. 1, pp. 19G-197. 



CONCEiNTRATION OF ECONOMIC POWER 7 

tion, i.s estimated at 80,000,000.^ But all such data are of doubtful 
value because of the assumptions under which they are collected and 
tabulated. The man-year or work-year has been considerably altered, 
and the sample data are not sufficiently refined to permit conclusive 
generalizations. 

Table 1. — Employment lost in depression, nonagricultural, 1929~S8 



Year 


Man -years 

lost from 

1929 


Index 

number 

(1929=100) 


Year 


Man-years 

lost from 

1929 


Index 

number 

(1929= 100) 


1929 




100.0 
93.9 
85.4 
76.5 
76.7 
83.7 


1935 _.-_ _.- 


4, 059, 000 

2, 940, 000 

1,584,000 

1 3, 988, 000 


87.1 


1930 


2, 216, 000 
5, 271, 000 
8, 480, 000 
8,41.5,000 
5, 882, 000 


1936 


,91.9 


1931 


1937 


95.6 


1932 


1938 


89.0 


1933 


Total 




43, 435, 000 




1934 









' Estimated. 

Source: Adapted from 
Part. 1, p. 196. 



'Exhibit 9," Hearings before the Temporary National Economic Committee, 



Table 2 displays certain measures of changing economic conditions. 
The trend is shown by index numbers based on the year 1899 as 100. 
Manufacturing production in 1929 was 211 percent greater than in 
1899. But this enormous increase was obtamed with only a 59-percent 
gain in man-hours of employment. The result was that the man- 
hours required per unit of product was 49 percent less than in 1899. 
Actual output per man-hour had increased 95 percent by 1929. 
These were the conditions durmg 30 years of a rapidly expanding 
econom.y. 

Table 2.— Production, man-hours, man-hours per unit of production, and output 
per man-hour in all manufacturing industries, selected years, 1899-1938 



[Index numbers. 1899=100] 



Year 


Manufac- 
turing 
produc- 
tion 


Man- 
hours 


Man- 
hours 
per unit of 
produc- 
tion 


Output 
per 
man- 
hour 


Year 


Manufac- 
turing 
produc- 
tion 


Man- 
hours 


Man- 
hours 
per unit of 
produc- 
tion 


Output 
per 
man- 
hour 


1899 


100 
122 


100 
111 


100 
91 


100 
110 


1927 


274 
.■^11 


149 
1.59 


54 
51 


184 


1904 


1929 


195 


1909. 


159 


132 


83 


121 


-1931 


206 


101 


49 


203 


1914 


170 


137 


80 


124 


1933 


191 


86 


45 


223 


1919 


214 
169 


169 
118 


79 
70 


127 
143 


1935 


227 
275 


102 
127 


45 
46 


222 


1921 


1937 _. 


216 


1923 


263 
274 


161 
151 


61 

55 


163 

181 


1938 

1 


212 


97 


46 


219 


1925 





Source: National Industrial Conference Board, Inc., New York. 

Since 1929 manufacturing production has declined. In 1938 total 
production was considerably below 1929, but still 112 percent above 
1899. Total man-hours of employment, however, were 3 percent 
below 1899. The efficiency of labor increased considerably after 1929. 
The index of man-hours per unit of product in 1938 was 54 percent 
T^elow 1899; in 1929, 49 percent below. Output per man-hour was 
119 percent greater in 1938 than in 1899, as compared with 95 percent 

« National Industrial Conffrfnre Board, Bfiterpri.se and Social Progress, New York, lii:«*, j). 17. 



8 



CONCDNTRATION OF ECONOMIC POWER 



greater in 1929. Thus, during a period of prolonged depression, the 
productivity of labor has increased. Technology has made it 
possible to increase production with fewer workers and shorter hours, 
either in prosperity or depression. 

The accelerated pace in technological innovations during depression 
has a number of causes, such as the relative increase of wages as an 
item in production costs, the retention of the most skilled workers, 
the rapid concentration of industry into large units through mergers 
and bankruptcies of smaller concerns, and the availability of cheap 
capital to those large corporations whose industrial future promises 
net returns regardless of good or bad times. ^ 

The usual conception of a healthy American economy is one in which 
production, number of workers employed, and output per man-hour 
all increase in successive years. But these conditions have not held 
true since the turn of the century, when the over-all effects of major 
technological advances became noticeable. 

The National Research Project of the Works Progress Administra- 
tion published a series of important studies seeking to detennine 
the long-run effects of technology.^ The distinguishable patterns that 
appear in 54 manufacturing industries studied, which employed 
approximately half of all industrial workers in 1929, have been segre- 
gated in table 3. The predominant pattern affecting 24 of the 54 
industries, and 25 percent of all industrial workers, showed a decrease 
in production, number of workers employed, and number of man-hours 
worked from 1929 to 1936, but an increase in output per man-hour. 
This is the characteristic, if not the typical, effect of general economic 
conditions and advancing technology. 

T.\BLK 3. — Production, employment, and prodvctivity in 54 manufacturitig indus- 
tries, loss ( — ) or gain (+) in 19S6 compared with 1929 





Wage earners, 1929 


Production 














Number of iiifhisiries 


Number 


Percent 
of all 
wage 
earners 
in manu- 
facture 


Employment 


Man-hours 


man-hour 




Loss 
(-) 


Gain 

(+) 


Loss 

(-) 


Gain 

(+) 


Loss 

(-) 


Gain 

(+) 


Loss 
(-) 


Gain 

(+) 


24 


2, 208. 544 
552, 566 
473, 008 
203, 004 
749, 922 
51,206 


24.89 
6.25 
5.35 
2.30 
8.48 
.58 


(-) 


(+) 


(-) 
(-) 


"'(+)"■ 
(+) 


(_) 






(+) 


<) 






(+) 


8..._ 






(+) 


6 




(-) 




5 


(+) 


2 


(+) 





(+) 




(+) 






Topi] (.S4) 


4, 2.38, 2'iO 


47.96 


-35 


+19 


-38 +16 


-52 


+2 


_« 


+48 



Source; H. Dewey Anderson and Percy E. Davidson, Occupational Trends, Stanford University Press, 
Stanford University, 1940, p. 2*. 

Over half the industries studied, however, exhibited different pat- 
terns. Nine showed an increase in output, number of workers em- 
ployed, and output per man-hour, but a decline in the total amount 

' Sec E. D. Kennedy, Dividends to Pay, Reynal and Hitchcock, New York, 1939, for a discussion of the 
profits of large corporations in prosperity and depression. These giants are in an unu.sually good position 
to take advantage of low interest rates to install labor-saving machinery, thereby reducing their unit labor 
costs. 

' David Wrintraub and Irving ICaplan, National Research Project, Works Progress Administration. 
Washington, 1937-39. 



CONCENTRATION OF ECONOMIC POWER Q 

of working time. Eight of the industries increased total production 
from 1929 to 1936, but showed declines in number of workers cm- 
ployed and in total working time and an increase in output per man- 
hour. Six "sick" industries, suffering from obsolescence, break-down 
in capital structure, etc., showed declines in all four factors. In five, 
production declmed, total workers employed increased, total working 
time dropped, and man-hour productivity increased. 

Of the 54 sampled industries, 35 had increased and 19 decreased 
their output from the prosperous year 1929, 38 employed .more, and 
16 fewer employees; 52 had decreased the total time worked, while 2 
had increased it; 6 industries failed to make technological gains, 
while 48 increased their output per man-hour of employment. 

None of these data tells what has happened to the wage bill of 
industry, but facts recently asse.mbled and reported in the Monthly 
Labor Review give pertinent information as follows: 

111 all manufacturing industries combined, pay rolls, as rej)orted to the Bureau 
of the Census, increa.sed 5.5 percent between 1923 and 1929, and total production, 
as estimated by the National Bureau of Economic Research, increased 26.3 
percent. Labor cost per unit of output therefore decreased about 16.5 percent. 
* * * During the half-dozen years before 1929 the marked reductions in 
labor cost per unit produced did not find expression in a comparable rise in wages, 
and at the same time these reductions in labor cost were not accompanied by 
significant advantages to consumers through price changes. During the years 
immediately following 1929, the extreme fluctuations in business conditions must 
be considered in detail for an understanding of the apparently erratic nature of the 
changes in unit labor cost. Bj^ 1935, however, there were reductions even below 
the levels of 1929 in all of the 25 industries.' 

This is the carefully considered judgment of competent economists 
seeking to evaluate conditions. In effect it states that in the field of 
m.anufacture, upon which a fourth of the gainfully employed depend 
for their livelihood, and which produces more than a fourth of the total 
national income, the savings in unit-production costs were not dis- 
tributed proportionately to wage earners and consumers but were 
siphoned off by capital and salaried claimants. (See Spurgeon Bell, 
Prices, Productivity, and Wages.) These conditions, prevailing dur- 
ing the prosperous 1920's, were accentuated after 1930. They are a 
major hindrance to recovery and economic stability, for they con- 
centrate the gains of technology in a few favored hands, limit con- 
sumers' purchas-lng power, and, if prolonged, will cause dangerous 
economic crises, by continuing the unev^en distribution of income in the 
face of a relatively stagnant manufacturing econoniy. 

The concentration of business control in the hands of a few giant 
corporations, which own most of the assets, produce m.ost of the goods, 
and enxploy most of tlie workers, complicates the problems of unem- 
ployment, technological advance, and the distribution of income. 
Tables 4 and 5 show corporation earnings during prosperity, and 
tables 6 and 7 show similar figures during depression. Tliese figures 
are taken from corporation income reports to the Federal Govern- 
ment. They are final figures, after the highly skilled tax lawyers and 
accountants of the corporations have m.ade deductions fronx gross 
inconxe for such purposes as depreciation and depletion, and after high 
salaries have been allowed the adm.inistrative personnel. 

• Bureau of Labor Statistics, Monthly Lahiir Review, Washington, Dereinber 1939, pp. HOS— 1404. 



10 



CONCENTRATION OF ECONOMIC POWER 



Table 4. — Corporation earnings during prosperity — I 
[Dollar figures in millions] 





All active corporations 


Corporations having net 
income 


Corporations having 
deficits 


Year 


Number 


Percent 
increase 


Net income 


Number 


j 
Percent \ 
of active Netin- 
corpo- ; come 
rations j 
1 


Number 


Percent 
of active 
corpo- 
rations 


Net in- 
come 




Amount 


Percent 
increase 


1925 

1926 

1927 

1928 

1929 


'385,034 

I 407, 534 

425, 675 

443, 611 

456. 021 


"h.s 

4.5 
4.2 
2.8 


$7, 621 
7,505 
6.510 
8,227 
8,740 


-13.3 
26.4 
6.2 


252,334 i 65.5 $9,584 
258,134 ; 63. 3 : 9,673 
259,849 : 61.0 : 8,982 
268,783 \ 60.6 10,618 
269,430 1 59.1 11,654 
1 


1 132, 700 

1 149, 400 

165, 826 

174, 828 

186, 591 


34.5 -$1,963 
36.7 -2,169 
39.0 -2,472 
39. 4 -2, 391 
40. 9 -2, 914 



' Estimated by E. D. Kennedj- in Dividends to Pay, Reynal and Hitchcock. New York, 1939, appendix 
A. Government figures include inactive corporations which have been excluded from these estimates. 

Source: .\dapted lareoly from U. R. Treasury Department, Statistics of Income for 1929, table 24, p. 365. 

T.ABLE 5. — Corporation earnings daring prosperity — // 
[Dollar figures in millions] 



All nctive corporations 



f'orporiirion'' with net ' 
income of $1,000,000 All otlier active corporations 
and over i 



Year 




Per- 
cent 
in- 
crease 


Net income 


1 ; ; •' 

111 
1 Per- 1 i Per- i Per- 
Num- cent ;Net in- cent 'x-,™>,„ ^°t 
ber i of i come ; of \^'^"^^-^^ of 
' total 1 ; total ! total 

1 i ! ; 

i : 1' 


Net in- 
come 


Per- 

cent 

of 

total 




Number 


Amount 


Per- 
cent 
in- 
crease 


1925 

1926 


' 385. 034 
1 407, 534 
425, 675 
443,611 
456, 021 


4.5 
4.2 
2.8 


$7,621 

7,505 -1.5 


1,113 0.3 i$4. 974 i 65.3 '•383,921 99.7 
1,097 .3 1 5.238 69.8 '•406.437 ' 99.7 


$2, 647 34. 7 
2, 267 30. 2 


1927 

1928 

1929 


6.510 
8.227 
8,740 


-13.3 
26.4 
6.2 


1.042 ! .2 ; 4.63<> ! 71. 3 424.633 1 99.8 
i;25S 1 .3 , 5.9.30 , 72.1 ; 442,353 ! 99.7 
1, 349 i .3 7, 003 ; 80. 1 i 454. 672 1 99. 7 

' ■ 1 i 


1.871 
2,297 
1,737 


28.7 
27.9 
19.9 



' Based on estimates of E. D. Kennedy, referred to in table 4. 

.Source: Adapted from E. D. Kennedy, Dividends to Pay, Reynal and Hitchcock, New York. 1939, 
pp. 7, 9; and U. S. Treasury Department, Statistics of Income for 1929, pp. 41, 42. 

The number of coiporation.s (hiving the prosperous 1920's did not 
increase rapidly; the greatest gain in a single year was less than 5 
percent. This is because the number liquidated almost cancels out 
the number of ncAvly chartered corporations. This static condition 
is a manifestation of a matured economy, where the volume and range 
of goods increase largely as a result of the expansion of existing cor- 
porations rather than the development of new ones. 

Net income reported during the prosperous era ranged from $6,510,- 
000,000 in 1927 to $8,740,000,000 in 1929. Judged by corporation 
net imome, even the 1920's were not uniformlv prosperous, for income 
was lower in 1926 and 1927 than either 1925 or 1928. But all during 
the 1920's a majority of all corporations enjoyed net incomes. In 
1929, for example, 59.1 percent of all corporations reported net in- 
comes, while 40.9 percent reported losses. The net income of the 
59.1 percent totaled $11,654,000,000. The net losses of the 40.9 
percent totaled $2,914,000,000. Thus, in even the best of times a 
substantia] proportion of all corpoiations were not in a healthy con- 



CONCENTRATION OF ECONOMIC POWER 



11 



dition, while a few very large corporations were enjoying enormous net 
earnings. 

Tables 6 and 7 indicate that the number of corporations does not 
vary greatly in prosperity and depression. There is no such rate of 
retirement among corporations as among independent business 
ventm"es, partly because bankrupt corporations are customarily 
reorganized. The number of active business corporations in 1934 was 
3 percent greater than in 1929, although the total number of business 
enterprises declined 10.8 percent (see p. 317). From 1931 to 1933 
the corporations of the United States were operating in the red, 
showing net losses ranging from $1,551,000,000 in 1930 to $5,644,- 
000,000 in 1932. By 1934 they had recovered sufficiently to record 
a net income of $94,000,000. But any such figures on total net income 
conceal the important fact that many corporations enjoy profits in 
good or bad times. In the worst year of the depression, 1932, the 
cm-rent profits of 18.3 percent of all corporations totaled $2,153,- 
000,000. On the other hand, 81.7 percent of all corporations sustained 
reported losses of $7,797,000,000. ' 



Table 6. — Corporation earnings during depression — I 
[Dollar figures in millionsl 





All active corporations 


Corporations having: net 
income 


Corjwrations having 
deficits 


Year 


] 

Net income 
Per- ■ 


Number 


Percent 
of ac- .T^ 
tive ! • ^^ 

corpo- '^^'^e 

rations i 


Number 


Percent 

of 
active 
corpo- 
rations 






Number cent in-' 

! 1 


Percent 
increase 


Net 
income 


1930 

1931 

1932 

1933 

1934 


463.036 ! i ^1,551 

459.704 1 -0.7! "3,288 -312.0 
451,884 ; -1. 7 j '5.644 -71.7 
446,842 -1.1, '2.547 ' 54.9 
469. 804 . 5. 1 I 94 ! 103. 7 
' ' 1 


221,420 
175,898 
82,646 
109,786 
145, 101 


47.8 
38.3 
18.3 
24.6 
30.9 


$6,429 
3,683 
2,153 
2,986 
4,275 


241. 616 

283,806 
369,238 
337, 056 
324, 703 


52.2 
61.7 
81.7 
75.4 
69.1 


-•H 878 
-6, 971 
-7,797 
-5,533 
-4, 181 



• Deficit. 

Source: Adapted from U. .?. Treasury Department, Statistics of Income, 1932, p. 48, and 1934, Part 2 no 
36-37. '^ 

Table 7. — Corporation earnings during depression — // 
[Dollar figures in millions] 





All accive- corporations 


Corporations with net 
income of $1,000,000 and 
over 


All other active 
corporations 


Year 


' Per- 
Number cent in- 
crease 


Net income 


Per- 


Amount 
of net 
income 


Number 


Per- j 




Amount 


Per, 
cent in- 
crease 


N umber 


active 
corpo- 
rations 


cent of [Amount 
active | of net 
corpo- 1 income 
rations 


1930 

1931 

1932 

1933 

1934 


463,036 ; 

459,704 -0.7 

__451,884 -1.7 

446,842' -LI 

469, 804 i .5. I 


.11, 551 
'3.288 
15.644 
1 2. 547 
94 


-3i2.'6' 

-71.7 

54.9 

103.7 


736 
409 
284 
387 
580 


0.2 
.1 
.1 
.1 
.1 


$3,716 
2,060 
1,249 
1,540 
2,081 


462, 300 
459, 295 
451, 600 
446, 455 
469,224 


99.8 
99.9 
99.9 
99.9 
99.9 


(')2, 165 
(1)5,348 
(1)6,893 
04,087 
(1)1.987 



1 Deficit. 

Source: Adapted from arrangetnent of E. D. Kennedy, Dividends to Pay, 1939, Appendi.x C, and U S. 
Treasurj- Department, Statistics of Income, 1932, p. 48, and 1934, Part. 2, pp. 36-37. 



12 CONCENTRATION OF ECONOMIC POWEK 

Table 7 shows that the giant corporations, with net incomes of a 
million dollars or more, were only 0.3 percent of all corporations in 
1929, but made 80.1 percent of all corporate net income reported. 
In 1932, with over 80 percent of all corporations reporting net losses. 
a disproportionately large amoimt of all net income was earned by the 
giant corporations. In that year, corporations whose profits were a 
million or more were only 0.1 percent of all corporations, yet they 
enjoyed 80.9 percent of all corporate profits made. It is these giant 
corporations which account for the dominance of corporate enterprise 
in the economy, in terms of output, number of workers employed, 
income produced, and use of investment capital. 

Furthermore, these large business enterprises are not widely owned, 
so that their favorable economic position actually accentuates the 
uneven distribution of incomes and purchasing power. Table 8 
displays the approximate number of stockholders and amount of 
dividends received from corporations, principally on the basis of 
income-tax reports filed with the Treasury Department. In 1927 
about 3,300,000 individual stockholders, or 2.8 percent of the popula- 
tion, received $4,300,000,000 in dividends, an average of $1,303. 
The range of dividend pavments to individual stockholders was from 
about $5 to $15,000,000. 

Table 8. — Stockholders receiving dividends, and dividends received, 1927 



ClfvS.S 


Stocli owner? 


Dividends received 
Amount ' Percent 


.\verage 
dividend 


Number 1 Percent 
i 


pay- 
ments 


N'i't incoinp ever $.?,000 ---. 

Net income loss th:in $5,000 . _ . 

Not filinp; income reports (estimated) 


510.000 ; 15.6 

484.000 ! 14.7 

2,300,000 i 69.7 


$3, 762, 000, 000 S7. 5 
493,000,000 ; 11.5 
4.5,000,000 1.0 


$7, 291 

1,019 

20 



Total ;> 3.300.000 I 100.0 4. 300. 000. 000 ' 100. ^ 1,303 

I According to T. N. E. C. Monograph No. 9, there were about 9,(XK).000 stockholders in American cor- 
porate enterprise in 1938. The proportion of ttiose receiving dividends is not known, but probably does 
not exceed tlie 1927 figure. 

Source: Based on Joseph S. McCov, "Sources of Prosperity," in American Bankers Association Journal, 
January 1930, vol. 22, p. 703. 

The actual receivers of dividends fared unequally. Persons report- 
ing net incomes of $5,000 or more were 15.6 percent of all stockholders, 
yet they received 87.5 percent of all dividends, in average amounts of 
$7,291. Persons reporting net incomes of less than $5,000 were 14.7 
percent of all stockholders and received 11.5 percent of all dividends 
in average amounts of $1 ,019. There were also some 2,300,000 citizens 
who owned stock but whose total annual incomes were too small to 
require income-tax reports. They were G9.7 percent of all stockholders 
but they received only 1 percent of all dividends, in average amounts 
of $20. 

These data show that ownership of corpoi-ations is rtot widely dif- 
fused, and that the distribution of corporate dividends tends toward 
the further concentration of wealth and income, rather than its dif- 
fusion among the mass of citizens. Because of the crucial importance 
of corporations in the business system of this country, this fact is 
extremely significant in the formation of social policy to achieve 
economic recoverv and stability. 



CONCEiNTRATION OF ECX)NOMIC POWER l^ 

To the extent that large-scale businesses are best able to take 
advantage of labor saving changes, their failure to pass on a pro- 
portionate share of the benefits of technology in lower prices and 
larger wage funds has become a major cause of unemployment. (It 
should be pointed out here, however, that the pressure for higher 
wages generated out of this situation is likely to result in still further 
mechanization.)^" In any event, much secular unemployment origi- 
nates in and continues because oiF developments in corporate business 
enterprise. 

Figures on unemployinent have never been very satisfactory, but 
since the installation of various relief and public-works programs, 
more adequate data are available. In table 9, chart 1 , the months 
representing the usual seasonal peaks of employment and unemploy- 
ment are shown for the years 1936-39. In January 1939 the total 
unemployed labor force exceeded that of January 1936, despite the 
substantial economic recovery attained in that period. Unemploy- 
ment in June 1939 exceeded by a still greater margin that of June 
1936. In 1937, the most prosperous year since 1929, unemployment 
declined approximately 14 percent. \Vhile this is desirable, it by no 
means solves the unemployment problem, although it docs indicate 
that substantial recovery can be effected without greatly reducing 
the number of unemployed. The figures for January 1938. reflecting 
the recession in the latter part of 1937, reveal an increase in unen- 
ployment of 21.4 percent over the previous January, while the June 
figure rose 48.1 percent over the previous June. 

Table 9. — Estimated number of unemployed in the United Slates, and 71 umber 
employed on W. P. A. projects, 1986-89 

[Absolute figures in thousands] 



Classification 


January 


June 




1936 


1937 


1938 


1939 


1930 


1937 


1938 I 1939 


Number persons unemployed 


10, 940 


9.520 
-13.0 

2,138 

-26.9 

22.5 


11,560 
21.4 
1,901 

-11. 1 
16.4 


11,900 

2.9 

2,895 

52.3 

24.3 


9,890 
'2,256' 
'"22." 8" 


8,530 
-13,8 

1,821 

-19.3 

21.3 


12,030 

48.1 

2.767 

51.9 

21.9 


11,384 
-9 9 


Number on W. P. A. projects -.. 

Percentage increase .- 


2,926 


2,421 
— 12 5 


Percentage of unemployed . - 


26.7 


21.3 



Source: Corrington Gill, Wasted Manpower, W. W. Norton, New York, 1939, appendix, pp. 291-293 
Figures for June 19.39 secured from W. P. A. 



In the face of the dire circumstances of approximately 10,000,000 
unemployed, p\d)lic policy has seen fit to provide funds to employ 
only a minor fraction of their number. In no period since 1936 
has there been a public-works program which would ju-ovide work 
for more than a fourth of the employable unemployed. The unem- 
ployed are forced to depend upon the aid of relatives and friends, their 
accumulated resources, and principally upon ])rivate charity and 
public relief or public works. 

Furthermore, public policy is Ciipricious, and has vaiied with the 
years. Congress, unduly optimistic at the signs of better economic 
conditions in 1937, decided that there was r^o need to continue large- 
scale spending for the P. W. A. and W. P. A. Then, when the recovery 

'"'See exhibits 2529-b and 2530 hearings before the Temporary National Economic Committee, 70Ui ("ong , 
3d sess.. l^art 30. 



14 



CONCEiNTRATION OF ECONOMIC POWER 



collapsed in the fall of 1937, the curtailed allotment for W. P. A. 
provided work-relief wages for only 16.4 percent of the unemployed. 
The greatly reduced consumers' purchasing power resulted in an abrupt 
shift in Government policy. The allotment of W. P. A. jobs v/as 
increased in 1938 in an attempt to halt the downward sweep of a 
recession that had many possibilities of becoming another depression. 
The attempt was partially successful, again demonstrating that 






UJ 
CD 



O 

>^ < S 

Q_ CD 



o 

UJ 



LiJ 




Government spending through W. P. A. alleviated distress and at the 
same time stimulated the economy. 

Much of the apparently chronic unemployment is concentrated in 
the heavy industries manufacturing durable goods. Table 10 shows 
that from 1929 to 1938 the number of workers in durable-goods 
industries, which employed approximately half of all manufacturing 
workers in 1929, declined 1,114,000, or 27.2 percent. During the 
recovery of 1937, the total number of workers in durable-goods indus- 
tries was only slightly less than in 1929, indicating that these industries 
can respond rapidly to improved economic conditions. This recover}', 
however, did not provide places for nearly 4,000,000 new workers 
addcti to the labor force. 



GONCBNTRATION OF ECONOMIC POWER J 5 

Table 10. — Average annual employment in durable and nondurable goods, 1929-38 





Durable goods 


Nondurable goods 


Year 


Number of 
employees 


Percent 
of all in 
manufac- 
turing em- 
ployment 


Percentage 
increase 


Number of 
employees 


Percent 
of all in 
manufac- 
turing em- 
ployment 


Percentage 
increase 


1929.. __ 


4, 000, 000 
2, 215, 000 
4,005,000 
2, 976, 000 
-1,114,000 


48.9 
38.3 
48.0 
43.4 




4, 278, 900 

3, 575, 000 

4, 348, 000 
3, 377, 000 
-401, 900 


51.1 
61.7 
52.0 
66.6 




1933 


-45.8 

80.8 

-25.7 

-27.2 


-16.6 

M.6 

-10.8 

-9.4 


1937 


1938... 


1938overl929 









Source: Corrington Gill, Wasted Manpower, W. W. Norton, New York, 1939, p. 37. 

Nondurable goods industries ^ere not so severely affected by the 
depression, for employment in 1938 was only 9.4 percent below 1929 
levels. In fact, the 1937 peak of employment in these industries 
was actually above 1929. 

The location of focal points of unemployment in manufacturing 
industry is shown in table 11, which gives indexes of employment, 
with 1923-25 as 100.0. The year 1929 was not uniformly prosperous 
for all manufacture. Stoves, locomotives, lumber, stone, clay, and 
glass, among the durable goods industries, were depressed in 1929; 
while in nondurable goods, the leather products group employed fewer 
workers in 1929 than in 1923-25. 

In 1933 all except the food products group were below the 1923-25 
level. The locomotive industry suffered most, employing only 12 
percent of its 1923-25 labor force. In the recovery of 1937, five gi'oups 
among the durable goods industries employed more workers than in 
1929, but five failed to recover to that level of emploj^'ment. The 
nondurable goods industries fared much better, since they respond 
to the amount of purchasing power available in the hands of wage 
earners and relief clients. 

Table 11. — Effect of degression and recovery on employment in specific industries 

[1923-1925=100] 



Industry 



Average annual emplosnnent 



1929 


193C 


1937 


1038. 


103 


66 


111 


83 


103 


71 


120 


88 


99 


64 


102 


74 


126 


61 


124 


91 


146 


43 


167 


121 


167 


45 


159 


123 


104 


56 


118 


73 


HI 


61 


128 


7,1 


67 


12 


48 


26 


95 


50 


77 


63 


94 


49 


81 


67 


105 


91 


109 


93 


99 


87 


98 


00 


111 


100 


129 


122 


111 


87 


112 


105 


116 


97 


125 


111 



Durable goods: 

Iron and steel group 

Blast furnaces and steelworks 

Stoves... 

Machinery group 

Agricultural implements 

Machine tools 

Transportation equipment group 

Automobiles 

Locomotives... 

Lumber products group 

Stone, clay, and glass group 

Nondurable goods: 

Textile products group 

Leather products group 

Food products group 

Paper and printing group... 

Chemicals and petroleum products group 



Source: Corrington Gill, Wasted Manpower, W. W. Norton, New York, 1939, pp. 37-38. 



261085—40 — No. 2C 



IQ CONCECNTRATION OF EOONOMIO POWEK 

By 1939 the economy had not fully recovered from the recession 
which occurred late in 1937. The employment indexes for 1938 
indicate that the durable-goods industries, large users of labor, sharply 
curtailed employment, and employment also dropped in the non- 
durable-goods industries. 

The continuance of unemployment on a large scale is not only a 
major hindrance to economic recovery, but has a direct bearing on 
fiscal policy, government expenditures, and taxation. State budgets 
are swollen to high levels, and are increasingly difficult to balance, 
either because of limited tax recources or because of public resistance 
to increased taxes. General government costs have risen, but the 
difference, in a substantial number of States, between balanced and 
unbalanced budgets is the newly added enormous cost of social welfare 
and unemployment relief. Unemplo3^ment is both a cause and a 
result of depression. Labor-saving technology resulting in unemploy- 
ment may be a factor in creating a depression. Also, the dismissal of 
workers by industries experiencing reduced sales is a result of de- 
pression. 

Not only does unemployment result in serious economic dislocation 
and reduced income, but it greatly increases the cost of maintaining 
government. During the year 1935-36, for example, 4,487,100 fam- 
Uies received relief. They were 15.3 percent of all families in the 
United States, and obtained 7.0 percent of all income paid out that 
year." In 1938, of ai total Federal expenditure of $7,691,000,000, 
28.4 percent, or $2,182,000,000, was spent for relief, welfare, and social 
security. 

A substantial number of our people, either because of chronic un- 
employment or intermittent work and low wages, have too little in- 
come to pay taxes, without denying necessities to themselves and their 
dependents. Yet a considerable portion of their all-too-m.eager 
incomes is taken by regressive consumers' levies of one kind or 
another. ^^ 

Table 12 gives the share of the national income which each tenth of 
the population received and expended for various items of the con- 
sumer's budget. The lowest tenth of all consumer units in 1935-36 
had an income under $340 a year; the highest tenth received $2,600 
or more. Six-tenths with incomes less than $1,275 must borrow to 
live, and in such consumer units there is no surplus income to be tapped 
by burdensome tax programs, for these people usually do not receive 
a full complement of the necessities of life. Above $1,275, savings 
become possible, on the average, and among these four-tenths is found 
almost three-fourths of total income received. In this extremely 
uneven distribution of income are rooted many of the problems of 
prolonged depression and its aftermath of chronic mass unemployment 
and depressed business conditions. 

X National Resources Committee, Consumer Incomes in the United States, August 1938, Washington, 
p. 21, table 4. 
" See pt. IV. 



CONCBNTRATION OF ECONOMIC POWER 



17 



Table 12. — Share of each tenth of nati'ofi's consumer units ^ in aggregate outlay 
for consumption, gifts and personal taxes, and savings,'^ 1935-36 



Proportion of 
families and 
single individ- 
uals 


Income rnnge 


Aggregate in- 
come 


Aggregate outlay (in 
millions) 


Percentage of aggregate 
outlay 


Amount 
(in 
mil- 
lions) 


Per- 
cent 


Cur- 
rent 
con- 
sump- 
tion 


Gifts 
and 
per- 
sonal 
taxes ' 


Sav- 
ings 


Cur- 
rent 
con- 
sump- 
tion 


Gifts 
and 
pei- 
sonal 
taxes 3 


Sav- 
ings 


Highest tenth... 

Ninth- 

Eiehth 

Seventh 

Sixth 

Fifth 

Fourth -. 


$2,600 and over ... 

$1,925 to $2,600 

$1,540 to $1.925 

$1,275 to $1,540 

$1,070 to $1,275 ... 

$880 to $1,070 

$720 to $880 

$545to$720_ 

$340 to $545 

Under $340 


$21. 452 
8,593 
6,815 
5.511 
4.444 
3,911 
3,259 
2, 54S 
1,719 
1.007 


36.2 
14.5 
11.5 
9.3 
7.5 
6.6 
5.5 
4.3 
2.9 
1.7 


$13. 523 
7,460 
6,201 
5,165 
4. 343 
3.916 
3,333 
2,740 
1,999 
1,534 


$1,644 

376 

278 

223 

160 

136 

109 

77 

40 

24 


$6,285 

757 

336 

123 

-59 

-141 

-183 

-269 

-320 

-551 


26.9 
14.9 
12.3 
10.3 
8.6 
7.8 
6.6 
5.5 
4.0 
3.1 


53.6 
12.2 
ft. 1 
7.3 
5.2 
4.4 
3.6 
2.5 
1.3 
.8 


105.1 

12.7 

5.6 

2.1 

-1.0 

-2.3 

—3 1 


Third 

Second 

Lowest tenth... 


-4.5 
-5.4 
-9.2 


Total..... 


59. 259 


100.0 


50, 214- 


3,067 


5,978 


100.0 


100.0 


100 









' Includes all families and single individuals, hut excludes residents in institutional srroups. 

2 Items included in each category are explained in Consumer Expenditures in the United States, pp. 93-98. 

3 Taxes shown here include only personal income taxes, poll taxes, and certain personal property taxes. 

Source: National Resources Committee, Consumer Expenditures in the United States, AVashington, 
1939. p. 51 

Idle men mean wasted manpower, and a consequent failure to utilize 
fully the most important single source of production. Idle manpower 
means reduced incomes and a loss of capacity to buy. There is much 
talk these days of a return to full employment, which is generally taken 
to mean a return to 1929 levels of employment, and also of income. 
But population continues to grow, and the number of persons available 
for labor increases by approximately 600,000 per year. The levels of 
1929, therefore, will not provide full employment, nor will the income 
of that year provide adequately for the present or future population. 
Furthermore, 1929 levels of consumption were not satisfactory, for 
even in that prosperous year, almost three fourths of the people lacked 
sufficient income to buy conveniences and luxuries, and nearly one- 
fourth of all American families, with incomes of less than $1,000, were 
unable to buy any but the barest necessities of life.^^ 

Yet in 1929 per capita income reached its peak, averaging $654 per 
person. There are too many incalculable factors, such as increasing 
emphasis on social goods, changing prices, etc., to permit a statement 
of the income needed now and in the future to equal 1929 levels of 
economic well-being, but a very rough estimate of the total can be had 
by multiplying the per capita income of 1929 by the estimated popu- 
lation of the future, with the following results: 

Year: National income Year — Continued. National income 

1929 $79,498,000,000 1960 $96,538,000,000 

1940 86,740,000,000 1970 99,266,000,000 

1950 92,353,000,000 1980 100,472,000,000 

'2 Broolcings Institution, America's Capacity to Consume, Washington, 1934, pp. 53-54. 



18 



OONCBNTRATION OF EOONOMIC POWEE 



A mere rise in the national income does not erase the problems of 
depression. Within certain limits, it is not so much the size of the 
national income as it is its distribution among the consumers who make 
use of it that is important. In a prosperous economy, the national in- 
come must be large enough and be so distributed as to continually 
make use of all the Nation's resources — manpower, capital, and wealth. 



IDLE CAPITAL 

The Brookings Institution studies on the formation of capital 
concluded that saving of money does not in itself create a demand for 
capital goods; that expansion in production is possible only if the 
market for goods is expanding, and an expanding market depends upon 
increased consumption demand/* 

Table 13 offers pertinent data showing funds in banks and their dis- 
position. It is significant that surplus was available above the sums 
needed for investment in both prosperous and depressed years since 
1923. The average surplus available from 1923 to 1929 was 6.5 per- 
cent, and from 1930 to 1933, 6.8 percent.'^ Since 1933 the percentage 
of surplus has continued to mount, until in 1938 it was more than 18 
percent of total deposits and net capital funds. The peak year in 
volume of bank deposits and capital funds was 1930, when available 
capital totaled $63,000,000,000, of which 27.8 percent was invested in 
long-term paper, and 64.4 percent was in short-term loans, while 7.8 
percent was idle. By 1938 the volume of bank deposits and capital 
funds had dropped to $57,900,000,000, of which 45.4 percent was in- 
vested in long-term paper, 36.5 percent in short-term loans, and 18.1 
percent was idle. 

Table 13. — Bank deposits and capital funds and their use for investments, loans, 

and surplus, 1923-38 

[Dollar figures in billions, as of June 30] 



Year 

1 


T6tal bank deposits 
and capital funds 


Investments 


Loans 


Surplus 


Amount 


Percent 
increase 


Amount 


Percent 
increase 


Amoimt 


Percent 
increase 


Amount 


Percent 
increase 


1923 


$46.0 
48.8 
53.2 

55.7 
58.0 
60.3 
61.3 
63.0 

59.3 
48.2 
43.4 
47.6 
51.1 

56.7 
58.9 
57.9 

-3.4 




$13.3 
13.6 
14.9 

15.4 
16.4 
17.8 
16.9 
17.5 

19.6 
18.2 

17.9 
21.2 
24.1 

27.8 
27.2 
26.3 

9.4 




$30.4 
31.5 
33.9 

36.2 
37.4 
39.6 
41.5 
40.6 

35.4 
27.8 
22.2 
21.3 
20.3 

20.7 
22.5 
21.1 

-20.4 




$2.3 
3.7 
4.4 

4.1 
4.2 
3.0 
2.9 
4.9 

4.3 
2.2 
3.3 

5.1 
6.7 

8.2 
9.3 
10.5 

7.6 




1924 


6.1 
9.0 

4.7 
4.1 
4.0 
1.7 
2.8 

-5.9 

-18.7 

-10.0 

9.7 

7.4 

11.0 

3.9 

-1.7 

-6.5 


2.3 
9.6 

3.4 
6.5 
8.5 
-5.1 
3.6 

12.0 
-7.1 
-L6 
18.4 
13.7 

15.4 
-2.2 
-3.3 

55.6 


3.6 

7.6 

6.8 
3.3 
5.6 
5.1 
-2.2 

-12.8 

-21.5 

-20.1 

-4.1 

-4.7 

2.0 

8.7 

-6.2 

-49.2 


60.9 


1926 


18.9 


1928 


-6.8 


1927 .. 


2.4 


1928 - 


-28.6 


1929 


-3.3 


1930 .. 


69.0 


1931 — -- 


-12.2 


1932 


-48.8 


1983 -- 


50.0 


1984 - 


54.5 


1935 


31.4 


1936 


22.4 


1937* 


12.2 


1938 - 


14.1 


1988 over 1929 


262.1 



Source: Adapted from National Industrial Conference Board, Enterprise and Social Progress, 1939, p. 64 



'♦ Harold G. Moulton, et al. The Formation of Capital, Brookings Institution, Washington, 1935. 
»• Reported by National Intlustrial Conference Board, Enterprise and Social Progress, New York, 1939. 
0.64. 



CONCEiNTRATION OP ECONOMIC POWEK JQ 

From 1929 to 1938, even though the intervening years were chaotic 
for business, and spelled misery, privation, and starvation for many 
Americans, the total volume of bank deposits and capital funds de- 
clined only 5.5 percent. But the character of use of these funds 
changed drastically. Long-term investments in Government bonds 
and other safe holdings rose 55.6 percent from 1929 to 1938. Short- 
term loans to individuals and business, on the other hand, were either 
too risky or so little in demand that they declined 49.2 percent. Un- 
used surpluses on deposit in banks rose 262 percent. 

Classical economists argue that the uneven distribution of income 
does not seriously affect the use of the productive resources of the 
Nation, for if income goes largely into the hands of the few, it simply 
increases their surplus over living needs, and hence the capital avail- 
able for industrial expansion — which results in more employment and 
larger funds available for consumption expenditures. But this in- 
creased concentration of income and wealth has resulted in a surplus 
of savings available for investment. In the depression year 1935-36, 
aggregate personal savings were $5,978,000,000, over 60 percent of 
which was saved out of incomes of $10,000 or more; while those hav- 
ing incomes of $20,000 or more that year constituted only 0.3 percent 
of all units, saved more than 50 percent of their enormous iucomes, 
and accounted for 40 percent of all savings.'* The Brookings Institu- 
tion study, made from investigations covering the prosperous period 
1918-29, also showed that the group with incomes above $20,000 
saved over half of their incomes. 

The significance of idle money in modern economic life is well 
expressed by the findings of the National Industrial Conference 
Board in a recent study: 

The amount of money lying practically idle is greater today than at any pre- 
vious time in our history. We have more money to lend for productive purposes 
than ever before. The proportion of loans to our total bank deposits and net 
capital funds averaged 39 percent for the last 5 years against 63 percent for the 
preceding 11 years. The surplus of bank deposits and net capital funds over 
total loans and investments has more than trebled in the last 5 years fl934-39]." 

Not only are personal savings not invested in any such proportion 
or amount as before 1929, but the development of large-scale enter- 
prise has enabled many corporations to accumulate depletion and 
depreciation reserves of such size that they are no longer dependent 
on the capital market. Such accumulations permit internal financing 
for at least two distinguishable reasons: first, in replacing a machine 
on which a depreciation allowance has been taken, a more efficient 
machine may be installed at the same, or on a declining price market, 
at even a lower cost; second, large corporations are unusually well 
situated to use a depreciation fund accumulated from a declining 
line of production to finance the installation of a profitable line of 
production. 

The Temporary National Economic Committee hearings disclosed 
the startlmg fact that for American business as a whole during the 
period 1923-29, which was one of great capital use and expansion, 
expenditures for plant and equipment averaged $8,500,000,000 
annually, but business enterprises were able to supply $6,400,000,000 

" Reported in National Resources Committee, Consumer Kxpenditures in the United States, 1939, 
Washineton, p. 69. 
" National Industrial Conference Board, Enterprise and Social Progress, New York, 1939, p. 47. 



20 CONCENTRATION OF ECONOMIC POWElR 

of that amount from their own depletion and depreciation funds. ^* 
Thus when even the largest volumes of funds were required, Ameri- 
can business enterprises financed 75 percent of their needs from their 
own savings, and had to call upon the private investment market for 
only 25 percent of what they needed. 

Another development of great portent is the increasing avoidance 
of the customary investment channels as a means of obtaining 
capital funds. In 1934, $455,000,000 of corporate bonds and notes 
were floated, 22 percent of which were placed privately; by 1938, 
$1,980,000,000 were floated, 37 percent of which were placed 
privately. ^^ 

The trend toward self-capitalization by business enterprises has 
greatly accelerated with the increasing concentration and growth of 
business units since 1929. From 1935 to 1937 American business 
used $17,400,000,000 of funds for plant, of which 92 percent came 
from internal sources. Only $1,400,000,000 were obtained from the 
investment capital of the Nation. 

In^fact, the steel, electric, railroads, and automobile industries, to 
whom many have looked for employment of idle men and capital, 
are able to fund the requirements for plant extensions and new equip- 
ment almost entirely out of their internal assets. They are like the 
United States Steel Corporation, which, to quote Stuart Chase: 

* * * went through its technical revolution, modernized its plants, putting 
many of them on the up-to-the minute continuous strip rolling basis, at a cost 
of $1,222,000,000. [Period under review 1921-38.] Where did the money come 
from? Out of depreciation and depletion, $938,000,000; out of profits retained 
$192,000,000— a total of $1,130,000,000. Practically the whole revolution [92.6 
percent] was thus financed internally. 2" 

The General Electric Co.'s chief, Owen D. Young, in the same 
hearings told an even more dramatic story than the president of the 
Steel Corporation, for he said that in the 60 years since its organiza- 
tion the General Electric Co. had "built its capital largely out of 
undistributed profits." -^ 

The General Motors Corporation likewise is a self-contained 
business unit, not requiring outside funds for capital expansion. In 
fact, since 1921 its accumulated reserves have met all expansion 
purposes and have left a margin large enough, to finance even the 
future expansion which would accompany an $80,000,000,000 na- 
tion^Nncome, according to Alfred P. Sloan, Jr.^^ It is interesting to 
note in this connection that Henry Ford financed the retooling of his 
widespread operations entirely out of profits when he discarded the 
Model T, without calling on the investment market for aid. 

Even the class I American railroads, which have been in such 
serious difficulties in the past 20 years, obtained from internal sources 
all but 20 percent of the $10,300,000,000 which they spent on plant 
and equipment from 1921 to 1938. 

Summarizing the situation, Dr. Oscar L. Altman said: 

In years of high activity business enterprises draw upon the capital markets, 
but never since 1922 for more than $2,000,000,000 in a year. During years of 

" Hearings before the Temporary National Economic Committee, Part 9, p. 3687. Also, Charts and 
Tables, Savings and Investment Hearings, prepared by the Securities and Exchange Commission for the 
Temporary National Economic Committee, Part. 9. Also, see Stuart Chase's excellent summary. Capital 
Not Wanted, Harpers Maga/.ine, February 1940. 

" Testimony of Adolph A. Berlc, Jr., in hearings before the Temporary National Economic Committee, 
Part. 9', pp. 3815 fT., and 4065. 

»» Stuart Chase, op. cit., p. 230. 

" See Hearings before the Temporary National Economic Committee, Part. 9, p. 3615 ff. 

«Ibid.,pp. 3658. 3661. 



CONCElNTRATION OP EOONOMIG POWER 21 

low activity, business enterprises do not requre any funds from the capital 
markets. Instead, they contribute funds to the capital market, either by paj-^- 
ing out dividends in excess of earnings, or by converting depreciation allowances 
into bank deposits.^^ 

Dr. Alvin Hansen added a pertinent note concerning the use of 
capital in a matured economy when he said: 

When a society has accumulated a vast amount of capital goods, it is evident 
that the mere expenditure of depreciation allowances provides wide scope for 
continuous improvement of plant and equipment. The larger the amount of 
capital equipment the larger will be the depreciation, depletion, and obsolescence 
allowances. * * * j want to stress the point that it is quite wrong to assume 
that you can't make any progress in increasing production without a large volume 
of savings. * * * jj^ modern times you can have a perfectly enormous in- 
crease in productive capacity merely by expending depreciation allowances and 
not tapping a cent of [individual] savings. * * * Savings do us good or 
harm according as they find, or do not find, investment outlets in productive 
expansion of plant and durable goods, including residential building and pubhc 
works.2^ 

Hansen concludes that economic recovery, making use of accumu- 
lated savings, can be obtained only through the following channels, 
short, of course, of a drastic change in the economy: 

1. Absolutely new large-scale industries requiring vast sums of 

new capital. 

2. Use of savings in housing and public investments where the 

accumulations of capital reserves are relatively small. 

3. A sharp decline in savings, leveling off at a substantially lower 

ratio to national income, resulting in the production and 
distribution of proportionately more consumers' goods. 

FOREIGN TRADE 

The decline in our export trade adds another major problem to the 
long list of economic difficulties confronting the United States. The 
decision whether this is a temporary situation or a permanent and 
growing trend depends upon the interpretation of certain basic data. 
It is argued by some, such as Fred Henderson in his notable essay 
The Economic Consequences of Power Production, that widespread 
modern technology and the use of electrical energy have lessened the 
unusual advantages formerly held by certain export countries like 
ours, so that we are now seeing a world-wide development of industry 
which levels the differences between the advanced industrial and 
backw.ard agricultural countries of the world.^^ If this be so, then 
it is probable that serious adjustments will have to be made in our 
economy to make up for the losses in revenue from customs duties 
and foreign sales. 

In 1913 customs revenue totaled $318,900,000, and accounted for 
48 percent of all Federal revenues. (See table 14.) By 1937 the 
total customs collections were $402,000,000, but accounted for only 
7 percent of all Federal Government revenues. Customs revenues 
rose rapidly in the prosperous 1920's to a peak of $605,500,000 in 
1927, but this greatest yield in customs duties was only 17 percent 
of all Federal revenues. In fact, during the past 20 years miports 
have never yielded as much as 20 percent of the annual collections 

" Stuart Chase, op. cit., p. 232. 

" Ibid., p. 233. X ^ T J 

" The Economic Consequences of Power Production, George Allen and Unwin, Ltd., London, 1831. 



22 



CONCBNTRATION OF ECONOMIC POWER 



of the Federal Government. It is clear that import duties are no 
longer to be regarded as the dominant source of Federal revenue. 

Table 14. — Federal tax revenue, 1913-37: Internal revenue and customs 
[Absolute yield figures are in millions of dollws] 





Total tax 
revenue- 
Internal 
revenue 

and 
customs 1 


Total internal revenue 
from taxes ' 


Total customs 
revenue ' 


Fiscal year 


Amount 


Percent of 
total tax 
revenue 


Amount 


Percent of 
total tax 
revenue 


1913 ..-- 


663.3 
672.3 
625.5 
725.9 
1,035.4 
3,879.0 

4. 034. 6 
5, 730. 5 
4,903.6 
3,553.9 

3. 183. 7 
. 3,341.8 

3, 131. 7 
3.415.4 
3,471.2 
3, 359. 5 
3, 541. 3 
3.627.1 
2,806.6 

1. 887. 1 
1,872.0 
2,987.1 

3. 644. 2 
3,907.0 
6, 476. 7 


344.4 
380.0 
> 415. 7 
512.7 
809.4 

3. 699. 
3, 850. 2 

5. 407. 6 
4,595.0 
3.197.5 

2. 621. 7 
2, 796. 2 

2. 584. 1 
2,836.0 
2,865.7 
2, 790. 5 
2,939.1 

3. 040. 1 

2. 428. 2 
1, 557. 7 
1,619.8 
2,672.2 
3, 299. 4 
3. 520. 2 
5,074.7 


52 
67 
66 
71 
78 
95 
95 
94 
94 
90 
82 
84 
83 
83 
83 
83 
83 
84 
87 
83 
87 
89 
91 
90 
93 


318.9 
292.3 
209.8 
213.2 
22fi.O 
180.0 
184.5 
322.9 
308.6 
356.4 
561.9 
545.6 
547.6 
579.4 
605.5 
569.0 
602.3 
587.0 
378.4 
329.4 
252.2 
314.9 
344.8 
386.8 
402.0 


48 


1914 - - 


43 


1915 


34 


1916 - 


29 


1917 - 


22 


1918 , 


5 


1919 


fi 


1920 - - 


6 


1921 


6 


1922 


10 


1923 


IS 


1924 -. 


16 


1925 


17 


1926 . . . 


17 


1927 - 


17 


1928 - 


17 


1929 - 


17 


1930 


16 


1931 -.. 


13 


1932 - -- 


17 


1933 


13 


1934 - 


11 


1935 


9 


1936 


10 


1937 « 


7 







' Not including certain minor inland taxes and charges not listed under Internal Revenue, such as: (1) 
taxes on Federal Reserve banks, immigration head tax, etc.; (2) fees, fines, etc. 
' Including toi^nage tax for all years except 1936 and 1937, for which segregated data were not available. 

* Alaska Railroad tax first included. 

* For basis of estimates, see Facing the Tax Problem, pp. 514-515. 

Source: Facing the Tax Problem, Twentieth Century Fund, New York, 1937, p. 515. 

John M. Blair offers data showing the decline in exports of movable 
goods, characteristic not only of the United States but of the two 
other principal exporting nations, England and Germany.^® Movable 
goods produced in the United States reached their peak of 
$52,825,000,000 in 1929, of which $5,157,000,000 was exported (table 
15). By 1935 the total had declined to $35,141,000,000 of which 
$2,243,000,000 was exported. The percentage of total movable 
goods exported has declined steadily in each of the years listed from 
1919 to 1935, except in 1925. The study shows, further, that the 
export of machinery and capital goods increased markedly, both in 
the aggregate and as a percentage of all exports, in the period 1876- 
1930. Machinery exports advanced so rapidly that in the 5-year 
period 1926-30 they constituted over a third of all capital-goods 
exports. Since 1925, machinery has been the largest single American 
export except for raw cotton and petroleum. ^^ As Blair points out: 

i Machinery, and the oil to keep it running — the two commodities which do the 
most in destroying foreign trade — may thus become in the near future'our greatest 
exports. But it must not be forgotten that among the exports of machinery are 
types which produce other machines, the installation of which makes it possible 

» Seeds of Destruction, Covici-Friede, New York. 1938, pp. 309 ff, 
" Ibid., pp. 314-315. 



CfONCBNTRATION OP ECONOMIC POWER 



23 



for any nation to manufacture its own industrial equipment. And when that 
happens, when most of the important countries install these machines which make 
machines, there will no longer be a great foreign market for America's or any 
other nation's machinery .^8 

Table 15. — Production of movable goods in the United States, and proportion 
exported, selected years, 1909-36 

[Dollar figures in millions] 





Movable goods 


Percentage increase 


Year 


Total 


Domestic 


Exported 


Total 


Domestic 






Amount 


Percent 
of total 


Amount 


Percent 
of total 


Exported 


1909 


$17, 662 

20,270 

48,527 
34, 163 
45,903 
47, 494 
47, 930 
52, 825 
32, 337 
25,017 
36, 141 

-12, 789 


$15, 961 

18, 199 

40,777 
29. 784 
41,812 
42, 675 
43, 171 
47,668 
29,959 
23,370 
32,898 

-10,273 


90.4 

89.8 

84.0 
87.2 
91.1 
89.9 
90.1 
90.2 
92.6 
93.4 
93.6 


$1, 701 

2.071 

7,750 
4,379 
4,091 
4,819 
4,759 
6,157 
2,378 
1,647 
2,243 

-2,516 


9.6 

10.2 

16.0 
12.8 
8.9 
10.1 
9.9 
9.8 
7.4 
6.6 
6.4 








1914 


14.8 

139.4 

-29.6 

34.4 

-3.5 

.9 

10.2 

-38.8 

-22.6 

40.5 

-26.7 


14.0 

124.1 

-27.0 

40.4 

2.1 

1.2 

10.4 

-37.2 

-22.0 

40.8 

-23.8 


21.8 


1919 


274.2 


1921 


-43.6 


1923 


-6.6 


1925 


17. 8 


1927... . 


-1.2 


1929 


8.4 


1931 


-53.9 


1933.. 


-30.7 


1935 


36.2 


1936 over 1927 


-52.9 











Source: Adapted from John Blair, Seeds of Destruction, Covici-Friede, New York, 1938, p. 309. 

About 40 percent of the annual machinery output of the United 
States is exported. Thus, foreign markets are extremely important 
for the maintenance of employment and profitable business enterprise 
in this area of large-scale industry. Hence, the prospect of a decline 
in machinery exports makes the future outlook rather gloomy. 

Nor does the foreign market for surplus American funds appear 
promising. The volume of foreign investments increased from 
$434,000,000 in 1923 to $3,253,000,000 in 1928, but declined there- 
after until in 1934 they totaled $958,000,000. ^^ 

The United States in the past has lent foreign nations much of the 
money with which they have bought our durable goods and machin- 
ery. Although this process ultimately destroys our foreign market 
for both such machines and loans, the business has in the past been 
profitable. It continues to be so even today, but world-wide turmoil 
and depression make foreign investments unsafe, besides drastically 
curtailing their scope. There appears little prospect that the foreign 
capital market will be able to rbsorb any appreciable amount of our 
idle capital in the immediate future. 

Looking ahead, however, to the possibility of Western Hemisphere 
economic development, and post-war reconstruction, there is the 
prospect of a revival of foreign trade and foreign investment which 
cannot be calculated at this time but which must be held before us as 
an outlet for economic efforts of substantial magnitude. 

" Ibid, p. 316. 

" Ibid, p. 320. These figures are exclusive of war debts. 



THE ECONOMIC SITUATION AND MODERN TAX 
THEORIES 

Taxation should be planned in relation to the economic problems 
of the Nation if it is to avoid a harmful and exert a beneficial effect 
upon national life. The basic economic data here summarized have 
been gathered with care, and are believed to be sufficiently compre- 
hensive to describe the economy which tax theory and practice seek 
to affect. 

Only in recent years has it been possible to present such a complex, 
factual picture of the economic structure of the United States, its 
development, and its problems. It was not until 1934 that the 
Brookings Institution studies appeared, the first connected presenta- 
tion of America's capacity to produce, to consume, to form and to 
use capital. Except for Recent Social Trends, which appeared in 
1933, there had been up to that time only individual studies of more 
or less isolated bodies of data. Following the Brookings studies, the 
Government itself investigated these topics still further, publishing a 
series of monographs whose effect will undoubtedly be to reframe 
the questions and reform the thinking on economic and social issues 
confronting the American people.^" 

These studies, and others, comprise an extensive literature on 
present-day economics, and provide the foundation for a sound tax 
policy. Various economists and fiscal experts have developed differ- 
ent theories on the basis of these data, some of which are offered in 
the following pages. 

Harley L. Lutz, professor of public finance at Princeton University, 
is one of the ablest exponents of that group of tax experts who hold 
that taxation is for revenue only, and to employ it for any other pur- 
pose, such' as the regulation of business enterprise or the redistribution 
of wealth, is unsound. 

Writing on this subject in a widely used modern textbook on public 
finance, Lutz says: 

The definitions of a tax, quoted in an earlier chapter, without exception stressed 
the revenue purpose as the justification of taxation. Every instance of tax collec- 
tion means the taking of private wealth without direct compensation. All taxa- 
tion is in essence confiscatory whether the rate be low or high. Even if the great- 
est care be exercised in the selection of taxable objects and in the procedure of tax 
administration, the operation of a tax system involves more or less of arbitrary 
decision and action by assessors, collectors, and other officials. The only adequate 
and convincing defense for action that is essentially and inherently confiscatory 

. in nature is that revenue is needed to support the legitimate public purposes of 

•government in the common interest of all. 

It is true that taxation for the primary purpose of obtaining revenue has eco- 
nomic and social effects which may be in some degree indirect, remote, and incalcu- 
lable, however skillfully designed and administered may be the revenue system. It 
is a sound principle of wfse taxation that these effects should be estimated and 
anticipated as completely as possible, in order that methods of taxation may be 
used which have the least deleterious effects. When taxation is used deliberately 

*' Reports of the National Resources Committee and National Resources Planning Board, Washington, 
D. C, 1935 to date. 

24 



CONCENTRATION OF E(X)NOMIC POWE(R 25 

for the accomplishment of social or regulatory objectives, a vast amount of guess- 
work is inevitable as to the final effects, assuming that the regulating agency is 
not completely indifferent to these results. 

Second, it is impossible to apply the canons of fair and equitable taxation when 
regulation or discrimination are the primary purposes. Neither benefit nor abil- 
ity can be reckoned with in punitive taxation. While the tests of ability or benefit, 
and the other accepted requirements of reasonable taxation are not yet perfect, 
either in theory or practice, the striving after such principles is a logical necessity 
in view of the essentially confiscatory nature of all taxation. 

Third, it is well known that the construction of an equitable tax revenue sj'stem 
calls for legislative ability of a high order, and that the administration of taxes is a 
task of enormous complexity and difficulty. Extensive use of taxation for regula- 
tory and discriminatory purposes means either the erection of a costly and rela- 
tively unproductive administrative machine, or the overloading of the regular tax 
administration to a point that will endanger the adequate performance of its 
legitimate functions. As this practice proceeds, Adam Smith's picture of the 
odious and oppressive visits, the horde of officials, and the vexations of cumber- 
some and expensive administration will be increasingly realized. 

Fourth, the regulation of the character of industry or of the affairs of individuals 
through penalty taxation assumes a degree of wisdom and foresight not likely to be 
possessed by those who design and administer such laws. American tariff history, 
for example, presents a considerable experience with this use, or misuse, of the 
taxing power. It would be difficult to establish that cither industry or laborers, 
either producers or consumers had benefited in the long run and on the whole 
from this prolonged experiment in taxation for regulatory purposes. The mer- 
cantile system was an analogous type of governmental control of industry and 
trade according to preconceived ideas of what was best for the country. 
Adam Smith's attack on this system is well known. His castigation of the ruler 
who sought to order a nation's affairs by restrictions on trade and business is ap- 
plicable to those who seek to accomplish this end through severe regulatory taxa- 
tion. 

******* 

Severely regulatory taxation is part of the general idea of regimentation, of 
determining, on the basis of preconceived notions or on the basis of favoritism, 
the character of business or the line of conduct deemed to be good for the people, 
and of keeping everj'one in the established channels by heavy taxes on variations 
and departures. 

******* 

Assuming the economic goal of a progressive community to be a steady growth 
in the capacity to produce and to consume, it is apparent that the weight of the 
tax system sliould be so distributed as to result in the niininium over-all hindrance 
to the achievement of this goal. It is reasonable to suppose that this minimum 
interference is more likely to be accomplished, first, by a distribution of taxation 
over both consumption and production rather than by a concentration upon either 
aspect alone, and second, by the avoidance of excessive taxation. 

* * * * * * * 

It would be difficult to produce convincing evidence, in face of these facts, to 
show that the existing volume of governmental services is of such definite and 
positive advantage to the productive processes as to counterbalance the deterring 
eflFects of the tax drain. Until this proof is forthcoming, it would appear that 
governmental costs are now too great, that there has been a sharply diminishing 
return from the later installments of governmental service, and that a substantial 
reduction of governmental costs, and thus of taxation, would release and stimulate 
both producing and consuming capacity. 

******* 

Prolonged, heavy death taxes will no doubt check the growth of the capital 
supply from its present sources. It is possible that the loss could be made up in 
8ome other way, but no provision for doing this has accompanied the recent sharp 
increases in death tax rates. 

******* 

Moreover, the taking of large slices of net incomes does not adversely affect 
contemporary production, for there are large elements of economic surplus in 
some of these incomes, loss of which does not check entrepreneurial effort. But 
the diversion of large amou^ts of personal jncome from its normal destination as a 
source of capital funds wiD inevitably diminish the future increases of capital from 



26 CONCENTRATION OF ECONOMIC POWER 

this source, and no provision has been made, under any income tax or any fiscal 
program, for making good this loss in any other way. 

* * * ;|E * ^ 1|C 

This argument does not point to a reduction of income and death taxes, to be 
counterbalanced by heavier consumption taxes. Such a shift would tend to 
preserve the country's capital, but if carried far enough, it would neutralize the 
usefulness of capital, since there is no point in producing goods that cannot be 
consumed. If consuming ability be diminished through heavy taxation, the 
country's long-run loss will be no less serious than that which will follow a depletion 
of its produciijg capacity. 

The advantage of good government is, indeed, so obvious that within reasonable 
limits the truth may be granted of the proposition that the individual gets more 
for his tax dollar than for most other expenditures of like amount. 

:{( :ie :jc :je :{e :fe :{e 

It is easy, however, to overlook the fact that the expenditures for governmental 
services, like those for any other factor of production, are subject to diminishing 
return or advantage. 

******* 

The ideal of distributing the tax burden according to ability is lofty, and 
deserves striving for; it is, however, impracticable as a general rule for all taxation, 
and in view of the benefit character of some governmental services, there is con- 
siderable room for doubt as to the ultimate desirability of arriving at the goal, 
were this administratively feasible. 

*i* * * * * * 

The most ambitious nonfiscal objective of all is the so-called redistribution of 
wealth. 

But there is a great and significant difference between the frank decision to 
tax large incomes and estates more heavily for the reason that more revenue is 
needed, and the crafty appeal to mass prejudice conveyed in the suggestion that 
the true reason for the tax increase is the curbing of the l^rge in<;ome, and the 
breaking up of the large estate. The one policy is in line with orderly thinking on 
taxation and rests on defensible tax logic; the other obscures everything. 
******* 

The mass appeal of such a program is an invitation to expect and to demand 
"bread and circuses," for only by liberal expenditures can the masses hope to 
derive even an indirect benefit from the program. 

******* 

The advocacy of severe taxation for the avowed purpose of equalizing wealth 
and incomes has another demoralizing possibility. The policy is likely to lead 
to the aRsumplion or belief on the part of the large group of persons having small 
estates or small incomes, that the services of Government should be supported in 
the main by heavy taxation of a few. * * * Nothing can be more clear or 
certain than that, all citizens should contribute in some degree toward the support 
of the government under which they live.^' 

The National Industrial Conference Board is an employer-indus- 
trialist organization of research and publicity wliich has done much to 
express clearly the employer viewpoint on economic problems. 
Lewis H. Kimmel ir^ the August 1939 Economic Record, a Board 
publication, analyzed the Federal fiscal policy of the past 10 years. 

Kimmel indicates that after 9 years of deficit financing, the Federal 
Government has accumulated a debt of $26,831,000,000. This 
deficit was the result of heavy declines in tax receipts up to 1932, and 
since then of greatly increased Federal expenditures. 

In 1932 excise and miscellaneous taxes were levied, and the rates 
increased on corporate and income taxes, to provide larger revenues. 
By 1934, however, the volume of Federal expenditures outweighed 
any such increased revenues. 

" H. L. Lutz, Public Finance, D. Appleton-Century, New York, 1936, pp. 371-373, 375-378. 



CONCENTRATION OF ECONOMIC POWEiR 27 

These Federal expenditures were justified by the consumer-pur- 
chasing power theory that increa,sed consumer power would promote 
recovery. The consumer approacli soon broadened into a theory of 
compensatory fiscal action, in which Government expenditure would 
be resorted to in depression to raise incomes, create bank deposits, 
and increase buying power, while in the upswing of the cycle we 
would have an increase of receipts over expenditures to hold in line 
any runaway inflationary^ moves. This excess of receipts over 
expenditures would curtail spending and offset the expansion of 
private bank credit. The theory requires application in both good 
and bad times, and to have been fully put into service would have 
necessitated a balanced budget by 1936. 

After the cessation of Government spending in 1937 and the depres- 
sion of that year, spending was begun in April 1938, on the pump- 
priming theory, which involves no compensatory action, but merely 
says that when private activity is not available, the Government 
should substitute its own purchases of goods and services. 

There is also a theory of public investment, which holds that when 
private investment fails, the Government should invest in public 
works, to provide the necessary activity in capital goods industries. 
This really should require a double budget, to consider the assets 
created in the process, which the New Deal has not used. 

The results of Federal expenditures under any of these theories 
are an increased tax burden and an increased public debt which must 
ultimately be met by taxation. Kimmel regards taxation as a business 
deterrent for two reasons: 

First, it is not possible to measure precisely the effects of ta.xation on most 
business decisions. Second, because of the widespread use of taxation for 
regulatory purposes in recent years, it has been impossible to determine thfe 
reactions of business to the taxes imposed, considered either from their revenue 
standpoint or as business costs. The only definite conclusion that can be drawn 
is that tax policies and other regulatory measures have acted as deterrents to the 
assumption of business risks and have tended to lower what has been termed 
"the supply of business initiative." 

He concludes that taxation to pay for Federal expenditures is 
burdensome and acts as an economic deterrent. In this he sees the 
basis for a new form of government, quite different from the form of 
capitalism under which we grew up. He says: 

Over a period of years, the augmentation of consumer purchasing power, com- 
pensatory fiscal action, and pump-priming have been advanced as bases for fiscal 
policy and in justification of large Pederal deficits. At the present time the 
emphasis seems to be principally on public investment. The policies that have 
been followed have definitely increased the importance of government as a factor 
in the economy, without achieving the functioning of the private enterprise system 
at or near its peak. The costs that have been incurred incident to the fiscal and 
related policies that have not achieved the desired results constitute burdens, 
present and prospective, that fall mainly on the private branch of the economy. 
These costs, in turn, tend to render the proper functioning of the business system 
mare difficult. In particular, they tend to restrict the volume of private invest- 
ment. 

Considered jointly, these facts strongly suggest that the outstanding implication 
of the Federal fiscal policies that have been followed since 1933 is that they involve 
a gradual transition to a difi"erent form of economic order. If it is assumed that 
it is the function of government to spend and invest whenever those in authority 
consider that private business activity is not at a satisfactory level, then there 
must inevitably be a greater degree of reliance on government as a source of both 
money incomes and real incomes.'^ 

" National Industrial Conference Board, Economic Record, August 31, 1939. 



28 ooncelntration of economic power 

Gorliard Colin, professor of economics in the graduato faculty 
pf political and social science at the New School for Social Research 
in New York, and at present fiscal expert for the Bureau of the Budget, 
is one of the most eminent fiscal authorities in the United States. He 
has developed the economic theory underlying fiscal and tax policy 
probably further than any other person in this broad field of study; 
hence his findings are especially important. He states his position in 
an article on "Tlie Bases of Federal Fiscal Policy," in Taxes for June 
1939, and in "The Ideal Tax System," Social Research, volume 1, 
August 1939. This position is summarized here. 

Colm discusses the ])urpose of taxation in various kinds of 
economy, and of the means most adaptable to achieve those purposes. 
He defines four types of state — the protective state, the social state, 
the partnership state, and the control state— and points out that the 
development of the economy is usually more rapid than the tax or 
administrative change that should accompany it. The United States, 
for instance, has shifted more rapidly than any other nation from the 
protective stage to the partnership and control stage, while its fiscal 
system is still gearcul to the protective stage. 

In 1934 Great Britain was in the liberal-social stage, and its tax 
system placed most reliance on the income tax, as the "best" tax for 
its purposes. Germany, on the other hand, was in 1934 in the part- 
nership and control stage, and levied business and cost taxes, largely be- 
cause her system of consumption and income taxes proved inadequate. 

Mere social taxation is not enough for the United States, which has 
in some fields progressed into the partnership and control stages. It 
needs social taxation and also business taxation. 

In both social and control states, depression must be fought by 
expenditure rather than economy, which would suffice under the pro- 
tection stage. As a result unwieldy deficits occur. 

The even more serious question must eventually arise — how to 
develop a tax system resistant to depression. One way is to levy 
tax(>s less sensitive to depression. Ranged on a rising scale according 
to sensitivity, the available taxes are as follows: poll taxes; consumers' 
nec(^ssities taxes; consumers' luxury taxes; taxes on property, capital, 
and inheritances; ttu'n-over taxes; income and profit taxes (especially 
sensitive if offsets or property allowances are permitted); and appre- 
ciation of property values. If the first two tax(^s are increased, greater 
stability is secured at the expense of justic(\. Increases in capital 
value taxes result in increases in cost of productioji, which means 
achieving fiscal stability at the cost of economic stability. In the 
fourth stage of government control, fiscal and economic stability are 
identical. It seems reasonable, therefore, that if fiscal expedients may 
be provided otherwise, stability should not be a deciding factor in tax 
reform. 

Depression must be met in a social state by accumulating surpluses 
in prosp(>rity to meet adversity in depression, or rather by borrowing 
in depression and repaying the loans in prosperity. 

As the state develops into the partnership and control stages, it 
becomes necessary to resort to cyclical taxation, since the state is, to 
some extent at least, responsible for, as well as affected by cyclical 
changes. In this situation, it is necessary to consider the point in the 
business cycle when any tax is introduced. For instance, a sales tax 
tends to accentuate the downswing of business. On the upswing, 



OONCBNTRATION OF ECONOMIC POWER 29 

however, this tendency is minimized, and the full effect is gained in 
the way of a quick and large increase in tax receipts. Also, it is safer 
to increase income and mass luxury taxes than business and cost taxes, 
since the restrictive effect on the economy is smaller. 

An ideal tax system is one which, within the limits of justice and 
the social purposes of the Nation, increases economic stability. The 
income tax has been proposed for this purpose since it combines ability 
to pay with a desirable effect on the capital structure. It seems advis- 
able to reduce capital accumulation during prosperity. But the 
income tax is a clumsy means to achieve this end, and at best, it is 
only one means. Private capital accumulation may well give way 
even further to corporate accumulation under such circumstances. 

It has been argued that high taxation during prosperity and low 
taxation during depression would work much as would high and low 
interest rates; directly, to stimulate or discourage investment, and 
indirectly, if surpluses are used to pay debts, by increasing or curtail- 
ing credit expansion. This system would work only if taxpayers would 
spend, in depression, the funds saved by reduced taxes, which they 
are not likely to do. 

The tax system of the future should eliminate the present tax loop- 
holes, put the collection of inheritance and income taxes on a national 
basis, and include business taxes, probably on two bases. Dr. Colm 
suggests that corporations be divided into two classes: the first, the 
large interstate corporations, preferably chartered nationally, paying 
a corporate franchise tax and a tax on undistributed profits (since the 
public capital markets are available to them). The second would be 
local corporations, which would pay lower taxes, but which would 
have to declare all profits, as in a partnership. This system will 
include a tax on long-term debt, or interest paid on such a long-term 
debt. The state levies would be business taxes, on the value added 
by manufacture, and the local tax base would be real property. 

Colm summarizes his proposals as follows: 

* * * the Federal Government would tax the most movable subjects, 
wealthy individuals, and large corporations, the States would tax business, and 
the municipalities — land, the most immovaV>le object of taxation. This would 
also mean a scale from the most sensitive to the more steady sources of revenue. 
The Federal Government, of course, is more able than States and local pjovern- 
ments to carry a deficit in periods of depression and, on the other hand, needs 
the tax sources which respond quickest to an upturn in business and the national 
income. 

I realize that this contribution to the present discussion of tax reform appears 
Utopian to everyone who knows the constitutional and political difficulties im- 
peding every move in this field. Yet we should at least clarify our notions of 
what is desirable for a period in which taxation reached a level unknown to former 
times and in a period of economic instability. Only by such an overhauling of 
our ideas can we make sure tliat in our daily compromises with the realistic neces- 
sities, we will ne\ertheless move in the riglit direction. ^^ 

Harold Groves, professor of public finance at the University of 
Wisconsin, is an outspoken exponent of the use of taxation for both 
fiscal and nonfiscal jjurposes. 

In his book, Financing Government (pp. 725 ff.) he takes issue with 
those who regard Government expenditures as a drain on the economy, 
saying that the Government is a productive part of the economic 
system — accounting for one-fifth of the national income. The 
Government achieves this production in three ways: By facilitating 

" Gerhard Colm, "The Bases of Federal Fiscal Policy" in Taxes, June 1939. 



50 OONCBNTRATION OF EOONOMIO POWEiR 

private production; by providing direct consumer satisfactions; and 
by protecting consumers in the matters of standards and prices. 

The question whether a particular government or private service is 
more productive is decided by the inteUigent choice of the voter, 
which must also consider the means adopted to pay fot it. That is, 
if a Federal service is provided, to be paid for by a consumers' tax, it 
will probably be more expensive, in its withdrawal of consumer purchas- 
ing power from other fields, than a private service offered to those 
willing and able to pay for it. 

Groves disagrees with those who say that taxation destroys initia- 
tive. He admits that in some cases business taxation may increase 
costs to a point where a monopoly would refuse to expand rather than 
pay the tax; nevertheless, he contends that an adequate tax program, 
by providing a more stable economy and an increasing market, will 
actually encourage busintss. He also considers the use of incentive 
taxation (taxes on unused capacity, and on unemployment) to aid 
recovery. 

Taxation on capital is attacked as destroying the Nation's "tool 
fund." Groves, however, regards oversaving as a real danger, since 
it simultaneously removes purchasing power from the market, and by 
forcing interest rates down, encourages businessmen to invest in new 
productive facilities. He concludes that there is no lack of invest- 
ment capital, although risk capital is not sufficiently available, and 
points out that our tax system, with tax-exetopt Government bonds, 
tends to penalize the risk taker as against the saver. 

Government deficits are an expected accompaniment of a depres- 
sion, although their long continuance is dangerous to the Nation's 
tax system and fiscal stability. Groves approves the system of cyclical 
budgets, to be balanced within the business cycle rather than in a year, 
but admits that governments sometimes do not repay loans in good 
years, and the cyclical pattern is often impossible to foresee. 

Government expenditures are divided into four types: self-liquidat- 
ing, reproductive, productive, and nonproductive. The first two are 
expenditures which return more than the amount spent on them; 
the third provides assets to the extent of the expenditure; and the 
fourth actually provides less than the amount spent. He classes 
armaments and made-work in the last category, and argues that the 
first three are far more effective in securing recovery, as well as being 
more valuable in themselves 

He concludes r 

The railroads, office buildings, factories, and other elements of a great economy 
have been built the extension of these capitalistic developments into virgin 
territorv cannot be renewed. A healthy economy needs to expand. The Govern- 
ment with its high command over both credit and taxation must underwrite 
the economic expansion of the future. 

The British economist, John Maynard Keynes, formulated a general 
theory of economics which, he believed, would lead to recovery and 
result in full employment of the manpower of the Nation." This 
theory has become recognized by many economists as providing an 
economic basis for a tax system directed toward a solution of the 
problems which confront modern capitalism. 

«« John Maynard Keynes, The General Theory of Employment, Interest, and Money, Harcourt, Brace, 
New York, 1936. A very important mathematical analysis of the American situation ("Secular Unem- 
ployment," by J. Marcus Fleming), employing the Keynesian formula, appeared in the Quarterly Journal 
of Economics, November 1939. 



CONCENTRATION OF ECONOMIC POWEiR 3j 

The data on economic trends submitted earlier in this section 
indicate that if events permit the adoption of a peacetime tax system 
for recovery, Keynes' formula will be of profound importance. He 
has repeatedly "guessed right" in his analysis of economic conditions, 
as evidenced by his book The Economic Consequences of the Peace, 
and other studies. Excerpts from his General Theory follow: 

The outstanding faults of the economic society in which we live are its failure to 
provide for full employment and its arbitrary and ineeiuitable distribution of 
wealth and incomes. 

******* 

Up to the point where full employment prevails, the growth of capital depends 
not at all on a low propensity to consume, but is, on the contrary, held back by it, 
and only in conditions of full employment is a low propensity to consume conducive 
to the growth of capital. Moreover, experience suggests that in existing conditions 
saving by institutions and through sinking funds is more than adequate, and that 
measures for the redistribution of incomes in a way likely to raise the propensity 
to consume may prove positively favorable to the growth of capital. 

******* 

I believe that there is social and psychological justification for significant 
inequalities of incomes and Avealth, but not for such large disparities as exist today, 
******* 

The justification for a moderately high rate of interest has been found hitherto 
in the necessity of providing a sufficient inducement to save. But we have shown 
that the extent of effective saving is necessarily deteftnined by the scale of invest- 
ment and that the scale of investment is promoted by a low rate of interest, 
provided that we do not attempt to stimulate it in this way beyond that point 
which corresponds to full employment. 

******* 

Interest today rewards no genuine sacrifice, any more than does the rent of 
land. The owner of capital can obtain interest because capital is scarce, just as 
the owner of land can obtain rent because land is searce. But whilst there may 
be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the 
scarcity of capital. * * * It will still be possible for communal saving 
through the agency of the State to be maintained at a level which will allow the 
growth of capital up to the point where it ceases to be scarce. 

Thus we might aim in practice (there being nothing in this which is unattainable) 
at an increase in the volume of capital until it ceases to be scarce, so that the 
functionless investor will no longer receive a bonus; and at a scheme of direct 
taxation which allows the intelligence and determination and executive skill of the 
financier, the entrepreneur et hoc genus omne (who are certainly so fond of their 
craft that their labor could be obtained much cheaper than at present), to be har- 
nessed to the service of the community on reasonable terms of reward. 

******* 

It is not the ownership of the instruments of production which it is important 
for the State to assume. If the State is able to determine the aggregate amount 
of resources devoted to augmenting the instruments and the basic rate of reward 
to those who own them, it will have accomplished all that is necessary. 

I see no reason to suppose that the existing system seriously misemploys the 
factors of production which are in use. It is in determining the volume, not the 
direction, of actual employment that the existing system has broken down. 

The authoritarian state systems of today seem to solve the problems of unem- 
ployment at the expense of efficiency and of ireedom. It is certain that the world 
will not much longer tolerate the unemployment which, apart from brief intervals 
of excitement, is associated — and in my opinion inevitably associated — with 
present-day capitalist individualism. But it may be possible by a right analysis 
of the problem to cure the disease w hilst preserving efficiency and freedom. 

The new system might be more favorable to peace than the old has been. 

261085 — 40— No. 20 4 



TAX THEORY AND ECONOMIC LIFE— A SUMMARY 

It is apparent that both conservative and progressive tax authorities 
concede taxation a large place in modern economic life. But they 
disagree widely as to the exact role taxation can or should play in 
aiding recovery and establishing a somewhat permanent level of 
prosperity. 

The essential difference between these authorities, and they are 
representative of their respective schools of thought among the 
economists, revolves about the use of taxation as an instrument of 
social and economic control. Both sides are sincere and honest. 
Each derives from a different knowledge and interpretation of eco- 
nomic history and present-day developments. 

A dispassionate study indicates that the classical economists and 
fiscal authorities are shackled by their early training in economic 
theory, and their views on taxation have not kept pace with current 
events. One of the most eminent among them, Lutz, writing in 1936, 
after prolonged mass unemployment and economic stagnation, fails 
to recognize their seriousness and the possibility of using taxation to 
aid in their solution. ^^ In his discussion of taxation and economics 
he utterly neglects the prophetically important work of John Maynard 
Keynes, Harold Groves' articles on "Taxation and Social Control," 
which appeared early in 1934 and caused Nation-wide discussions 
among fiscal experts, and the significant Brookings Institution series 
on America's capacity to produce and consume.^® Instead, he leans 

heavily on J. S. Mill (1806-73) and C. F. Bastable (1855 ), quoting 

the latter at length in support of his tax theories as they apply to 
economics. ^^ 

Here is the key to the conservative position. Mill and Bastable 
wrote in a period of world frontiers, when scarcity of capital, lack of 
manpower, the abundance of natural resources and free land, and 
an expanding world trade justified their theories. All during the 
nineteenth century most of the profits of enterprise were immediately 
.reinvested, either to expand existing enterprises, or to start new ones. 
In such a period there was considerable validity to the classical 
doctrine that society as a whole benefited from the concentration of 
excessive incomes in the hai;ids of the few, for their savings were 
invested in labor-using enterprises which expanded industry, increased 
employment, and raised the general standard of living. The situation 
changed, however, after 1900. Even in the prosperous 1920's the 
available capital could not be readily employed in industry, and mil- 
lions of dollars were siphoned off into stock market gambhng, ex- 
travagant living, and wild speculations which greatly unsettled the 

'» Harley L. Lutz, Public Finance, Third Edition, D. Appleton- Century, New York, 1936. 

«' John Maynard Keynes, Thp Means to Prosperity, Harcourt, Brace, New York, 1933, and subsequent 
publications; Ilmoiu m. Groves, "Taxation and Social Control," New Republic, February 14, 1934, etseq.; 
America's Capacity to Produce, and America's Capacity to Con^me, Brookings Institution, Washington, 
1934. 

"John Stuart Mill. Principles of Political Economy, Ashley Edition; C. F. Bastable, Public Finance, 
Macmillan, New York, 1892. Lutz gives Bastable as a chapter reference 8 times' and cites him 10 times. 

32 



GONCBlNTRATION OF ECONOMIC POWER 



33 



investment market, and did not increase employment nor expand 
industry wisely. 

The conservative tax experts of the day regarded these changes as 
momentary aberrations rather than fundamentaL shifts in economic 
conditions, and fell back on their classical dogmas as verities which 
would soon reassert themselves. Furthermore, these conservative 
tax experts had become increasingly concerned with minutiae of tax 
problems. They dealt less and less with taxation as a phase of 
economic policy, and became more and more engrossed in the legalistic 
interpretation of tax statutes and the proper administration of tax 
laws. As they specialized, many of them came to ignore the society 
in which the tax system was supposed to fit. Business called upon 
them as tax consultants and specialists. This contact with the 
business community further assured them of the practical value of 
their classical economic theories, for it was in terms of these theories, 
however outmoded, that the expansionist economic practices of 
businessmen were conducted and rationahzed. 

This close affinity between conservative tax experts and the business 
community contributes materially to the social lag which prevents 
changes in tax theory in keeping with present-day needs of the econ- 
omy. As Colm so well recognizes, our national social system has 
rapidly been forced out of its merely protective stage into the part- 
nership and, in some major aspects of the economy, even into the 
control stage. Of necessity, the tax system must be evolved to keep 
pace with these major sliifts in the role of Government. The business 
community generally, hoM^ever, still believes that the State is good to 
the extent that it provides a protective environment for business 
operations, itself performing as few economic functions as possible 
and never entering any sphere of business where private enterprise 
can operate. They are ably supported in this view by conservative 
tax authorities, who stigmatize as unethical, taxation for social control. 

In An Economic Program, for American Democracy ^* seven Harvard 
and Tufts economists have collaborated to highlight our present eco- 
nomic difficulties and to outline a practical program which will go 
a long way toward solving those problems within the framework of 
the democratic capitalistic society. Their proposals not only fit, in 
substantial measure, the analysis of the structure and trends of the 
economy presented in appendix A, but they are in essential agreement 
with Keynes' theories and Colm's historical analysis and suggestions. 

These economists defined the basic changes in economic life as: 

1. The disappearance of the frontier. 

2. A decline in the rate of population growth. 

3. The end of world expansion into new areas. 

Obviously, these three basic changes, thus tersely put, do not fully 
describe our present-day economy. Yet they are the essentials of the 
important changes through which we are passing. It is possible to 
overstress one or the other; neyertheless, reduced to their simplest 
and truest terms, these are the elements of change, and around them 
any effective recovery program must be built. 

The fundamental necessity for recovery is a sound program which 
will raise the national income and keep it high. Under the New Deal 

38 Richard V. Gilbert, George H. Hildebrand, Jr., Arthur W. Stuart, Maxine Yaple Sweezy, Paul M. 
Sweezy, Lorie Tarshis, John D. Wilson, An Economic Program for American Democracy, The Vanguard 
Press. New York, 1938. 



34 CONCEilNrTRATION OF ECONOMIC POWEE 

the national income has expanded from $41,000,000,000 in 
1932-33 to $70,000,000,000 in 1936.^^ Here is proof that national 
income is responsive to Government stimulation, for it was not private 
disbursement but public spending through the P. W. A., W. P. A., 
and other New Deal agencies which increased national income. ^° 

While the ability of the Government to raise national income has 
been demonstrated, we are confronted by the m.ore difficult problem 
of maintaining national income at prosperity levels and seeing that 
it is adequately distributed among the people. New fields for invest- 
ment must be opened. Opportunities abound in the field of con- 
sumers' purchases, hampered only by the lack of purchasing power 
in the hands of millions of Americans. The distribution among them 
of Federal work and relief money, v/hilc it greatly stimulates the con- 
sumption-goods market and makes place for capital investments, has 
not been sufficient to solve the problem. 

But it is in the durable-goods area of economic activity that the 
greatest log-jam has occurred. While the economy in the near future 
will probably rely more upon the consumers' goods sector than upon 
capital goods, nonetheless, recovery of the durable goods industry 
is vital. Here, too, the Government properly has offered and can 
continue to offer a stimulus, for low-cost housing has never been 
proJBtable for private business, while under Government financing 
it is feasible, and promises great things for private industry. Other 
forms of investment suggested by the Harvard-Tufts economists 
will operate in the same way, such as highway and bridge construction, 
conservation and control of natural resoiu"ces, flood control, city 
planning, etc.*^ 

It is suggested that current taxation be used to pay for the con- 
sumption program, temporary aids, such as unemployment relief, and 
continuing activities like the social-welfare program. The Harvard- 
Tufts economists urge adequate enforcement of income and inheritance 
taxation ; closing of loopholes in present laws ; and an increase in rates 
in the middle-income brackets; the taxation of undistributed corporate 
profits; and the elimination of tax-exempt Government securities. 
Even these reforms might not immediately supply the revenue needed 
for the consumption program, yet, as the national income increased, 
sufficient funds would be available from these sources. 

It is proposed that the long-range program of Government aid to 
economic recovery be financed through Government borrowings.. 
This raises the question of public debt and the solvency of the Gov- 
ernment. It is a crucial issue in public policy, and one upon which 
political emotions have been stirred to great heat, and often to hasty, 
ill-considered action. The Harvard-Tufts economists point out many 

'« Ibid., p. 25. 

M "During the early phases of the recovery period the disbursement of business concerns in the form of 
Income payments to mdividuals (such as wages and salaries, dividends and interest on borrowed capital) 
rose by a smaller amount than the income received by business from the sale of goods and services to con- 
sumers; the remaining funds were used to build up cash balances and pay debts. Since the expansion of 
income disbursements by business to the community lagged behind the expansion of income from the sale of 
products to consumers, it follows that the stimulus to increased industrial activity and employment did not 
originate from within the business organism. Moreover, by 1932 or 1933 most consumers had lost or 
exhausted their accumulated savings, and many had exhausted their credit also, so that the stimulus to 
increased expenditure cculd not have originated with them." Ibid., p. 26. 

« "This program is designed to protect private enterprise in the traditional private sector of the economy 
It prof)oses to do this by restoring the demand for the products of private industry through a vigorous 
expansion of the public sector. A moderate amount of income redistribution is entirely consistent with this 
aim. Too great an inequality in the distribution of incomes is a danger both economically and socially. 
• • * In connection with our proposals for redistribution of income, the distinction between the long- 
run and immediate program must be Pcept in mind. We do not advocate any redistribution of income on 
the present poverty level of national economic activity." Ibid., pp. 47-^. 



CONCBNTRATION OF ECX)NOMIC POWEiR 35 

of the confusions regarding debt, and stress the difference between 
personal and pubUc debts. As they remark: 

If we look at the whole Nation as a going concern, we see that its internal 
debts, business and governmental, are merely another aspect of its assets. * * * 
An expanding econom}^ not only can, but must, continually increase the total 
volume of debt outstanding. * j*= * Individual debtors do, of course, get into 
trouble by improvident borrowing. But for the economy as a whole, trouble 
comes only when the Nation falters in the course of its economic expansion. 
Onh' in periods of crisis and depression is there a general questioning of the sol- 
vency of debtors. The expansion of debt at a rate sufficient to absorb the Nation's 
savings is both sound and necessary. This rate could be excessive only in the 
sense that the rate of savings itself was excessive. Thus, what we should worry 
about is not the increase of debt but the increase in savings beyond the amount 
that can be absorbed by investment.''^ 

Opposition to Government indebtedness revolves around three 
widely publicized and propagandized propositions-: 

1. Government activities are unproductive, hence borrowings 
for such expenditures are a waste of economic resources which 
would not occur were they used in the private sectors of the 
economy. 

2. The interest charges on government debt impose an intoler- 
able burden on taxpayers, often extended beyond the time in 
which the money borrowed has been used, and paid for by suc- 
ceeding generations. 

3. An expanded debt jeopardizes the credit of the Government, 
and may lead to disastrous consequences such as inflation. 

The first point is easily answered by a comparison, say, of the 
productivity of a motion-pictiu-e theater with the construction and 
maintenance of the Brooklyn Bridge. The range of both public and 
private enterprise includes those which might reasonably be discon- 
tinued as unproductive and those which are indispensable. 

As to point 2, the interest charges on Government debts are paid 
by taxpayers to bondholders, and hence do not reduce the Nation's 
income, however they may affect the circumstances of individual 
taxpayers. There is, of course, considerable inequality in the debt 
bm'den borne by the various income classes, for our present regressive 
tax system weighs heavily on the small-income classes, who are not 
the bondholders of the Nation. 

The answer to point 3 is conjectural and depends largely on the 
"psychology" of the public. There is no actual evidence that Gov- 
ernment credit is being impaired as the debt mounts. The low interest 
rate still indicates vast uninvested surpluses of capital, and the 
powers of the Federal Government have been sufficient to prevent 
any general price increases of inflationary character. 

Great Britain is the best example of a capitalistic economy in which 
fiscal policy has been made to coincide with economic trends. Unem- 
ployment insurance and Government employment services launched in 
America in 1935 were begun in England before 1910. With the excep- 
tion of 3 years under the Labom- Party from 1928 to 1931, the con- 
servative capitalists were in power in England constantly after 1900. 
The minority liberal parties offered important opposition, but were 
unable to control the Government. Hence, while many reforms were 
wrung from the conservatives against their strongest opposition, 
nevertheless, they continued to rule Britain. 

" Ibid., pp. 63-65, 



36 CONCMNTRATION OF ECONOMIC POWEK 

The depression of 1921 struck England so severely that the unem- 
ployment insurance system collapsed, and the dole was adopted for 
uninsured unemployed workers. It has been continued uninter- 
ruptedly ever since, being budgeted until 1929 as an emergency, but 
after that as a regular recurring item. Thus, in perhaps the most 
advanced capitalistic nation in the world, unemployment relief has 
been accepted for nearly 20 years as an aspect of a capitalistic economy 
which does not use its entire labor force. The Economic Science and 
Statistics Section of the British Association for the Advancement of 
Science reports: 

Even in 1929, the most prosperous year in post-war history, the number of 
unemployed exceeded the number of unemployed in years of extreme depression 
before the war.^' 

By 1938, 13.1 percent of the insured workers were unemployed.** 
Total ^unemployment was considerably above that figure. In 1937, a 
relatively good year, there were 13 percent more workers employed in 
Britain than in 1929; even then, however, 11 percent of all insured 
workers were still listed as unemployed. 

Yet England had evolved a fiscal system to cover the increased 
expenditures after 1934, largely necessitated by the chaos of the na- 
tional economy and the need for large social-security expenditures. 
Borrowing played an important part in the fiscal program, but the 
reformed tax structure also had signal effect. The ratio of taxation to 
national income rose from 15 percent in 1929 to over 22 percent in 
1934.*® Wliile both consumer and income taxes were increased, 
it is the consensus of the experts that the British working classes were 
especially benefited by the changed fiscal structure.*® 

Alvin Hansen, in the Temporary National Economic Committee 
hearings, called attention to certain important summaries. Before 
World War I about 13 percent of 1}he British national income went into 
savings; by 1935 this had dropped to 7 percent. Yet, as savings 
deposits, surpluses in the depreciation and depletion accounts of 
British corporations, reported net incomes, and the interest rate 
clearly show, there was no dearth of mvestment capital. 

In 1911-12 only 3 percent of the national income in Great Britain 
was spent on social services; by 1934-35, 12 percent was so spent. 
The shift in taxation during the past 30 years from consumers taxes to 
income and estates taxes has particularly benefited working people, 
so that by 1935 total benefits received by them from the Government 
were 21 percent greater than all direct and indirect taxes paid by them 
to the Government.*^ 

Just prior to the present war British fiscal poUcy attempted to place 
the burden of expenditures to maintain as much purchasing power as 
possible, make available an adequate supply of investment capital, and 
disrupt economic life as little as necessary. It had not fully achieved 
these aims, despite its substantial accomplishments. It had not 
estabhshed full employment, following the Keynes formula or any 
other. It continued to pile up national debt, but failed to initiate 

*> Research Committee of the Economic Science and Statistics Section of the British Association, Britain 
in Depression, Isaac Pitman & Sons, London, 1935, p. 13. 

" National Industrial Conference Board, Enterprise and Social Progress, New York, 1939, p. 288. 

♦' Britain in Depression, p. 461. 

« Ibid., p. 462. 

«' Testimony of Alvln H. Hansen in hearings before the Temporary National Economic Committee, pt. 9, 
pp. 3555-3556. British data are taken from studies by Plgou, Colin Clark, and others. 



OONCBNTEATION OF ECONOMIC POWER 37 

a program of Government investments such as has been suggested by 
Keynes or the Harvard-Tufts economists. It represented the efforts of 
an enhghtened conservative capitahstic government to maintain 
capitalism during a far-reaching reorganization of its productive- 
distributive system. It is in no sense a model of perfection, and it 
falls far short of extensive dependence on government advocated by 
the Harvard-Tufts economists for both consumers' welfare and the 
movement of durable goods. 

Yet, particularly on the tax side, Britain has achieved notable 
results, indicating that in tax reform may be found substantial aids to 
maintaining the capitalistic system and possibly to promoting recov- 
ery. In this direction the United States must go if it hopes to estabUsh 
a tax system in line with its economic trends. Specific recommenda- 
tions, however, must depend upon a careful analysis of Government 
expenditures and tax revenues. 



TAX THEORY AND THE PREPAREDNESS PROGRAM 

No statement of tax theory and the economic life of the nation 
would be complete at this time without reference to the requirements 
of the United States for a preparedness program. While this is 
discussed in detail in p'art IV, the theory underlying fiscal policy and 
taxation in a defense economy is summarized here. It differs in 
important essentials from that underlying a tax system intended to 
benefit a peacetime democratic economy. A democracy is distin- 
guishable from totalitarian states in either peace or war in several 
important ways, one of which is the fiscal policy and economic controls 
established. 

Germany, for example, geared her entire economy to her national 
purposes, brushing aside individual enterprises, private ownership, 
and the right to profits as seemed desirable or necessary to achieve her 
ends. The labor force was subjected to rigorous discipline and control, 
unionism and collective bargaining were destroyed, and the working 
population was regimented so as to make available the amount and 
kind of production required by the state. Consumption standards 
were altered from time to time in terms of state policy, and rationing 
of goods enforced to limit and direct their use. Revenue was obtained 
through direct levies on the pay rolls of the nation, and the enactment 
of a series of sales and other taxes which readily produced large sums. 
Capital was conscripted for the use of the state, and management- 
operated plants according to prescribed plans. The aims of this 
program have recently become apparent, at least in part. 

Even in the present emergency, the United States could not follow 
in Germany's footsteps without becoming in effect a totalitarian state. 
We must establish as quickly as humanly possible an adequate defense. 
But in doing so, it is our purpose to preserve the methods, practices, 
and achievements of democracy. We must make the fullest use of 
our manpower and other resources to accomplish our objectives, but 
we need not destroy democracy in the process. A sound fiscal policy 
and tax system offer good insurance against such a possibility. 

The necessity of diverting a substantial part of our national re- 
sources and manpower to preparedness and wartime purposes, of a 
destructive character from the economic standpoint, does not oft'er a 
substitute for the solution of our peacetime economic problems. For, 
when the war is over, the problems of the modern industrial society 
will still be with us, and a greatly increased assortment of added 
problems will confront us. 

It may be, however, that as the preparedness program expands, it 
will dominate the economy. It may achieve prosperity of a sort, in 
which national income will reach new heights, full employment will 
render the relief problem inconsequential and provide income for the 
full labor force, and the consumer-goods industries will be strained to 
capacity to produce goods enough, of a sufficient variety, to satisfy 
the wants of the community. 

38 



CONCEiNTRATION OF ECONOMIC POWEiR 39 

Such a preparedness and wartinfie economy, built hurriedly in an 
emergency with relatively httle regard for long-term planning, appears 
to provide a healthy prosperity. Factories run three shifts, farmers 
enjoy ready sale at good prices for all they can raise, no lines of unem- 
ployed wait patiently at factory gates for jobs that fail to turn up, 
and goods are taken off the shop shelves as fast as they are deUvered 
from the warehouses. Hard to imagine as such a situation is for those 
who have grown up since 1929, this is just what occurs every time 
any serious and prolonged war breaks out. As Keynes well says: 

In war we move back from the Age of Plenty to the Age of Scarcity.** 

Obviously, fiscal policy and tax practices geared to achieve abund- 
ance do not adequately satisfy the demands of a scarcity economy. 
For example, when we have idle men, factories, and capital, we have 
underconsumption of goods. In this situation, sound fiscal and social 
policy includes public works to provide employment,' public borrow- 
ings to augment private loans, and the strictest avoidance of levies 
which curtail consumers' purchasing power, such as sales and excise 
taxes. The principal purpose of an economy geared to wartime pre- 
paredness, on the other hand, becomes the development of adequate 
defenses, and whatever is left over after satisfying these defense needs 
is available for the use of the civilian economy. As the emergency 
becomes acute, the goods and services available for the civilian sector 
grow less. Then it is not the amount of money in the pockets of the 
people or their readiness to spend it which governs production, but 
the physical capacity of the Nation to meet the insatiable demands of 
war defense and still produce something for the maintenance of the 
civilian population. 

In this situation prices rise with startling rapidity, and wage in- 
creases never quite catch up to them. Profits grow enormously, and 
are siphoned off by old and new millionaires and wartime profiteers. 
The needs of government grow so rapidly that recourse is had to borrow- 
ing on a huge scale. The national debt mounts to astounding heights. 
Then, when the war is over, industries close their doors, men are idle, 
those who have been off to the war or in the training camps return to 
further augment the number of unemployed, and the accumulated 
national debt weighs heavily on the taxable resources of the country, 
A deflationary period sets in which is ruthless in its social and economic 
consequences. 

This is the sober, documented testimony of experience, so recent 
as World War I. Its effects were so pronounced that the national 
economic life still staggers under the accumulations of war debt and 
the unsolved economic problems which it produced. As Bernard M. 
Baruch, chairman of the War Industries Board at that time, has so 
well said, the inflation established a dollar v/orth only 50 cents, and in 
4 years created a war debt of $39,000,000,000, which, had no inflation 
occurred, would have been only $13,000,000,000. In his judgment — 

Such a grotesque result would be almost unbelievable were the figures not 
living facts. If anything can be done to avoid this practical doubling of the 
economic burden of war, certainly we should spare no effort to accomplish it." 

Fiscal policy and the tax system should be geared to meet the un- 
usual demands of a wartime economy, so as to mitigate these con- 

« How To Pay for the War, Harcourt, Brace, New York, 1940, p. 17. 

<• H. Doc. 163, 72d Cong., 1st sess., Message of the President transmitting the report of the War Policies 
Commission, p. 33. 



40 OONCElNTRATION OF EOONOMIC POWER 

sequences as far as possible. In the initial stages of the prepared- 
ness program it will be necessary to borrow large sums, but the national 
debt must be kept as low as possible, without in any way hindering the 
successful prosecution of the war objectives. To keep it so will 
require a broadened tax program, using net income and profits taxes 
as the core of the system. 

When full employment is reached, it becomes necessary to regulate 
or curtail consumption of certain goods, and here again the tax system 
can be helpful throughthe use of sales and excise taxes so high as to 
become a factor in the kind and amount of consumption goods used. 
It is probable that full employment will not be reached until some 
years of a preparedness economy have passed. In the meantime, 
bottlenecks may appear and production be seriously hampered. In 
this situation, taxation may be used to direct the flow of purchases, 
or limit purchasing power in the interest of economic stability. 
(See pt. IV for a further discussion of preparedness taxation.) 

A democracy rightly is concerned with the sacrifices made by its 
citizens, and the tax system is the best available instrument to main- 
tain some degree of equality in the sacrifices made by those engaged 
directly and indirectly in war. Democracy is concerned that none 
benefits from the sacrifice of others, for preparedness is in defense of 
our common heritage and not for economic gain or personal gloi'y. 
Again, the taxation of profits and net incomes becomes a useful instru- 
ment to effect this purpose. 

If a well-devised system of taxation is employed to complement 
other methods of price control and organization of the wartime 
economy, it is possible that at the close of the war, the national 
debt will not be unbearable, mass purchasing power will be available 
to cushion the transition of the economy from a war to peacetime 
level, and the inevitable deflation will be kept within limits which 
will not threaten the very life of the Nation. The accumulation of un- 
solved problems which burden us as we enter the present preparedness 
era makes it imperative that we find some fundamental solution both 
for them and for others which loom ahead. 



PART II 
THE NEEDS OF GOVERNMENT 



AN ANALYSIS OF GOVERNMENT EXPENDITURES 



41 



THE NEEDS OF GOVERNMENT 

PURPOSES OF GOVERNMENT EXPENDITURES 

An analysis of the expenditure program of the Government is funda- 
mental to the formation of a tax policy. Yet tax experts usually take 
a somewhat cursory glance at public expenditures and then plunge 
into a detailed treatment of tax incidence and trends. 

Specialists in public finance are not wholly to blame for their limited 
study of public expenditures. Public accounts are not set up on any 
comparable basis, to permit appropriate summaries of local, State, and 
Federal expenditures. Even within governmental jurisdictions pro- 
cedures vary from department to department and year to 5^ear. Func- 
tional classifications of appropriations and expenditures, the quality 
and quantity of services rendered, the unit costs of service, and the 
resulting social and economic benefits of Government activities are 
almost entirely lacking. Yet without such functional analyses of 
public expenditures — 

* * * planning and programming are illusory; budgeting is usually a guess 
or at best an approximation; apportionment of public costs according to capacity, 
needs, or benefits is likely to accentuate maladjustments instead of relieving 
them; and even the more customary elements of the governmental machine, such 
as accountancy, jog and bump along the road.' 

Colm declares that the fundamental problems of taxation and public 
credit cannot be solved v/ithout adherence to some underlying and 
motivating theory of public expenditures. He finds it helpful to dis- 
tinguish between types of public expenditures according to their 
"productivity".^ The first of these are expenditures for self-liquidat- 
ing projects. Wliile some conservatives are skeptical of the advisabil- 
ity of Government expenditures even for such items, many others re- 
gard the possibility of self-liquidation as the test of the desirability of 
a project. Such a limitation of Government expenditures would not 
satisfy the needs of the people, for there is a whole array of public 
services in a democracy which by their very nature never can or should 
become self-liquidating. 

There is a second type of public expenditure whose projects, such 
as the erection of bridges and roads, add to the resources of the State. 
While these expenditures may finally result in increased public reve- 
nues, such returns tell very little of the urgency for public as com- 
pared with private expenditures, nor are they an indication of the 
value of such expenditures. 

The third distinguishable form of public expenditure increases the 
productivity of labor generally, although probably indirectly. For 
example, flood control, vocational education, and the collection and 
dissemination of economic statistics are productive activities wliich 

' Wylie Kilpatrick, "Classiflcation and Measurement of Public Expenditures," the Annals of the Ameri- 
can Academy of Political and Social Science, Qovernment Finance in the Modern Economy, Philadelphia, 
1936, p. 19. 

2 Gerhard Colm, "Theory of Public Expenditures," the Annals of the American Academy of Political 
and Social Science, Government Finance in the Modern Economy, Philadelphia, 1936, pp. 2-4. 

43 



44 CONCENTRATION OF ECONOMIC POWER 

can properly be carried on by Government at public expense for that 
purpose. . ; 

In the last analysis, however, it is impossible to limit government 
expenditures to "productive" projects, for economic measures of 
productivity do not app'ly to many public expenditures. The true 
criteria for such projects, within the limits of the community's ability 
to provide them, are the public desire for them and the relative ability 
of public or private agencies to' provide them most efficiently. 

Some projects may appear to have little economic value, but 
their inclusion in the public budget can be defended on the ground 
that the cultural life and safe.ty of the state require them. The 
economic value of others rrfay be' very indirect, yet their social value 
may be high. With still others, the economic returns accrue only 
after prolonged periods of delay, but they are so essential to the future 
welfare of the people that they ar« provided through public expendi- 
tures. Moreover, public expenditurefe are used to bridge gaps and 
lacks in the private economy which have resulted in human suffering 
and insecurity beyond the blame or correction of individuals. 

People who talk of limiting or expaiiding govermnent expenditures 
are usually motivated by their individual or group interest. As Colm 
w«il says : 

It is uot scientific calculation but the political struggle that defines this line of 
demarcation, and defines it every day anew.^ 

Both public opinion and government practice have for some time 
tended toward expansion of the number and quality of public services. 
But this trend has met the vigorous opposition of those who feel that 
such extensions handicap the private sector of the economy, retard 
recovery, and limit the sphere of private business activity. The cry 
goes up that the government is invading the business field through 
regulation and competition, that the state is being increasingly 
'^socialized." Statistics presented on the subject are usually such 
sweeping generalizations as, "We have 25 percent socialism in the 
United States today,"* which utterly fail to distinguish between public 
expenditures required by such mechanisms of the private economy as 
price competition, or those which increase the efficiencv and profits of 
private business. 

In a complex social system such as has developed in the United 
States since the Civil War, and more particularly with the widespread 
use of electric power and modem technology after the turn of the 
century, the demands made upon government to act as arbiter, agent, 
intercessor, banker, guardian, teacher, and guide grow almost daily. 
These demands come from all levels of the population, each seeking 
help in its difficulties. Not the least diffident or backward among 
petitioners when depression and fear overtake them are those very 
captains of business who periodically denounce governmental restraints 
or regulations imposed in order to establish some measure of equality 
among competitors in the market place. 

Today, the activities of government are varied and complex, as 
are the problems of the society which it seeks to serve. The govern- 
ment's economic responsibility is so great that it can no longer be 
regarded as simply an adjunct of the economic system. Instead, it is 

5 Ibid., p. 9. 

* Ray E. Unterelner, The Tax Racket, Philadelphia, 1933, p. 42. 



CONCEiNTRATION OF ECONOMIC POWEK 45 

an integral part of that system, profoundly influencing the agricultural, 
business, and labor activities of the country. No longer is it possible 
to consider its costs as if they were only items in a budget of govern- 
ment activities narrowly limited in their scope and purpose. The 
expenditures of government must now be considered "not merely from 
a fiscal point of view; they must also be considered from the point of 
view of the whole economic system." ^ 

President Roosevelt gave voice to the significance attached to gov- 
ernment expenditures in his 1941 budget message, saying in part: 

In these figures over a course of years are mirrored the changing attitude of 
the people toward the growing needs which they expect their Government to 
meet. The relatively low and constant level of expenditures throughout the 
nineteen twenties accurately reflected the relatively' minor role played by govern- 
ment in those years. The substantial increase in the past decade is a reflection 
of the degree to which the country, in response to changing economic and inter- 
national conditions and changing attitudes, has turned to the government to 
meet social needs recognized by our citizenship. Nowhere are our democratic 
processes so faithfully depicted. ^ 

» Colm, op. cit., p. 11. 

« Franklin D. Roosevelt, The Budget of the United States Government, 1941, Washington, D. C, 1940, 
p.v. 



GOVERNMENT EXPENDITURES IN 1937 AND 1938 

The latest statistics on the total expenditures of the various levels 
of government, local, State, and Federal are for 1937. Only estimates 
are available for 1938. In 1937 the various governments in the United 
States expended the following sums of money :^ 



Government 


Amount 


Percentage 




$8, 386, 000, 000 
2, 851, 000, 000 
5, 950, 000, 000 


48.8 




16.6 




34.6 








Total 


17, 187, 000, 000 


100.0 







While it is clear that the Federal Government dominates the 
spending of public moneys, this total conceals certain facts needed 
to explain the role played by the National Government. The prin- 
cipal expenditure of the Federal Government throughout the years 
has been for mihtary purposes, either in payment for past or pre- 
paration for future wars. In 1937 almost a fourth of all Federal 
expenditures went for this purpose, while the States spent only a minor 
sum, and the local governments nothing at all. 

Table 16 summarizes the various political jurisdictions which make 
public expenditures. In 1935 there were 175,418 such spending units, 
of which local school districts comprised over 70 percent. The 
figures indicate the tenacity with which these organizations hold onto 
vestiges of control long after economic and social changes have made 
them obsolete. This hodgepodge is a historical product not adapted 
to the efficient budgeting of government expenditures. Townships, 
long since made unnecessary by modern methods of transportation and 
public administration, still overlap other political jurisdictions, and 
cause confusion, unnecessary expense, and delay in public and private 
business. 

Tabjle 16. — Political jurisdictions of the United States and their employees 
(except employees on work relief) 1935 





Number 


Employees 




Number 


Percentagii 




1 

48 

16. 366 

3,053 

127, 108 

28,842 


1,049,900 

377, 700 

1, 258, 800 

I 756, 400 


30.5 


States 


11.0 




36.5 








22.0 










Total - 


175, 418 


3, 442, 800 


100.0 







Source: Adapted from National Resources Committee, The Structure of the American Economy, pt. 1, 
Washington, 1939, pp. 331, 334. 



1 See table 20, fig. 3. 
46 



CONCEiNTRATION OF ECONOMIC POWEiR 



47 



Over 3,000 counties conduct a whole array of government activities 
including taxation, police protection, school supervision, poor relief, 
and other welfare services, many of which duplicate State or Federal 
services, or are inefficiently organized and inadequately budgeted. 
This complex system of county governments is a hold-over from horse- 
and-buggy days, when county seats were important centers and county 
governments were essential units of public administration. The reor- 
ganization of such governments into larger, more efficient, less costly 
units is long since overdue, and constitutes one of the major prospects 
for substantial economies in public expenditures. 

The number of urban and village governments has multiplied untU 
they now number almost 10 percent of all governmental bodies. But 
their share of government expenditures is far greater than 10 percent. 
In many instances a municipality within a county has a budget sev- 
eral times larger than the county budget itself. They employ over a 
third of all regular public employees. The services which they render 
have grown rapidly, covering not only the usual activities of police 
and fire protection, sanitation, maintenance of streets, roads, parks, 
monuments, etc., but also invading the field of public utilities to sup- 
ply water, gas, and electric: 7 to city dwellers. The further almost 
unabated growth of urbanization will probably bring increases in the 
number and size of municipalities and greater emphasis on municipal 
government expenditures. 

The States almost duplicate the list of Federal expenses, except for 
naval expenditures, insular and diplomatic costs, customs, and foreign 
trade. The development of State power has long been hampered By 
the jealousy of local governments for control over public services. 
But in recent years, with the break-down in local property tax struc- 
tures, and the increasing use of income and property taxes which can- 
not be efficiently administered by local governments, the power of the 
States has grown rapidly. Many States have established State police, 
traffic control, highway systems, fire-prevention systems, basic sup- 
port for public schools, and regulation of business and professional 
standards. Thus, in California, for example, 452 different services 
have been enacted into law since 1850, 367 of which are now furnished 
by the State, according to table 17. 

Table 17. — Functions created by State laws in California 



Type of service 



General government 

Agriculture 

Public health and safety 

Business regulation and taxa 

tion.. 

Education 

Social welfare 

Professional standards 



Number 
of serv- 
ices 



Per- 
centage 
of total 
number 



10.4 
18.0 
18.3 

13.1 
13.9 
9.5 
4.6 



Type of service 



Prisons and reformatories 

Public protection 

Parks, museums, monu 
inents, recreation 

Highways, waterways, irri- 
gation 

Total. 



Number 
of serv- 
ices 



Per- 
centage 
of total 
number 



2.7 
1.9 



5.4 
2.2 



Source: H. Dewey Anderson, Our California State Taxes, Facts and Problems, Stanford University 
Press, Stanford University, 1937, p. 6. 

A functional break-down of total expenditures for the several levels 
of government is not possible, because of the failure of reporting 
agencies to keep the necessary records. 



261083—40— No. 20- 



48 OONCENTRATION OF ECONOMIC POWER 

Table 18, chart 2, is based on the Treasury Department's estimate 
of the functioning grouping of Federal, State, and local government 
expenditures for 1938. Attention is called to the last column of 
the table, giving the percentage distribution of the 12 functions listed. 
"Relief, public welfare, and social security," relatively small items in 
predepression budgets, account for 17 percent of all governmental ex- 
penditures. Education is the next most costly service, requiring 13.3 
percent of all 1938 expenditures. "All other" expenditures include 
regular government executive and legislative functions, as well as a 
wide variety of miscellaneous activities. This, with the two items 
already mentioned, makes up 50 percent of all government costs. 
No other function listed spends as much as 10 percent of the total. 



CONCE2NTRATION OF ECONOMIC POWEiR 



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50 



OONCEiNTRATION OP ECONOMIC POWER 



The table displays the expenditures of governments from their own 
som-ces, grants between governmental jurisdictions, and expenditures 
by governments for their own functions. Reading across the table, 
of the expenditures for education, for example, it appears that the 
Federal Government expended $177,000,000, of which it granted 
$58,000,000 to States, $102,000,000 to local governments, and ex- 
pended $17,000,000 through its own educational activities. 

The interdependence of the various governments is apparent. In 
1938 it is estunated that $2,237,000,000, or 12.3 percent of all alloca- 






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tions were transferred from the government which collected the funds 
to the one which spent them. The various levels of government did 
not share alike in such exchanges, for the Federal Government granted 
$805,000,000, or 10.5 percent of all Federal expenditures, to other 
governments; local governments made grants of $32,000,000, which 
was only 0.5 percent of their total expenditures; while the State 
govenunents, which are rapidly becoming collection agencies for their 
political subdivisions, made grants totaling $1,400,000,000, or 32.3 
percent of all their expenditures. 

The Federal Government makes grants to other governments for 
all the functions listed excepting police and other protection, and 



CONCEiNTRATION OF ECONOMIC POWER 



51 



debt service. Besides outright grants and subsidies, the National 
Government performs other costly services, most of which are con- 
ducted within and for the States. Most of the Federal grants are 
dii'ected through State channels, although some are made to local 
governments or to smaller political and public agencies. 

State grants are made to local governments for education, highways 
and streets, agriculture, relief and welfare, health, and general govern- 
mental purposes. Shared taxes and funds are being used increasingly 
as a means of making grants to localities, but in some States unear- 
marked allotments are made which can be used by local governments 
as they choose. With the shift of road construction and maintenance 
from local governments to States, in some instances funds collected 
for their care are allocated by the localities to the States. Such items 
and certain payments in the social-welfare programs comprise the 
allocations from local governments to States. 

Table 19 shows a percentage distribution of the expenditures of the 
several levels of government. The figures in parentheses indicate the 
order of importance of the various expenditures, which differs from 
one level of government to another. For example, the cost of relief, 
welfare, and social security is the heaviest burden on the Federal 
Government, where it accounts for 28.4 percent of all expenditures. 
AmoDg the States it ranks fourth and costs 14.6 percent of all appro- 
priations. In local governments it is relatively insignificant, ranking 
seventh and costmg only 4.3 percent of the total. 

Table. 19. — Percentage distribution of expenditures — Federal, and estimated State 

and local, fiscal year 1938 

[Figures in parentheses indicate the rank of the items] 



Function 



Federal 



State 



Local 



Total 



Education. ._ 

Highways and streets 

Agricultural and natural resources 

National defense 

Police and other protection 

Relief, welfare, social security _- 

Net additions to social-security reserves 

Health and hospitals.-. 

Interest 

All other expenditures 

Debt retirement 

Total 



2.3 (8) 

3.4 (7) 
13. (3) 
20. 9 (2) 

.6 (10) 

28. 4 (1) 



18.8 (2) 
20.6 (1) 

1.7 (10) 
.3 (11) 

3.2 (7) 



23. 1 (2) 
8. 3 (6) 



6.4 

.5 

12.0 

11.7 



14.6 
11.8 
6.2 
2.8 
16.9 
3.1 



9.2 (4) 

4.3 (7) 



4.3 (8) 

9.6 (3) 

32. 6 (1) 

8. 6 (5) 



13.3 

9.2 
5.9 
8.9 
4.1 

17.0 
."i.S 
3.1 
9.0 

20.0 



(3) 

h\ 

(6) 
(9) 
(2) 
(8) 
(11) 
(5) 
(1) 



4.0 (10) 



100.0 



100.0 



100.0 



100.0 



Source: Adapted from data in Bulletin of the Treasury Department, August 1939, p. 4. 



In the Federal Government, defense, relief, and welfare expendi- 
tures are most important; among the States, expenditures for high- 
ways and streets and education rank first ; while in local governments 
general administration and education are of principal concern. 

All governments make expenditures for the same or similar fimc- 
tions, excepting that the local governments do not provide for national 
defense nor build up social-security reserves. The overlapping of 
government functions and expenditures is great. In some instances 
the field has been allocated so that each government performs a 
specific and different task. In others, shared costs or grants-in-aid 
enable one branch of government to obtain large enough funds to 
conduct the service satisfactorily. It is increasingly recognized that 
the limited resources of smaller units of government require such help 
from larger government bodies. 



TRENDS IN EXPENDITURES OF FEDERAL, STATE, AND 
LOCAL GOVERNMENTS 

In tables 20 and 21, charts 3 and 4, are shown the trends m ex- 
penditures of the various governmental jurisdictions.* In the 16 
years from 1923 to 1938, total public expenditiu'es increased from 
$8,850,000,000 to $16,805,000,000, a gain of 90 percent. But this 
enormous gain was not the result of a steady annual increase. In- 
stead, there was a relatively small annual growth in the 1920's, 
ranging from 2.5 to 6.0 percent, and providing a total increase of 
34.9 percent between 1923 and 1930. The 2 years following 1929 
saw relatively small annual increases, and in 1933 all levels of govern- 
ment curtailed expenditures. With the advent of the New Deal, 
Federal expenditures increased 56 percent in 1934, which raised the 
total t)f all government expenditures 20 percent to a new high level 
of $13,604,000,000. Further annual increases occurred until 1937 
when the considerable recovery of the national economy led to a 
tapering off of government expenditures. 



Table 20 — Governmental expenditures, Federal, State, and local, 192SS8'^ 

[000,000 omitted] 





Total 


Federal 


State 


Local 


Year 


Amount 


Percent 
increase 


Amount 


Percent 
increase 


Amount 


Percent 
increase 


Amount 


Percent 
increase 


1923 


$8,850 
9,395 
9, 869 

10, 113 
10.453 
10, 972 
11,611 
11,943 

12,390 
13,129 
11,284 
13,604 
15,011 

17,009 
17, 187 
16,805 




$3,058 
2,812 
2,801 

2,779 
2,738 
2,798 
2,957 
3,152 

3,560 
4,434 
3,793 
6; 947 
6,933 

8,611 
8,386 
7,192 




$1, 208 
1,402 
1,493 

1,499 
1,614 
1.774 
1,943 
2,170 

2,298 
2,257 
2,067 
2,044 
2,230 

2,433 

2.851 

'9,613 




$4,584 
5,181 
5,575 

5,835 
6,101 
6,400 
6,711 
6,621 

6,532 
6,438 
5,424 
5.613 
5,848 

6.965 
5,950 




1924 


6.2 
5.0 

2.5 
3.4 
5.0 
5.8 
2.9 

3.7 

6.0 

-14.1 

20.6 

10.3 

13.3 

1.0 

-2.2 


-8.7 
-.4 

-.8 
-1.5 
2.2 
5.7 
6.6 

12.9 
24.6 
-14.5 
56.8 
16.6 

24.2 

-2.6 

-14.2 


16.1 
6.5 

.4 
7.7 
9.9 
9.5 
11.7 

5.9 
-1.8 
-8.4 
-1.1 

9.1 

9.1 
17.2 


13.0 


1925 


7.6 


1926 


4.7 


1927 


4.6 


1928 - 


4.9 


1929 


4.9 


1930 


-1.3 


1931 - 


-1.3 


1932 


-1.4 


1933 


-15.8 


1934 


3.5 


1935 


4.2 


1936 


2.0 


1937 


-.3 


1938" 









1 The series for total expenditures and Federal expenditures have been revised. The data for Federal 
expenditures given here do not correspond with earlier Conference Board figures on cost of government. 
Prior to this study, trust fund expenditures were included, with the exception of the special funds established 
by the Social Security Act and the Railroad Retirement Act. In this table trust fund charges are excluded. 
The Federal data for 1932 to 1937 have also been revised in order to conform to the change in Federal account- 
ing procedure that became effective on July 1, 1938. At that time expenditures incident to the operation 
of the Reconstruction Finance Corporation, Commodity Credit Corporation, and Export-Import Bank of 
Washington were excluded from expenditures chargeable against general and special account receipts. 

' Derived from Bulletin of the U. S. Treasury Department, August 1939, and estimate of the National 
Industrial Confeience Board. See footnote 8 below. 

« Total, State and local. 

Source: Based on National Industrial Conference Board, Enterprise and Social Progress, New York, 
1939, p. 161; Conference Board Economic Record, Sept. 15, 1939, pp. 93, 94. 



• Owing to ambiguities, differing time spans, etc., data on tax trends supplied by different authorities are 
divergent. Thus, the National Industrial Conference Board series, used for all except part of the 1938 data 
in tiible 20, estimates total e.xpenditures for that year including social security allotments at $16,800,000,000^ 
while the extract from the Bulletin of tEeTreasury Department, August 1939, estimates the total at 
$17,470,000,000. The 1938 figures offered in table 20 are compiled as follows: The net additions to social 
security reserves of $1,005,000,000 is taken from the calculations of the Treasury Bulletin and added onto the 
figures of the National Industrial Conference Board series for 1938 to make a total of "actual and estimated 
expenditures for 1938." Doing so adds only $5,000,000 or a fractional percentage to the total, but the distri- 
bution among levels of government is altered somewhat. 

52 



OONCBNTRATION OP ECXDNOMIC POWEtR 53 

Table 21. — Percentage of Government expenditures by levels of government, 1923-38 



Year 


Federal 


State 


Local 


Year 


Federal 


State 


Local 


1923 


34.6 
29.9 
28.4 
27.5 
26.2 
25.5 
25.5 
26.4 


13.6 
14.9 
IS.I 
14.8 
15.4 
16.2 
16.7 
18.2 


51.8 
55.2 
56.5 
57.7 
58.4 
58.3 
57.8 
55.4 


1931 


28.7 
33.8 
33.6 
43.7 
46.2 
50.6 
48.8 
42.8 


18.6 
17.2 
18.3 
15.0 
14.8 
14.3 
16.6 


52.7 


1924 


1932 


49.0 


1925 


1933 


48.1 


1926 


1934. 


41.3 


1927 


1935 


39.0 


1928 - 


1936. 


35.1 


1929 


1937 


34.6 


1930- 




57.2 



Source: Based on table 20. 

From 1930 to 1938 the gain in total expenditures was 40.7 percent. 
Thus in the percentage increase in the two time spans, 1923-30 and 
1930-38, somewhat the same percentage increase took place. But 
the increase in the first period added $3,093,000,000 to the annual 
Budget, while the last one added $4,862,000,000 to annual expendi- 
tures. During both prosperity and depression and under both Demo- 
cratic and Republican administrations total Government expendi- 
tures increased markedly. In both instances they represent the 
demand for more, and more costly, Government services. 

President Roosevelt explained the Federal administration's policy 
respecting budgetary control and expenditures as follows: 

* * * In the early thirties — prior to 1933 — fi.scal policy was exceedingly 
simple in theory and extraordinarily disastrous in practice. It consisted in trying 
to keep expenditures as low as po.ssible in the face of shrinking national income. 
Persistence in this attempt came near to bankrupting both our people and our 
Government. 

Following 1933 the fiscal policy of the Government was more realistically 
adapted to the needs of the people. All about were idle men, idle factories, and 
idle funds, and yet the people were in desperate need of more goods than they 
had the purchasing power to acquire. The Government deliberately set itself to 
correct these conditions by borrowing idle funds to put idle men and idle factories 
to work. 

The deliberate use of Government fund.s and of Government credit to energize 
private enterprise — to put purchasing power in the hands of those who urgently 
needed it and to create a demand for the products of factory and farm— had a 
profound effect both on Government and on private incomes. The national in- 
come in 4 years rose 69 percent, from 42 billion dollars in 1933 to 72 biUion 
dollars in 1937, the largest absolute rise for any 4-year period in our history, not 
even excepting the rise during the World War. Tax revenues rose from 2 billion 
dollars in the fiscal year 1933 to over 5 billion dollars in the fiscal year 1937, pri- 
marily because the people had more income out of which to pay taxes. The people 
paid 3 billion dollars more in taxes but they had nearly 10 times more than that, 
or 30 billion dollars, to spend on other things. This statement deserves a headline. 

Rapid progress was made toward a balanced Budget. By the calendar year 
1937 excess of Government cash outgo over Government cash income had dropped 
to 331 million dollars. 

Unfortunately, just at the time when it seemed that the Federal Government 
would be able safely to balance its budget on the basis of a national income of 
approximately 75 billion dollars, maladjustments in the economic system began 
to appear and caused a recession in economic activity. The recession was due 
to a variety of causes stemming in the main from over-optimism which led the 
Government to curtail its net expenditures too abruptly, and business to expand 
production and raise prices too sharply for consumers' purchasing power to keep 
pace. A large volume of unsold goods piled up. 

If the recession were not to feed on itself and become another depression, the 
buying power of the people, which constitutes the market for the products of 
industry and agriculture, had to be maintained. To this end, in the spring of 
1938, I recommended a further use of Government credit and the Congress acted 
on my recommendation. 



54 



CONCENTRATION OF ECONOMIC POWER 




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CONCBNTRATION OF ECONOMIC POWEK 



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56 



OONCEiNTRATION OF ECONOMIC POWER 



The soundness of this realistic approach to a fiscal policy related to economic 
need was again strikingly demonstrated. In place of the 42-billion-dollar decline 
in national income that occurred from 1929 to 1932, the decline from 1937 to 
1938 scarcely exceeded 8 billion dollars. In place of a 4-year period of liquidation 
and deflation, productive activity turned up within 9 months. By 1939, in terms 
of dollars, the national income closely approached, and, in terms of real produc- 
tion and consumption, making allowance for the lower level of prices, was equal 
to that of 1937. 

The experience of 1938-39 should remove any doubt as to the effectiveness of 
a fiscal policy related to economic need. The wise exercise of such a fiscal policy 
imposes gravte responsibility on the Government. Government must have the 
wisdom to use its credit to- sustain economic activity in periods of economic 
recession and the courage to withhold it and retire debt in periods of economic 
prosperity. And let. us not forget that the withholding of Government credits 
in time of need for political advantage is no less reprehensible than its profligate 
use at any time.® 

A further examination of table 20 indicates that the expenditures of 
various levels of government did not change in the same wav as the 
total. Also, the two periods 1923-30 and 1930-38 show different 
results, as follows: 

[000,000 omitted] 





Gain 


Period 


Federal 


State 


Local 




1 


Amount 


Percent 
increase 


Amount 


Percent 
increase 


1930 over 1923 _ 


$9.4 
4,040 
4,134 


3.1 
128.2 
135.2 


$962 

944 

1,906 


79.6 
43.5 
157.8 


$2,037 
-122 
1,915 


44.4 


1938 ' over 1930 

1938 ' over 1923 


-1.8 
41.8 







' Assuming the same proportion of State to local expenditures in 1938 (table 20) as in 1937. 

Most of the gain in Federal expenditures occurred after 1933. The 
increase in money budgeted during the 1920's was small, as was the 
percentage gain; but during the thirties the amount advanced over 
$4,000,000,000, and the percentage gain was 128. 

The situation was decidedly different with State expenditures, which 
increased more in the first period than in the second, although sub- 
stantial gains were made in both. In fact, State expenditures have 
grown proportionately more since 1923 than those of any other level of 
government. The States have been forced to assume an increasing 
share of the burden formerly carried by local governments as well as 
extending their own services. Yet the burden of State governments is 
much less in amount than that of either the Federal or local govern- 
ments. 

A substantial increase in local government costs occurred during the 
1920's, followed by a small decline in the thirties as the other levels of 
government assumed burdens formerly borne by local jurisdictions. 
The pe^'centage increase in local expenditures from 1923 to 1938 was 
much less than for Federal or State governments, exhibiting an 
increase of $1,915,000,000, or about two-fifths. 

Table 21 gives the percentage distribution of total government ex- 
penditures by levels of government. In 1923 the local governments 
accounted for more than half of the relatively small sum then ex- 

• Budget Message of the President, accompanying the Budget of the United States Government for the 
fiscal year ending June 30, 1941. 



OONCBNTRATION OF ECONOMIC POWER 57 

pended; by 1937 they spent approximately a third of the larger total. 
Local govemment expenditures reached the peak of their relative 
importance in the latter part of the 1920's when they comprised ap- 
proximately 58 percent of all govemment expenditures. Thereafter 
State and Federal budgets bore an increasing share of government 
costs. Local expenditures declined from 1930 to 1933 both in amount 
and in proportion of the total, increased somewhat in 1934, 1935, and 
1936, and declined very slightly in 1937. 

During the twenties, State expenditures hovered around 15 percent 
of all government expenditures, ranging from 13.6 percent in 1923 
to 16.7 in 1929. In 1930 the States were called upon to relieve dis- 
tressed local governments, and despite their own limited tax resources, 
they paid 18.2 percent ©f all Government expenditures. Their per- 
centage of the total remained at approximately that level until in 
1933 and 1934 the Federal Govemment launched a much enlarged 
relief and welfare program. Thereafter, while State governments 
spent more money, their proportion of the total remained about the 
same as during the twenties. 

Federal expenditures rose from a low of 25 percent of the total in 
1928-29 to a high of 50.6 percent in 1936. The greatest burden of 
government expenditures was borne by local units until 1934, when it 
shifted to the Federal Govemment. It is this shift which has brought' 
Federal fiscal and tax policies into such prominence and subjected 
them to such a barrage of criticism. No longer is the Federal budget a 
few millions, devoted largely to defraying the cost of war and defense. 
Today it consists of several hundred items covering a wide range of 
activities and services, many of which were formerly the province of 
State and local governments, many performed by private agencies, 
and some nonexistent. 



FEDERAL GOVERNMENT EXPENDITURES FROM 
1915 TO 1940 

In table 22, chart 5, the expenditures of the National Government 
from 1915 to 1940 are divided into three broad groups: military- 
functions; interest on debts, loans, and investments; and all other 
Government functions. Amounts, percentages, and increases or 
decreases of yearly expenditures are shown. In 1915 the total cost of 
the national administration was only $761,000,000; by 1940 the total 
budgeted reached $9,636,000,000. The yearly figures show im- 
portant changes in government policy and practice, but the divisions 
are too broad to provide specific information. 



Table 22. — Federal expenditures, 1915—40 (excluding debt retirement) 
[Dollar figures in millions] 





Military functions 


Interest on debt, 
loans, and invest- 
ments 


All other Govern- 
ment functions 


Total 


Fiscal year ending 
June 30— 


a 

D 
o 

B 
■< 


a 
8 

Pi 


be 

CG C 

a a 
feo 




3 


a 
< 


a 
S 


® 
a a 

11 


a 
3 


S 
<! 


a 

4) 
PLi 


la 

c n 

feo 

P-, 




3 


s 


u 


1915 


$436 

450 

1,726 

13,096 

17, 458 

4,315 
2,520 
1,530 
1,329 
1,210 

1,155 
1,178 
1,194 
1,257 
1, 305 

1,537 
1,725 
1,760 
1,482 
1,048 

1,267 
3,228 
2,023 
1,552 
1,601 

1,998 


57.3 
60.7 
82.7 
94.9 
92.1 

70.3 
56.4 
47.9 
41.0 
41.1 

37.9 
38.3 
40.4 
40.5 
39.6 

44.8 
45.2 
38.5 
38.3 
17.4 

18.1 
37.2 
24.0 
20.4 
17.4 

20.7 


'""§.'2' 

283.6 

658.7 

33.3 

-75.3 
-41.6 
-39.3 
-13.1 
-9.0 

-4.5 
2.0 
1.4 
5.3 
3.8 

17.8 

12.2 

2.0 

-15.8 

-29.3 

20.9 

154.8 

-37.3 

-23.3 

3.2 

24.8 


$52 

54 

110 

418 

1,109 

1,285 
1,330 
1,162 
1,254 
1,194 

1,246 
1,269 
1,117 
1,160 
1,157 

975 
896 

1,500 
945 

1,717 

1,319 
875 
1,073 
1,228 
1,234 

1,602 


6.8 
7.3 
5.3 
3.0 
6.9 

20.9 
29.8 
36.4 
38.6 
40.5 

40.9 
41.2 
37.8 
37.3 
35.1 

28.4 
23.5 
32.8 
24.5 
28.6 

18.8 
10.1 
12.7 
16.1 
13.4 

16.6 


"""3.'8' 
103.7 
280.0 
165.3 

15.9 

3.5 

-12.6 

7.9 

-4.8 

4.4 

1.8 

-12.0 

3.8 

-.3 

-15.7 
-8.1 

67.4 
-37.0 

81.7 

-23.2 

-33.7 

22.6 

14.4 

.5 

21.7 


$273 
237 
250 
281 
385 

540 
617 
504 
662 
542 

644 
630 
644 
688 
834 

922 
1,196 
1,314 
1,437 
3,246 

4,424 
4,563 
6,346 
4,846 
6,375 

6,136 


35.9 
32.0 
12.0 
2.1 
2.0 

8.8 
13.8 
15.8 
20.4 
18.4 

21.2 
20.5 
21.8 
22.2 
25.3 

26.8 
31.3 
28.7 
37.2 
54.0 

63.1 
62.7 
63.3 
63.5 
69.2 

63.7 


-13." 2" 

5.5 

12.4 

37.0 

40.3 
14.3 

-18.3 
31.3 

-18.1 

18.8 

-2.2 

2.2 

6.8 

21.2 

10.5 
29.7 
9.9 
9.4 
125.9 

36.3 
3.1 
17.2 
-9.4 
31.6 

-3.7 


$761 

741 

2,086 

13, 795 

18, 952 

6,140 
4,467 
3,196 
3,245 
2,946 

3,045 
3,077 
2,955 
3,105 
3,296 

3,434 
3,817 
4,574 
3,864 
6,011 

7,010 
8,666 
8,442 
7,626 
9,210 

9,636 




1916... 


— 2 6 


1917 


181 5 


1918 


561 3 


1919 


37 4 


1920 


—67 6 


1921 


—27 2 


1922 


—28 6 


1923 


1 5 


1924 


—9 2 


1925 


3 4 


1926 


1 1 


1927 


—4 


1928 


5 1 


1929 


6 2 


1930.. 


4 2 


1931. 


11 2 


1932 


19 8 


19331 


— 15.5 


1934. 


55 6 


1935 


16 6 


1936 


23 6 


1937 


—2 6 


1938 


—9 7 


1939 


20 8 


Estimated, 1940 


4.6 



1 A change in the basis of classification of expenditures beginnirig with the figures for 1933 resulted in 
reducing the amounts after 1932 for "Military functions" and "All other governmental functions," and in 
increasing the amounts for "Interest on debt, loans, and investments." 

Source: Adapted from data furnished by Division of Research and Statistics, Federal Reserve Board, 
Washington, D. C, 1940. 

58 



CONCENTRATION OF ECONOMIC POWER 



59 



Chabt 5 

EXPENDITURES OF THE UNITED STATES 
GOVERNMENT 

BY MAJOR GOVERNMENTAL FUNCTIONS 
1915-1940* 



FUNCTIONS AS PERCENTAGES 







DOLLARS 

IBU-LIONS) 



AMOUNT OF TOTAL EXPENDITURES 



DOLLARS 

(BILLIONS) 

20 




D0U.ARS 

(BILLIONS) 

20 



AMOUNT OF EACH FUNCTION 



DOLLARS 

(BILLIONS) 

20 




SOURCE: Adoplid from doto lutnithed.by Division of Reseorch and Slotlttlcs, Faderol Raservt Booed, Woshlnglon, 0. C^ 
*I940 ejllmoltd 



60 CONCBNTRATION OF ECONOMIC POWER 

The sharp increases in expenditures have been the result of two 
forces — military operations or great economic crises. Following these 
abrupt rises in expenditures have come periods of reduced budgets; 
however, the accumulation of additional services and added debt 
charges has forced Government operating requirements to a new 
plateau, from which it seems unlikely that we wUl be able to return to 
pre-war levels. 

Military expenditures have formed the major single group of 
Federal functions during the past 26 years. At their peak, in 1918, 
they constituted 95 percent of all National Government costs; whUe 
in 1939, the lowest year, the figure dropped to 17.4 percent. The 
greatest allotment for military activity was $17,458,000,000 in 1919, 
at the close of the last war. Thereafter, expenditures declined until 
1925, when $1,155,000,000 was appropriated for military functions. 
After that they increased yearly, until they reached a peak of 
$1,750,000,000 in 1932. Then, with the depression of 1933 and 1934, 
appropriations were reduced to only a little over $1,000,000,000 in 
1934, the lowest expenditure for any year since 1916. The 1936 
appropriations for military purposes was unduly weighted with 
soldiers' bonus payments, but even without these, frotn $1,000,000,000 
a year to almost $2,000,000,000 has been spent for military purposes 
since the trough of the depression. 

The cost of Federal indebtedness has risen as a result of the World 
War, when expenditures totaling $39,000,000,000 were incurred, 
mostly in the form of government bonds. ^" Yearly interest and service 
payments on the negligible Federal debt prior to 1917 were slightly 
more than $50,000,000. During the 1920's the annual payments 
exceeded a billion dollars, ranging from $1,117,000,000 in 1927 to 
$1,330,000,000 in 1921. From 1920 until 1935 the annual debt burden 
of the Federal Government was more than a fifth of all expenditures, 
ranging up to 41.2 percent in 1926. During the 1930's interest 
payments on debts, loans, and investments have extracted more than a 
bUlion dollars from the Treasury in every year except 1930, 1931, 1933, 
and 1936. Expenditures for these purposes in 1940 were more than 
$1,500,000,000, the largest of any post-war year except 1934. But as 
other Government costs rose during the 1930's as compared with the 
1920's, the proportion of such debt payments to the total declined. 

The cost of "all other" government expenses reached a low of 
$237,000,000 in 1916 and a high of $6,375,000,000 in 1939. Their 
proportion of all Government expenditures was lowest in 1919, when 
they constituted only 2 percent of the total, and reached its peak in 
1939 with 69.2 percent. During the 1920's the Federal Government 
conducted relatively few regular services, costing from a half to three- 
quarters of a bUlion dollars annually. But with the advent of the 
depression, demands for Government aid increased costs at an astound- 
ing rate. From 1933 to 1934, the broad Federal program of relief, 
agricultural, and business aid increased civil expenditures from 
$1,437,000,000 to $3,246,000,000, a gain of 125 percent in a single 
year. This was the most abrupt and drastic revision of general 
Government functions ever recorded in our history. Thereafter, 
these general costs remained at an unusually high level, constituting 
from a half to more than two-thirds of all Government expenditures. 

'« Bernard M. Baruch, in hearings before the War Policies Commissioo, H. Doc. 163, 72d Cong., 1st sess., 
p. 33. 



CONCENTRATION OF ECONOMIC POWER 



61 



In table 23, charts 6 and 7, data are offered for 9 different dis- 
tinguishable groups of functions performed by the Federal Govern- 
ment. The period covers the last 2 years of the Old Deal, and the 
entire period to date under the New Deal. Not only has the total 
expenditure increased markedly from 1931 to 1939, but the number and 
type of Government functions have altered drastically. Under this 
functional classification, three groups did not appear until the advent 
of the New Deal, and these three alone account for 45 percent of all 
expenditures in 1939. Yet, even with these services removed from 
the calculation, the services performed in that year cost 30.5 percent 
more than those conducted in 1931. 



Table 23. — Functional break-down of Federal expenditures, 19S1-39 
[Dollar figures in millions] 





1931 


1932 


1933 


1934 


1935 


1936 


1937 


1938 


1939 


Percent 
increase 
1931-39 


Dollar 
increase 
1931-39 


Legislative, judicial, and 
civil establishments '.. 


$765 
20.8 


$927 
20.4 
21.2 
$664 
H.6 
-0.4 

$973 
21.5 
3.2 

$599 
13.2 
-2.1 
$499 
Jl.O 
18.5 

$873 

19.3 

231.9 


$680 
17.6 
-26.6 
$633 
16.4 
4.7 

$849 

22.0 

-12.7 

$689 
17.8 
15.0 
$472 
12.2 
-5.4 

$181 

4.7 

-79.3 

$360 

9.3 


$557 

9.3 

-18.1 

$494 

8.2 

-22.0 

$554 

9.2 

-34.7 

$757 
12.6 
9.9 
$625 
10.4 
32.4 

$882 
14.7 

387.3 

$1. 853 

30.8 

414.7 

$289 
4.8 


$657 
9.4 

18.0 

$663 
9.5 

34.2 

$604 
8.6 
9.0 

$821 
11.7 
8.5 
$766 
10.9 
22.6 

$424 

6.0 

-51.9 

$2, 363 

33.7 

27.5 

$712 

10.2 

146.4 


$757 
8.7 
15.2 
$880 
10.2 
32.7 

$2,348 

27.0 

288.7 

$749 
8.6 
-8.8 
$914 
10.5 
19.3 

$71 

0.8 

-83.3 

$2, 372 

27.4 

0.4 

$533 

6.2 

-25.1 

$42 
0.5 


$776 
9.5 
2.5 
$895 
10.9 
1.7 

$1, 128 

13.8 

-52.0 

$866 
10.6 
15.6 
$1, 102 
13.5 
20.6 

$150 

1.8 

111.3 

$2,527 

30.9 

6.5 

$527 

6.4 

-1.1 

$206 

2.5 

390.5 


$972 
13.4 
25.3 
$980 
13.5 
9.5 

$572 

7.9 

-49.3 

$926 
12.8 
6.9 
$880 
12.2 
-20.1 

$104 

1.4 

-30.7 

$1,996 

27.6 
-22.4 

$362 

5.0 

-31.3 

$447 

6.2 

117.0 


$908 

10.4 

-6.6 

$1,056 

12.1 

7.7 

$545 

6.3 

-4.7 

$940 
10.8 
1.5 
$1,111 
12.8 
26.3 

$231 
2.7 
122.1 
$2, 677 
30.7 
34.1 

$782 

9.0 

116.0 

$457 
5.2 
2.2 






Percent of total 






Percent increase ... 


18.7 


143 


National defense ^ 


$667 
18.2 




Percent of total 


58.3 




Percent increase 


389 


Veterans' pensions and 
benefits . 


$943 
25.7 

$612 
16.7 






Percent of total 


-42.2 




Percent increase 


-398 


Interest on the public- 
debt s. 






Percent of total 

Percent increase 


53.6 


328 


Public works < 


$421 
11.5 






Percent of total 


163.9 




Percent increase 


690 


Loans, subscriptions to 
stock, etc. (net)5 


$263 
7.2 






Percent of total 

Percent increase 


-12.2 


-32 


Unemployment relief ' 




O 


2,677 


Percent of total 






Percent inciease 










Agricultural Adjustment 
program ' 








(0 


— 782 


Percent of total 










Percent increase 












Social security and rail- 
road retirement 










(0 




Percent of total . .. 












457 


Percent increase 


































Total expenditures 
(exclusive of debt 

retirement) 

Percent increase. 


$3, 671 


$4,535 
+23.5 


$3,864 
-14.8 


$6, Oil 
+55.6 


$7, 010 
+16.6 


$8, 666 
+23.6 


$8,177 
-5.6 


$7, 239 
-11.5 


$8, 707 
20.3 


137.2 


5,036 









' Includes expenses of the legislative, judicial, and executive departments and establishments not classified 
in other categories. 

2 Naval equipment and operations and military activities of the War Department. 

3 Does not include debt retirement. 

< Includes highways, Tennessee Valley Authority, other power development and flood-control projects, 
reclamation, rivers and harbor development, public buildings, grants to public bodies, and miscellaneous. 

5 Represents additional proprietary interest of Government in R. F. C, farm- and home-mortgage agencies 
and other lending establishments. 

' Includes direct relief, work relief and Civilian Conservation Corps. 

' New function. 

* Represents funds allocated to A. A. A. 

Source: Computed from data in the Budget of the United States Government for the fiscal year ending 
June 30, 1941. 

The costs of all services conducted in this period, except veterans' 
pensions and benefits and Government loans, were higher in 1939 
than 1931, although most of them in 1939 had dropped off from their 
high points. 



62 



CONCENTRATION OF ECONOMIC POWEK 



Chart 6 



FUNCTIONAL BREAKDOWN OF FEDERAL 
EXPENDITURES 



DOLLARS 

(BILLIONS) 

10 — 



UNITED STATES. 1931-1939 

AMOUNT IN DOLLARS 



DOLLARS 

(BILLIONS) 

— -10 




M^ 






i 



1931 1932 1933 1934 1935 1936 1937 1938 1939 



WfM SOCIAL SECURITY 6i RAILROAD RETIREMENT 

AGRICULTURAL ADJUSTMENT PROGRAM 

UNEMPLOYMENT RELIEF 
I LOANS, SUBSCRIPTIONS TO STOCK (NET) 
J PUBLIC WORKS 

INTEREST ON THE PUBLIC DEBT 

VETERANS' PENSIONS 6 BENEFITS 

NATIONAL DEFENSE 
I LEGISLATIVE, JUDICIAL & CIVIL ESTABLISHMENTS 

EXPRESSED AS PERCENTAGES 




I 






1931 1932 1933 1934 1935 1936 li 



1958 1939 



SOUfCe.' CompuHd Irom dole in SUMMARY BUDGET STATEMENT, 1941, p. 1037. 



CONCElNTRATION OF ECX)NOMIC POWEK gg 

The great changes wrought by the addition of social services and 
the emphasis on reUef needs have altered the character of government. 
Thus, while more money is being spent on the legislative, judicial, and 
civil establishments of government than before, these fimctions now 
total only 10.4 percent of all Government functions, while in 1931 
they were 20.8 percent. The relative importance of national defense 
and interest on the public debt have also declined, while their actual 
costs have increased substantially. Public works have gained in 
money budgeted more than any of the older functions of government, 
yet their proportion of all Government functions is approximately 
the same as in 1931. Federal expenditures for public works include 
many functions formerly financed by State and local governments. 

Yearly changes in allotments for the functions listed mean little, 
because the groups are so broad as to conceal determining factors. 
In unemployment relief, for instance, congressional appropriations 
for W. P. A. control the total. But within the category of ''legislative, 
judicial, and civil establishments" are a large number of departments 
and bureaus whose budget allotments vary so much that only a 
detailed break-down of expenditures, such as is presented later on for 
1939, would show the reasons for the change." 

" See tables 1 to 6, figures 2 to 6, appendix B. pp. 2-16. 



261086— 40— No. 20- 



FEDERAL GOVERNMENT EXPENDITURES FOR 1939 

The nature of government in the United States has changed greatly 
since 1932. Many of the functions now performed by the Federal 
Government were not in existence before that year, others have been 
greatly strengthened, and still others have been taken over from 
various governmental jurisdictions. In table 24 is presented a sum- 
mary of these shifts as they affect Government employment. The 
New Deal expanded regular agencies and offices, but the great gains 
noted took place in independent offices and emergency agencies. 
The Government's personnel increased 52.3 percent from 1932 to 
1937, adding almost 280,000 workers to the Federal service. The 
rate of increase was larger in independent offices than in executive 
departments, although the number in the executive offices nearly 
doubled. Also, more than 5 times as many new workers found em- 
ployment in the permanent agencies as were added to the pay rolls 
of emergency offices. Some of this growth in regular departments 
has been due to their assumption of new functions, and some to an 
increased burden of regular work. It seems likely that in the future 
much of this increase will continue to be performed on the Federal 
level, and will be absorbed into the permanent framework of govern- 
ment. 

Table 24. — Federal employees in executive branch, December, 1932 and 1937 



Item 



Increase, 1937 over 1932 



Number Percentage 



Grand total _ 

Eexecutive departments and White House. 

Independent offices 

Emergency agencies - 

Permanent agencies 



534, 191 
471, 676 
62,515 
2,036 
532, 155 



813, 448 
670, 734 
142, 714 
49,111 
764, 337 



279,257 
199, 068 
80, 199 
47, 075 
232, 182 



52.3 
42.2 
128.3 
2, 312. 1 
43.6 



Source: Summary of table 7, appendix B, based on Civil Service Commission reports. 

This same tendency can be noted for certain parts of the so-called 
emergency expenditures, for such activities as the National Youth 
Administration soon reveal traits of permanent value which remove 
them from the category of em.ergency services. To presume that any 
substantial number of these new functions and em.ployees will be 
ehminated is to ignore the history of the Government. It is m.uch 
more realistic bo recognize the abrupt and permanent change in 
Federal Governm.ent functions that occurred after 1932. 

There are important reasons for the increases in Federal service. 
They are established only after prolonged discussion and congressional 
action. With rare exceptions, they represent a compromise between 
forces supporting and opposing particular public expenditures. Some 
of them are before the country for years before they are enacted into 
64 



CONCBNTRATION OF ECONOMIC POWER g5 

law. Some, like the Securities and Exchange Act, are passed quickly 
to meet emergencies beyond the control of individuals, or of the private 
economy. Others, such as road construction and aviation control, 
are instituted to meet changed conditions brought about by shifts in 
technology. 

The causes of increased Government functions and costs are often 
too complex for complete description. They include such distinguish- 
able factors as population growth and shifts, urbanization and indus- 
trialization, depletion and additions to natural resources, invention 
and discovery, changes in the price level, structural changes in the 
econom.y, fear of war, general culture rise, recognition of the needs and 
obligations of a modern state, and a growing conviction that along 
m.any lines collective effort for the com.mon good is best realized under 
Government auspices. All these have been at work m aiding the 
Am.erican state, shaping our beliefs and practices, resulting m growing 
cooperation with the Government, as well as dependence upon it, to 
achieve social security and individual prosperity. 

The results of this evolutionary process are reflected in the figures 
given in table 25, chart 8. Regular and emergency expenditures of 
Government are there described, excluding certain trust items which 
are not included in the Budget itself. Federal expenditures may be 
arranged, according to size, as follows: 

^ ' ° ' Percentage 

Function: of Budget 

Social welfare 33. 8 

Public works . 23. 1 

National defense 18. 6 

Interest and debt services 11. 5 

Regulation of the economy , 7. 

General government i 6. 

Total 100.0 

This distribution of expenditures is original with this study. In 
an effort to obtain comparability of functions within groups, drastic 
reshuffling of budgetary items has been necessary. The subgroups 
within each of the six classes will help to explain the classification, and 
the details are shown in the Appendix B. 



QQ CONCEJSTTRATION OF ECONOMIC POWEK 

Table 25. — Federal expenditures by functions (for year ending June SO, 1939) 



Amount 



Percent of |P«reent of 
group total 



Social welfare: 

Social security.- .- 

Public health 

Relief - 

Housing, rehabilitation 

Education 

Social welfare, miscellaneous- 
Total. - 



Public works: 

Parks, monuments, expositions, reservations 

Public buildings - 

Highways, airports, bridges, rivers, and harbors 

Conservation, irrigation, flood control, power development, 

forests 

Public works, miscellaneous 



Total. 



National defense: 
Army 

Navy 

Marine Corps 

Veterans' benefits. 

Total... 



Interest and service on national debt 

Regulation of the economy: 

Agricultural regulation and tenancy 

Loans to farmers 

Regulation of industry, finance, and exchange. 

Loans to industry and finance 

Other subsidy -.-- 

Regulation of labor contract.. 

Federal ownership 

Trade, merchant marine. Coast Guard 



Total. 



General government: 

Legislative 

Executive 

Scientific and social, research 

Libraries, printing, information 

Cost of tax collection 

Judiciary, law enforcement, crime 

Diplomacy, territorial government, immigration- 
Miscellaneous - 



Total. 



$441, 026, 257. 51 
14, 547, 512. 30 
2, 426, 362, 488. 83 
18, 962. 649. 70 
38, 616, 415. 83 
19, 837, 455. 61 



2, 959, 352, 779. 78 



40. 089, 443. 90 

89,600,114.68 

375, 079, 568. 12 

1, 065, 492, 896. 26 
457, 592, 582. 52 



2,027, 854, 605. 48 



469, 715, 140. 50 

586, 071, 637. 49 

27, 266, 914. 19 

545, 259, 404. 77 



1, 628, 313, 146. 95 



1, 008, 106, 995. 06 



317, 079. 564. 27 

103, 096, 376. 10 

34,474,231.26 

10,261,238.42 

2,652.501.26 

4, 569, 880. 43 

44, 733, 603. 50 

95, 281, 854. 15 



612, 149, 249. 39 



12, 323, 394. 88 
145, 987, 619. 75 
99, 034, 707. 72 
15, 086, 366. 02 
80,123,781.46 
39, 972, 507. 28 
51,773,215.97 
79, 454, 334. 10 



523, 755, 927. 18 



Grand total '8,759,532,703.84 



14.9 
.5 

82.0 

.6 

1.3 

.7 



100.0 



2.0 
4.4 

18.5 

52.5 
22.6 



100.0 



28.8 

36.0 

1.7 

33.5 



100.0 



100.0 



51.8 

16.8 

5.6 

1.7 

.4 

.8 

7.3 

15.6 



100.0 



2.3 

27.9 

18.9 
2.9 

15.3 
7.6 
9.9 

15.2 



100.0 



33.8 



23.1 



18.6 
11.5 



6.0 



1 This total differs from the total given in the source by less than 0.1 percent. The difference is due to the 
impossibility of allocating certain items by functions, but is not large enough to affect any of the six classi- 
fications appreciably. 

Source: Computed from the Budget of the United States Government for the Fiscal Year Ending June 
30, 1941, statement No. 2, pp. A21 to ASS. 



CONCENTRATION OF ECONOMIC POWER 



67 



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gg OONCEOSrTRATION OF B(X>NOMIC POWMR 

SOCIAL WELFARE 

This item includes expenditures for social security, public health,, 
unemployment relief, housing and rehabilitation, education, aild 
miscellaneous welfare activities. These diverse ifunctions are all 
aimed to provide for the poor, the handicapped, the aged, or the 
underprivileged, and to insure an educated and trained citizenry 
Before the depression brought these needs into bold relief, social wel- 
fare was a minor function of the Federal Governriient. State and 
local governments performed the few existing public social services. 

This largest item of the Federal Budget is not the responsibility of 
any single agency, but is shared by seven executive departments and 
eight independent establishments. It includes the largest single item 
in the Budget, the $2,161,500,655 spent by the W. P. A. 

A detailed treatment of the events leading up to the budgeting of 
the present complement of social welfare activities by the Federal 
Government is given in a recent volume by William Withers on that 
subject. ^^ Until very recently, the American attitude toward charity 
and relief reflected the philosophy of the Elizabethan poor laws of 
England. Poverty and misfortune were regarded as the visitation of 
Divine Providence upon lusting, sinful men. All during the expansion 
period Americans considered poverty an individual responsibility and 
needless fault, to be met only in extreme cases with private charity. 
Not until the country was settled and industrialized, and urbanization 
prevented self-employment, did the concept of State responsibility 
for the care of the unfortunate gain a strong f»othold. 

With the collapse of the industrial system in 1929, the ability of 
private charity to care for even the direst cases of need was strained 
past the breaking point. The number of families receiving charity 
increased from 40,000 in the winter of 1928-29 <o 70,000 in the follow- 
ing winter, and the budgets of private charities rose from 1 to more 
than 10 million dollars a month." 

By 1931, despite desperate efforts to raise funds through Govern- 
ment-supported appeals, it was clear that private charity could not 
care for a fourth of those in need. In 1932 Congress enacted the 
Emergency Relief and Construction Act, permitting the Reconstruc- 
tion Finance Co.rporation to make unemployment relief loans totaling 
$300,000,000 to States a,nd local governments. The principal em- 
phasis, however, was upon aid to business, in the belief that the depres- 
sion would pass when distressed businesses were stabilized. Also, 
the Corporation was authorized to make loans totaling $1,500,000,000 
to State and local governments foi^ public works. But the system 
was cumbersome, and these State and local governments were unable 
to furnish even the minor share of the cost required by sponsorship 
and were reluctant to enter upon loan agreements. 

The R. F. C. loans to States and localities were unsuccessful 
attempts to force these governments to assume the responsibility for 
their own unemployed citizens. There followed the Relief Act of 
1933, which set up the Federal program of direct relief administered 
from Washington. Manned largely by socially conscious persons 
with experience in social-welfare activities, the needs of the unem- 
ployed became of chief concern. 

" William Withers, Financing Economic Security in the United States, Columbia University Press, 
New York, 1939. 
" Ann Geddes, Trends in Relief Expenditures, 1910-35, Washington, 1937. 



CONCElNTRATION OF ECONOMIC POWEtR gQ 

It was only reluctantly and with misgivings that the national 
administration assumed responsibility for the relief of hardship and 
destitution. The limitation of Federal relief activities to a works 
program by the Relief Act of 1935 was largely motivated by the desire 
to force increased participation by States and localities. Under the 
new act these governments were charged with the care of those 
employable unemployed who were not assigned to the Federal work 
program. 

The New Deal's emphasis on a work program arose partly out of the 
opposition to a dole, partly out of the lack of sufficient Federal funds 
to meet the needs of all the unemployed. Since 1935, therefore, the 
relief program has been shared between the various governments. 
There is no recognized obligation on the part of the Federal Govern- 
ment to meet the needs of all the unemployed. Instead, Federal 
appropriations are fixed in terms of job quotas, calcu)ate(i with some 
general recognition of the size of the unemployment problem and the 
need for maintaining mass purchasing power. 

Relief appropriations vary from year to year, always on the pre- 
sumption that these are emergency items which will drop out of the 
budget with the return of economic prosperity. As indicated earlier, 
England also regarded the dole as a temporary expense for nearly 10 
years before recognizing it as a continuing charge on the economy. 

Certain groups believe that the preparedness program will eliminate 
the need for Federal unemployment relief. There is little probability, 
however, even with greatly increased employment, that industry will 
absorb the large number of older unemployed now on the dole. The 
elimination of the Federal relief program would, of course, be a boon 
to the National Budget; if, however, the increased cost of prepared- 
ness equals or exceeds the possible drop in relief costs, then the prob- 
lems of continually increasing expenditures still remain to be solved 
in behalf of a true economic recovery and a balanced budget. 

While there is considerable prospect of a reduction in Federal 
unemployment relief expenditure, it is extremely unlikely that the 
program will be eliminated, at least for some time to come. 

The laws underlying the social security items of the Budget have 
already undergone substantial revision, as pointed out later in this 
treatise. The growing demand for a more nearly pay-as-you-go 
support of the old-age and unemployment features of the act will 
probably alter substantially the amounts budgeted for them. They 
will probably be paid for out of general taxation, rather than from 
large reserves piled up out of pay-roll taxes. This would mean in- 
creases in the amounts budgeted from general Government funds. 

Although public health costs are small in the budget of social wel- 
fare expenditures, and negligible in the total Budget, health needs are 
not insignificant, nor are they adequately met under private auspices. 
A very substantial literature has been developed to prove the inade- 
quacy of the amount o^nd range of health services. The now famous 
Cost of Medical Care Studies showed that m 1929 the medical bill of 
the United States was $3,656,000,000, of which only one-seventh was 
paid from Government funds. ^* Most of the publicly supported 
medical program is paid for by State and. local governments, for in 
1938 the Federal Government spent only $1,454,000 on a public-health 
program. 

'< Committee on the Cost of Medical Care, I. S. Falk et al., The Cost of Medical Care, p. 617, University 
of Chicago Press, Chicago, 1933. 



70 C'ONCE;NTRATION OF ECONOMIC POWEE 

Since that time, however, some progress has been made toward the 
provision of adequate pubUc medical services and a program of pre- 
vention. The President has proposed a plan of Federal grants to aid 
in the construction of low-cost hospitals. A biU authorizing an appro- 
priation of $10,000,000 for this pm-pose passed the Senate on May 30, 
1940. An extensive health program permitting some form of social 
medicine is being strenuously advocated in Congress, with the prospect 
that eventually, although after some delay, it will be enacted into 
law. All such proposals for an adequate Federal health program 
would involve very substantia] additions to the Federal Budget. 

A new Government service was added in the passage of the W^gi^^r- 
Steagall Act in 1937 and the establishment of the United States Housing 
Authority. Agitation for a program of low-cost housing and slum 
clearance has b.een carried on for many years by private organizations 
and individuals, who pointed out the menace of bad housing to public 
health and morals. The Federal Government had had some experi- 
ence in World War I, as a result of the necessity of housing war 
workers, but during the intervening years had ignored the housing 
problem. The committee investigating the advisability of a Federal 
low cost housing program found that there was immediate need for 
5,600,000 new houses to replace uninhabitable ones and to bring the 
housing of the Nation up to standards of minimum decency. It was 
pointed out that over 16,000,000 houses would be needed by 1950 to 
replace dwellings becoming obsolete and to eliminate overcrowding." 

Private initiative had done practically nothing to meet this chal- 
lenge, as the construction of low-cost housing for the poor was con- 
sidered an unsafe and unprofitable business. The Federal Govern- 
ment, therefore, established a loan program whose administrative and 
other costs totaled $8,629,000 in 1939. Besides this housing program, 
the Government expended over $10,000,000 in 1939 for rehabilitation 
of farmers through the farm tenant and farm security programs. 

The Federal Government conducts several educational activities, 
such as Howard University, Columbia Institute for the Deaf, and 
schools for Indians and Alaska natives. The principal educational 
service is rendered by the Office of Education, which provides con- 
sultive services and research aids for American schools. Certain 
grants-in-aid for educational purposes are also made. 

The problem of extending aid for general education to States and 
locaKties unable to provide adequate schooling has been much before 
the public. Its proponents are making increasing headway, and Con- 
gress will undoubtedly, in the near future, make further grants for 
schools.*^ If adequate public education is to be furnished, the 
National Budget will be greatly increased. ^^ 

PUBLIC WORKS 

Within the category of "public works," as here classified, over half 
of all moneys spent go for conservation, irrigation, flood control, power 
development, and forestry. Public works have played a substantial 
part in government since the formation of the Republic. In 1939 

'•Purposes, Powers, and Functions of the U. S. Housing Authority, Mimeographed Bulletin of the 
U. 8. Hpusirrg Authority, Washington, D. C, March 1938. 

n See the reports of the Advisory Committee on Education, appointed by the President of the United 
States wkicn appeared in a series of booldets in 1939. Especially pertinent is Federal Aid and the Tax 
Problem, Staff Study No. 4, Washington. Also, John K. Norton and Margaret A. Norton, Wealth, 
Children, and Education, Columbia University Press, New York, 1938. 

" For further discuss on, see pt. IV. 



CONCEiNTRATION OF ECONOMIC POWER 7X 

such expenditures totaled over one-fifth of the entire Budget. Aided 
by the public interest in finding work for the unemployed, and spurred 
on by startling revelations of the damage done by erosion, floods, 
deforestation, and dust storms, the Government has built giant dams 
and flood-control levees, replanted denuded areas, terraced and re- 
planted farm land, and in many other ways has begun to regain the 
fertility and conserve the natural resources of the land. This program 
is by no means completed, and many of its features will require 
continuing regular additions of expenditures in order to become 
ultimately successful. 

Federal contributions to highway, bridge, and airport construction 
and maintenance have grown rapidly since 1930. Changing methods 
of transportation, new construction materials, and advances in 
technology have combined to make possible a far-reaching program 
for modern, high-speed transportation. Further, still undetermined 
changes to meet future demands for safety and speed loom ahead and 
will make even greater demands upon the Public Treasury. 

The effort to find work for idle men and the possibility of making 
many needed improvements during the depression has resulted in 
marked betterment of public parks, extensions to museums and 
exhibits, and many new public buildings. Such work has added 
substantial sums to the budgetary requirements of the Government 
and increased maintenance costs as well. Washington itself has bene- 
fited greatly from the construction of many fine parkways and build- 
ings, the result of a beautification program to make it a capital worthy 
of a great Nation. But the bill for all these additions must be met 
from the Public Treasury, and in 1939 it amounted to approximately 
$130,000,000. 

NATIONAL DEFENSE 

The national budget for defense purposes in 1939 totaled $1,628,- 
000,000, 18.6 percent of all expenditures. Defense costs were divided 
into four parts — Army, Navy, Marine Corps, and veterans' benefits. 
They include both the regular operating expenses of the military 
services, the conduct of the Veterans' Administration, pensions, and 
insurance. They do not include debt charges or retirement of debts 
incurred directly for defense purposes. 

Even these large expenditures in 1939 are small in comparison with 
the preparedness program launched in 1940.^* Heretofore, the United 
States, in comparison with other major powers, has been so protected 
by geographic and economic factors as to require relatively small 
military expenditures. Apparently such advantages have been lost 
and the advance of technology in war and modern transportation 
have forced upon the Nation, for a long time to come, the problems 
of providing for vast military preparedness. The Budget of the 
Federal Government has been greatly altered by this new emphasis, 
the economy of the Nation is undergoing radical change, and the 
people will be forced to bear much heavier tax burdens. The 1941 
defense appropriation will be far larger than the 1939 figure of about 
$1,650,000,000. The focus of attention, from the fiscal standpoint, 
will veer away from unemployment relief and the needs of the civil 
domestic economy to the requirements of military and naval defense. 
Defense costs will become the largest item in national expenditures, 

" National-defense costs over a period of years, and the measures to be taken to cushion the impact of 
the new preparedness program, are discussed in pt. IV. 



72 CONCEiNTRATION OF EOONOMIO POWER 

assuming a determining role in the Budget's effect upon the entire 
economy. 

INTEREST AND SERVICES ON THE NATIONAL DEBT 

The debts of the National Government are a heavy burden on its 
yearly Budget. In 1939 such charges took over $1,000,000,000 and 
were 11.5 percent of all expenditures. Of this total, more than 
$940,000,000 went for interest payments and practically nothing for 
debt retirement. These debts arc partly hold-overs from World War I 
and partly the result of Federal borrowing after 1932 to supplement 
tax revenues inadequate for the spending program.'^ The allocations 
for debts made in 1939 are probably much below those which will be 
required as a result of the new preparedness program. Only a very 
drastic shift in the tax system, providing vastly increased current 
revenues, could keep debt costs down to anything like their present 
levels. 

REGULATION OF THE ECONOMY 

The National Government has concerned itself with controlling 
and regulating the economy ever since 1790. But during the period 
of land settlement and urbanization, such activities were very 
circumscribed. 

No one political party has been responsible for the regulatory 
mechanisms set up by the Government. Congress has enacted such 
laws during both Democratic and Republican administrations, as times 
and conditions seemed to warrant. Some measures have been altered 
or rescinded as conditions changed, but on the whole the tendency 
has been to increase the number and complexity of regulatory prac- 
tices. Many features of Federal regulation were unnecessary during 
pioneer days; many others, formerly carried on by local governments 
or States, have been transferred to the National Government. 

The total cost of Federal regulation of the economy in 1939 was 
$612,000,000, only 7 percent of the total Budget. More than two- 
thirds of these costs were in the form of aids to agriculture. While 
there has been some opposition to these practices, they have not been 
the chief target of the criticism leveled at Federal regulation. 

The regulatory mechanisms most complained about are new and 
probably are not yet well established or understood. While the 
"cost" of such mechanisms is held up as Government "waste," it is 
probably not these costs, but the regulatory practices involved, which 
are behind the criticism. The activities most criticized by certain 
elements in the business community, who seek to render them ineffec- 
tive through curtailment of budgets or limitation of powers, are the 
following : 



Regulatory mechanism 



Securities and Exchange Commission. 
National Labor Relations Board... .. 

Wages and Hours Division 

Antitrust Division 



Expenditure, 
1939 



$4,718,000 

2, 761, 000 

1, 044, 000 

774,000 



Percent- 
age of 
total 

Budget 



0.05 
.03 
.01 
.01 



>» See pts. I and IV. 



CONCENTRATION OF ECONOMIC POWEK 73 

The cost of regulation of the economy has grown consistently 
■tliroughout our history, and has probably not begun to reach its peak. 
The increasing concentration of ownership and control of business, 
the growth of national corporations in interstate commerce, the 
dominance of the corporate form of enterprise, the organization and 
increased bargaining power of labor, the use of "yardstick" and other 
devices for determination of fair practices, the rapid expansion of the 
consumers' movement and the new emphasis on preparedness all 
point to greater demands upon Government for regulation of American 
business. It is unreasonable to expect that future Budgets will allot 
less funds for such purposes. 

GENERAL GOVERNMENT 

The cost of Government is generally "thought of by the public as 
the cost of administering the three great branches of Government — 
the legislative, executive, and judicial. This cost, however, is the 
least of all public expenditures. In 1939 it accounted for only 
$524,000,000, or 6 percent of the total. Out of this 6 percent comes 
the cost of administering several hundred departments, bureaus, and 
independent offices related to one of the three civil branches of Govern- 
ment, which conduct research, collect taxes, disburse funds, enforce 
laws, carry on diplomatic and foreign-trade relations, and promote 
civil services for the good of the Nation. 

The most costly activity within the General Government is the 
executive services rendered through the Cabinet offices. These 
absorb 27.5 percent of all General Government costs. 

Spread throughout Government departments is an indispensable 
and growing function — scientific and applied research. Increasingly, 
the Government is being called upon for the collection and dissemi- 
nation of scientific information, so that in 1939 such activities totaled 
18.9 percent of General Govermnent costs. 

Tax collection and tax-law enforcement is also a substantial item 
in the Federal Budget, amounting to 15.3 percent of all "General 
Government" costs in 1939. 

Although the number and scope of Government services have been 
increasing since 1932, the rate of increase has not been steady. The 
year 1934 marked the low point of such services, and, after a sub- 
stantial growth from 1934 to 1938, the appropriations for many of 
these General Government functions were smaller in 1939 than they 
had been in 1938. There is little evidence, however, that maximum 
costs have been reached, and the preparedness program will probably 
mean larger budgets for both civil and military departments in the 
next few years. 



PROSPECTS FOR THE IMMEDIATE FUTURE 

The problems of depression and preparedness will probably prohibit 
any great reduction of Federal expenditures. It appears, in the light 
of this examination of the 1939 Budget, that we wUl need a peacetime 
Budget of approximately $9,000,000,000. 

Already, however, we are no longer considering a peacetime Budget. 
Instead, we have raised the debt limit to permit extensive further 
borrowing, and have more -than doubled our military program, so 
that the immediate prospect for 1941 is for a Budget in excess of 
$12,000,000,000. Even this may prove much too conservative an 
estimate, for it is estimated that an adequate reorganization of our 
defenses will cost many billions of dollars, and the maintenance of an 
armed force sufficient to repel invasion will add much to our yearly 
expenditures. Once a program of militarism is launched, which has 
heretofore occurred only in time of actual war, the United States has 
embarked on a new policy. 

The preparedness program comes at a time when the economy is. 
still grappling with accumulated problems of mass unemployment, 
social and economic insecurity, debt, swoUen public expenditures, and 
increased Government services. Its effects on the general economy 
will be far-reaching, although they are discernible now only in outline.^ 

So far as the Federal Budget is concerned, the preparedness program 
is added to a Budget already far beyond predepression figures; and 
while alterations will likely take place in the economy, as a result of 
"preparedness prosperity," most of the services added during the 
1930's wUl be retained. It may be that as the preparedness program 
absorbs an increasing number of the unemployed, relief appropriations 
can be cut, achieving substantial reductions in this item of Federal 
expenditures. Such a thoroughgoing preparedness program, how- 
ever, will mean a hitherto unheard-of increase lq military costs. 

Furthermore, this program will inevitably be accompanied by in- 
creased Federal regulation of business. The first move in establishing 
the preparedness program was the President's appointment of a 
National Defense Council to coordinate the production and delivery 
of a wide range of products and equipment needed for military 
purposes. The character of the emergency which brings about the 
appointment of such a council will require the introduction of many 
controls over business operations. 

Congress has already recognized that the preparedness program will 
increase the over-all expenses of Government enormously. At 
least a partial attempt has been made to meet these advances through 
taxation, but borrowhig will probably be resorted to in order to secure- 
with dispatch the great amounts needed. Federal spending, both to 
meet the problems of depression and to provide for national defense^ 
will raise Budgets far beyond predepression levels. 

>° Se« pt. IV for a further discussion of the probable effects of preparedness on the economy. 
74 



PART III 
THE AMERICAN REVENUE SYSTEM 



75 



THE AMERICAN REVENUE SYSTEM 

THE REVENUE SYSTEM DESCRIBED 

By 1940 the revenue system of the United States and its subdivisions 
had grown to include customs duties, taxes on property, on individual 
and corporate incomes, and on inheritances and gifts, as well as pay- 
roll and sales taxes. Subject only to the will of the electorate, they 
have not been used consistently, nor have they been welded into a 
rigid structure. This system of revenue is not preconceived nor 
scientifically imposed, but is the result of political pressure and 
compromise. It is not economically sound, either in terms of the 
individual taxes imposed or their relative importance in the entire 
tax system. It has developed with the changing character of the 
Nation's economy, but the two are not closely articulated, nor does 
the tax system meet the fiscal requirements of Government, nor make 
its full contribution to economic recovery. 

The colonists who settled the country brought with them their 
accumulation of tax experience from England and the Continent. 
They found a vast expanse of virgin land, whose ownership and cul- 
tivation made possible a large measure of ecpnomic self-sufficiency. 
The governmental needs of the colonists were few, and largely local in 
character. Many of the services commonly performed by Govern- 
ment today were then privately financed and managed; others were 
nonexistent. Collections in cash or kind were taken up from time to 
time to defray public expenses, and poll taxes and taxes on land 
and personal property were gathered to cover levies made by British 
and colonial governments. The imposition of stamp taxes to supple- 
ment these led to serious trouble between the coloiiies and the mother 
country. But the tax system was not complicated or extensive. 

As the National Government developed, with strong emphasis on 
extensive local self-government. Federal revenue resources were 
limited primarily to customs duties and certain excise taxes. The 
bulk of public revenues was collected by local governments as poll 
taxes or property taxes and expended within the States. 

The Constitution, itself a compromise between contending economic 
and social factions in the colonies, explicitly forbade the enactment of 
direct Federal taxes, except as they might be levied on land or slaves 
or as a poll tax to be apportioned among the States.' Prodded by the 
sudden increase in Federal expenditures during the Civil War, Con- 
gress attempted to circumvent this prohibition by passing an indirect 
income tax in 1862. This tax yielded revenue until it was repealed in 
1872. By that time receipts from customs and excises were again 
sufficient to defray the costs of the Federal Government, and the 
property-tax system, as a result of the settlement of the land and the 
establishment of industries, was adequate for the States. 

I See H. D. Anderson, Our California State Taxes, Stanford University Press, 1937, for a brief historical 
treatment of the several taxes imposed in the United States. 

77 



78 OONCEiNTRATION OF ECONOMIC POWEK 

Hard times struck the country in the lS90's, forcing the Federal 
Government to seek additional revenues to meet increased costs. An 
income-tax law passed in 1894 was declared unconstitutional by the 
Supreme Court. In this extremity, excise taxes were extended, and 
in addition, a Federal estates tax was adopted in 1898. In 1913 
another income-tax law was passed, and was upheld by 'the courts. 

The corporate form of business gained ra^Mly after the Civil War, 
and States increasingly levied taxes on "corporate excess" or the 
difference between the market value of capital stock and the assessed 
valuation of corporate property. Not until 1909 did the Federal 
Government, in a pioneering gesture, enact the corporation excise tax^ 
a levy on corporate earnings. 

The dependence of the Federal Government on excise taxes has 
varied from year to year, growing heavier in the face of war or economic 
stress. A general Federal sales tax has never been enacted, although it 
has frequently been considered. As early as the Civil War, a con- 
gressional committee reported on the feasibility of the tax, saying that 
such a tax "violates all the fundamental principles of taxation, being 
neither definite in amount, equal in application, nor convenient in 
collection." ^ 

Net mcome tax rates were increased in 1916, and a temporary tax 
of 12.5 percent was levied on the net profits of certain businesses which 
benefited particularly by the World War. These changes, coupled 
with the decline in customs receipts during the war, temporarily 
shifted the burden of Federal taxation, as indicated in the following 
figures : ^ 





Year 


Percentage of ordinary 
receipts 




Customs 

and internal 

revenues 


Incrme and 
profits 
taxes 


1913 


95.2 
68.0 
41.0 


4.8 


1917 


32.0 


1920 . - . 


59.0 







Those who had been forced, in a burst of patriotism, to assume an 
increasing share of Federal taxation naturally wished to rid themselves 
of this burden when peace came. They sought to do so by forcing the 
passage of a general sales tax. These attempts, in 1918-20, were re- 
sisted by such large pressure groups as the Farm Bureau Federation, 
the National Grange, and the American Federation of Labor, and de- 
spite the use of the propaganda for a soldiers' bonus as leverage for the 
enactment of a general sales tax, the proposal was defeated. Tax 
relief was provided for the wealthy, however, in the reduction of 
Federal income tax rates beginning in 1921, which inaugurated the 
Mellon tax plan of the prosperity period. 

> U. S. Revenue Commission Report. 1866, p. 21. 

' Secretary of the Treasury, Annual Report, Washington, 1924, pp. 390-391. 



CONCENTRATION OF ECONOMIC POWER 79 

Agitation for the passage of the general sales tax subsided thereafter 
until the break-down of the economic structure in 1929. Then the 
attempt to enact a Federal sales tax again became a matter of national 
concern, strenuously urged by certain groups seeking tax relief. The 
movement for the Federal sales tax harassed the closing years of the 
Hoover administration, but died down with the advent of the New 
Deal and the vigorous opposition of President Koosevelt to the 
proposal. 

The States did not fare so well. State services had been increasing 
rapidly in relation to those rendered by local communities, yet the 
chief source of State revenue, the general property tax, provided lesa 
and less income in times of economic stress when the need for funds was 
greatest. West Virginia, during the depression of 1921-22, passed the 
first general sales tax ever adopted by an American State. Not imtil 
after 1930 did other States follow suit. In the distress prevailing after 
1929 one after another resorted to general sales taxation in order to 
maintain State services and to relieve the burden on property. By 
1935, 32 of the 48 States, or 67 percent, had adopted sales ta.xes of one 
sort or another. 

The passage of the Federal social-security program in 1935 inaugu- 
rated a new form of Federal taxation, in pay-roll taxes for old age and 
unemployment insurance. The old-age insurance reserve is being 
accumulated out of a 1-percent pay-roll tax assessed against both em- 
ployers and employees. It was originally planned that the tax should 
be increased every 3 years after 1939 until it reached 6 percent in 1949; 
Congress, however, has fixed the rate at the old figure until 1941. 

The unemployment-insurance tax is an incentive for States to install 
unemployni'^nt reserve systems, for 90 percent of the tax collected is 
returned to those States which have enacted satisfactory unemploy- 
ment-insurance laws. 

Table 26, chait 9, summarizes the Federal, State, and local revenue 
system of the Ui.ited States.* In 1938, Federal revenues, once of 
minor importance ixi comparison with local taxation, constituted 40.7 
percent of all Govermnent revenue. Fiu-thermore, State governments 
had assumed an increasing proportion of local expenditures and had 
expanded their revenue to meet these demands.^ By 1938 they col- 
lected 26.1 percent of all tax revenues. But the local governments — 
counties, municipalities, and districts — stiU accoimted for a third of 
all public revenue. 

* Some confusion may result from the reader's aitempt to reconcile the several different displays of tax 
data in the tables of this monograph. This cannot be done because time spans are not identical. Among 
the various sources used are the following; 

1. Federal and estimated State and local revenues and expenditures, for the fiscal year 1938, compiled by 
the Tax Research Division of the U. S. Treasury. 

2. Estimates and tax collection data taken from the several sources indicated in the footnotes of table 27, 
assembled by Dr. Clarence Heer for the ^ dvisory Committee on Education. 

3. Data taken from the U. S. Department of Treasury, Bureau of Internal Revenue, published as "Com- 
parative Statement of Internal Revenue Collections by Tax Sources, 1930-36, 1937-38," calendar years. This 
series forms the body of the statistics on tax collections presented, and within themselves the displays check, 
.so that comparability is achieved. 

4. Data presented from the U. S. Department of Treasuiy, Statistics of Income. These data are for tax 
years, or tax periods within calendar periods. 

The reader must be cautioned further col erning data on "tax assessments" and "tax collections" which 
are not always synonymous. 

' See H. D. Anderson, Our California State Taxes, Stanford University Press, 1937, for a detailed analysis 
of this statement. 



261085—40 — No. 2C 



80 CONCENTRATION OF ECONOMIC POWER 

Table 26. — Tax-revenue system of the United States, fiscal year 19S8 
[Dollar figures, except per capita in millions] 





Federal 


State 
(Est.) 


Local 
(Est.) 


Total 


Per- 
cent, 
Fed- 
eral 


Per- 
cent, 
State 


Per- 


Source 


Amount 


Per- 
cent 


Amount 


Per- 
cent 


Amount 


Per- 
cent 


Amount 


Per- 
cent 


centf 
local 


Customs 


$359 


S.9 










$359 
4.745 
1,562 

562 

1,762 
1,450 

1.481 
1,466 

1,306 
118 


2.4 
32.0 
10.6 

3.8 

12.0 
9.8 

10.0 
9.9 

8.8 
.7 


100.0 

84.' i" 

74.2 

82.2 
61.2 

19.8 
77.5 

22.0 
31.4 








$214 
249 

145 

313 

707 

1,163 
2S8 

717 
51 


5.5 
6.5 

3.8 

8.1 
18.3 

30.2 

7.7 

18.6 
1.3 


$4,531 


92.1 


4.5 
16.9 

25.8 

17.8 
48.8 

78.5 
20.3 

54.9 
43.2 


95.5 


Individual income 


1,313 

417 

1,449 
743 

293 
1,136 

287 
37 


21.7 

6.9 

24.0 
12.3 

4.9 

18.8 

4.8 
.6 




Estate, inheritance, 








Corporate income 
and privilege 














Motor fuel and ve- 
hicle 


25 
32 

302 
30 


.5 

.7 

6.1 
.6 


1.7 


Liquor and tobacco.. 
Sales and other ex- 
cises - - 

Other tax revenue... 


2.? 

23.1 
25.4 


Total 


6,034 


100.0 


3,857 


100.0 


4,920 


100.0 


14.811 


100.0 


40.7 


26.1 


33.2 






Per-capita tax reve- 


$46.48 
8.9 


$29. 71 
5.7 


$37.90 
7.2 


114.09 
21.8 










Tax revenues as per- 
centage of national 

































' On the basis of the estimated population (129,818,000) as of Jan. 1, 1938. 

> On the basis of the average ($67,923,000,000) of the estimated national income for calendar years 1937 
and 1938. 

Source: Based on Bulletin of the U. S. Treasury Department, August 1939. 

Tax data are often presented on a per capita basis to indicate the 
effect of population shifts. Such data are frequently misunderstood 
to mean that the burden of taxation is on a per capita basis. Figures 
on per capita tax revenues have no value except to indicate a com- 
parison between tax revenues and the population. In 1938 tax 
revenues were $114 per capita, of which the Federal Government 
collected $46, the local governments $37.90, and the State govern- 
ments $29.70. 

Taxes in 1938 were more than a fifth of the total national income. 
The Federal Government tax revenues were 8.9 percent of the national 
income, the local governments' taxes were 7.2 percent, and the States' 
5.7 percent. These percentages are not to be regarded as a deduction 
from national income, for tax revenues defray production costs of 
Government activities, and by so doing create income as well as us& 
and distribute it. 

TOTAL REVENUE SYSTEM 

Current revenues collected for all types of government totaled 
$14,811,000,000 for the fiscal year 1938. Progressive taxes,* which ar& 
levied oh taxpayers in proportion to their ability to pay them, and 
which by their very nature fall predominantly upon relatively well- 
to-do citizens, were only 26.4 percent of all revenue collected. Re- 
gressive taxes, comprising property, customs, sales, pay roll, and other 
excise taxes, which take little or no account of ability to pay, and 
which usually restrict purchasing power, totaled 73.6 percent of all 
tax revenues. Thus, approximately $4,500,000,000 were collected in 
various forms of taxes which may be presumed to have had a con- 

• See p. 89 fl. and pt. IV for a discussion of the terms used. 



CONCENTRATION OF ECONOMIC POWEH 

«= Chart 9 

TAX REVENUE SYSTEM OF THE 
UNITED STATES 

TYPE OF TAX BY LEVEL OF GOVERNMENT 
FISCAL YEAR 1938 

TOTAL TAX REVENUE 

$14,811,000,000 

^ 



81 



FEDERAL 
$6,034,000,000 



T 

STATE 
$3,857,000,000 



T 

LOCAL 
$4,920,000,000 



Customs 

Properly 

Individuol Income 

Estote, Inheritance, ond GItt 

Corporate Income and Privilege 

Poyrolls 

Motor Fuel and Vehicle 

Liquor and Tobacco 

Soles ond Other Excises 

Other Tox Revenue 



W^^/XAr/ArArjY/yry/jrjr////////////////////////////////A^ 



DOLLARS (HUNDRED MILLIONS) 
10 20 30 40 




Customs 

Property 

Individual Income 

Estate, Inheritance, ond Gift 

Corporate Income and Privilege 

Payrolls 

Motor Fuel and Vehicle 

Liquor and Tobocco 

Soles and Other Excises 

Other Tox Revenue 



m>/////////////j>//////////////////////////////////////y////. 



^s&^mmmm^^.im:ii^^^'- y,'^y.:^i^yAA^^:-:i^:::m:R 



PER CENT 
40 60 



^mz. 



.100 

2 



'{m'.'.-M:^my/A:^:m -m^-y -iimmM 




TAX REVENUES AS PERCENTAGE OF NATIONAL INCOME 

10 20 30 40 50 60 70 80 90 



source: Bmed on FEOEB&L AND ESTIMATED STATE AND LOCAL REVENUES AND EXPENDITURES FOR 
GENERAL COVERNMENT, FISCAL YEAR, 1938, Bulltlln, U S.Trtotury, Aufuil, 1939. 



g2 concelntration of economic power 

strictive effect upon the economy. Regressive levies spent for relief 
or welfare activities, however, involve largely a transfer, rather than a 
diminution of mass purchasing power. 

The principal support of governm.ent is still the property tax, which 
in 1938 accounted for a third of all governm.ent revenues. No other 
tax yields as much as 15 percent of all revenue. Federal and State 
corporate incom.e and privilege taxes are second, with 12 percent of 
the total. Individual income taxes are not far behind, with 10.6 
percent, followed closely by motor fuel and vehicle taxes, liquor and 
tobacco taxes, pay roll, and other sales and excises, Custom.s reve- 
nues and taxes on gifts and inheritances are of relatively small im- 
portance in the total yield of taxation. This grouping of taxes into 10 
sources conceals the wide variety of different individual taxes levied, 
each designed to extract revenue from some form of wealth or income. 
As the system has becoro.e more diversified, it has grown increasingly 
difficult to devise a levy which does not dip into resources already 
being taxed. 

Nor, incidentally, does this highly diversified tax system insure a 
constant flow of revenue in both good and bad tim.es, for the system 
leans heavily on sources which are promptly and seriously affected by 
changes in the general econom.y.'' 

Of the 10 different sources, or groups, of tax revenue, the Federal 
Governm.ent uses 9, the States 9, and the local governments 5. There 
is marked duplication of tax sources, especially between the Federal 
Government and the States. The only group of sources not used by 
the Federal Government is real and personal property. Customs 
duties, on the contrary, are reserved by the Federal Government. 
Local governments in 1938 did not use customs, individual income, 
gifts and death duties, corporate income, or pay-roll taxes, although 
since then certain cities have invaded the personal income-tax field to 
secure increased revenues. 

There are few tax restrictions on the various governments, and 
they have ranged into many fields to obtain revenue, guided largely 
by what is feasible rather than by any desire to segregate sources and 
restrict the use of sources to particular governments. Overlapping 
and duplication of taxation between governmental bodies have 
reached 'such proportions as to form one of the major tax problems of 
the Nation. Later discussion will devote considerable space to this 
important issue. 

THE FEDERAL REVENUE SYSTEM 

By 1938 Federal revenues had risen to the enormous figure of 
$6,034,000,000. This is not the amount of Federal expenditures, but 
the yield from tax som^ces and other revenue. In fact, the Federal 
Budget was considerably larger than $6,034,000,000, and the difference 
was made up by borrowings and other revenue. 

The Federal revenue system is far more "progressive" in its eco- 
nomic effects than either the State or local tax systems. Whereas the 
entire revenue system obtained one-fourth of its yield from taxes to 
some extent based on ability to pay, and three-fourths from taxes 
-which take little or no account of the economic circumstances of those 
who finally pay them, the Federal tax system obtained 52.6 percent 
of its yield in 1938 from income, estate, and gift taxes, and 47.4 
percent from customs and excise taxes. 

Tor a further discussion of the elasticity of the revenue system, see pt. IV. 



CONCENTRATION OF ECONOMIC POWER g3 

Customs duties have fallen to a relatively unimportant place in 
terms of total Federal revenue, yielding less than 6 percent of all tax 
moneys in 1938. Throughout the years the Federal Government has 
come to place more dependence on income taxation, especially cor- 
porate taxes, which in 1938 yielded approximately one-fourth of all 
revenues. Individual income taxes are not far behind, contributing 
over one-fifth of the total. Excise and sales taxes are the heaviest 
contributors of all, however, and taxes on liquor and tobaccos alone 
accounted for almost 19 percent of all revenues in 1938. Estate and 
gift taxes yielded more revenue than customs duties. The new 
pay-roll taxes for social security were over 12 percent of the total 
revenues. 

THE STATE TAX SYSTEM 

Table 26 also gives information concerning the State revenue 
system. No two State tax systems are identical, and any such display 
weights heavily the States with large tax yields. Some States collect 
property taxes, some do not. The same is true of income and general 
sales taxes, while all States, except Nevada, impose inlieritance or 
estates taxes, and most States have various excise taxes. 

The largest amount of State revenue is obtained from motor vehicle 
and fuel taxes, which in 1938 accounted for 30 percent of all State 
tax funds. It has become the practice for States to collect such taxes, 
to prevent evasion and achieve administrative economies, although 
some States apportion the taxes thus collected, to governmental 
subdivisions for local purposes. 

The break-down of general property tax systems during the depres- 
sion placed sales taxation second among State tax systems, with over 
18 percent of all State tax collections in 1938. Pay-roll taxes also 
have become a very important aspect of State revenue systems, rank- 
ing only slightly below the general sales tax. 

While the property tax is still collected in many States, it contrib- 
uted less than 6 percent of the total revenues recorded in 1938. The 
position of inheritance, individual income, and corporation income 
taxes in State taxation does not compare with their importance in 
the Federal system. Liquor and tobacco taxes alone yield the State 
almost as much revenue as corporate income and privilege levies. 

The combined State levies burden the consuming public propor- 
tionately much heavier than does the Federal system. Only 18 
percent of State tax revenues are from income and mheritance taxes, 
while over 80 percent comes from property, sales, and excise taxes. 

THE LOCAL TAX SYSTEM 

The major, but not the exclusive, local tax is that on real and. 
personal property. In 1938 over 92 percent of all locally imposed 
taxes were from this single source. In some localities taxes were 
levied on motor vehicles. In fact, as recently as 1935 in California, 
property taxes on automobiles were levied and collected by the 
counties, and are still so collected in some other States. Some 
municipalities have made use of the retail sales tax in recent years, 
and revenues from this source are the second most important form of 
local taxation. Local governments also levy business sales licenses 
and taxes on liquors, and while they are a substantial form of tax 
support in some local governments, they are only a minor part of all 
local taxation. 



TRENDS IN TAX REVENUES 

Trends in Federal, State, and local tax yields are presented in 
table 27, charts 10 and 11. These figures are adapted from a series 
developed by Clarence Heer,^ and have been continued through 1938 
by the addition of data from other sources. It is difficult to obtain 
absolute comparability of such figures for successive years, as the 
compilations of the various Governmental agencies do not always 
follow identical procedures. Hence, studies by different tax authori- 
ties are often in some disagreement, depending on the character and 
treatment of the source material. 



Table 27. — Distribution of total tax collections, hy level of government, for selected 

fiscal years, 1912-38 

[Dollar figures in millions] 





Total 


Federal ' 


State and local 


Year 


Amount 


Percent 
of total 


Total 


State 


Local 




.-Vmount 


Percent 
of total 


Amount 


Percent 
of total 


Am.ount 


Percent 
of total 


1912 


$2, 295 
8,051 
9,465 
10. 425 
9,390 
8,243 
7,546 
8.841 
9,745 
10, 546 
12, 162 
14,811 


$633 
3,132 
3,360 
3,627 
2,807 
1,885 
1.871 
2,986 
3,643 
3,907 
5.140 
6,034 


27.6 

38.9 
3.5.5 
34.8 
29,9 
22.9 
24.8 
33.8 
37.4 
37.0 
42.3 
40.7 


$1, 662 
4,919 
6,105 
6,798 
6,583 
6,358 
5,675 
5, 855 
6,102 
6,639 
7,022 
8,777 


72.4 
61.1 
64.5 
65.2 
70.1 
77.1 
7.5.2 
66.2 
62.6 
63.0 
.57.7 
59.3 


$333 

1,303 

1,774 

2.080 

» 2, 048 

'1.882 

1. 7.50 

1,996 

2,293 

2,495 

2,815 

*3,857 


14.5 
16.2 
18.7 
20.0 
21.8 
22.8 
23.2 
22.6 
23.5 
23.7 
23.1 
26.1 


$1. 329 
3'. 616 
4,331 
3.718 
4.535 
4,476 
3,925 
3.859 
3,809 
4,144 
«4,207 
<4,S20 


£7.9 


1925- - 


44.0 


1928 


45.8 


1930 


45.2 


1931 - 


48.3 


1932 


54.3 


1933 


52.0 


1934 


43.6 


1935 -.. 


39.1 


1936 


39.3 


1937 


34.6 


1938 - 


33.2 







' Internal-revenue receipts, collection basis and customs receipts. Customs include tonnage tax for year* 
prior to 1932. Data are on the basis of the daily Treasury statement, unrevised, except that for the year 
1912 they are on the basis of warrants issued. 

> Includes an estimated $300,000,000 of shared taxes distributed to local governments in 1930, and $270.- 
000,000 in 1931. 

' Estimated from the 1936 figure on the basis of the percentage increase between 1936 and 1937 in general 
property tax assessments, and rates of levy in approximately 220 American cities. 

• Estimated. 

Source: Clarence Heer, Federal Aid and the Tax Problem'r Staff Study No. 4, Advisory Committee on 
Education, Washington, 1939, p. 31, and Bulletin of the U. S. Treasury Department, August, 1939, p. 4. 

The table offers data for the years 1912, 1925, 1928, and each j'ear 
thereafter. Revenues, which in 1912 totaled $2,295,000,000, had 
increased by 1938 to $14,811,000,000. But in addition to the increase 
in tax revenues, the table portrays the changing role of the various 
governmental units. In 1912 the Federal Government accounted for 
only 27.6 percent of all government tax collections. By 1938 it had 
become of dominant importance, accounting for over 40 percent of all 
tax revenues. The combined revenues of States rose from 14.5 per- 

* Clarence Heer, Federal Aid and the Tax Problem, Staff Study No. 4, Advisory Committee on Educa* 
tion, Washington, 1939. Data for 1938 from Bulletin of the U. S. Treasury Department, August 1939. 

84 



CONCENTRATION OF ECX>NOMIC POWEiR 



85 



Chart 10 

TAX COLLECTIONS IN THE UNITED STATES 

SELECTED FISCAL YEARS BY LEVEL OF GOVERNMENT 

1912-1938 



DOLLARS 

4 HUNDRED MILLIONS I 

70 



FEDERAL 



DOLLARS 

(HUNDRED MILLIONS) 

70 




1928 (930 1931 I9s2 1933 1934 1935 1936 1937 1938 



STATE 



DOLLARS 

(HUNDRED MILLIONS) 

70 




1928 1930 1931 1932 1933 1934 1935 1936 1937 1938 



LOCAL 



DOLLARS 

(HUNDRED MILLIONS) 
70 



^PaiB 



1928 1930 1931 (932 1933 1934 1935 1936 1937 1936 



SOUKBE: FEDERAL AfO AND THE TAX PROBLEM; Sla<t Study Na.4, Advitory Ccmmmtt on Cdueollon.Woililnglm.O.C ISM, ».SI 



86 



OONCBNTRATION OF EOONOMIG POWEK 
Chakt 11 



TAX COLLECTIONS IN THE UNITED STATES 

SELECTED FISCAL YEARS BY LEVEL OF GOVERNMENT 



1912-1938 



AMOUNT IN DOLLARS 



1 



m 



h 






I 



I 



^ 



i 



I 



- 



I 



m 



I 



^^ 



I 



DOLLARS 

(BILLIONS) 

IS 



i 




1930 1931 1932 1933 1934 I93S 1936 1937 

] FEDERAL 
\ STATE 
\ LOCAL 



AS PERCENTAGES 

m 



i 

i 

pi 



ws 



*i- 



l-l 



i 



i 



i 



i 



f 



jgy; 



■^ 



t 



t 



i 



PER CENT 
100 



- 80 

A- ^° 

60 



:>?-ft 



50 



30 
20 



|-'° 



1930 1931 1932 1933 1934 1935 1936 1937 1938 



501//Kf FEOEHAL AID ANO THE TAX PROBLEM; Slg<f Study Ne 4, AdvlMry Csmmillee en Educatlon.WoihinglOfl.OC ,l»3», » St 



OONCBNTRATION OF ECONOMIC POWEiR 87 

cent of all the collections in 1912 to 26.1 percent in 1938. Local 
governments, on the other hand, collected almost 58 percent of aU tax 
revenues in 1912, and only 33 percent in 1938. 

In none of the three levels has the year-to-year change been regular. 
For example, in 1930, when tax collections were higher than for any 
previous year, largely because of the unusually high income returns for 
1929, the Federal Government collected 34.8 percent of all govern- 
mental revenues. Its proportion of the total declined in 1930 and 
1931, reaching a low point in 1932, with 22.9 percent of the total. 
Then came the New Deal, with its vigorous program of unemploy- 
ment relief and recovery measures for industry and agriculture. The 
Federal Government began to assume obligations formerly carried 
by other governmental units or private organizations, and both the 
total Federal tax bill and its proportion of all tax revenues began to 
mount, imtil in 1935 it was greater, both in amount and in proportion 
of the total, than for any year since 1925. 

Revisions in Federal tax laws provided still larger sums after 1935, 
and the Federal Government's proportion of all taxes raised continued 
at an all-time high for peacetime years. While this situation may not 
be permanent, there is little prospect of such a drastic shift as to sub- 
ordinate the Federal Government to the State or local branches in the 
immediate future. In fact, the Federal Government will undoubtedly 
become increasingly more important as a tax collector, because of its 
larger resources and greater access to taxable wealth, its strategic 
position as an arbiter between the States, and its nonsectional approach 
to fiscal problems. 

The States, like the Federal Government, are assuming increased 
governmental responsibilities formerly borne by the localities, and 
consequently State revenues are increasing faster than those of local 
governments. Local taxation is confined largely to property located 
within local boundaries. During the depression years property values 
have dropped, delinquencies increased, and the return from ad va- 
lorem taxes has suffered in consequence, despite increased assessment 
valuations in many localities. Stabilization of this situation is being 
sought by various means, but the problem persists, and in spite of 
increasing demands on local government for more services, limited 
tax resources force responsibility upon the State or Nation. 

In table 28 the figures given in the previous table are arranged to 
show annual percentage changes. Of special significance are the 
figures from 1930 onward. Despite increased expenditures during 
depression, and the often frantic efforts to secure new revenues to 
avoid borrowing, total tax revenues dropped 8 percent or more a year 
from 1931 to 1933. The decline in total revenues is perhaps less sur- 
prising than that they dropped little in comparison to the collapse 
of business revenues. Our heterogeneous progressive-regressive tax 
system showed a remarkable ability, all things considered, to maintain 
revenues even during severe economic stress. 



88 



CONCENTRATION OF ECONOMIC POWEOR 



'Table 28. — Tax revenues collected hy Federal, State, and local governments and 
percentage change, selected fiscal years 1912-38 

[Dollar figures id millions] 



Taxes 


1912 


1925 


1928 


1930 


1931 


1932 


1933 


Federal 


$633 


$3, 132 
394.78 
$1. 303 
291.29 
$3, 616 
172. 08 


$3,360 

7.28 

$1, 774 

36.15 
$4,331 

19.77 


$3,627 

7.95 

$2,080 

17.25 

$4,718 

8.94 


$2,807 
-22.61 
$2,048 
-1.64 
$4,535 
-3.88 


$1,886 
-32. 85 
$1, 882 
-8.11 
$4,476 
-1.30 


$1, 871 


Percentage increase 


-0.74 


State ..- 


$333 


$1,750 


Percentage increase 


-7.01 


Local 


$1,329 


$3,925 


Percentage increase 


-12.31 








Total - 


$2,295 


$8,051 
250.81 


$9,465 
17.66 


$10,425 
10. 14 


$9,390 
-9.93 


$8,243 
-12.22 


$7,546 


Percentage increase 


-8.46 








Taxes 


1934 


1935 


1936 


1937 


1938 


Increase 

1938 over 

1912 


Federal 


$2, 986 
59.69 

$1,996 
14.06 

$3,859 

-L68 


$3, 643 
22.00 

$2, 293 
14.88 

$3,809 

-1.30 


$3,907 
7.25 

$2, 495 
8.81 

$4,144 
8.79 


$5, 140 
31.56 

$2, 815 
12.83 

$4,207 
1.62 


$6. 034 
17.4 

i$3,857 
37.0 

i$4,920 
16.9 


$5, 401 


Percentage increase 


853.2 




$3,524 


Percentage increase 


1,058.3 


Local - 


$3, 591 


Percentage increase --- --- - 


270.2 








Total 


$8,841 
17.16 


$9, 745 
11.03 


$10, 646 
8.22 


$12, 162 
15.23 


$14,811 
21.8 


$12. 616 


Percentage increase -. 


545.4 







> Estimated. 

Source: Clarence Heer, Federal Aid and the Tax Problem, Advisory Committee on Education, Wash- 
ington, 1939, p. 31, and Bulletin of the U. S. Treasury Department, August 1939, p. 4. 

The rapid increase in tax revenues since 1934 results from tax 
revisions and an increase in national wealth and income. Federal 
revenues responded particularly to these changes, registering yearly 
changes as high as 60 percent. Annual increases in State revenues, 
while substantially less, ranged from 9 to 15 percent. 



SOURCES OF FEDERAL REVENUES 

Judged in terms of their economic effects, taxes may be arranged in 
two broad groups — progressive and regressive. "Progressive" taxes 
are those which bear some relationship to the abihty of the taxpayers 
to meet the tax burden imposed upon them; "regressive" taxes are 
imposed without regard to such abihty. 

Progressive taxes levy upon increments of economic surplus derived 
from rents, interest, wages, or profits. They take the form of per- 
sonal and corporation net-income taxes; they tap economic surplus 
laid by in fortunes of individuals which are passed by gift or in- 
heritance to their legatees; or they are levied as excess profits and 
dividend taxes on evidences of business profits. 

Net economic surplus appears in any levy on net incomes and 
profits, for in such cases costs of operation have already been allowed 
or paid. Such taxes are actually borne by the taxpayer upon whom 
}h.e tax is levied. But this evidence of economic surplus does not 
necessarily mean that the tax is economically sound or beneficial to 
the whole economy, nor does it preclude the possibility of individual 
hardship in paying the tax. Real "progressive taxation" requires 
more than that. It necessitates some recognition that incomes vary 
in size and character, and that taxes should allow for these differences 
by levying at progressive rates as the economic surplus increases. 

Finally, any tax, no matter how progressive, is valuable only in its 
relation to other taxes which make up the revenue system, the part 
it plays in the expenditure program, and its total effect upon the 
economy. 

"Regressive" taxes deny the theory of progression, and fall more 
heavily upon small incomes than upon large ones. Regressive taxes 
are usually indirect, and may be passed along in higher prices until 
they come to rest on the ultimate consumer or user of the goods.' 
They usually take the form of sales or excise taxes on commodities 
sold, services rendered, or gross receipts of business enterprise. 

The definitions and classification used here are admittedly not 
entirely satisfactoiy, being too crude to describe either the equity 
involved in the taxes levied, or their precise economic effects. Further- 
more, they make use of a popular description of taxes which is likewise 
not founded on careful, detailed determination of the incidence and 
effect of particular taxes. In technical usage, the terms "pro- 
gressive" and "regressive" apply specifically to the rate structures 
of taxes. Those which' take a larger percentage of high income than 
low are deemed "progressive" ; those which take a larger percentage of 
low than high income are considered "regressive." H'^re, however, 
the usage presumes this condition, but is broadened to connotate a 
relationship to the econonac circumstance of the tax-paying groups. ^ 

In the very excellent Report of the Royal Commission on Domin- 
ion-Provincial Relations,^" the difficulties of classification are recog- 

» For some qualification of this statement, see pt. IV. 

"> Report of the Royal Commission on Dominion-Provincial Relations, May 3, 1940, Book I, pp. 210-216; 
also Book II, Chapter VIII. 

89 



90 CX)NCBiNTRATION OF ECX>NOMIC POWEflR 

nized and an arbitrary grouping made, the underlying assumption 
being a difference of incidence. Three groups are distinguished, 
namely, Consumption Taxes, regressive in character except for a 
relatively few taxes of comparatively small yield; Business Taxes, 
imposed at some intermediate point in the production-consumption 
cycle and subject to shift in incidence as general business conditions 
change; and Progressive Taxes falling on surplus, or income in excess 
of that necessary for subsistence. While a sharper distinction in 
some respects than the two-group classification employed in the 
present study, the Royal Commission study recognizes the repressive 
character of taxes which make up the second group, apparently sub- 
scribing to the view of substantial forward shifting to ultimate con- 
sumers of goods and services. 

The Colm-Tarasov study. Who Pays the Taxes? Allocation of 
Federal, State, and Local Taxes to Consumers' Income Brackets, 
likewise assumes a forward shifting of most of these business taxes to 
rest ultimately on consumers in a regressive manner. ^^ 

If the reader objects to the classification and groupings made in 
the present study, the essential data are furnished permitting other 
arrangements. It is believed, however, that the present use is prac- 
tical, has some merit in enabling one to come to grips with certain 
essentials of taxation and their broad economic effect, and does not 
contain sufficient error to badly distort the conclusions drawn from 
the arrangement of the data. 

Since the social and economic effects of progressive and regressive 
taxation are different, these taxes are segregated in table 29 and 
chart 12. Table 29 gives data on both progressive and regressive 
revenues from 1930 to 1938. ^^ Progressive taxes are gathered under 
a single heading from table 30, while the regressive taxes from table 
44 are listed as consumption levies. However, the tax methods used 
in providing conservation and social security funds are also largely 
regressive, as are the prohibitive and customs taxes. 

11 Gerhard Colm and Helen Tarasov, Monograph No. 5,, Temporary National Ectuiomic Committee, 
Who Pays the Taxes? Allocation of Federal, State, and Local Taxes to Consumers' Income Brat*et8. 
Washington, 1940. , ^ . ,^v. 

12 It should be remembered that some of the taxes are collected currently, and some on earnmgs of the 
prior year; hence conclusions as to taxable income are impossible. 



OONCEiNTRATION OF ECX>NOMIC POWER 



91 



Table 29. — Total Federal tax revenues, calendar years, 19S0-38 {progressive and 

regressive) 

[Dollar figures in thousands] 



Sources 



1930 



1931 



1932 



1933 



1934 



Progressive. - 

Percent of total 

Percent increase 

Regressive consumption 

Percent of total 

Percent Increase 

CJonservation and social security. 

Percent of total 

Percent increase 

Proliibitive 

Percent of total' 

Percent increase 

Customs --- 

Percent of total... 

Percent increase 



$2, 449, 992 
72.2 



$482, 387 
14.2 



$1, 458, 070 

63.8 

-40.5 

$455, 385 

19.9 

-5.6 



$854, 133 

50.9 

-41.4 

$565. 430 
33.7 
24.2 



$959, 467 
40.4 
12.3 

$990, 419 
41.7 
76.2 

$140, 563 
5.9 



$505 



$498 



$1,211,868 
36.8 
26.3 

$1, 281, 447 
38.9 
29 4 
$600,308 
15.2 
265.9 
$661 



$461, 885 
13.6 



$370, 771 

16.2 

-19.7 



-15.8 

$259, 600 

15.4 

-30.0 



-1.4 

$283, 681 

11.9 

9.3 



10.6 

$301,168 

9.1 

6.2 



Total. 

Percent of totals. 
Percent increase. 



$3, 394, 852 
100.0 



$2, 284, 826 
100.0 
-32.7 



$1, 679, 669 
100.0 
-26.5 



$2, 374, 628 
100.0 
41.4 



$3, 295. 341 
100.0 
38.8 



Sources 


1935 


1936 


1937 


1938 


1938 over 
1930 « 


Progressive . 


$1,636,427 

44.0 

35.0 

$1, 396, 890 

37.6 

9.0 

$325, 326 

8.8 

-35.0 

$586 


$2, 162, 959 

51.6 

32 2 

$1, 619, 7i21 

38.6 

16.0 

$4, 078 

0.1 

-98.7 

$576 


$3, 218, 464 

52.9 

48.8 

$1,717,311 

28.2 

6.0 

$680,706 

11.2 

16, 592. 2 

$608 


$3, 175, 788 

54.6 

-1.3 

$1, 666, 194 

28.8 

-3.0 

$665, 029 

11.4 

-2.3 

$602 


$726, 796 


Percent of total 


Percent increase 


29.6 


Regressive consumption 


$1, 183, 807 


Percent of total 


Percent increase 


245.4 


Conservation and social security - 


$624,466 


Percent of total . 




Percent increase 


373 1 


Prohibitive. 


$13 


Percent of total ' 




Percent increase . . . 


6.5 

$367, 608 

9.6 

18.7 


-1.7 

$408,061 

9.7 

14.1 


5.4 

$470, 505 

7.7 

16.3 


-1.0 

$301, 381 

5.2 

-36.0 


2 2 




-$160, 504 


Percent of total 


Percent increase , 


-34.7 






Total . 


$3, 716, 838 
100.0 
12.8 


$4, 195, 396 
100.0 
12.9 


$6, 087, 594 
100.0 
45.1 


$5, 808, 993 

100.0 

4.6 


$2, 414, 142 


Percent of totals 


Percent increase 


71.1 







1 Or first year thereafter in which the taxes were effective. 
• Less than 0.1 percent throughout. 

Source: Data taken from U. S. Treasury. Department, Comparative Statement of Internal Revenue 
Collections by Tax Sourceo, 1930-38, and Report of the Secret&ry of the Treasury, 1939, p. 387. 



92 



CONCENTRATION OF ECONOMIC POWER 



Chart 12 

PROGRESSIVE AND REGRESSIVE TAXATION 

TOTAL FEDERAL TAX REVENUES, 1930 1938 



DOLLARS 

<eiu.ioNs) 



■y5a?KS''>ri?^aajjj!?st!^v^i?;*iy£Ai?JSSJS^^ r-.-~^ 



DOLLARS 

(BILLIONS) 




1930 1931 1932 1933 1934 1935 1936 



937 1938 



li"JJIL IJ 






PER CENT 
100^ 




1930 1931 



1932 



1933 



1934 1935 1936 1937 1938 



$Oll/>Ce; U.S.TrM»ury 0«(>oflm«nt, COMPARATIVE STATEMENT OF INTERNAL REVENUE COLLECTIONS 
BY TAX SOURCES, I9J0-I938. 



CONCENTRATION OF EOONOMIO POWER 9^ 

The table on progressive and regressive taxes indicates the trend in 
total tax yields, as well as the movement in the two broad groups 
displayed, and their relation to the total. It also shows the annual 
percentage changes in each group. 

Total Federal revenues increased 71 percent from 1930 to 1938^ 
During those years they rose from $3,394,852,000 to $5,808,994,000J 
In this rapid expansion progressive taxes increased only 30.7 percent 
while regressive forms grew 145.4 percent. Progressive taxes con-' 
tributed 72.2 percent of the smaller total of 1930, and only 54.6 percent) 
of the much larger revenues of 1938. Regressive taxes, on the other 
hand, rose from 14.2 percent of all revenues in 1930 to 28.8 percent in 
1938. The tax systems in the 2 years compared are not identical, 
however. The whole social security program developed between 1930 
and 1938, to become 11.4 percent of all revenues collected in 1938. 
Also, customs duties declined in importance, dropping from 13.6 to 
5.2 percent of the total during these years. 

If we consider only the progressive and the consumption, or strictly 
regressive taxes, we can determine the relative changes in their 
positions. On this basis, progressive taxes declined from 83.5 percent 
of the total in 1930 to 65.6 percent in 1938; while consumption taxes 
rose from 16.5 to 34.4 percent of the total in the same years. 

The progressive taxes for the most part are not new, but the re- 
gressive group includes a whole series of "temporary taxes" levied by 
Congress in its attempt to obtain increased revenues during the de- 
pression. Congress apparently sought revenues wherever obtainable, 
imposing new excises and raising rates on old ones, closing income tax 
loopholes, increasing rates, and devising new levies on business profits, 

In actual dollars, $725,796,000 more was collected from progressive 
taxes in 1938 than in 1930, while regressive taxes yielded $1,183,- 
808,000 more. The brunt of the expanded Federal revenue program 
has been borne by the people, largely the consuming public, not in 
proportion to their individual abilities to pay taxes, but according to 
their inability to resist the imposition of added indirect taxes. 

The effect of general economic conditions on tax yields is again 
shown in the table. The drop from 1930 to 1931 was 32.7 percent, 
with a further decline of 26.5 percent to the low point in 1932 when 
the Federal Government collected $ 1 ,679,669,000 iiirevenues. Then, 
after a frantic search for new tax sources, the imposition of many new 
taxes, and increased rates on old ones, revenues began to increase. 
The combination of improved business conditions and the enlarged 
Federal tax program brought in increased revenues until 1938, when 
the effect of the recession was felt. 

Progressive taxes are more sensitive to general economic conditions 
and changes in the national income than are regressive taxes. The 
latter are largely excises or sales taxes on consumption goods, which, 
while they are fairly sensitive to general economic conditions, do not 
fluctuate as widely as progressive taxes which are drastically affected 
by shifts in large individual incomes or profits of great corporations. 

PROGRESSIVE FEDERAL TAXES 

In table 30, charts 13 and 14, are displayed the taxes collected on 
personal net income, business profits, or fortunes either willed or given 



94 



OONCEQSfTRATION OF EOONOMIC POWEIR 



away. In 1938 the relative importance of each of these taxes in re- 
lation to the total yield of progressive levies was as f oUows : 

Perceidage of 
progresnive 
Tax yield 

Corporation income ^ 41. 7 

Individual net income 39. 2 

Estates 11.2 

Capital stock 4. 

Excess profits 1. 4 

Gift _. 1. 1 

Bonds, stock issues, conveyances . 6 

Stock transfers . 6 

Unjust enrichment through A. A. A. taxes - , . 2 

Produce futures 



Table 30. — Progressive sources of Federal tax revenue, 19S0-S8 
[Dollar figures in thousands] 



Source 


1930 


1931 


1932 


1933 


1934 


TnrliTi'rlnnl inonmn 


$1,090,373 
44.6 


$567,227 
38.9 


$320,426 
37.5 


$375,284 

39.1 

$27,982 

2.9 

$63,717 

6.6 

$4,858 

0.5 

$345, 174 

36.0 


$461, 746 


Percent of total 


37.3 


Dividends 


$22,784 


Percent of total 








l.» 


Estates - 


$60,640 
2.6 


$55, 576 
3.8 


$29,770 
3.6 
$4 


$118, 971 


Percent of total 


9.8 


Gifts 


$9, 437 


Percent of total 






8 


Corporation incomes 


$1, 242, 696 
60.7 


$800,809 
64.9 


$464, 191 
64.3 


$469, 028 


Percent of total 


38 6 


Unjust enrichment through A. A. A. taxes 




Percent of total 












Excess profits - .- ..- 








$66 


$6,407 


Percent of total 








0.5 


Capital stock 








$79,340 

8 3 
$16, 318 

1.6 
$40,249 

4.2 
$7,479 

0.8 


$91,088 


Percent of total 








7.-5 


Bonds, stock issues, conveyances 


$20,037 
0.8 

$33,828 

1.4 

$2, 518 

0.1 


$10, 964 
0.8 

$22,384 

1.6 

$1,110 

0.1 


$12,472 
1.5 

$24, 810 

2.9 

$2,460 

0.3 


$17, 031 


Percent of total . . . 


1 4 


Stock transfers 


$20,768 


Percent of total 


1.7 


Produce futures 


$4,950 


Percent of total 


0.4 


Silver bullion 


$65S 


Percent of total 










0.1 














Total 


$2,449,992 
100.0 


$1,458,070 
100.0 


$854, 133 
100.0 


$959,467 
100.0 


$1,211,868 


Percent of total 


100. a 






Source 


1936 


1936 


1937 


1938 


Individual income 


$579, 660 
35.4 
$718 


$739, 932 
34.2 
$131 


$1,318,994 
41.0 


$1,244,106 


Percent of total 


39.2 


Dividends . . 




Percent of total 






Estates 


$175,427 

10.8 

$72, 592 

4.4 

$655, 314 

40.0 


$222,490 
10.3 

$163,027 
7.5 

$811,720 
37.5 
$515 


$378,873 

11.7 

$22, 485 

0.7 

$1,265,984 

39.3 

$7,887 

0.2 

$24, 661 

0.8 

$140, 691 

4.4 

$25, 573 

0.8 

$27, 699 

0.9 

$5, 445 

0.2 

$172 


$355, 166 


Percent of total . 


11 2 


Gifts . 


$35,004 


Percent of total .. 


1 1 




$1,324,293 
41.7 


Percenter total : 




$7, 372 


Percent of total 




0.2 


Excess profits 


$7, 212 

0.4 

$93,887 

5.8 

$23,329 

1.4 

$24, 135 

1.5 

$3, 277 

0.2 

$876 

0.1 


$23, 313 

1.1 

$137, 069 

6.4 

$28, 579 

1.3 

$31,974 

1.5 

$3,350 

0.2 

$859 


$44,446 


Percent of total . . 


1.4 




$127, 467 


Percent of total 


4.0 




$19, 033 


Percent of total 


0.6 


Stock transfers ...... 





$17, 432 


Percent of total 


0.6 




$1, 344 


Percent of total . . . . . . . 




Silver bullion . _ 


$125 


Percent of total 




Total 


$1, 636, 427 
100.0 


$2, 162, 959 
100.0 


$3, 218. 464 
100.0 


$3, 175, 788 


Percent of total 


100.0 







Source: Data taken from U. S. Treasury Department, Comparative Statement of Internal Revenue 
Collections by Tax Sources, 1930-38. 



CONCENTRATION OF ECONOMIC POWER 
Ohabt 13 

INDIVIDUAL INCOME, DIVIDEND. ESTATE 
AND GIFT TAX COLLECTIONS 

UNITED STATES, 1930-1938 



95 



DOLLARS 

(HUNDRED MILLIONS) 

20 



AMOUNT IN DOLLARS BY TYPE OF TAX 



DOLLARS 

(HUNONEO MILLIONS > 

20 




1930 1931 1932 1933 1934 1935 1936 1937 1938 



PER CENT 
40 



PERCENTAGE OF TOTAL TAX REVENUE 



PER CENT 
— 40 



30- 



2 0-^^— 




SOURCe tMo Token From US. Triosuty, COMPARATIVE STATEMENT OF INTERNAL REVENUE COLLECTIONS 
BY TAX SOURCES, 1930-1938 



261085 — 40— No. 20 8 



96 



OONCBNTRATION OF ECONOMIC POWER 



Chart 14 



CORPORATION INCOME AND PROFIT TAXES 

UNITED STATES, 1930-1938 



DOLLARS 

(HUNDRED MILLIONS I 

20 



AMOUNT IN DOLLARS BY TYPE OF TAX 



DOLLARS 

{ HUNDRED MILLIONS ) 

20 




1930 1931 1932 1933 1934 1935 1936 1937 1938 



PER CENT 
40 



PERCENTAGE OF TOTAL TAX REVENUE 



PER CENT 
— 40 




SOUPCe Da<0 Tok«fi From US Trtoiury DepoMmeni. COMPARATIVE STATEMENT OF INTERNAL REVENUE COLLECTIONS 
er TAX SOURCES, I930-I93B 



CONCENTRATION OF ECONOMIC POWEE 97 

In terms of revenue the Federal Goverment depends primarily on 
three forms of progressive taxes : corporate and individual net income 
taxeSj and levies on the estates of deceased persons. The other taxes, 
on business operations and profits, are of only very minor importance 
from the revenue standpoint, however much they may be needed for 
business regulation, or in order to plug loopholes in income taxation. 
The gift tax, for example, furnishes only 1.1 percent of progressive 
revenues, but it is an mtegral and necessary part of the income-tax 
structure. 

Individual income tax 

Since 1913, when a constitutional amendment permitted the Federal 
Government to levy direct taxes, the personal net-income tax has 
undergone frequent changes in rates, definition of income, computation 
of the tax, and administrative procedure. By 1940, 12 Congresses 
had wi'ought such changes. 

The rate structure has depended on general economic conditions, 
the character of the national administration, and the need for Federal 
revenues. Under the pressure of patriotic sacrifice engendered during 
the World War, income taxes were rapidly developed, until in 1920 
they contributed 59 percent of Federal revenues. Then began the 
conservative era, when the attitude prevailed that income taxation 
throttled business initiative. Income-tax rates were substantially 
lowered, and the role of this tax in the Federal-revenue system de- 
clined. ^^ 

In table 31 statistical data are offered on the personal net-income 
tax. The tax is levied and collected primarily on the income of the 
prior year; thus, in 1930 the Federal Government collected $1,090,373,- 
000 in individual income taxes based on income received by taxpayers 
during 1929. 

By 1930 the effects of the 1929 crash were so pronounced that 
income tax collections in 1931 totaled only $567,227,000, a decline in 
a single year of 48 percent. But the downward plunge was not yet 
over, as income tax yields in 1932 dropped another 43 percent. Rate 
revision brought some pick-up in 1933. Thereafter, yearly gains were 
substantial, until in 1937 collections totaled $1,318,994,000, or 
considerably more than the yield in the prosperous year 1929. As 
income in 1936 was 17.7 percent less than in 1929, the rise in tax yield 
was primarily due to changes in the rates imposed, closing of loopholes 
in the tax, and better administration. 

The recession beguming late in 1937 adversely affected the yield of 
the individual income tax. The 1938 total dropped shghtly less than 
6 percent below the peak of 1937. 

Certain essential features of the individual income tax must be 
understood as a basis for any discussion of income taxation. It is 
assumed that it is possible to determine the amount of individual net 
income, after deducting certain items believed to interfere with the 
concept of true net income. "Further credits and allowances are 
made for reasonable living expenses or for the nature of the income 
received. While it has not been easy to reach an agreement on such 
deductions, credits, and allowances, nor to determine the nature of 
income, stUl a fairly satisfactory conclusion has been reached, and 
there is less and less demand yearly for drastic changes in the tax. 

13 See H. D. Anderson, Our California State Taxes, Stanford University Press, 1937, ch, VII. for a more 
detailed sumnmry of the history ol the income tax. 



98 



(X)NCEiNTRATION OF EOONOMIG POWER 



Table 31. — Individual income, dividend, estate and gift tax collections, 1930-38 

[Dollar figures in thousands] 



Source 


1930 


1931 


1932 


1933 


1934 


Individual incomes. ..- 


$1,090,373 
94.7 


$567, 227 

91.1 

-48.0 


$320, 426 

91.5 

-43.6 


$375, 284 

79.6 

17.1 

$27,982 

5.9 


$451, 746 


Percent of total . ... 


74.9 


Percent increase 


20.4 






$22, 784 


Percent of total . . 








3.8 










-18.6 


Estates -. - .- ■- 


$60,640 
5.3 


$56, 576 

8.9 

-8.4 


$29, 770 

8.5 

-46.4 

$4 


$63, 717 

13.5 

114.0 

$4,858 

1.0 

121,350.0 


$118,971 


Percent of total . . - . 


19. T 


Percent increase - 


86.7 


Gifts 3 .- - 




$9, 437 


Percent of total . 






1.6" 


Percent increase 








94.3 












Total 


$1,151,013 
100.0 


$622,803 

100.0 

-45.9 


$350,200 

100.0 

-43.8 


$471,841 
100.0 
34.7 


$602, 938 


Percent of total 


100.0 




27.8 








Source 


1935 


1936 


1937 


1938 


1938 over 
19301 


Individual incomes 


$579,660 

70.0 

28.3 

$718 

0.1 

-96.9 

$175,427 

21.2 

47.5 

$72, 592 

8.7 

669.2- 


$739,932 
65.7 
27.6 
$131 


$1,318,994 
76.6 
78.3 


$1, 244, 106 
76.1 
-6.7 


$153, 733 


Percent of total 




Percent increase . . .. 


— 14.1 






Percent of total 








Percent increase . -. - - 


-81.8 

$222,490 

19.8 

26.8 

$163,027 

14.5 

124.6 








Estates i 


$378,873 

22.1 

70.3 

$22,485 

1.3 

-86.2 


$355, 166 

21 7 

-6.3 

$35,004 

2.2 

55.7 


$294, 526 


Percpnt of total 




Percent increase - . .- •- 


485.7 


Gifts 


$35,000 






Percent increase . 


875, 000. 






Total 


$828,397 
100.0 
37.4 


$1, 125, 580 
100.0 
35.8 


$1, 720. 352 
100.0 
52.9 


$1,634,276 
100.0 
-6.0 


$483, 263 


Percent of total 




Percent increase 


42.0 







• Or first year thereafter in which the tax was effective. 

Source: Data taken from U. S. Treasury Department, Comparative Statement of Internal Revenue 
Collections by Tax Sources, 1930-38. 

There is a sharp distinction between net and gross income taxes. 
The net income tax is based on the amomil remaining in the indi- 
vidual's possession, after deducting the expenses of producing that 
income, and the exemptions and allowances permitted by the tax 
statute. The gross income tax makes no allowance for the cost of 
producing the income or whether it is available for the use of the person 
producing it. The net income tax is levied on the final receiver of 
mcome and constitutes a tax on his profits, wages, or salary. The 
gross income tax is levied on the person who reports gross income, 
although it may be only momentarily in his possession and thereafter 
relayed onward by him as a part of a business transaction in which he 
has participated, with or without profit to himself. 

The 1939 individual income tax was levied at the rate of 4 percent of 
net taxable income, plus surtaxes for various increments of income. 
This statement is important to note, for it is frequently said that the 
tax is a flat percentage of income, although only the basic 4 percent is 
levied in that manner. All surtaxes are based on increments of 
income, and rates are progressively higher on higher incomes. Thus, 
the surtax is imposed in addition to the basic tax of 4 percent. The 
surtax rates in force in 1939 and the new rates levied in the Revenue 
Act of 1940 are given in table 32. 



CONCENTRATION OF ECONOMIC POWER 
Table 32. — Individual net income tax rates, 1939-40 



99 



Amount of surtax net Inoome 



1939 Law 


1940 Law 




Total sur- 




Total sur- 


Rate 


tax on 


Rate 


tax on 


(percent) 


higher 


(percent) 


higher 




amount 




amount 










4 


$80 


4 


$80 


6 


180 


6 


200 


6 


300 


8 


360 


7 


440 


10 


660 


8 


600 


12 


800 


9 


780 


15 


1,100 


11 


1,000 


18 


1,460 


13 


1,260 


21 


1,880 


15 


1,560 


24 


2,360 


17 


1,900 


2? 


2,900 


17 


2,240 


3,440 


19 


2,620 


30 


4,040 


19 


3,380 


30 


6,240 


21 


4,220 


33 


6,660 


21 


4,640 


33 


7,220 


24 


6,120 


36 


7,940 


24 


6,080 


36 


9,380 


27 


6,350 


40 


9,780- 


27 


7,700 


40 


11, 780 


31 


9,560 


44 


14,420 


35 


10,960 


44 


16,180 


35 


11,660 


47 


17,120 


39 


14,000 


47 


19,940 


43 


14,860 


47 


20,880 


43 


16,580 


50 


22,880 


47 


19,400 


60 


25,880 


51 


24,500 


53 


31, 180 


55 


30,000 


66 


36, 780 


58 


69,000 


58 


65, 780 


60 


89,000 


60 


95, 780 


62 


120,000 


62 


126, 780 


64 


152,000 


64 


168, 780 


66 


218,000 


66 


224, 780 


68 


286,000 


68 


292,780 


70 


461,000 


70 


467, 780 


72 


641,000 


72 


647, 870 


73 


1,371,000 


73 


1,377,780 


74 


3,591,000 


74 


3, 697, 780 


75 




75 





$0 to $4,000 

$4,000 to $6,000 

$6,000 to $8,000 

$8,000 to $10,000 

$10,000 to $12,000 

$12,000 to $14,000 

$14,000 to $16,000 

$16,000 to $18,000 

$18,000 to $20,000 

$20,000 to $22,000 

$22,000 to $24,000 

$24,000 to $26,000 

$26,000 to $28,000 

$28,000 to $32,000. 

$32,000 to $36,000 

$36,000 to $38,000 

$38,000 to $40,000 

$40,000 to $44,000 

$44,000 to $45,000 

$45,000 to $50,000 

$60,000 to $56,000 

$56,000 to $60,000 

$60,000 to $62,000 

$62,000 to $68,000 

$68,000 to $70,000 

$70,000 to $74,000 

$74,000 to $80,000 

$80,000 to $90,000 

$90,000 to $100,000 

$100,000 to $150,000 

$150,000 to $200,000 

$200,000 to $250,000 

$250,000 to $300,000 

$300,000 to $400,000 

$400,000 to $500,000 

$500,000 to $760,000 

$760,000 to $1,000,000... 
$1,000,000 to $2,000,000. 
$2,000,000 to $5,000,000. 
$6,000,000 and up 



Here is how the new tax structure would work, using, for example, a married man with $10,000 net earned 
income: 

Normal tax.— After deducting $1,000 for the 10-percent credit on earned income and $2,000 personal ex- 
emption, he would pay the 4 percent normal tax on a $7,000 base, or $280 normal tax. 

Surtax. — To compute the surtax he can deduct personal exemption, but not the earned income credit, 
so the surtax would be based on $8,000. As shown by the table above, he would pay nothing on the first 
$4,000, 4 percent on the next $2,000, or $80; and 6 percent on the remaining $2,000, or $120, making the surtax 
$200. 

Supertax. — The new defense revenue bill also levies a flat 10-percent supertax on regular income taxes, 
not to exceed 10 percent of the net income remaining after tax. In this illustration the normal and surtax 
amount to $480, to which the supertax would add $48, making the total tax $528. 

Source: Instructions for Form 1040, and Revenue Act of 1940. 

General provisions of the tax on 1939 incomes are as follows: 

Who Must Make a Return. — Every citizen and resident of the United States 
who during the year falls within one of the following groups: 

(1) Single, or married and not living with husband or wife for any part of the 
taxable year. — If having a net income of $1,000 or more or a gross income of 
$5,000 or more. (Exemption lowered to $800 in the Defense Act of 1940.) 

(2) Married couples living together for the entire taxable year. — If each has a gross 
income and the combined net income- of the two is $2,500 or over. If only one 
has a gross income and his net income is $2,500 or over, such person shall make a 
return. (This exemption is lowered to $2,000 in the Defense Act of 1940.) 

(3) Married and living with husband or wife for only part of the taxable year. — 
If each has a gross income and the combined net income of the two is equal to, 
or in excess of, their total credits for personal exemption (computed without re- 
gard for credit as head of family) . If only one has a gross income, if his net income 



IQQ CONCEiNTRATION OF ECX>NOMIC POWER 

is equal to, or in excess of, his credit for personal exemption (computed without 
regard for credit as head of family), or his gross income is $5,000 or over. 

Joint Returns: May be filed by husband and wife if they are both citizens or 
residents and if living together at the end of the taxable year, even though one 
lias no gross income. 

Deceased Individuals: Return required on the regular income-tax form if net 
income to date of death is $1,000 or over, if unmarried, or equal to, or in excess of, 
credit for personal exemption (computed without regard to status as head of 
family), if married and living with spouse or if gross income is $5,000 or over. 
The return for a decedent shall include all items of income and deductions accrued 
up to the date of death, regardless of the fact that the decedent may have kept 
his books on a cash basis or Jiept no books. 

Filing of Returns and Payment of Tax. — Returns must be filed on or before 
15th day of third month following close of taxable year, with collector for the 
district in which the taxpayer has his legal residence or principal place of business. 
Tax may be paid in cash at collector's office, or by check or money order payable 
to Collector of Internal Revenue. It may be paid in full with return or in four 
equal installments, on or before the 15th day of the third, sixth, ninth, and 
twelfth, month after the close of the taxable year. 

Received or Accrued Income. — If books are kept on accrual basis, all income 
accrued is to be reported, even though not received or entered on books, and 
expenses incurred even though not paid. If books are not kept on accrual basis, 
or if no books are kept, all income actually or constructively received, and all 
expenses paid, should be reported. 

Items Exempt From Tax. — 

1. The following items are partially exempt from tax: 

(o) Amounts received (other than amounts paid by reason of the death of the 
insured and interest payments on such amounts and other than amounts received 
as annuities) under a life insurance or endowment contract, but if such amounts 
(when added to amounts received before the taxable year under such contract) 
exceed the aggregate premiums or consideration paid (whether or not paid during 
the taxable year), then the excess shall be included in gross income. 

(b) The interest on United States Savings Bonds and Treasury Bonds owned in 
excess of $5,000, and interest on obligations of instrumentalities of the United 
States (otiier than obligations issued under the Federal Farm Loan Act or under 
such Act as amended) is subject to surtax if the surtax net income is over $4,000. 

(c) Dividends on share accounts in federal savings and loan associations, but 
such dividends are subject to surtax if the surtax net income is over $4,000. 

2. The following items are wholly exempt from tax: 

(o) Amounts received under a life insurance contract paid by reason of the 
death of the insured; whether in a single sum or in installments (but if such 
amounts are held by the insurer under an agreement to pay interest thereon, the 
interest payments shall be included in gross income) ; 

(6) Gifts (not received as a consideration for service rendered) and money and 
property acquired by bequest, devise, or inheritance (but the income derived from 
such property is taxable and must be reported) ; 

(c) Amounts received through accident or health insurance or under workmen's 
compensation acts, as compensation for personal injuries or sickness, plus the 
amount of any damages received, whether by suit or agreement, on account of such 
Injuries or sickness; 

(d) The rental value of a dwelling house and appurtenances thereof furnished to 
a minister of the gospel as part of his compensation; 

(e) Pensions and compensation received by veterans from the United States 
and pensions, received from the United States' by the family of a veteran, for ser- 
vices rendered by the veteran to the United States in time of war ; 

(/) Amounts received as earned income from sources without the United States 
(except amounts paid lay the United States or any agency thereof) by an individual 
citizen of the United States who is a bona fide nonresident for more than 6 months 
during the taxable year (the taxpayer in such a case may not deduct from his gross 
income any amount properly allocable to, or chargeable against, the amount so 
excluded from his gross income) ; and 

ig) The interest on (1) obligations of a state, territory, or political subdivision 
thereof, or the District Of Columbia, or United States possessions; (2) obligations 
issued under Federal Farm Loan Act, or under such Act as amended; (3) obliga- 
tions of the United States issued on or before September 1, 1917; and (4) Treasury 
Notes, Treasury Bills, and Treasury Certificates of Indebtedness. 



CONOENTRATION OP ECONOMIC POWER IQJ 

Depreciation and Depletion. — A reasonable allowance for exhaustion, wear 
and tear, including obsolescence, of property used in trade or business may be 
deducted, based on cost if acquired by purchase after February 28, 1913. 

Information at Source. — Every person making payments of (1) interest, 
rents, commissions, or other fixed or determinable income of $1,000 or more during 
the calendar year 1939 to an individual, a partnership, or a fiduciary, or (2) salary 
or wages of $1,000 or more to a single person or $2,500 or more to a married person 
shall make a separate return. (These exemptions have been changed to $800, 
800, and $1,000, respectively, in the Defense Act of 1940.) 

Stock Owned in Foreign Corporations and Personal Holding Compan- 
ies. — If at any time during the year the taxpayer owned directly or indirectly stock 
in a foreign corporation, or a personal holding company, a statement sho'jld be 
attached showing name and address of each such company and total number of 
shares of each class of outstanding stock owned. If at any time during the year 
taxpayer owned stock in a foreign personal holding company, the amount required 
by section 337 of the Internal Revenue Code should be included in income as a 
dividend, and if taxpayer owned 5 percent or more in value of the outstanding 
stock of such company, a statement should be attached giving in detail the 
information required by the internal revenue laws. 

Other Income. — Any other taxable income should be entered, including 
taxable income from annuities and insurance proceeds, dividends on share ac- 
counts in Federal savings and loan associations, and earnings of minor children if 
parent is legally entitled thereto. Amounts received as an annuity under an 
annuity or endowment contract shall be included in gross income to the extent of 
3 percent of the aggregate premiums or consideration paid for such annuity. If 
the aggregate of the amounts received and excluded from gross income in years 
previous to the taxable year equals the aggregate premiums or consideration paid 
for such annuity, the entire amount received must be included in gross income. 

Contributions Paid.- — Contributions and gifts should be entered (not to 
exceed 15 percent of taxpayer's net income computed without the benefit of this 
deduction), paj'ment of which was made within the year, to or for the use of — 

(a) The United States, any state, territory, or any political subdivision thereof, 
or the District of Columbia, for exclu.sively public purposes; 

(b) A domestic corporation, or domestic trust, or domestic community chest, 
fund, or foundation, organized and operated exclusivelj' for religious, charitable, 
scientific, literary, or educational purposes, or for the prevention of cruelty to 
children or animals, no part of the net earnings of which inures to the benefit of 
any private shareholder or individual, and no substantial part of the activities of 
which is carrjing on propaganda, or otherwise attempting to influence legislation; 

(c) The special fund for vocational rehabilitation authorized by section 12 of 
the World War Veterans' Act, 1924; 

(d) Posts or organizations of war veterans, or auxiliary units or societies of any 
such posts or organizations, if such posts, organizations, units, or societies are 
organized in the United States or any of its possessions, and if no part of their net 
earnings inures to the benefit of any private shareholder or individual; or 

(e) A domestic fraternal society, order, or association, operating under the lodge 
system, but only if such contributions or gifts are to be used exclusively for religi- 
ous, charita.ble, scientific, literarj', or educational purposes, or for the prevention 
of cruelty to children or animals. 

Interest. — Interest on personal indebtedness is to be entered as distinguished 
from business indebtedness. 

Taxes.- — Taxes imposed and paid or accrued during the taxable year should be 
entered. Taxes assessed against local benefits, federal income taxes, or estate, 
inheritance, legacy, succession, and gift taxes, taxes imposed on interest as share- 
holder of a corporation which are paid by the corporation without reimbursement 
from taxpayer, and income taxes claimed as a credit are not to be included. Social 
security taxes paid by or for an employee are not deductible by the employee. 

Losses. — Losses of property arising from fire, storm, shipwreck, or other 
casualty, or from theft, not compensated for by insurance or otherwise, may be 
entered. Property is to be described, Tsith date acquired, cost of subsequent 
improvements, depreciation allowable, insurance, salvage value, and deductible 
loss. 

Bad Debts. — Bad debts may be entered other than those claimed elsewhere. 
It mustr be shown (a) of what the debts consisted; (6) name and family relation- 
ship, if any, of debtor; (c) when created; (d) when due; (e) efforts made to collect; 



102 CONCENTRATION OF ECONOMIC POWER 

and if) how determined to be worthless. Losses from corporate securities with 
interest coupons or in registered form ascertained to be worthless and charged ofif 
within the year, and which are capital assets, may be shown. 

Other Deductions. — Other authorized deductions may be entered. Losses 
in transactions not connected with taxpayer's trade or business or not entered 
into for profit are not deductible. Losses from wagering transactions are allow- 
able to the extent of gains therefrom. 

Credit for Personal Exetwption and Dependents. — A single person, or a 
married person not living with spouse, is allowed a personal exemption of $1,000. 
A person who, during the entire taxable year, was the head pf a family or was 
married and living with spouse, is allowed an exemption of $2,500. On separate 
returns, the personal exemption may be taken by either husband or wife or di- 
vided between them. (These exemptions have been changed to $800 and $2,000, 
respectively, in the Defense Act of 1940.) 

A "head of a family" is one who supports in one household one or more depend- 
ent individuals closely connected with him by blood relationship, relationship 
by marriage, or by adoption, and whose right to exercise family control is based 
upon some moral or legal obligation. 

A credit of $400 is allowed for each person (other than husband or wife) under 
18 years of age, or incapable of self-support because mentally or physically defec- 
tive, whose chief support was received from the taxpayer. 

If taxpayer's status, with respect to personal exemption and credit for depend- 
ents, changed during the taxable year, such exemption and credit shall be appor- 
tioned according to the number of months before and after such change. For 
Buch apportionment a fractional part of a month is disregarded unless it exceeds 
half a month, when it shall be considered a month. 

Credit for Interest, Etc. — Interest and also dividends on share accounts in 
federal savings and loan associations may be entered. 

Earned Income Credit. — "Earned income" means wages, salaries, professional 
fees, and other amounts received as compensation for personal services actually 
renaered. In the case of a taxpayer engaged in a trade or business in which both 
personal services and capital are material income-producing factors, a reasonable 
allowance as compensation for the personal services actually rendered by the 
taxpayer, not in excess of 20 percent of his share of the net profits of such trade or 
business, shall be considered as earned income. "Earned income deductions" 
means such ordinary and necessary expenses as are properly chargeable against 
earned income. "Earned net income" means the excess of the amount of the 
earned income over the sum of the earned income deductions. The earned income 
credit allowable to each spouse in a joint return is the same as is allowable to each 
spouse in separate returns; however, the earned income, earned income deductions, 
earned net income, and net income of each spouse must be shown separately. 

Income Tax Paid at Source. — Two percent of interest on bonds on which 
federal income tax was paid at source by the debtor corporation may be entered. 

Groves pves an example of how the Federal income tax is calculated 
for a hypothetical Mr. Smith, which calculation is here revised on the 
basis of the 1940 tax. The assumption is that Mr. Smith has a gross 
income of $15,000, of which $800 is not subject to the tax, $5,000 is 
deductible expenses, $2,500 is credits allowed, and earned income is 
$4,000. The tax is calculated as follows:^* 

«* Harold M. Groves, Financing Government, ]Henry Holt, New York, 1939, p. 162. 



CONCENTRATION OP ECONOMIC POWER 103 

Gross income- — $15, 000. 00 

Income not taxed - — -- 800. 00 

Gross income for tax purpose 14, 200. 00 

Deductible business expenses 5, 000. 00 

Net income for taxation purposes 9, 200. 00 

Personal allowance (credits) - 2, 500. 00 

Net income minus personal credits (base of surtax) _ _ : . 6, 700. 00 

Earned income credit (10 percent of $4,000) 400. 00 

Normal tax base -. 6,300.00 

Normal tax: $6,300 X 4 percent . — .. 252.00 

Surtax (base $6,700, with $4,000 exempt) : 

$2,000 X 4 percent '_ 80.00 

$700 X 6percent -_- 42.00 

Total 374.00 

Defense tax (10 percent of total) 37. 40 

Total tax 411.40 

Thus, Smith must pay $411.40 Federal income tax out of a 
gross income of $15,000, or a net taxable income, after aU deductions 
and allowances, of $6,300. The Federal tax is 2.7 percent of 
Smith's gross income, 6.5 percent of his net taxable income. 

Table 33, charts 15 and 16, offer certain important data on income 
taxpayers and taxes paid. The data cover the period 1929-36, the 
latest available returns from the Treasury. Chart 15 displays the 
data for the whole period by net income groups; chart 16 by net 
income classes within single years. The individual income tax 
regularly secures the highest percentage of returns from persons whose 
net incomes range from $1,000 to $5,000; but the highest percentage 
of tax revenues continues to come from that very small fraction of all 
taxpayers whose net incomes are over $100,000. Changes in the 
economic life of the Nation, in rates, and in other features of the 
individual income tax account for the year-to-year changes in the 
figures. 



104 



CONCENTRATION OF ECONOMIC POWER 



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CON'GENTRATION OF ECONOMIC POWER 



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106 



CONCENTRATION OF ECONOMIC POWER 



Chart 15 

PERCENTAGE OF INDIVIDUAL INCOME TAX PAYERS 
AND TAXES PAID 

NET INCOME GROUPS BY YEARS 
UNITED STATES, 1929-1936 




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CONOENTRATION OF ECONOMIC POWER 



107 



Chart 16 

PERCENTAGE OF INDIVIDUAL INCOME TAX PAYERS 
AND TAXES PAID 

BY NET INCOME CLASS 
UNITED STATES, 1929-1936 




sauna: sioiiiticoi ikvm, u$ ttiiu'i aw9""t««'. <92>-i>K 



108 



CONCENTRATION OP ECONOMIC POWER 



In table 34 are analyzed personal income-tax returns for 1936, the 
latest available figures, showing the over-all impact of the income tax on 
various sized incomes. Number and percentage of returns filed, net 
income reported, total tax assessed, and percentage of net income 
taken by the tax are shown by classes of income receivers. The 
various groups are affected as follows: 



Net income class 



Percentage of— 



Net in- 
come 



Net income 

taken by 

tax 



Net income 
remaining 
with recip- 
ient 



Below $5,000. 

$6,000 to $10,000... 
$10,000 to $15,000.. 
$16,000 to $50,000.. 
$50,000 to $100,000- 
$100,000 to $500,000 
$600,000 and over.. 

Total 



37.6 
20.9 
9.0 
19.4 
6.4 
5.2 
1.6 



100.0 



1.1 
2.7 
5.3 
10.9 
23.6 
45.0 
67.7 



98.9 
97.3 
94.7 
89.1 
76.4 
66.0 
32.2 



Table 34.- 



-Average individual net income ' and income tax paid in 1936, by income 
group 



Net income group 



Below $5,000 

$5,000 to $10,000.. 
$10,000 to $15,000. 
$15,000 to $50,000. 
$60,000 to $100,000 
$100,000to$500,000 
$600,000 and over. 

Total 



Number 
in group 



2, 184, 846 

440, 137 

105, 582 

112,204 

13, 620 

4,480 

239 



2, 861, 108 



Percent 
of total 



76.4 
16.3 
3.7 
3.9 
.5 
.2 



100.0 



Average 
net in- 
come 



$2, 438 

6,757 

12, 100 

24, 524 

67, 072 

166,011 

964, 029 



4.970 



Average 
tax 



$28 

180 

642 

2,667 

15, 862 

74, 778 

653, 067 



424 



Average 
income 
after tax 



$2, 410 
6,577 
11,458 
21,857 
51,210 
91, 233 
310, 962 



4,646 



Percent 
of in- 
come re- 
maining 



97.3 
94.7 
89.1 
76.4 
65.0 
32.3 



91.6 



' Excludes non-taxable income. 

Source: Based on U. S. Treasury Department, Statistics of Income for 1936, Part 1, p. 84. 

There are probably individuals in each bracket whose incomes and 
tax payments do not fit into the picture presented in the foregoing 
table, but the situation outlined there is generally true. For example, 
in the several brackets below $50,000 a year, the taxpayers retain 
from 89 to 99 percent of all net income. Even in the $50,000- 
$100,000 bracket, the individual income tax takes only 23.6 percent 
of net income, leaving three-fourths of the net income in the hands 
of the taxpayers. 

Much attention has been called to the plight of the largest income 
group, those with net incomes over $500,000. In 1936, 239 such in- 
comes were reported for taxation in the United States. Their net 
income subject to taxation averaged $964,029 and the average tax 
levy was $653,067. The net income remaining with the average per- 
son in this class was $310,962. 



CONCENTRATION OF ECONOMIC POWER 



109 



It was pointed out earlier that many States tax net income. These 
taxes levy on the same incomes as the Federal Government, hence 
must be added to the Federal tax to determine the full impact of indi- 
vidual income taxation. The State taxes are not uniform, and it is 
impossible, from available information, to secure accurate over-all 
figures. An illustration will help, however, and in tables 35 and 36 
data are supplied for California, which levies a substantial income tax. 
Table 35 indicates the same progression in the impact of the State 
and Federal income tax in California, as revealed in the Federal figures 
presented above. In only one bracket, $10,000 to $15,000, does the 
share of total net income correspond closely to the percentage of total 
taxes paid. 

Table 35. — Federal and Stale income laxes levied, and net income reported, 
California, 1936, by income classes 







Taxable net income reported and tax assessed 


Net income class > 


Federal 


State 




Income 


Tax assessed 


Income 


Tax assessed 


Under 5 - 


$482. 802, 888 
274,066,747 
95, 338, 201 
198,706, 780 
63, 600, 582 
43, 965, 290 


$5, 639, 773 
8, 143, 071 
5, 670, 319 
22.235,015 
15, 0.34, 953 
19, 805, 219 


$596, 420, 000 
290, 845, 000 
95, G20, 000 
199, 703, 000 
66, 801, 000 
46, 561, 000 


$2, 076. 000 
2, 135, 000 
1, 278, 000 
6,625,000 
3, 996. 000 
4, 399. 000 


6 to 10 


lOtolS - 


16 to 50 


50 to 100 


100 and over 




All classes .. 


1, 158, 380, 488 


76, 428, 360 


1, 294, 952, 000 


19,509,000 






Percentage of total income and tax assessed 


Net income class ' 


Federal 


State 


Total 




Income 


Tax as- 
sessed 


Income 


Tax as- 
sessed 


Tax as- 
sessed 


Percent 


Under 5 


41.7 
23.7 
8.2 
17.2 
6.5 
3.8 


7.4 
10.7 

7.3 
29.1 
19.7 
25.9 


46.1 
22.5 
7.4 
16.4 
5.2 
3.6 


10.6 
10.9 
6.6 
28.8 
20.5 
22.6 


$7, 715, 773 
10, 278, 071 
6,848,319 
27,860,015 
19, 030, 953 
24, 204, 219 


8 


5 to 10 


10 7 


10 to 15 


7 1 


15 to 60.. 


29 


60 to 100 


19 8 


100 and over 


25 2 






All classes 


100.0 


100.0 


100.0 


jno n 


95 937 ?-'ii 


100 



















' Net Income classes in thousands of dollars. 

Source: Based on Statistics of Income for 1936. U. S. Treasury Department, and Personal Income Tax 
Statistics of 1936 Returns, State Franchise Commissioner, Sacramento, Calif., 1938, table 1. 

Table 36 attempts to show the combined effect of State and Federal 
taxation. The table is necessarily crude, as the percentage of net 
income taken by the State tax is secured by dividing net income 
reported for Federal taxation into the amount of State tax assessed. 
There is some difference in the effect of the two tax laws on the recorded 
income groups, but as the California law is modeled closely after the 
Federal, this difference is probably too small to destroy the approxi- 
mate truth of the table. 



110 



OONCENTRATION OF EC?0NOMIC POWER 



Table 36. — Pro-portion of net income taken by Federal and State income taxes 
levied in California, 1936 {based on net income reported in taxable Federal returns) 



Net income class i 


Net income 
reported for 
Federal tax- 
ation 


Amount of tax assessed 


Percentage of income 
taken by tax 




Federal 


State 


Total 


Federal 


State 


Total 


Under 6 


$482,802,888 
274,066,747 
95,338,201 
198, 706, 780 
63, 600, 582 
43,966,290 


$6,639,773 
8,143,071 
5,570,319 
22,235,015 
15,034,953 
19, 805, 219 


$2,076,000 
2. 135, 000 
1,278,000 
6,626,000 
3,996,000 
4, 399, 000 


$7, 715, 773 
10, 278, 071 
6,848,319 
27, 860, 015 
19,030,953 
24, 204, 219 


1.2 

3.0 

5.8 

11.2 

23.7 

46.0 


0.4 
.8 
1.3 
2.8 
6.3 
10.0 


1.6 


6 to 10. 


3.8 


10 to 16 


7.2 


16 to 50 


14.0 


60 to 100 


30.0 


100 and over 


55.1 






All classes 


1,168,380,488 


76,428,350 


19,509,000 


95,937,350 


6.6 


1.7 


8.3 







> Net income classes in thousands of dollars. 

Source: Based on Statistics of Income for 1936, Part 1, U. S. Trea.sury Department, p. 109; and Personal 
Income Tax Statistics of 1936 Returns, State franciiise commissioner, Sacramento, Calif., table 1. 

The combined Federal and State net-income tax takes only 8.3 
percent of all reported net incomes, although the impact varies among 
the several income classes. In the lowest bracket, those with incomes, 
below $5,000, the two taxes take only 1.6 percent of reported net 
incomes. But in the bracket over $100,000 they take 55.1 percent 
of all net income. 

In appendix A, where data are offered on the consumption and 
savings habits of the people, it was pointed out that persons with 
incomes of $20,000 or more save approximately half of their incomes. 
In 1936 the total net income of those people with net incomes over 
$20,000 and subject to the individual income tax was $3,847,217,000; 
they paid $949,277,600 in Federal income taxes, and had $2,897,940,000 
or 75.3 percent of their total net income left over for business ventures, 
savings, spending, and certain other taxes. Such figures do not 
indicate that the present income tax is so burdening the upper incomes 
as to curtail business savings or jeopardize the accumulation of 
investment funds. 

Dividends tax 

From 1933 to 1936, the Federal Government collected a 5-percent 
tax on dividends declared, in an effort to obtain added revenue from 
corporations making a profit during the depression period. The tax 
was both unpopidar and unprofitable, however, bringing in only 
$23,982,000 in its peak year, 1933. 

Estates tax 

The Federal Government levies a tax on all estates probated 
whose gjoss value is in excess of $40,000.'^ The tax is levied on the 
estate, rather than on the individual legatee, and the rate increases 
with the size of the estate. The rate schedule and tax paid are as 

15 The exemption is $50,000 for testators who died before August 31, 1935. 



CONCENTRATION OF ECONOMIC POWER 



111 



follows (the Defense Act of 1940 adds a tax of 10 percent on the 
amount calculated according to these rates) : ^^ 



\ 


B 


Tax on 
amount in 
column A 


Rate of tax 


Net estate 
equaling— 


Net estate 
not exceed- 
ing— 


on excess 
over amount 
in column A 








Percent 




$10,000 




2 


$io,"666" 


20,000 


$200'" 


4 


20,000 


30,000 


600 


6 


30,000 


40,000 


1.200 


8 


40,000 


50,000 


2,000 


10 


50,000 


70,000 


3,000 


12 


70,000 


100,000 


5,400 


14 


100.000 


200,000 


9,600 


17 


200,000 


400,000 


26,600 


20 


400,000 


600,000 


66,600 


23 


600,000 


800,000 


112,600 


26 


800000 


1,000,000 


164,600 


29 


1,000,000 


1,500,000 


222,600 


32 


1,500,000 


2,000,000 


382,600 


35 


2,000,000 


2, 500, 000 


657,600 


38 


2, 500, 000 


3. 000 000 


747.600 


41 


3,000,000 


3,500,000 


952, 600 


44 


3, 500, 000 


4,000.000 


1, 172, 600 


47 


4, 000, 000 


4, 500, 000 


1, 407, 600 


50 


4, 500, 000 


5,000,000 


1,657,600 


53 


5,000,000 


6.000,000 


1, 922, 600 


56 


6, 000, 000 


7, 000, 000 


2, 482, 600 


59 


7, 000, 000 


8,000,000 


3,072,600 


61 


8, 000, 000 


9, 000, 000 


3, 682, 600 


63 


9,000,000 


10, 000, 000 


4,312,600 


65 


10, 000, 000 


20,000,000 


4, 962, 600 


67 


20,000,000 


50,000,000 


11, 662, 600 


69 


50,000,000 




32, 362, 600 


70 





These rates apply only to that portion of the estate above the 
$40,000 initial exemption, and each increment of the taxable estate 
bears only its own tax rate. Thus, although it is generally stated 
that a $50,000,000 estate bears a tax (including defense tax) of 77 
percent, the actual rate is 71.2 percent, leaving $14,401,140 with the 
legatees. 

Such exceptional fortunes are relatively rare, however, and are 
not representative of the effect of the estate tax. On a million dollar 
estate, which is also very large, the last increment is taxed at 32 
percent. Yet tlie actual tax paid on the total is $222,600, or 22.3 
percent, leaving more than three-quarters of the million dollars with 
the legatees. 

In lower brackets, the initial exemption of $40,000 greatly reduces 
the impact of the tax. Thus, a net estate of $40,000 is taxed at 5 
percent, or $2,000, but the tax on the whole $80,000 estate passed to 
legatees is only 2% percent. 

The Federal estates tax is levied in addition to any State inheritance 
taxes. Therefore, Federal and State taxes must be added together 
to show the full effect of inheritance taxation. The laws differ among 
the States, hence an illustration will have to serve here. Since the 
California inheritance tax is one of the heaviest in the United States, 
data on combined Federal and State taxes in California are offered in 
table 37, chart 17, to indicate the impact of estates taxation. 

18 U. S. Treasury Department Form 706. 



261085— 40— No. 20 9 



]^12 CONCENTRATION OP ECONOMIC POWER 

Table 37. — Effect of Federal estates tax and California inheritance tax, 1936 





Widow 1 


Brother, sister 


Least of kin 

■ 


Amount of estate 
Inherited 


Federal 
tax 


State 
tax 


Percent- 
age 
taxed 


Federal 
tax 


State 
tax 


Percent- 
age 
taxed 


Federal 
tax 


State 
tax 


Percent- 
age 
taxed 


$50,000 .-- 


.t20U 

4.200 

20, 400 

81, 000 

211,600 


$530 

2, -250 

8.570 

35, 090 

84, 850 


1.4 
6.4 
14.4 
23.2 
29.6 


$200 

4,200 

20,400 

81, 000 

211,600 


$2, 860 

7,800 

19, 760 

58, 480 

123, 180 


6.0 
12.0 
20.0 
27.0 
33.4 


$200 

4,200 

20,000 

81, 000 

211,600 


$4, 245 
10, 244 
22, 190 
52. 242 
142,242 


8.8 


$100,000 


14.4 


$200,000 


21.2 


$500,000 


26.6 


$1,000,000 


35.3 







1 These computations are based only on the taxed share of the estate, so that the widow in each case has her 
exempted half of the estate plus the sura remaining after payint^ the inheritance and estate tax. Thus, of 
a million-dollar estate, more than 86 percent remains in possession of tb^" widow. 

Source: H. D. Anderson, Our California State Taxes, Stanford University Press, Stanford University, 
California, 1937, p. 222. 

The combined Federal and State taxes on even lars:e fortunes is 
not severe enough to destroy them. Even the least of kin retains 65 
percent of a million-dollar estate, whereas a widow inheriting a million 
dollars retains over 85 percent of it. In California, as in other com- 
munity-property States, a community-property law exempts a 
spouse's half of the estate from taxation. 

The generous deductions which are pennitted by law in the com- 
putation of estates taxes greatly reduce the effective tax rate. Thus, 
while the topmost brackets of estates are popularly supposed to be 
burdened by a rate which extracts between 65 and 70 percent of 
their assets, the effective tax rate on an enormous estate of $10,000,000 
is 49.6 percent. Moreover, the effective tax rate in relation to com- 
piled net estates (total estate minus debts, disregarding all statutory 
deductions) was 26.6 percent of a $10,000,000 estate. (Figures given 
the author by Gerhard Colm.) 

But even these figures do not tell the whole story about large 
estates, for they ignore such substantial loopholes as the transfer 
of property in anticipation of death. There is apparently no founda- 
tion for the fear that a heavy estates tax will break up industrial 
kingdoms like the Standard Oil Co. or the Ford Motor Co. The 
reputed fortune of John D. Rockefeller, for example, approximated 
a billion dollars. He gave a half billion to charity, and passed on 
to his immediate family during his lifetime the business capital and 
assets invested in his far-flung enterprises, so that at his death only 
$25,000,000 remained to be taxed. If the entire estate which he 
once owned had been subject to tax, the Treasury would have collected 
more than $300,000,000. As it was, the inheritance tax did not exceed 
a thirtieth of that sum. 

Table 38, figures 18 and 19, showing Federal estates taxes by size 
of estates probated, indicates the impact of the tax. According to 
table 38, the number of estates subject to tax declined sharply during 
the depression, from 7,028 in 1930 to 3,944 in 1934 ; but recovered every 
year thereafter to a peak of 11,988 in 1937. However, while the 
number of estates has increased 70.6 percent from 1930 to 1937, their 
gross value declined 32.8 percent, indicating that while the number of 
taxable estates is increasing, the size of the individual holdings has 
grown smaller. 



CONCENTRATION OF ECONOMIC POWER 



113 



Chart 17 



FEDERAL ESTATES AND STATE 
INHERITANCE TAXES 

CALIFORNIA, 1936 



STATE TAX 



AMOUNT OF 
INHERITANCE 




40 



40 



AMOUNT OF 
INtCRITANCE . 



$50,000 
$100,000 
$200,000 

$500,000 
$1,000,000 



BROTHER, btSTER 

PER CENT 

20 



30 



^^VM^^^ 



20 

PER QENT 

LEAST OF KiN 

PER CENT 

20 



30 



40 




SCUftCe: &nd«f$on,H.O.OUR CALIFORNIA STATE TAXES, Stonford Unive'Slty PreK, Stonford Unlvefilty. Coltfornlo. 1937. p. 222 
* Thet« compulations are bosed only on ltt« toited shore ot lh« estote, so t^<ol tt4 widow (ntoch cow has her eiompltd 



114 



CONCENTRATION OF ECONOMIC POWER 



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CONCENTRATION OF ECONOMIC POWER 



115 



t^ooooo 



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t^ r-lQ lOOOO 




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116 



CONCENTRATION OF PX'ONOMIC POWER 



Chabt 18 



ESTATE TAX RETURNS. VALUE OF ESTATES. 
AND NET TAXES 

UNITED STATES. 1930-1937 



NUMBER OF RETURNS 




1930 1931 1932 1933 1934 1935 1936 1937 




1930 1931 1932 1933 1934 1935 1936 1937 



DOLLARS 

(MILLIONS) 

400 — 



TOTAL AMOUNT OF TAXES 




SOURCE Umted SlolM Tftoiyfy D«»arlm«n), ST»T,ST1C5 Of INCOME, I929-I9S6 



CONCENTKATION OF ECONOMIC POWER 



117 



T-l 

< 



</) 
(/) 

Q 

UJh. 
i_ to 

ii 

Xq 

I- [if 

(/) 

Z < 

— q: 

I- 

uj8 

<^ 

</) 

LlJ 

!5 

(0 
UJ 




118 



CONCENTRATION OF ECONOMIC POWER 



The largest number of all probated estates has always been in 
the bracket under $100,000. The proportion of such estates, how- 
ever, has risen from 49.7 percent in 1930 to 83.5 percent in 1937, while 
during the same period the total sum involved in such estates has 
grown from $630,000,000 to over $1,000,000,000. In 1930 the value 
of estates under $100,000 was 16.5 percent of the value of all estates; 
in 1937 it was 39.4 percent. Tax collections from such estates, 
because of the mildness of the tax provisions, were only $474,000 in 
1930, or only 1.2 percent of the total estate-tax collections that year. 
By 1937 the amount collected from these estates was $29,500,000, or 
9.6 percent of the total. 

The bulk of all wealth in probated estates is found in the immense 
fortunes of a million dollars or more. In 1930 they were only 6.8 
percent of all returns, but formed 42.1 percent of the value of all gross 
estates and 78 percent of all tax collections. By 1937 these large 
estates constituted only 1.9 percent of all returns, but contained 28 
percent of all gross estates and accounted for 59.1 percent of all 
estate taxes collected. 

Table 39, charts 20 and 21, record estate taxes as a percentage of 
gross estates for the years 19^30-37. The increased burden of estates 
taxation is clearly shown in the rise from 1.02 percent in 1930 to 11.9 
percent in 1937. Even this greatly increased levy leaves with the 
legatees almost 90 percent of the fortunes accumulated. 



Table 39. 



-Net Federal estate taxes as percentage of gross estates, by size of net 
estates, 1930-37 



Year 
of filing 


Under 
$100,000 


$100,000 to 
$1,000,000 


$1,000,000 to 
$2,500,000 


$2,500,000 to 
$5,000^0 


$5,000,000 to 
$10,000,000 


$10,000,000 
and over 


Total 


1930 

1931 . . . 


0.08 
.07 
.08 
1.03 
2.09 
1.46 
2.13 
2.93 


0.51 

.45 

.48 

3.25 

4.94 

7.39 

8.85 

11.08 


1.18 
1.30 
1.10 
6.77 
7.34 
14.66 
13.76 
17.77 


1.82 
1.69 
1.87 
10.14 
10.89 
19.94 
19.50 
22.86 


1.96 
1.96 
1.76 
8.50 
11.36 
25.12 
29.39 
27.73 


3.95 
3.75 
4.79 

'"'21.63 


1.02 
1.20 


1932..; 

1933- 


.91 
3.39 


1934. 

1935 . . 


5.67 
7.33 


1936 


30.39 
41.19 


9.47 


1937 


11.95 







Source: Statistics of Income for year next preceding calendar year in which returns were filed. Computed 
from table.s in following volumes: 1929, table 1, pp. 46-51; 1930, table 1, pp. 54-59; 1931, table 1. pp. 50-53'; 
1932, table 1, pp. 52-55; 1933, table 1, pp. 52-55; 1934, Part 1, tables 3 and 6, pp. 42-43 and 46-47; 1935, tables 3 
4, 6, and 7, pp. 51-55, 58-61; 1936, Part 1, table 2, pp. 51, 52; and table 3, pp. 61-63. 

The various estates classes fared differently. In 1930 only 0.08 
percent of gross estates under $100^000 was taken in taxes, while in 
1937 almost 3 percent was so taken. 

The estates tax in 1930 was ahnost insignificant, as a method either 
of raising revenue or of halting the accumulation and concentration 
of hereditary fortunes. Even the largest estates, totaling $10,000,000 
or more, were reduced only 4 percent by the Federal estates levy. 
After 1930 the statutes were revised to obtain more revenue and to 
temper the concentration of wealth. By 1937 the tax impact on 
larger fortunes v/as the heaviest in our history. Yet the accumula- 
tion of wealth in large fortunes was not halted. Net estates between 
$1,000,000 and $2,500,000 paid 17.8 percent of their total gross in 
Federal taxes, leaving over 80 percent of these immense fortunes with 
their legatees. 



(XJNOENTRATION OF ECONOMIC POWER 



119 



Chart 20 

NET FEDERAL ESTATE TAXES AS PERCENTAGE 
OF GROSS ESTATES 

BY SIZES OF ESTATES 
1930-1937 



PERCENT AVERAGE OF ALL ESTATES 




9^5 1936 r937 



UNDER 100 000 



PER CENT PER C£N 



1 00,000 - 1 ,000,000 PER CENT 






.--i'^- 



I9i0 i»5l 1952 19M 1934 19 5 1936 917 



■^^^^^^^^>^^<^ r%l M [J i 



1930 1931 1932 1933 1934 1935 



I 000 000 2 500 000 



PER CENT PEP C 




— 50 



^^noiMI 



1930 1931 1952 1933 19 ) 935 1936 1937 




930 1931 1932 1953 1934 1955 1936 1937 



PERCENT 5,000 0<V) inOAlT 




i-CR CENT PER CENT 10,000,000 AND OVER PER CENT 




1»30 1931 1932 I9S3 1934 I9J5 K* 937 



JOl/flCf^ UniHd stolM Treovir, txporlimnl. STATISTICS Of INCOME. I924-I»M. 



120 



CONCENTRATION OF ECONOMIC POWER 



Chaet 21 



NET FEDERAL ESTATE TAXES AS PERCENTAGE 
OF GROSS ESTATES 



BY SIZES OF ESTATES 
1930-1937 



UNDER .00,000 




' ! ' 


' I '1 


100,000-1.000,000--- 








1,000,000-2,500,000- 









2,500,000-5,000,000 


b 


i 




5,000,000- iopoo,ooo 


5 


■ i 




10,000,000 SND OVER 


-1 

r-J 







■ 10 2 


1931 

30 «0 5< 


UNDER 100,000 


' 1 ■ 
1 








100,000-1,000,000--- 


j 








1.000.000-2,500,000- 


P* 


' 


1 


2 .500.000 - 5.000.000 


3 1 






5,000,000-10.000,000 ] ' 






10,000,000 AND OVER T 






i 1 





10 


1932 

PER CENT 
20 30 


<0 5 


UNDER 100,000 






1 

' 1 




100,000-1,000,000--- 




1 




1 


1,000.000-2,600,000 


1 1 




1 


' 


2,600)000-5.000.000 


S 


i 






5,000,000 - 10,000,000 


5 






i 


10,000,000 ANO OVER 


^ 


i 




- .i 



UNDER 100,000 

lOOpOO- 1,000.000--- 
1.000,000-2,500,000 
2.500,000 - 5,000,000 
S.OOOjOOO - I0p00,000 
10,000,000 ANO OVER 



3 
Z] 



UNDER 100,000 

100,000-1,000,000 — 
1,000,000-2,500,000 
2,500,000 - 5,000,000 
5,000,000 - lOjOOO.OOO 
10.000,000 ANO OVER 



rr 


■ 1 


■ ';.: 


3 1 






Z3| 






-J' 


1 




—J 








] 




:■ 1 r , . 


, 



UNDER 100,000 

100,000-1,000.000 — 


ppl.,..., 

Z3\ i 


I.OOOPOO- 2,500.000 


1 i 






2,500.000-5.000.000 


1 






5.000.000 - 10.000.000 


1 


10.000.000 AND OVER 


* 1 



10 s 


50 « 


K 


UNDER 100.000 

1 00,000 -i.ooaooo- - 


'4 


■ ' 






1 ,000,000 - 2,500,000 


'1 




• -.1 


2,500.000 - s.ooopoo 








5,000,000 - 10,000,000 








10,000.000 AND OVER 










\- J ,. 


■1 



UNDER 100.000 

1 00 JOOO- 1.000,000- - • 


3' 1 
1 




1 

1 

1 


l,000p00- 2,500,000 


1 






2,500,000-5,000,000 


1 






5,000,000 - 10,00OJ300 


1; 






10.000,000 ANO OVER 


i 1 




u 1.. , . 


■,-..1 1 :j 


...J 



, STATISTICS OF INCOME, I929'I93C 



OONCENTRATION OF ECONOMIC POWER 



121 



This table provides a fair indication of the effect of the estates tax. 
It does not support the fear that the iieavier tax rates break up estates, 
vitiate the incentive to accumulate wealth, or destroy the effective- 
ness of great capital aggregates. The owner's power to dispose of 
his estate without any regard to its effect on the economy has always 
been a far greater potential force for destruction than the tax system, 
even under the rates imposed in 1937. 

Gift taxes 

The Federal Government levies a tax on gifts of more than $5,000 
made to any one donee in any calendar year. The tax is collected 
from the donor, who is allowed an exemption of the first $40,000 of 
gifts. Above that figure, the gift tax, is levied at the following pro- 
gressive rates (the Defense Tax Act of 1Q40 levies an additional tax 
of 10 percent of the amount figured on these rates):" 









Rate of 


A 
Amount of 

net gifts 
equaling— 


B 




tax on 


Amount of 
net gifts 


Tax on 
amount in 


excess 
over 


not exceed- 
ing— 


column A 


amount 
in col- 








umn A 








Percent 




$10, 000 




1}4 


"$io,'oo6 


20,000 


$150 


3 


20,000 


30,000 


450 


iH 


30,000 


40,000 


900 


6 


40,000 


50,000 


1,500 


7H 


50,000 


70, 000 


2,250 


9 


70.000 


100,*000 


4,050 


lOH 


100,000 


200,000 


7,200 


12M 


200,000 


400,000 


19,950 


15 


400,000 


600,000 


49.950 


17M 


600.000 


800,000 


84,450 


im 


800,000 


1,000,000 


123. 450 


2\H 


1,000.000 


1,500,000 


166. 950 


24 


1, 500, 000 


2, 000, 000 


286, 950 


26H 


2,000,000 


2.500,000 


418. 200 


28;^ 


2, 500, 000 


3,000,000 


560. 700 


mi 


3,000,000 


3,500.000 


714, 450 


33 


3, 500, 000 


4, 000, 000 


879. 450 


35K 


4. 000, 000 


4, 500, 000 


1, 055, 700 


37)^ 


4, 500, 000 


5,000,000 


1, 243. 200 


39M 


5,000,000 


6,000,000 


1, 441, 950 


42 


6. 000, 000 


7, 000, 000 


1, 861. 950 


^H 


7,000,000 


8,000,000 


2, 304, 450 


i5H 


8, 000, 000 


9, 000, 000 


2,761,950 


4734 


9, 000, 000 


10, 000, 000 


3, 234, 450 


4SH 


10,000,000 


20, 000, 000 


3, 721, 950 


50'^ 


20. 000, 000 


50,000,000 


8, 746, 950 


5 184 


50, 000, 000 




24, 271, 950 


52H 





Gifts made prior to 1936 are taxed at the rates in effect at the time 
the gifts were made. The law provides for a spreading of the tax, 
so that returns on the Gift Tax Act of 1935, for example, are not 
finally due until March 1937. In 1933 the gift tax yielded $4,858,000. 
reached a peak of $163,027,000 in 1936, and dropped off to $35,000,000 
in 1938. Gifts to charitable, educational, or public institutions which 
are not intended to accrue to the benefit of any private individual or 
to create propaganda are exempt from the tax. 

« 63 Stat., 145, 146, 1939. 



122 CONCENTRATION OF ECONOMIC POWER 

Federal taxes on corporations 

In tables 40 and 41, charts 22 and 23, the unpact of various Federal 
taxes on corporate businesses is shown. Such taxes form a substantial 
part ofHhe revenue system and contribute a major share of all Federal 
tax collections. 



Table 40. 



-Corporate income, unjust enrichment, excess profits, and capital stock 
tax collections, 1930-88 



[Dollar fig 


ures in thousands] 












Source 


1930 


1931 


1932 1933 


1934 


Corporate incomes 


$1,242,596 
100.0 


$800, 809 
100.0 
-35.6 


$464, 191 $345, 174 

100. 81. 3 

-42.0 -25.6 


$469, 028 


Percent of total 


82.9 


Percent increase . . . .. . 


35.9 








Percent of total . 
































$66 


$5,407 


Percent of total 








1.0 


Percent increase 










8, 092. 4 


Capital stock . . . ..... 








$79, 340 
18.7 


$91, 088 


Percent of total 








16.1 










14.8 














Total 


$1, 242, 596 
100.0 


$800,809 

100.0 

-35.6 


$464, 191 

100.0 

-42.0 


$424, 580 
100.0 
-8.5 


$565, 523 


Percent of total 


100.0 


Percent increase 


33.2 










Source 


1935 


1936 


1937 


1938 


1S38 over 
19301 




$6.55, 314 


.$811, 720 
83.4 
23.9 
$515 
0.1 


$1. 265. 984 

88.0 

.56.0 

$7, 887 

0.5 

1,431.5 

$24, 661 

1.7 

5.8 

$140,691 

9.8 

2.6 


$1, 324, 293 

88.1 

4.6 

.$7, 372 

0.5 

-6.5 

$44, 446 

3.0 

80.2 

$127, 467 

8.4 

-9.4 


$81,697 


Percent of total . .^ .. 


86.6 
39.7 


Pereen tiacrease 


6.6 


Unjust euricliment . . 


$6,857 


Percent of total .. .... 






Percent increase . 




1,331.5 


Excess profits 


$7, 212 

1.0 

33.4 

$93, 887 

12.4 

3.1 


$23,313 

2.4 

223.3 

$137, 069 

14. 1 

46.0 


$44,380 


Percent of total . . ... 




Percent increase . . - . 


67, 242. 4 


Cai^ital stock- 


$48, 127 


Percent of total 




Percent increase 


60.7 






Total 


$756, 413 
100.0 
33.8 


$972. 617 
100.0 
28.6 


$1, 439, 223 
100.0 
48.0 


$1, 503, 578 

100.0 

4.5 


$260,982 


Percent of total . . 




Percent increase 


21.0 



















'.Or first year thereafter in which the tax was effective. 

Source: Data taken from U.S. Treasury Department, Comparative Statement of Internal Revenue Col- 
lections by Tax Sources, 1930-38. 



CONOEJi^EATION OP ECONOMIC POWER 



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124 



CONCENTRATION OF ECONOMIC POWER 



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CONOBNTRATION OF ECONOMIC POWER 



125 



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J 26 CONCENTRATION OF ECONOMIC POWER 

Chabt 23 

CORPORATE INCOME TAXES 

UNITED STATES, 1929-1936 



THOUSANDS 



NUMBER OF RETURNS 



AUU 




















^ 










^ 


100 


















THOUSANDS 
300 



200 



00 



1929 1930 1931 1932 1933 1934 1935 1936 



DOLLARS 

(BILLIONS) 

!2| 



AMOUNT OF NET INCOMES 



DOLLARS 

(BILLIONS) 
1I2 



1929 1930 1931 1932 1933 1934 1935 1936 



DOLLARS 

(BILLIONS) 
1.2 





1929 



AMOUNT OF TAXES ASSESSED 



1930 193! 1932 1933 1934 1935 



DOLLARS 

(BILLIONS) 

il.2 



.0 
1936 



source: Adopted from O.S.Treojuty Oeparlment, STATISTICS OF INCOME, 1929- 1936. 



CONCENTRATION OF ECONOMIC POWER 127 

Corporation income tax. — In the corporation income tax, as in the 
personal net-income tax, an effort is made to determ.me net incom.e 
above the reasonable expenses of doing business, and on this net 
incom.e the tax is levied. Certain advantages, such as continued 
existence, hmited liability of stockholders, and com.petitive advantages 
of size and power are supposed to accrue to corporations as against 
other form.s of business enterprise. Frequently corporations do an 
interstate business, and take on a national character. These large 
aggregations of wealth produce a very substantial proportion of all 
incom.e, as is clearly shown in appendix A of this study. 

As the Government's need for revenues has increased, funds have 
naturally been sought Avhere they were available. Probably no very 
sound justification of special corporation incom.e taxation as com.pared 
with other taxation was ever m.ade, beyond the som.ewhat vague 
notion on the part of Congressm.en that corporations are none too 
popular with the voters, that they have invaded fields once regarded 
as the rightful possession of adventurous independent businessm.en, 
and that they have garnered unto them.selves an undue proportion of 
the wealth of the Nation. For these reasons, and also probably 
because here is a source of ready revenue which lacks the social- 
political support to eft'ectively resist taxation, corporation taxes have 
grown increasing!}^ heavy. 

Both corporation incom.e-tax rates and methods of com.putation 
have varied from, year to year. In another study of this series, these 
rates and m.ethods are analj'^zed in detail.'^ The Revenue Act of 1928 
set the corporate-incom.e tax rate at 12 percent; the act of 1932 changed 
it to 13% percent with thi"ee-fourtbs percent additional tax on con- 
solidated returns; the act of 1934 left the rates unchanged, adding 
2 percent for consolidated returns and a surtax ranging from. 30 to 40 
percent on undistributed earnings of personal holding com.panies of 
corporations; the act of 1936 gave special attention to size, and the 
tax rates ranged from 8 to 15 percent, with surtaxes from 8 to 48 
percent, and a new undistributed-profits surtax of 7 to 27 percent. 
The 1936 act also taxed 15 percent of the dividends received from, 
other domestic corporations, and allowed a credit up to 5 percent for 
charitable gifts. The 1937 act raised the rate on personal-holding 
companies to range from. 65 to 75 percent. The 1938 act set the top 
effective rate of the norm.al tax at 16K percent, and lowered the 
undistributed-profits tax to 2}^ percent. The top rate and additional 
taxes apply only to corporations earning m.ore than $25,000 a year.^* 
The Defense Act of 1940 raises the top corporation rate to 19K 
percent. The vSecond Revenue Act of 1940 again raised the rate, 
with the defense tax, to 24 percent. 

The yield from corporation incom.es of 1929 was $1,242,596,000, 
but dropped 35.6 percent in the next year, and continued to decline 
after that until the low point of 1933, when it was only $345,174,000. 
Thereafter, revenue from, this tax mounted rapidly until in 1938 the 
total was $1,324,293,000, 6.6 percent above the peak year 1930. 

>8 Cliffof'-i J. Hynnine, Taxation of Corporate Eijterp !i Temporary National Economic Committee, 
Monograph 9, Washington, 1940. ' 

" U. S. Treasury Department, Comparative Statement of Internal Revenue Collections by Tax Sources, 
1930-38, Washington. 1939. 



261085— 40— No. 20 10 



128 



CONCENTRATION OF ECONOMIC POWER 



In table 42, data are offered on number of corporate returns, 
income reported, taxes levied, and proportion of income remaining 
with the corporations taxed for 1936. 

Table 42. — Average corporate net income,^ and income tax paid in 19S6 by income 

groups 



Net income groups 



Undnr $1.000 

$1,000 to $2,000 

$2,000 to $3, 000- - 

$3,000 to $4,000... 

$4,000 to $5,000 

$5,000 to $10,000 ..: 

$10,000 to $15,000 

$15,000 to $30, 000 

$20,000 to $25,000 

$25,000 to $50,000 

$50,000 to $100.000... 

$100,000 to $250,000 

$2.')0,000 to $500,000. 

$500,000 to $1,000,000. 

$1,000,000 to $5,000,000 

$5,000,000 and over - 

Total - 



Number of 
returns 



74,728 

24,526 

14, 767 

10, 320 

7,864 

21,438 

10, 9.39 

6,302 

4.447 

10, 959 

7,046 

5,233 

2,107 

1,197 

1,058 

230 



203, 161 



Percent 
of total 



36.8 

12.1 

7.3 

5.1 

3.9 

10.6 

5.4 

3.1 

2.2 

5.4 

3.5 

2.6 

1.0 

.6 

.5 

.1 



100.0 



Average 

net 
income 



$349 

1,465 

2,483 

3,504 

4, 521 

7,182 

12, 372 

17, 477 

22, 526 

35, 442 

70, 775 

155,383 

3.50, 672 

698, 324 

2. 028, 198 

14, 727, 683 



46, 654 



Average 
net tax 



$47 

184 

310 

444 

578 

936 

1,635 

2,332 

3,043 

4,899 

10.242 

22, 860 

.50, 149 

98, 339 

258, 414 

1, 670, 443 



Average 
income 
after tax 



Percent 

of 

income 

remaining 



$302 

1,281 

2,173 

3,060 

3,943 

6,246 

10, 737 

15, 145 

19, 447 

30, 543 

60, 533 

132, 523 

300, 523 

599, 985 

1, 769. 784 

13,157,240 



40,790 



86.5 
87.4 
87.5 
87.3 
87.2 
87.0 
86.8 
86.7 
86.5 
86.2 
85.5 
85.3 
85.7 
85.9 
87.3 
89.3 



87.4 



• Excludes corporations showing deficits. 

Source: Adapted from U. S. Treasury Department, Statistic? of Income for 1936, Part 2, p. 11. 

Unjust-enrichment taxes. — Wlien the Agricultural Adjustment Act 
was declared unconstitutional in 1936, some of the processmg taxes 
collected had not been paid into the Treasury by the processors. 
Therefore, an unjust enrichment tax was levied to force them to pay 
into the Treasury 80 percent of the tax which they had added to the 
price of commodities under the A. A, A. In 1938 revenues from this 
source totaled $7,372,000. 

Excess-profits tax. — Under the National Industrial Recovery Act 
and the Revenue Act of 1934, excess profits were taxed at the rate of 
5 percent of all net income in excess of 12}^ percent of the declared 
value of corporate capital stock. The Revenue Act of 1935, effective 
on returns filed after June 30, 1936, levied a 6-percent tax on profits in 
excess of 10 to 15 percent of adjusted declared valuo; and a 12-percent 
tax on such profits over 15 percent. The Defense Act of 1940 levies 
an additional tax of 10 percent of the amount so figured. The excess- 
profits tax reached its highest yield in 1938, turning over to the 
Federal Treasury $44,446,000. 

A new excess-profits tax was passed in October 1940. It applied 
to the taxable year beginning December 31, 1939. The text of the 
bill covered 489 printed pages. It imposed rates on "adjusted excess 
profits" as follows: 

Less than $20,000 2.5 percent thereof. 

$20,000 to $50,000 30 percent thereof. 

$50,000 to $100,000 - 35 percent thereof. 

$100,000 to $250,000 40 percent thereof. 

.$250,000 to $500,000 45 percent thereof. 

In excess of $500,000 50 percent thereof. 

The term "adjusted excess profits" means the excess profits net 
income minus a specific exemption of $5,000; excess-profits credits 



CONCENTRATION OF ECONOMIC POWER 229 

calculated according to section 712 of the act; and an unused excess- 
profits credit. The base of the tax may be computed on either of 
two forms, namely, invested capital or average earnings over a base 
period net income. Consolidated returns are provided. The com- 
plicated nature of the tax defies a brief smnmary, hence the reader is 
referred to Public 801 as passed by the Seventy-sixth Congress, third 
session, October 1940. 

The Vinson Act, passed in 1934, levies a 100-percent tax on all 
profit from Navy contracts in excess of 10 percent of the total contract 
price. ^° The Vinson Act was rescinded by the Revfenue Act of 1940. 

Capital-stock tax. — A tax is levied by the Federal Government on 
the amount of stock declared by a corporation, at an annual rate of 
$1.10 per thousand shares of declared stock (the rate up to July 1, 
1940, was $1). Here is a tax on wealth, easily calculated, and levied 
directly on corporations, so that it is easily included in the CQ^t^ of 
business. The tax reached a peak yield of $140,691,000 in 1937, and 
fell off to $127,467,000 in 1938. 

Federal stamp taxes 

Table 43, chart 24, lists the various stamp taxes which the Federal 
Government levies on the privilege of doing business, or for regulatory 
purposes.' In 1930 these stamp taxes produced $56,383,000 in reve- 
nue, but the yield fell off during the depression to less than $35,000,000 
in 1931. After 1932, changed rates and new taxes increased yearly 
revenue, although the unsettled condition of the capital market made 
the yield erratic. By 1938 the total yield of stamp taxes was $37,- 
934,000. Among these taxes the bonds and stock issues tax was most 
important, contributing 50.2 percent of all stamp-tax revenues; stock- 
transfers tax was second with 46.0 percent; produce futures next 
with 3.5 percent; and silver bullion last with 1.3 percent. 

Table 43. — Federal stamp taxes, 1930-38 
[Dollar figures in thousands] 



Source 


1930 


1931 


1932 


1933 


1934 


1935 


1936 


1937 


1938 


1938 
over 
1930' 


Bonds, stock issues, convey- 


$20, 037 
35.5 


$10, 964 

31.8 

-46.6 

$22, 384 

64.9 

-33.8 

$1, 110 

3.2 

-55.9 


$12, 472 

31.4 

13.8 

$24, 810 

62.4 

10.8 

$2, 460 

6.2 

121.6 


$15,318 

24.3 

'22.8 

.$40, 249 

63.8 

62.2 

$7, 479 

11.9 

204.0 


$17, 031 

39.3 

11.2 

$20, 768 

47.8 

-48.4 

$4, 950 

11.4 

-33.8 

$658 

1.5 


$23, 329 

45.2 

37.0 

$24, 135 

46.7 

16.2 

$3, 277 

6.4 

-33.8 

$876 

1.7 

33.1 


$28, 579 

44.1 

22.5 

$31, 974 

49.4 

32.5 

$3, 350 

5.2 

2.2 

$859 

1.3 

-1.9 


$25, 573 

43.5 

-10.5 

$27, 699 

47.0 

-13.4 

$5. 445 

0.2 

62.5 

$172 

0.3 


$19,033 

50.2 

-25.6 

$17,432 

46.0 

-37.1 

$1, 344 

3.5 

-75.3 

$125 

n a 


-$1,004 


Percent of total 




—5 


Stock transfers 

Percent of total 


$33, 828 
60.0 


-$16,396 




"48 5 




$2, 518 
4.5 


— $1, 174 


Percent of total 






—46 6 






-$533 


Percent of total 




















-80.0 -27.3 


—81 
















Total ---. 


$56, 383 
100.0 


$34, 458 
100.0 
-38.9 


$39, 742 
100.0 
15.3 


.$63. 046 
100.0 
58.6 


$43, 407 
100.0 
-31.2 


$51,617 

100.0 

18.9 


$64. 762 
100.0 
25.5 


$58. 889 $37, 934 
100. 100. 
—9. 1 — 3.'-. fi 


—$18 449 


Percent of total 




Percent increase 


-32 7 













' Or first year thereafter in which tax was effective. 

Source: Data taken from U. S. Treasury Department, Comparative Statement of Internal Revenue 
■Collections by Tax Sources, 1930-38. 



20 U. a. Treasury, Comparative Statement of Internal Revenue Collections by Ta:^ Sources, 1939. 



130 



CONCENTRATION OF ECONOMIC POWER 



Chart 24 

FEDERAL STAMP TAXES 

UNITED STATES. 1930-1938 



DOLLARS 

(MILLIONS) 

70 



AMOUNT IN DOLLARS BY TYPE OF TAX 



DOLLARS 

(MILLIONS) 

70 




1930 1931 1932 1933 1934 1935 1936 1937 1938 



^^^^ 



SILVER BULLION 
PRODUCE FUTURES 
BONDS AND STOCK ISSUES 
STOCK TRANSFERS 



PER CENT 
30 



PERCENTAGE OF TOTAL TAX REVENUE 



PER CENT 
■ 30 



20 



20 



10 



10 



1930 1931 1932 1933 1934 1935 1936 1937 1938 



CONCENTRATION OF ECONOMIC POWER 13]^ 

Bonds and stock issues tax. — Documentary stamps are required on 
issues of bonds and stocks. In the Defense Act of 1940, the tax on 
issues of stocks and bonds was raised from 10 to 11 cents per $100; 
the 4 cents per $100 tax on the transfer of bonds was raised to 5 cents; 
and the tax on deeds of conveyances was raised from 50 to 55 cents 
per $500. The rate on passenger tickets, formerly $1 to $5, is now 
$1.10 to $5.50, and foreign insurance policies pay 4 instead of 3 cents 
per dollar of premium. These stamp taxes raised more than $20,- 
000,000 in 1930, and only slightly over $19,000,000 in 1938, even 
though the rates had increased substantially. 

Capital stock transfer tax. — This tax is levied on the transfer of own- 
ership of corporate capital stock. In June 1932 the rate was raised 
from 2 cents to 4 cents per $100, and the Defense Act raised it to 5 
cents. In 1930 revenue from this tax totaled $33,828,000, but de- 
clined sharply thereafter as a result of stock market inactivity reach- 
ing a low point of somewhat less than $21,000,000 in 1934. In spite 
of an almost doubled rate, the 1938 yield of this was only $17,432,000. 

Future deliveries of produce. — Future deliveries of produce are taxed 
at the rate of 3 cents per $100 of valuation. In 1932 the rate was in- 
creased from 1 to 5 cents, but vigorous protest to Congress brought it 
down in 1934. In 1938 the tax contributed $1,344,000 to the Federal 
Treasury. 

Silver bullion. — A tax of 50 percent of the profits on the sale of silver 
bullion is imposed in order to restrict the outside sale of silver. It 
collected $125,000 in 1938. 

REGRESSIVE TAXES 

In table 44, chart 25, data are offered concerning Federal taxes 
which are "regressive" in their effects. The relative importance of 
the individual items in 1938 in terms of yield is as follows: 

Percent 

Taxes for economic adjustment conservation and social security - 28. 50 

Tobacco taxes 24. 30 

Liquor taxes 24. 30 

Automobile tires, gasoline, and oil 11. 60 

Consumers' necessities 7. 50 

Consumers' luxuries 2. 00 

Automobiles, parts, and accessories 1. 80 

Prohibitive taxes 

Total 100.00 

Of the 56 "regressive" taxes, a few stand out as heavy revenue pro- 
ducers. The tobacco and liquor taxes each contributed nearly 18 
percent of total revenues, social-security reserves nearly 21 percent, 
and automobile tires, gasoline, and oil 8.5 percent, or a total of more 
than 65 percent for these four groups alone. 

The data summarized in table 43 are analyzed in more detail in the 
specific discussions which follow. 



132 CONCENTRATION OF ECONOMIC POWER 

Table 44. — Regressive sources of Federal tax revenue, 1930-38 
[Dollar figures in thousand?] 



Source 


1930 


1931 


1932 


1933 


1934 


Tobacco taxes 


$446,156 

92.4 

$11,645 

2.4 

$4,121 

0.9 

$20,465 

4.2 


$424, 533 

93.1 

$10, 637 

2.3 

.$2, 072 

0.5 

$18, 143 

4.0 


$387, 271 

68.4 

$8,069 

1.4 

$25,077 

4.4 

$58. 141 

10.3 

$6,842 

1.2 

.$80, 030 

14.2 


$409, 309 

36.2 

$1.38, 509 

12.2 

$74, 375 

6.6 

$100, 771 

8.9 

.$29, 966 

2.6 

$237, 489 

21.0 

$140, .'^63 
12.4 
$498 


•$452, 366 


Percent of total . .. ■ 


25 4 


Liqnor taxes - . 


$374 815 


Percent of total .- 


21.0 


Consumers' necessities 


$f'6, 716 


Percent of total . .. 


4 8 


Consumers' luxuries 


$95, 391 


Percent of total 


5.4 


Automobiles, parts, and accessories 


.$42, 681 


Percent of total . . . . 






2 4 


Automobile tires, gasoline, and oil 






$229,666 


Percent of total 






12.9 


Taxes for economic adjustment, conserva- 






.$500, 308 


Pcrcent of total 








28. 1 




$589 
0.1 


.$600 
0.1 


$505 
0.1 


$551 


Percent of total 










Total 


$482, 976 
100.0 


$455, 985 
100.0 


$565, 935 
100.0 


$1,131,480 
100.0 


$1, 781, 494 


Percent of total .... 


100.0 







Source 


1935 


1936 


1937 


1938 


Tobacco taxes 


$478, 368 

27.8 

$458, 380 

26.6 

$111,301 

6.5 

$52, 752 

.3.1 

$55, 956 

3 3 

$238. 410 

13.9 

$325, 326 
18.8 
$.586 


$536, 103 

33.0 

$569, 082 

.35.1 

$119,680 

7.4 

$56, 535 

3.5 

$73, 268 

4.5 

.$264,193 

16.2 

$4, 078 
0.3 
$576 


$5&3, 184 

23.5 

$587. 306 

24.5 

$133, 689 

5.6 

$59,911 

2.5 

$83,153 

3.5 

$289, 099 

12.1 

$680, 706 
28.3 
.$608 


$567. 094 


Percent of total 


24.3 


Liquor taxes 


$565, 401 


Percent of total . . 


24.3 


Consumers' necessities 


$174,628 


Percent of total 


7.5 


Consumers' luxuries . . ... 


$47, 038 


Percent of total , 


2.0 


Automobiles, parts, and accessories 


$41, 703 


Percent of total.. _ 


1.8 


Automobile fires, gasoline, and oil . 


$269, 748 


Percent of total 


11.6 


Taxes for economic adjustment, conservation, and social 
security 


$665, 029 


Percent of total 


28.5 


Prohibitive taxes 


$602 


Percent of total . ... 






'"" " ' 






Total 


$1,721,109 
100.0 


$1,623,515 
100.0 


$2, 397, 656 
100.0 


$2, 331. 2-13 


Percent of total 


100 







Source: Adapted from U. S. Treasury Department, Comparative Statement of Internal Revenue Col- 
lections by Tax Sources, 1930-38. 

Federal tobacco taxes 

There are still some who advocate the levying of tobacco taxes on 
the grounds that tobacco is harmful, hence its consumption should be 
limited by the imposition of taxes which tend to increase its price. 
Others justify heavy taxes on tobacco because it is an unnecessary 
commodity, and the taxes imposed are luxury taxes which can be 
avoided simply by not using tobacco. Both of these arguments are 
partly responsible for the tobacco tax, but they do not explain the 
prominent place of tobacco taxes in Federal and State fiscal systems. 
Tobaccos have not enjoyed a good reputation socially, so that while 
they have been widely sold, they could be taxed without too serious 
opposition from businessmen or consim ors generally. Wlien govern- 
ments needed increased revenues, therefore, they naturally turned to 
this commodity, which offered so little tax resistance. 

The development of the cigarette, a cheap and convenient method 
of using tobacco, combined with the widespread advertising and popu- 
larization program, resulted in the almost universal use of tobacco 
among adults. Thus, instead of a luxury tax, the tobacco tax has 



CON<JENTRATION OF ECONOMIC POWER 
Chart 25 

REGRESSIVE FEDERAL TAXES 

UNITED STATES, 1936-1939 



133 



DOLLARS 

(BILLlONb) 

2.5 — 




IS30 1931 1932 1933 1934 1935 1936 1937 1938 



OTHER REGRESSIVE TAXES 
•J TAXES FOR CONSERVATION AND SOCIAL SECURITY 
'Mm LIQUOR TAXES 
TOBACCO TAXES 



PER CENT 




1930 1931 1932 1933 1934 1935 1936 .""37 193 



SOURCE Adopted Irom UniUd Slolu Tuotury D«porlmenl, COMPARATIVE STATEMENT OF INTERNAL REVENUE COLLECTION* 
BY TAX S0UHCE5, 1930-1938 



134 



CONCENTRATION OF ECONOMIC POWER 



becojne an undisguised consumers' levy, and, because of relatively 
high rates on a widely used commodity, has risen to a place of great 
importance as a source of revenue. 

Different forms of tobacco are levied on at discriminatory rates. 
Thus, cigars, which are much more expensive than cigarettes, and 
used almost exclusively by the upper-income groups, carry a lower 
rate than cigarettes. It would seem reasonable, if taxation of tobaccos 
were based on ability to pay, that the reverse condition would be true. 
Table 45, figure 26, gives essential data on tobacco taxes. 

Table 45. — Federal tobacco taxes, 1930-38 
[Dollar figures in thousands] 



Source 


1930 


1931 


1932 


1933 


1934 


1935 


1936 


1937 


1938 


1938 
over 
1930 


Cigars, large -. 

Percent of total. 
Percent in- 
crease.. 


$19,116 
4.3 


$16, 136 
3.8 

-15.6 
$253 
0.1 

-11.9 
$40 


$12,351 
3.2 

-23.5 
$211 
0.1 

-16.6 
$25 


$11,248 
2.7 

-8.9 
$156 


$11,768 
2.8 

4.6 
$166 


$11,868 
2.5 

0.8 
$134 


$12, 785 
2.4 

7.7 
$134 


$13, 179 
2.3 

3.1 

$149 


$12, 573 
2.2 

-4.6 
$116 


-$6, 643 
-34.2 


Cigais, small 

Percent of total 


$287 
0.1 


-$171 


Percent in- 
crease 


-26.1 
$21 


6.4 
$035 
0.1 

2, 923, 8 

$376, 844 

83.3 

12.3 

$6, 690 

1.5 

2.3 

$55, 282 
12.2 

.7 


-19.3 

$19 


.0 

$18 


11.2 

$22 


-22.2 
$20 


-59.6 


Cigarettes, large.... 
Percent of total. 


$54 


-$34 


Percent in- 
crease - 




-25.9 

$340,357 

80.2 

-5.2 

$7, 108 

1.7 

-4.5 

$59,045 
13.8 

.1 

$1,584 
0.4 

14.5 

$10 


-37.5 

$310, 549 

80.1 

-8.8 

$6, 554 

1.7 

-7.8 

$56, 183 
14.5 

-4.9 

$1, 389 
0.4 

-12. 3 

$9 


-16.0 

$335, 514 

82.0 

8.0 

$6, 539 

1.6 

-0.2 

$54,919 
13.4 

-2.3 

$910 
0.2 

-34.5 

$3 


-97.0 

$403,837 

84.4 

7.2 

$6,494 

1.4 

-2.9 

$54, 770 
11.4 

-.9 


-5.3 

$459, 503 

85.7 

13.8 

$6,858 

1.3 

5.6 

$55, 730 
10.4 

1.8 

$1, 073 
0.2 

-13.8 

$2 


22.2 

$487, 882 
86.6 

6.2 

$6,648 

1.2 

-3.1 

$54, 168 
9.6 

-2.8 

$1, 133 
0.2 

5.6 

$3 


-9.1 

$491. 281 

86.6 

.7 

$6, 720 

1.2 

1.1 

$55,069 
9.7 

1.7 

$1,311 
0.2 

15.7 

$3 


-63.0 


Cigarettes, small... 
Percent of total. 
Percent in- 
crease. 


$358,893 
80.4 


$132,388 
36.9 


Snuff-. ... 


$7,446 
1.7 


-$726 


Percent of total. 
Percent in- 
crease 


-9.8 


Tobacco, chewing 

and smoking 

Percent of total. 
Percent in- 
crease - - 


$58,958 
13.2 


-$3,889 
-6.6 


Cigarette papers 

and tubes 

Percent of total . 
Percent in- 
crease. . 


$1,383 
0.3 


$977 $1,245 
0. 2 0. 3 

7. 4i 27. 4 


-$72 
-5.2 


Leaf dealer 
penalties, etc 


$18 


$5 


$2 


-$15 


Percent in- 
crease 




-44.4 


-10.0 


-66.7 


66.7 


-60.0 


0.0 


50.0 


0.0 


-83.3 






1 




Total 

Percent of 

total 

Percent in- 
crease 


$446, 156 
100.0 


$424, 533 
100.0 
-5.2 


$387, 271 
100.0 
-8.8 


$409, 309 

100.0 

5.7 


$452,366 
100.0 
10.5 


$478, 368 

100.0 

5.7 


$536, 103 
100.0 
12.1 


$563, 184 

100.0 

5.1 


$507,094 $120,938 

100.0 

0. 7 27. 1 











Source: Data taken from U. S. Treasury Department, Comparative Statement of Internal Revenue 
Collections by Tax Sources, 1930-38.' 

In 1938 the yields of the vaiious taxes imposed on tobaccos, as a 
percentage of aU Federal tobacco taxes, was as follows: 

Percent 

Cigarettes . 86. 6 

Smoking, chewing tobacco 9. 7 

Cigars, large 2. 3 

Snuff : 1.2 

. .2 

.02 



Cigarette paper, tubes. 
Cigars, small 



Total - lOaO 



CONCENTRATION OF ECONOMIC POWER 



135 



Chart 26 

REVENUE FROM FEDERAL TOBACCO TAXES 

UNITED STATES, 1913-1938 



AMOUNT IN DOLLARS BY FORM OF PRODUCT 




PERCENTAGE OF TOTAL TAX REVENUE 




1913 



1928 



.1933 



source- FMINC TIC TAX PflOeLEM. Tniilitlh C«i<lury FiM, Inc-, Nn To>k, 1937, p». 922->. 
MM FI«urM Furnltlw* b|r BtirMy (f InXrnol Rhwiw 



l^Q CONCENTRATION OF ECONOMIC POWER 

Cigarette tax. — A Federal tax of $3 per thousand is levied on 
cigarettes weighing less than 3 pounds to the thousand; cigarettes 
weighing more are taxed $7.20 per thousand, except thet those mote 
than 6K inches long are levied on at $3, counting 2% inches as a ciga- 
Tette.21 At $3 per thousand, the ordinary package of 20 carried a 
6 cent Federal tax (Qji cents after July 1, 1940) in addition to State 
taxes imposed in about half the States. 

Taxes on cigarettes are collected as excises from manufacturers. 
This concentrated, monopolistic mdustry very likely passes the tax 
on to the consilmer, of whom (includiug all tobacco users) it is esti- 
mated there are some 35,000,000 in the United States." 

While the consumption of cigarettes is somewhat dependent upon 
purchasing power, people on relief will go without other needful 
things to buy them. The yield of the tax has not, therefore, followed 
precisely the curve of income during the depression. In 1931 the 
yield was $340,357,000; it fell off 8.8 percent in 1932, but recovered 
almost that amount in the following year and by 1934 was decidedly 
above 1931. The peak was in 1938, when the yield was $491,281,000. 

Smoking and chewing tobacco taxes. — In addition to any import 
duties, the Federal Government levies a manufacturers' excise tax of 
18 cents a pound on all tobacco prepared for smoking or chewing. 
Since 1932 the yield has not varied much from the $55,069,000 col- 
lected in 1938. The yield of the snuff tax, levied at the same rate, 
has behaved similarly, reaching $6,720,000 m 1938. 

Cigars. — The rate of the cigar tax, a manufacturers' excise, varies 
with the type of cigar. For a thousand cigars weighing not more 
than 3 pounds per thousand, the tax is 75 cents. If the weight is 
more than 3 pounds and the retail price is not more than 5 cents, the 
tax is $2 a thousand. On cigars selling between 5 and 8 cents apiece, 
the tax is $3 a thousand; 8 to 15 cents, $5 per thousand; 15 to 20 
cents, $10.50 a thousand; and over 20 cents, $13.50 a thousand. 

Cigars are sold mostly to men in the better-circumstanced part of 
the population. They are more costly thari.s cigarettes and have no 
such popular appeal. At one time more cigars were smoked than 
cigarettes, and in 1930 they contributed over $19,000,000 to the Federal 
Treasury. By 1938 the yield had fallen 34 percent, to $12,573,000. 
In the same period of time, the yield on little cigars, which at one time 
were expected to offer serious competition to cigarettes, had declined 
almost 60 percent. 

Cigarette 'payers and tubes. — A manufacturers' excise on cigarette 
papers not used in the manufacture of cigarettes is levied by the 
Federal Government, at the rate of one-half cent for 50 papers, or 1 
cent for 50 tubes. The peak vield of $1,584,000 occurred in 1931, 
followed by a drop to $910,000 in 1933 and reaching $1,311,000 in 
1938. Papers and tubes are used primarily by smokers with com- 
paratively small incomes, for they make possible a substantial saving 
over the purchase of "taUor mades." 

Ji 53 Stat., 219-220, 1«39. 

« Harold M. Groves. Finaneing Oovernrnptit, Henry Holt, New York, 1930, p. 325. 



CONCENTRATION OF ECONOMIC POWER 



137 



Federal liquor taxes 

The National Government has imposed taxes on liquoi*s for many- 
years. During the prohibition era, from 1919 to 1933, yields from 
these taxes were very small. Since the repeal of prohibition, liquor 
taxes imposed by Federal and State Governments have contributed 
an important part of the income of the Nation. Table 46, chart 27, 
gives the data on then- growth. The chart is made from another 
source ^^ and understates the situation shown in the table. 



Table 46. — Federal liquor taxes, 1930-88 
[Dollar figures in thousands] 



Source 


1930 


1931 


1932 


1933 


1934 


1935 


1936 


1937 


1938 


1938 over 
1930 » 


Distilled spirits (im- 
ported) 


$7 
0.1 


$13 

0.1 

85.7 

$9,356 
88.0 
-5.6 

$7 

0.1 

-12.5 

$26 
0.2 
-3.5. 
$225 
2.1 
6.6 

$79 
0.7 
58.0 


$10 

0.1 

-23.1 

$6, 775 

84.1 

-27.6 


$7 

'"-30."0 

$18, 161 

13.1 

168.1 

$l,-424 
1.0 


$14,919 

4.0 

213,028.6 

$121, 318 
32.3 
668.0 

$7,341 

2.0 

415.5 

$5, 269 

1.4 

6, 098. 8 

$5, 661 

1.5 

276.9 

$390 

0.1 

353.5 

$200, 356 
53.4 
88.1 

$10, 696 

2.9 

5.0 

$8,622 

2.3 


.$14,446 

3.1 

-3.2 

$182, 761 
39.8 
50.6 

$6,418 

1.4 

-12.6 

$7, 770 

1.7 

47.5 

$8,130 

1.8 

43.6 

$1, 367 

0.3 

250.5 

$226, 119 
49.3 
12.9 

$11,356 

2.5 

6.2 

$129 


$29,427 

5.2 

103.7 

$231, 483 
40.7 
26.7 

$10, 161 

1.8 

58.3 

$9, 916 

1.7 

27.6 

$7, 462 

1.3 

-8.2 

$2,990 

0.5 

118.7 

$266,089 
46.8 
17.7 

$11, 508 
2.0 
1.3 

$47 


$32,553 

5.5 

10.6 

$236, 361 

40.2 

2.1 

$11, 294 

1.9 

11.2 

$10, 312 

1.8 

4.0 

$6, 016 

1.0 

-19.4 

$538 

0.1 

-82.0 

$278, 465 

47.4 

4.7 

$11, 131 

1.9 

-3.3 

$637 

0.1 

1, 255. 3 


$25, 164 

4.5 

-22.7 

$241,790 

42.7 

2.3 

$10,345 

1.8 

-8.4 

$9, 586 

1.7 

-7.1 

$6,004 

1.1 

-0.2 

$1, 167 

0.2 

116.9 

$256,654 
45.4 

-7.8 

$10, 626 

1.9 

-4.5 

$4,065 

0.7 

538.1 


$25, 157 








359, 386. 7 


Distilled spirits (do- 
mestic) - . 


$9,913 
85.2 


$231,877 






Percent increase 


2,339.1 


Distilled spirits rec- 
tification tax 


$8 
0.1 


$10,337 




129, 212. 5 


Bottle, container, ex- 
port and case tax... 
Percent of total... 


$40 
0.3 


$36 

0.4 

38.5 

$173 

2.1 

-23.1 

$56 

0.7 

-29.1 


$85 

0.1 

136.1 

$1, 502 

1.1 

768.2 

$86 
0.1 
63.6 

$106, 541 
76.8 


$9,546 
"■23,"865."6 


Wines, cordials, etc... 


$211 
1.8 


$5, 793 


Percent increase 


2, 745. 6 


Brandy used for for- 
tifying wines.. 


$50 
0.4 


$1, 117 


Percent increase 


2,234.0 


Fermented malt liq- 
uors 




$150, 113 




















40.0 


Special taxes in con- 
nection with liquor 

occupations 

Percent of total... 
Percent increase 


$521 
4.5 


$523 
4.9 
0.4 


$469 

5.8 

-10.3 


$10, 191 

7.4 

2, 072. 9 


$10, 105 
"*i,'939.'5 


Floor taxes . .. .. 




-$4,557 
























-98.5 
(-$115) 


-63.6 


-52.9 


Collections under 
prohibition laws 


.$895 
7.7 


$407 

3.8 

-54.5 

$10,637 

100 


$551 

6.8 

35.4 

$8, 069 

inn n 


$510 

0.4 

-7.5 

$138,509 

100.0 

1, 616. 6 


$244 

0.1 

-52.2 

$374, 815 

100.0 

170.6 














-147.1 
$458, 380 

100.0 

22.3 










Totals 


$11,645 
100.0 


$569, 082 
100.0 
24.2 


$587, 306 

100.0 

3.2 


$505, 401 
100.0 
-3.7 


$553, 756 


Percent of 
total 




Percent in- 
crease 


-8. 7 -24. 1 


4,755.7 













' Or first year thereafter in which the tax was effective. 

Source: Data taken from U. S. Treasury Department, Comparative Statement of Internal Revenue Col- 
lections by Tax Sources, 1930-38. 

» Facing the Tax Problem, Twentieth Century Fund, New York, 1937, pp. 520-521. The data are 
offered in the appendix of this volume. The differences in amounts are duo to the inclusion of all forms 
of direct liquor taxes in our table, as well as to the fact that the chart shows fiscal years and the table calen- 
dar years. 



138 



CONCENTRATION OF ECONOMIC POWER 



Chart 27 

REVENUE FROM FEDERAL LIQUOR TAXES 

UNITED STATES, 1913-1938 



AMOUNT IN DOLLARS 




PERCENTAGE OF TOTAL TAX REVENUE 




1928 



1933 



I93& 



SOUKX: r*Cme TK tax PnoeLIM, TmnlKlh C«M«y r^r*. Dk, Hn Tort, ISSr, ff MO-MI . 
193d Flyuf*! Furni»h«tf ^ twrtM of lnl»ri«l n«w«AM 



CONCENTRATION OF ECONOMIC POWER Jgg 

Liquor taxes rose rapidly from less than $12,000,000 in 1930 to a 
peak of $587,306,000 in 1937, dropping off slightly in 1938. The 
Federal liquor taxes for 1938 ranked, according to proportion of 
total revenue, as follows : 

Percent 

Permented malt liquors 45. 4 

Distilled spirits: 

Domestic 42. 7 

Imported 4. 5 

Liquor occupations 19 

Distilled-spirits rectification _. j, g 

Bottle, container, export and case 1. 7 

Wines, cordials, etc 1. 1 

Floor taxes .7 

Brandy used for fortifying wines . 2 

Total . 100.0 

Fermented malt liquors. — From January 1934 to July 1, 1940, these 
were taxed at the rate of $5 per barrel (31 gallons).^* At that time 
the Defense Act of 1940 raised the rate to $6 per barrel. 

The tax is levied on manufacturers and is in addition to any State 
or local taxes levied on fermented malt liquors. This is the largest 
revenue producer of all Federal liquor taxes, and, as it is placed 
primarily on beer, adds to the cost of the poor man's drink. 

Distilled spirits— domestic. — A Federal manufacturers' excise tax 
is levied at the rate of $3 per gallon ($2.25 prior to July 1, 1940). 
Prior to January 1934 the tax was $1.10 per gallon. Next to the 
malt tax, this is the most lucrative hquor tax and is probrtbly passed 
on by the manufacturer to the consumer in the price of ciomestic 
whisky. Imported distilled spirits are taxed at the same rate, but 
the amount imported is relatively small. 

Liquor occupations taxes. — The Revenue Act of 1918 imposed cer- 
tain taxes on those engaged in the manufacture and sale of liquor. 
The various taxes now in force are as follows (all these taxes represent 
a 10 percent increase over the rates in force prior to July 1, 1940): 

Wholesale dealers pay an annual tax of $110. 00 

Retail dealers pay an annual tax of 27. 50 

Brewers pay a yearly tax of $110, except that a brewer of less than 500 

barrels a year pays 55_ qO 

Wholesale dealers in malt liquors pay an annual tax of 55. 00 

Retail dealers in malt liquors pay a yeailj^ tax of 22. 00 

Rect^iiers of distilled liquors pay a special annual tax of 220. 00 

Rectifiers of less than 500 barrels (40 gallons to the barrel) a vear pay.' 110. 00 

Manufacturers of stills pay a yearly tax of $55 and $22 for each still 
or worm manufactured. This does not apply to liquor manufacturers 
making their own stills.-^ 

Occupational taxes on wholesalers, retailers, and manufacturers of 
liquors are more than regulatory in character. They provide a 
mechanism for the registration and control of persons eii^Hged in the 
manufacture and sale of liquor, but they have also yielded about 
$11,000,000 in taxes annually since 1934. 

» U. S. Treasury Department, Comparative Statement of Internal Revenue Collections by Tax Sources, 
" o3 Stat., 338 (1039), and Revenue Act of 1940. 



J40 CONCENTRATION OF ECONOIMIC POWER 

The tax on the manufacture of stills is an attempt to seeine cm-rent 
information on the location and character of liquor-making estab- 
lishments. The tax is not calculated to yield much revenue and, 
in fact, is remitted in the case of established liquor concerns as noted 
above. Here is another instance of the use of taxation strictly for 
control purposes. 

Distilled spirits rectification tax. — The National Government imposes 
a tax of 30 cents per gallon on the rectijfier of distilled spirits. It is an 
excise, o-:;ily calculated, and is probably added to the selling price of 
rectified spirits. The tax contributed $11,294,000 in 1937, dropping 
off somewhat in 1938. 

Container, export, and case stamps. — All taxed liquor must bear 
stamps on containers, indicating that other taxes on the^ goods in the 
containers have been paid. Thus, the container tax is a control 
measure. Collected at the rate of 1 cent per bottle, it also yields 
substantial revenue, however, reaching a peak of $10,313,000 in 1937. 

Wines and cordials. — Federal taxes vary with the type and quahty 
of wines as follows : 

Wmes containing not more than 14 percent of alcohol by 
volume are taxed 6 cents a gallon. 

Wines containing more than 14 and less than 21 percent of 
alcohol are taxed 18 cents a gallon. 

Wines containing more than 21 and not more than 24 percent 
of alcohol are taxed 30 cents a gallon. 

All wines containing more than 24 percent alcohol are classed, 
for tax purposes, as distilled spirits. 

Sparkling wines and champagnes are taxed 3 cents on each 
half-pint or fraction thereof. 

Artificially carbonated wines are taxed iK cents on each half- 
pint or fraction thereof. 

Fortified liqueurs, cordials, etc., are taxed iK cents on each 
half-pint or fraction thereof.^^ 
Floor taxes. — Prior to the act of 1934, which levied a $2 per gallon 
tax on liquor, considerable liquor which had been taxed at the rate of 
$1.10 a gallon had been shipped out from warehouses to dealers. To 
equalize these levies, floor taxes of 90 cents a gallon were levied. 
When the tax on liquor was raised to $2.25 a gallon on July 1, 1938, a 
floor tax of 25 cents a gallon was imposed. The Defense Act of 1940 
imposed a similar tax of 75 cents a gallon. 

Brandy used jor jortijying wines. — The Federal Government now 
levies a tax of 10 cents a gaUon on brandy used for fortifying wines. 
This tax yielded $1,167,000 in 1938. 

Consumers^ necessities taxes 

In table 47 data are offered on Federal taxes levied on consumers' 
necessities. The classification of taxes into those on luxuries and 
necessities is somewhat arbitrary. Under modern conditions of life, 
however, the classification used here seems reasonable. The figm-es 
on individual amounts and proportions of the total are given, to permit 
rearrangement according to the judgment of the reader, if the division 
seems inadequate. Chart 28 gives a comparison between these taxes 

" 53 Stat., 347 (1939), and Revenue Act of 1040. These taxes represent, generally, a 20 percent increase 
over the old rates. 



CONCENTRATION OF ECONOMIC POWER 



141 



and those on consumers' luxuries. By 1938 these taxes on necessities 
ranked, according to their relative importance in this group, as 
follows : 

Percent 

Sugar 35.4 

Electric power 22. 2 

Coconut oils 15. 1 

Communications , 13. 5 

Toilet preparations 8. 

Mechanical refrigerators 3. 6 

Oleomargarine 1. 4 

Matches .8 

Miscellaneous 

Total 100. 

Table 47. — Federal taxes on consumers' necessities, IBSO-Sff 
[Dollar fitrures in thousands] 



Source 


1930 


1931 


1932 


1933 


1934 


1935 


1936 


1937 


1938 


1938 
over 
1Q301 


Matches 






$672 
2.7 


$6, 825 

9.2 

915.6 

$10, 874 

14.0 

144.3 

$17, 649 

23.7 

174.9 

$1, 473 

2.0 

4.4 


$5, 006 

5.8 

-26.7 

$11, 373 

13.3 

4.6 

$19, 690 

23.0 

11.6 

$1,618 

1.9 

9.8 


$6, 653 

6.0 

32.9 

$13, 195 

11.9 

16.0 

$20, 300 

18.2 

3.1 

$2, 275 

2.0 

40.6 


$6, 456 

5.4 

-3.0 

$15. 266 

12.8 

15.7 

$23, 031 

19.2 

13.5 

$2, 327 

1.9 

2.3 


$7, 386 

5.5 

14.4 

$17, 992 

13.5 

17.9 

$24, 6!9 
18.4 
7.1 
$2, 423 
1.8 
4.1 
$3. 989 
3.0 


$1, 432 
0.8 

-80.6 

$13, 969 

8.0 

-22.4 

$23, 504 

13.5 

-4.7 

$2, 371 

1.4 

-2.1 

$61,882 

35. 4 

1, 451. 3 

$26, 383 

15.1 

-8.1 

$38, 798 

22.2 

4.2 

$6, 266 

3.6 

-44. 3 

$22 


$760 


Percent of total 






Percent increase -- 






113.1 
$9, 518 


Toilet preparations _ . 






$4, 4.50 
17.8 


Percent of total. 






Percent increase 






213.9 
$17, 083 


Telephone, telegraph, 
radio, and cable corn- 






$6, 421 
25.6 


Percent of total 






Percent increase - 






266.0 
-$1,030 

""-30.3 
$57,894 




$3, 402 
82.6 


$1, 961 

94.6 

-42.4 


$1,412 

5.6 

-28.0 


Percent of total 


Sugar Act of 1937 




Percent of total 
















Percent increase 
















1 451 3 


Coconut oils 










$10, 113 
11.8 


$29, 124 

26.2 

188.0 

$33, 066 

29.7 

2.6 

.$6, 676 

6.0 

18.3 

$12 


$28, 840 

24.) 

-1.0 

$35, 024 

29.3 

5.9 

$8, 720 

7.3 

30.6 

$17 


$28, 699 

21.5 

-0. 5 

$37, 252 

27.9 

6.4 

$11. 255 

8.4 

29.1 

$35 


$16, 270 


Percent of total 










Percent increase 










160.9 
$27, 503 


Electric power 






$11, 295 
45.1 


$33, 627 

45.2 

197.7 

$3, 911 

6.3 

435.0 

$17 

"-82.1 


$32, 220 

37.6 

-4.2 

$5,641 

6.6 

44.2 

$55 

0.1 

223.5 


Percent of total -. 






Percent increase .- 






243.5 
$5, 535 


Mechanical refriperation_ - 






$731 
2.9 


Percent of total 






Percent i ucrease 






757.2 
-$697 


M iscellaneous taxes 

Percent of total 


$719 
17.4 


$112 
5.4 


$95 

0.4 

-15.2 


Percent increase 




-84.4 


-78.2 


41.7 


105.9 


-37.2 


-96.9 






Total . 


$4, 121 
100.0 


$2, 072 
100.0 
-49.7 


$25, 077 

100.0 

1,110.3 


$74, 3T5 
100.0 
196.6 


$85, 716 
100.0 
15.2 


$111,301 
100.0 
29.8 


$119. 680 

100. 

7.5 


$133, 689 
100.0 
11.7 


$174, 628 
100.0 
30.6 


$170, 508 
"4," 137 ."5 


Percent of total.. 
Percent increase - 



1 Or first year thereafter in which the taxes were effective. 

Source: Data taken from U. S. Treasury Department, Comparative Statement of Internal Revenue 
Collections by Tax Sources, 1930-38. 

Svgar tax—In 1937 Congress placed a poundage tax on sugar of 
both domestic and foreign manufacture. The rate, which is techni- 
cally levied according to polariscope readings, amounts to approxi- 
mately one-half cent a pound.^^ This sugar tax is in addition to the 
tariff on sugar, which has been a principal source of import revenue 
almost continuously since 1789. Recent studies of sugar tariffs indi- 

2' 53 Stat. , 426 a939). The rate is 0.465 cent per pound on all su!?ar testing 92 sugar degrees by the polar- 
iscope, and for each additional sugar degree 0.00875 cent i)er pound additional. The rate is 0.5144 cent 
per pound on all sugar testing less than 92 sugar degrees. Sugar manufactured for home consumption, or 
for the use of the employees of the manufacturer, is exempt from the tax. Taxes paid under this act on 
sugar used for live.stoclj feed or for the manufacture of alcohol are refunded. 



142 



CONCENTRATION OF ECONOMIC POWER 



cate that the average American family pays $10 a year in duties on 
sugar.^* 

In the first full year of its application, the manufacturers' tax of 
1937 collected $61,882,000 and probably added another $2 to the 
already burdensome levy which the average American family pays on 
sugar. Little justification of the tax can be made, except that since it 
is levied at a relatively low rate on a widely used and easily dis- 
tinguished article, it yields substantial revenue. 



<0 

UJ 

a: 

3. 
X 

3 



CO 

(T 
LiJ 

3 
CO 

o 
o 



CO 
UJ 
X 

< 

\- 

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a: 

LU 
Q 
LU 



CO ^ 
LlJ 0} 

6 

ro 



CO 
UJ 

to 

Q 

UJ 



5 i i 


§ 8 S 


8 ? 8 o 


\ 


•v 










/ 
/ 
/ 








\ 


\ 




















\ 




















r^ 


\ 




,/ 


^ 










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1 \ 
1 \ 


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1 


1 


V 


















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3 




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HI 

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in 

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-8 




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1 
1 
1 



Electric power.— One of the taxes passed with the other so-called 
"temporary taxes" in 1931-32 was a 3-percent tax on electric power 
sold for domestic or commercial consumption. (This rate was raised 
to 3K percent in the Defense Act of 1940.) The tax is not imposed on 
Government purchases of electricity, nor does it apply to electric 
power produced and sold by publicly owned electric utilities. ^^ In 
1933, the first full year of the application of the tax, it yielded $33,627,- 

" Harold M Groves, Financing Oovernmeut, Hcnrv Holt, New York, 1939, p. 345. Groves quotes the 
important studies of Lippert S. Ellis, the Tariff on Su^ar, Rawleich Foundation, -Freeport, 1933, and C. R. 
Whittlesey, Excise Taxes as a Substitute for Tariffs. American Economic Review, vol. 27, December 1937. 
p. 667. 

2» 53 Stat., 412. 



CONCENTRATION OF ECONOMIC POWER J43 

000 in revenue. This is an additional charge on electric power, over 
and above those State and local gross receipts or property taxes whi^ 
are allowed in the rate bases, and consequently become part of the 
charge to consumers for electricity. The tax depends upon the 
amount of electrical energy used. The tax yield has held fairly con- 
stant since 1933 although from 1934 onward the total revenue from 
this group of taxes has steadily increased. This is a consumption tax 
on a widely used, almost universally necessary consumers' service. 

Coconut oils. — In 1933-34 Congress passed a tax of 3 cents per 
pound on the first domestic processing of coconut oil, palm oil, palm- 
kernel oil, fatty acids or salts derived from any of the foregoing oils. 
The tax does not apply to production in the Philippine Islands, or oils 
brought into this country prior to 1934.^" These oils are used in the 
preparation of foods, soaps, and other articles of consumption. 

Such a manufacturers' and processors' tax is easily calculated, and 
becomes part of the cost of production of the finished goods, passed 
on in the ultimate price to the consumer. The tax yield has remained 
fairly constant since 1935, amounting in 1938 to $26,383,000. 

Federal charges on telephone and telegraph tolls.- — Among the "tem- 
porary taxes" passed to obtain revenue during the depression was a 
levy on telephone and telegraph tolls. First collections were made in 
1932. Conversations costing from 50 cents to $1 are taxed 10 cents; 
from. $1 to $2, 15 cents; in excess of $2, 20 cents. The tax is 5 percent 
of telegraph charges; 10 cents per message transmitted by cable or 
radio; and 5 percent of the amount paid for a leased wire or talking 
circuit special service furnished before July 1 , 1939, except where such 
service is used by telephone agencies or common carriers in the conduct 
of business. Government units and news collecting or broadcasting 
agencies are exempt from the tax.^' The tax is not absorbed by the 
telephone or telegraph companies transmitting messages, but is 
added to the rate payers' bills. 

This direct-service charge is in addition to consumers' levies paid in 
gross-receipts taxes imposed on the communications business in 
many States. As it is a tax on business sales, the revenue depends on 
the voliime of communications business. The revenue leveled off 
after 1'936 at about $25,000,000. 

Toilet preparations tax. — The Federal Government levies an 11- 
percent (10 percent to July 1, 1940) tax on sales of toilet preparations 
by manufacturers, producers, or importers Preparations so taxed 
are: perfumes, essences, extracts, toilet waters, cosmetics, petroleum 
jellies, hair oils, pomades, liair dressings, hair restoratives, hair dyes, 
arojnatic cachous, toilet powders, and any other or si.milar substances 
known to be used for toilet purposes. ^^ 

This heavy excise is easily calculated, is identical for all manu- 
facturers, and is probably passed on in the selling price to the consumer. 

It is difficult to make any sharp distinction between toilet articles 
used for personal care and those applied for medicinal purposes. Nor 
can such preparations be considered as luxuries unnecessary in a day 
when personal appearance and charm have such widespread ac- 
ceptance and commercial value. The tax, therefore, is not one which 
the consumer can avoid easily by not buying the article. The yield 

'« Ibid., p, 2fi4. 
" Ibid., p. 422. 
3-' Ibid., p. 410. 

261085— 40— No. 20 11 



144 CONCENTRATION OF ECONOMIC POWER 

of the tax is dependent upon consumers' purchasing power. Like 
many other manufacturers' excises, it is subjeci to some evasion, 
which partly accounts for the fluctuation in revenues. Fluctuations 
in national income, however, affect the yield much more directly. 
Table 47 shows a 22-percent decline from the prosperous year 1937 to 
the recession of late 1937 and early 1938. Even so, the tax con- 
tributed almost $14,000,000 to the Federal Treasury in 1938, and 
accounted for 8 percent of the total yield from taxes on consumers' 
necessities. 

Tax on mechanical refrigeration. — A 5>2-percent manufacturers' 
excise (5 percent to July 1, 1940) is levied on sales of complete sets 
and parts used for mechanical refrigeration and cooling systems. ^^ 
Here again, is a tax which in all probability is added to the price paid 
by the consumer. The tax yield reached a peak of $11,255,000 in 
1937, and declined to $6,266,000 in 1938. 

Taxea on oleomargarine. — The dairy industry for many years haa 
sponsored taxes on butter substitutes as a protection against invasion 
of their business province. It is argued th'^t these substitutes are 
inferior to butter and require strict regulation lest they become 
injurious to health. Since they are sold at lower prices than butter 
they are generally consumed by the poorer groups of American 
citizens. 

Federal oleomargarine taxes take the form of manufacturers' and 
occupational taxes. ^* Manufacturers are required to pay a stamp tax 
of a quarter of a cent per hundred on uncolored, and 10 cents per pound 
on colored oleomargarine. The latter tax is so prohibitively high that 
manufacturers generally offer for sale uncolored margarine and 
coloring matter, which housewives mix to obtain the appearance of 
butter. 

Manufacturers of oleomargarine pay a special tax of $600 a year. 
Wholesalers of oleomargarine pay a yearly tax of $480 ; but those who 
vend only the oleomargarine on which the quarter of a cent tax has 
been collected pay a yearly occupational tax of $200. Manufacturers 
selling at wholesale who have paid this basic oleomargarine tax, and 
who sell only their own manufactured margarine, are exempt from 
the wholesalers' tax. Retail dealers who sell various butter substi- 
tutes pay a tax of $48 a year; those who sell no butter substitutes- 
except that on which the basic oleomargarine tax has been paid are 
charged an occupational tax of $6 a year. 

The combined yield of the various ol omargarine taxes dropped 
considerably from 1930 to 1938, largely because the shift in national 
administration brought about sharp changes in rates. In 1930 the 
poor who were forced to use butter substitutes paid taxes of $3,401 ,000. 
By 1938 that figure had declined more than 30 percent, to $2,371,000. 

Match taxes. — Two forms of taxation are levied on matches by the- 
Federal Government. The first is a prohibitive tax of 2 cents per 
hundred on phosphorous poisonous matches, paid by the manu- 
facturers.^^ Such a tax is, of course, intended to drive these matches 
from the market, and largely succeeds in doing so. The other match 
tax, which produces Federal revenue, is imposed on manufacturers 
at the rate of 5K cents a thousand (5 cents before July 1, 1940) on all 
fancy wooden matches and wooden matches with stained, dyed, or 
colored sticks or stems, sold in boxes or in bulk. In 1937 it yielded 

" Ibid., p. 412. 

M Ibid., pp. 248 and 380. 

" Ibid., pp. 284, 412. 



CONCENTRATION OF ECONOMIC POWER 



145 



$7,386,000, but changes in the law and in consumption habits combined 
to reduce the yield to $1,432,000 in 1938. 

Consumers' luxuries taxes 

Table 48 gives detailed figures on Federal taxes on "luxury" articles 
and services. The collection is heterogeneous, including such obvious 
luxuries, as furs, jewelry, cameras, etc., which consumers can either 
purchase or go without at their own option, and others, like radio sets 
and phonographs, firearms when used by commerciar hunters and 
trappers, safe-deposit boxes when used for business purposes, etc., 
which are not so clearly items which the user can do without. 

Table 48. — Federal taxes on consumers' luxuries, 1930-38 
[Dollar figures in thousands] 



Source 


1930 


1 
1931 


1932 


1933 


1934 


1935 


1936 


1937 


1938 


1938 
over 
19301 


Furs 






$4,800 
8.3 


$7,706 

7.6 

60.5 

$4,005 

4.0 

197.3 

$263 

0.3 

244.7 

$2,051 

2.0 

403.1 

$44 

-18.3 

$3,402 

3.4 

275. 9 

$3,817 

3.8 

129.5 

$717 

0.7 

163.3 

$4,638 

4.6 

106.5 

$4,999 

5.0 

60.3 

$2, 694 

2.7 

168.2 

$2,597 

2.6 

119.2 

$14, 098 
14.0 
50.0 

$6, 017 

6.0 

-24.6 

$39, 651 

39.3 

103.9 

$4, 072 

4.0 

-4.0 


$4,236 

4.4 

-45.0 

$3,249 

3.4 

-18.9 

$345 

0.4 

31.0 

$2, 446 

2.6 

19.3 

$59 

0.1 

35.7 

$4,103 

4.3 

20.6 

$2, 258 

2.4 

-40.9 

$801 

0.8 

11.7 

$2, 162 

2.3 

-53.4 

$1,673 

1.8 

-66.5 

$2,594 

2.7 

-3.7 

$3,521 
3.6 
35.6 

$15, 243 
16.0 
8.1 

$5, 890 


$3,037 

5.8 

-28.3 

$2,520 

4.8 

-22.4 

$457 

0.9 

32.7 

$2,223 

4.2 

-9.1 

$55 

0.1 

-7.3 

$4,995 

9.5 

21.8 

• $61 

0.1 

-97.3 

$788 

1.5 

-1.6 

$43 

0.1 

-98.0 

$1,033 

2.0 

-38.3 

$2, 032 

3.9 

-21.7 

$4, 436 
8.4 
26.0 

$16, 406 
31.0 
7.6 

.US 8fi4 


$4,802 

8.5 

58.1 

$2, 240 

4.0 

-11.1 

$775 

1.4 

69.5 

$2, 931 

5.2 

31.9 

$81 

0.1 

48.2 

$6, 346 

11.2 

27.1 

$51 

0.1 

-17.0 

$887 

1.6 

12.7 

$68 

0.1 

34.3 

$996 

1.8 

-3.6 

$2, 036 
3.6 
0.2 

$6, 515 
11.5 
46.9 

$18, 457 
32.6 
12.5 

$6,131 
10.8 
4.5 

$16 

-99.7 

$4, 213 

7.5 

-0.9 


$6,210 

10.4 

29.3 

$394 

0.7 

-82.4 

$1,256 

2.1 

62.1 

$3,533 

5.8 

20.5 

$110 

0.2 

35.7 

$6. 627 

11.1 

4.4 


$1,905 

4.0 

-69.3 


-$2,895 


Percent of total 






Percent increase 






-60.3 


Jewelry 






$1, 347 
2.3 


Percent of total . 






Percent increase 






"$801 
1.7 

-36.2 

$2,431 
5.2 

-31.2 
$65 
0.1 

-41.5 

.$4, 278 
9.1 

-35.5 




Cameras and lenses . 






$76 
0.1 


$725 


Percent of total 






Percent increase . 






953.9 
$2,023 


Firearms, shells, cartridges 






$408 
0.7 


Percent of total , 






Percent inerea.'ie 






496.6 
-$81 


Pistols and revolvers 

Percent of total 


$146 
0.7 


$126 

0.7 

-13.4 


$53 

0.1 

-57.7 

$905 

1.6 


Percent increase .. 


-65.8 
$3,373 


Sporting goods 




Percent of total 






Percent increase. . 






372.7 


Candy . 






$1, 663 
2.9 


Percent of total 








Percent increase .. 






"$956 
1.6 

7.7 


""$577 
1 2 




Chewing gum- 






$272 
0.5 


$305 


Percent of total 






Percent increase... .. 






-39.7 


11.8 


-Soft drinkS- • 






$2,246 
3.9 

$3,118 
5.4 


Percent of total 












Percent increa.'se 






"'$523 

0.9 

-47.5 

$2,018 

3.4 

-0.9 

$6, 659 
11.1 
2.2 

$20, 974 
35.0 
13.6 

$6,630 
11.0 
8.2 

$124 

0.2 

691.2 

$3,897 

6.5 

-7.6 


'"$188 

0.4 

-64.0 

$1,980 

4.2 

^1.9 

$4,432 

9.4 

-33.4 

$19, 661 
41.8 
-6.3 

$6,237 
13.3 
-5.9 

$361 
0.8 
191.4 
$4,123 
8.8 
6.8 




Brewers' wort, malt, etc. 






-$2, 930 


Percent of total 






Percent increase 






-94.0 
$975 


Leases on safe deposit 
boxes. - 






$1,005 

1.7 


Percent of total 






Percent increase. . . 






97.0 
$3,247 


Radio sets, phonograph 

records, etc... . 

Perce at of total 






$1, 185 
2.0 


Percent increase .. 






274.0 
$16, 117 


Admissions to amuse- 
ments 

Percent of total 


$3, 545 
17.3 


$2,475 

13.6 

-30.2 

$10, 673 

.58.9 

-10.9 


,.1396 

16.2 

279.7 

$7, 927 

13.6 

-25.3 

$19, 450 
33.4 

$4, 240 

7.3 

-12.9 


Percent increase 


454.6 
-$5,748 


Social club dues and initia- 
tion fees ._ - 


$11, 985 
58.6 


Percent of total 


6.2 ii. l| 


Percent increase... .. 


-2.1 

$42, 274 
44.2 
6.6 
$4. 535 
4.8 
11.4 


-0.5 

$4, 548 

8.5 

-89.2 

$4, 253 

8.1 

-6.2 


-48.0 
-$19,088 


Checks, dividends and mis- 




Percent of total 






Percent increase. . 




$4,' 868 
26.8 


98 1 


Playing cards 

Percent of total 


$4. 789 
23.4 


-$667 


Percent increase... 




1.6 


—13 9 










Total --.. 

Percent of total.. 


$20.465$18, 143$58, 14l' 
100. 100. 100. oi 


$100. 771 $95, 391 '$52, 752'$56, 535 
100.0 100. Oi 100.01 100.0 


$59, 911 $47, 038 
100. 100. 


$26, 673 


Percent increase. 




-11.3, 


220. 5 


73. 3 


-5.3 


-44. 7 


7.2 


6.0 


-21.5 


129.8 



' Or first year thereafter in which the taxas were effective. 

Source: Data taken from U. S. Treasury Department, Comparative Statement of Internal Revenue Col- 
lect ions by Tax Sources, 1930-38. 



146 CONCENTRATION OF ECONOMIC POWER 

In 1932 a tax on checks and dividends accounted for a third of the 
yield on this group of taxes. Strictly speaking, much of this tax was 
in the nature of a service tax on incomes. The tax was repealed, and 
became insignificant in the yield of luxury and service taxes after 1934. 
This should be considered in reading and interpreting the data. 

The relative importance of the various luxury taxes in 1938 is 
indicated in the following table : 

Percent 

AHinission to amusements 41. 8 

Social club dues and fees . 13. 3 

Radio sets, pho'nograph records, etc 9. 4 

Sporting goods . - . 9. 1 

Playing cards 8.8 

Firearms, shells, cartridges .5. 2 

Rentals of safe deposit boxes . 4. 2 

Furs 4. 

Cameras and lenses 1. 7 

Chewing gum 1. 2 

Brewers' wort, malt, etc ._. . 4 

Pistols and revolvers 1_. . 1 

Checks, dividends and miscellaneous repealed taxes .8 

Total - 100. 

Admission taxes to places of amusement. — Up to July 1, 1940, tlie 
amusement tax was 10 percent on all admission charges over 40 cents. 
The Defense Tax Act lowered this exemption and raised the rate, so 
that 11 percent is now collected on all admissions of 20 cents or more. 
The act also continued the provision that the tax should be paid by the 
purchaser of the ticket. The admission tax is not levied on religious, 
charitable, or educational entertainments, except athletic contests and 
games, or on agricultural fairs that do not provide profits for indi- 
viduals.^® 

The inclusion of most movie admissions under the tax raised the 
yield from $2,474,000 in 1931 to $9,395,000 in 1932. The yield 
increased each year after that until it reached $20,974,000 in 1937, 
dropping oflf to $19,661,000 in 1938. Collection of the tax has been 
made easy by simply adding it to the price of admission tickets. 
However, it is a very high sales tax, and one which bears heavily on 
the amusement costs of the people. 

..Social club dues. — ^Tlie Defense Tax Act raised from 10 to 11 percent 
the tax on the membership dues of social, athletic, or sporting clubs 
where the annual active membership is in excess of $25 a year. Ini- 
tiation fees are taxed at 11 percent if the fee is $10 or over, or if the 
membership dues of the club arp in excess of $25 a year. Local 
student societies, and organizations operating under the lodge system 
are exempt. ^^ 

Such taxes are borne primarily l)y members of resident social clubs 
and independent social organizations, usually persons of substantial 
means. The 1930 collections, which reflected conditions in the pros- 
perous year 1929, yielded the Federal Government slightly less than 
$12,000^,000. The "amount declined to $5,890,000 in 1934, and rose to 
$6,630,000 in 1937, fallmg off the next year to $6,237,000. Apparently 
as the result of depression, the yield from this tax in 1938 was onlv 
about half the 1930 figure. 



»• Ibid., pp. 189-191. 
" Ibid., pp. 192-193. 



CONCENTRATION OF ECONOMIC POWER 147 

Radio sets and 'phonogrwph records. — A Federal tax of b)i percent 
(5 percent prior to July 1, 1940) of the sales price of radio sets and 
phonograph records is levied on manufacturers.^^ Applied first in 1932, 
the tax reached its peak yield in 1937, when it contributed $6,658,000 
to the Treasury, but dropped off 33 percent in 1938. 

Sporting goods. — The Defense Act of 1940 raised from 10 to 11 
percent the manufacturers' tax levied on athletic gear and sporting 
goods. The tax yielded $6,627,000 m 1937 at its peak, but fell off 
35 percent in 1938. 

Playing cards. — A manufacturers' excise tax of 11 cents a pack 
(10 cents prior to July 1, 1940) is levied on playing cards, providing a 
fairly steady yield in both good and bad times. In 1938 it totaled 
$4,122,787, a decline of 14 percent from 1929. 

Saje deposit boxes. — Box holders are taxed 11 percent of the rental 
price which they pay annually for the use of safe deposit boxes. ^® 
(Up to July 1, 1940, the tax was 10 percent.) 

This tax reached its greatest yield in 1933, when it contributed 
$2,694,000 to the Treasury; then declined to $1,979,000 in 1938. 

Firearms, shells, cartridges. — The Defense Act raised the inanu- 
facturers' excise tax on firearms, shells, cartridges, pistols, and revolv- 
ers from 10 to 11 percent."*" This is in addition to certain prohibitive 
or regulatory taxes levied under the National Fire Arms Act, discussed 
later. The tax on firearms and ammunition yielded $2,431,000 in 
1938, a decline of 31 percent from the peak in 1937. The tax on pistols 
and revolvers yielded $65,534 in 1938, a decline from $110,378 m the 
previous year. 

Furs. — When first levied in 1932 the Federal manufacturers' excise 
tax on furs was 10 percent, with an exemption of $75 per fur garment. 
The tax was changed in June 1936 to 3 percent, with no exemptions. 
Under the old rates and exemptions, the tax on furs yielded its maxi- 
mum revenue of $7,706,000 in 1933. Under the revised law, a maxi- 
mum of $6,210,000 was reached in 1937, but the yield dropped 70 
percent in the next year. This is an excellent uidication of the 
sensitivity of luxury taxes to changes in the economic circumstances 
and habits of consumers in average to high income brackets. 

Cameras and lenses. — The Federal manufacturers' excise tax on 
cameras is levied at 10 percent of sales. The peak yield of the tax 
was $1,255,000 in 1927, from which revenues fell off 36 percent in 1938. 

Chewing gum. — A manufacturers' excise tax is levied by the Federal 
Government at the rate of 2 percent of sales on' chewing gum. Here 
is a tax which falls largel}^ on the masses of the population, for among 
them are located the gum ch ewers of the Nation. The yield of the 
tax reached a peak of $950,000 in 1937, from which it declined 40 
percent in 1938. 

Breivers' wort, malt, etc. — Federal manufacturers' excises were levied 
on brewers' wort at 15 cents a gallon, malt at 3 cents a pound, and 
grape concentrates at 20 cents a gallon. The tax on grape concen- 
trates was repealed in 1936, and taxes on wort and malt were repealed, 
effective in 1938. These actions account for the erratic movement of 
the tax yields reported in the table. 

38 Ibid., p. 4n. 
"Ibid., p. 205. 
"Ibid., pp. 289, 291,292. 



148 



CONCENTRATION OF ECONOMIC POWER 



Checks, dividends, and miscellaneous repealed excise taxes. — The Fed- 
eral Government passgd a whole series of excise taxes on commodities 
such as catidy, jewelry, soft drinks, check cancelation, etc., in an 
attempt to raise ready cash in the trough of the depression. The tax 
on candy and soft drinks lapsed in 1936, and on jewelry in 1937. 

Federal taxes on automobiles, etc. 

In 1932 the Federal Government began to levy manufacturers' 
excise taxes on motor vehicles and accessories. The tax devised was 
divided into three parts. Automobile truck chassis, truck bodies, and 
tractors are taxed 2}^ percent of their sales value. Other automobile 
chassis, bodies, and motorcycles, including the accessories sold with 
them, are taxed 3K percent of their sales value. Parts and accessories 
suitable to or for use on the foregoing, but sold separately, are taxed 
2J^ percent. (Prior to July 1, 1940, these rates were 2, 3, and 2 per- 
cent, respectively.)^^ 

The tax on automobiles and motorcycles yielded $64,722,000 in the 
recovery year 1937, but dropped to slightly below $30,000,000 in 1938. 
The tax on accessories and parts reached $9,620,000 in 1937, and de- 
clined to slightly more than $7,000,000 in 1938. Taxes on automo- 
bile trucks and i)odies reached a peak of $8,812,000 in 1937, and fell 
to $5,230,000 in 1938. (See table 49, chart 29.) 



Table 49. — Federal taxes on automobiles, parts, and accessories, 19S2-S8 


Item 


1932 


1933 


1934 


1935 


Automobile truck chassis and bodies 


$720, 155 


$3, 046, 826 

323.1 

10.2 

$22, 475, 887 

432.4 

75.0 

$4, 443, 071 

133.8 

14.8 


$5,261,207 
72.7 
12.3 
$31,533,516 
40.3 
73.9 

$5, 886. 002 
32.5 
13.8 


$6, 674, 270 


Percentage increase . . 


26.9 


Percent of total . _ 


10.5 
$4, 221, 263 


11.9 


Other automobiles and motorcycles 


$42, 262, 453 


Percentage increase 


34.0 


Percent of total 


61.7 
$1,900,111 


75.5 


Automobile parts and accessories . 


$7, 019. 009 


Percentage i n crease 


19.2 


Percent of total 


27.8 


12.5 






Totals 


$6, 841, 529 


$29, 965, 784 
338.0 
100.0 


$42, 680, 725 
42.4 
100.0 


$55, 955, 732 


Percentage increase 


31.1 


Percent of total _ 


100.0 


100.0 









1936 


1937 


1938 


1938 over 1932 


Automobile truck chassis and bodies 


$8, 044, 343 


as. SI 1.651 


$5, 230, 378 

-40.6 

12.5 

$29, 405, 044 

-54.6 

70.5 

$7,067,611 

-26.5 

16.9 


$4, 510, 223 


Percentage increase 


20.5 i 9.5 


626.3 


Percent of total 


II. 
$56,475,926 
33.6 
77.1 
$8, 747, 945 
24.6 
11.9 


10.6 
$64, 721, 887 
14.6 
77.9 
$9, 619. 926 
10.0 
11.6 




other automobiles and motorcycles _.. 


$25, 183, 781 




596.6 


Percent of total 




Automobile parts and accessories... 

Percentage increase 


$5, 167. 500 
272.0 






Totals 

Percentage increase .-_ 

Percent of total . ... 


$73,268,214 
30.9 
100.0 


$83, 153, 464 
13.5 
100.0 


$41,703,033 
-49.8 
100.0 


$34, 861, 504 
509.6 







Source: Adapted from T'. S. Treasury, Bureau of Internal Revenue, Comparative Statement of Internal 
Revenue ColiecUons by Tax Sources, 1930-38. 

" 63 Stat., 410 (1939), and Revenue Act of 1940. 



CONCENTRATION OF ECONOMIC POWER 



149 



Chart 29 



FEDERAL TAXES ON AUTOMOBILES 

UNITED STATES, 1932-1938 




9?,th*^f AUTOMOBILES 6 MOTORCYCLES 



60- 

50 

40 

30 

20 

10 






U 



tl 



?l?.Lu*«f AUTOMOBILE TRUCKS 

70 



*^ 1932 1933 1934 1935 1936 1937 1938 



60- 
50 
40 
30 
20 
10 
0- 



m m M M 



1932 1933 1934 1935 1936 1937 1938 



DOLLARS AUTOMOBILE ACCESSORIES 
70^ — 



60 — 
50 — 
40 — 
30 — 
20 — 
10 — 



0~BSX 



.M- 



932 1933 1934 1935 193^ 1937 1938 



source.- A^p..,.f-omUSTr««ur,, B.-.ou oM„,.,nol «««:«■ ^°f*«*^l^y'*'''''''' 
OF INTERNAL REVENUE COLLECTIONS BY TAX SOURCES, 1930-1938. 



150 



CONCENTRATION OF ECONOMIC POWER 



Federal taxes on automobile tires, gasoline, and oil 

The frantic search for revenues in 1932 resulted in the extensive 
apphcation of taxes bearing on the use of automobiles in the form of 
levies on automobile tires, gasoline, and motor oils. According to 
table 50, figure 30, the various taxes in 1938 ranked in their own groups 
as follows: 

Percent 

Gasoline 74. 5 

Lubricating oils ^ il. 3 

Tires . 8. 2 

Transportation of oil by pipeline 4. 3 

Inner tubes 1. 7 

Total 100. 

Gasoline. — The Federal Government taxes gasoline at the rate of 
IK cents a gallon (1 cent prior to July 1, 1940).*^ The tax is levied 
on and collected from producers. The consumption of gasoline is 
fairly 6onstant, much of it being used in motor vehicles for business 
purposes. There has been some decline in gasoline consumption 
during the depression, but this fuel has become indispensable to the 
ordinary routme of transportation activities. The tax collected by 
the Federal Government varied from $170,000,000 to Sl-86,000,000 
between 1933 and .936, rose to $203,000,000 during the prosperous 
year 1937, and dropped back only 1 percent in 1938. 

Table SO.^Federal taxes on mdornobile tires, inner tubes, gasoline, and oil, 1932-38 



Item 


1932 


1933 


1934 


1935 


Tires 

Percentage increase 

Percent of total 


$6, 226, 329 

""" 7.8' 

$1, 319, 742 


$19,816,533 

218.3 

8 3 

$4, 019, 586 

204.6 

1.7 

$181,125,988 

188.2 

76.3 

$22, 289, 625 

215.4 

9.4 

$10, 237, 275 

297.1 

4.3 

$237, 489, 007 

196.7 

100.0 


$20, 003, 544 
0.9 

8.7 

$4, 700, 534 

16.9 

2.0 

$170, 109, 269 

-6.1 

74.1 

$24, 843, 489 

11.5 

10.8 

$10, 008, 692 

-2.21 

4.4 

$229, 665, 528 

-3.3 

100. 0' 


$22, 660, 695 
13.3 
9.5 


Inner tubes 


.$5, 441, 751 


Percen tape increase. 


15.8 


Percent of total 


1.6 
$62, 839, 827 


2.3 


Gasoline . 

Percentage increase 


$172, 262, 481 
1.3 


Percent of total 


78.5 
.$7, 067, 419 


72.2 


Lubricating oils . . 


$28, 818, 918 


Pvcentage increase 


16.0 


Percent of total 


8 8 
$2, 577, 905 


12. 1 


Transportation of oil by pipe line 

Percentage increase 


"$9, 256, 287 
-7.5 


Percent of total 


3.2 
$80,030,222 


3.9 


Total 


$238, 440, 132 


Percentage increase . . 


3.8 


Percent of.total 


100.0 


100.0 






Item 


1936 


1937 


1938 


1938 
over 
1932 


Tires 


$31, 837, 510 

40.5 

12.1 

$6, 404, 042 

17.7 

2.4 

$186, 541, 996 

8.3 

70.6 

$28, 985, 547 

0.6 

11.0 

$10, 423, 608 

12.6 

3 9 

$264, 192, 703 

10.8 

100.0 


$33, 500, 198 

5.2 

11.6 

$6, 587, 806 

2.9 

2.3 

$203, 025. 380 

8.8 

70.2 

$33, 681, 590 

16.2 

11.7 

$12, 304, 203 

18.0 

4.3 

$289, 099, 177 

9.4 

100.0 


$22, 083, 225 
-34.1 

Q O 

$4, 688, 494 

-28.8 

1.7 

$200, 880, 797 

-1.1 

74.5 

$30, 495, 339 

-9.5 

11.3 

$11,599,693 

-5.7 

4.3 

$269, 747, 548 

-6.7 

100.0 


$15, 857, 896 


Percentage increase _ 

Percent of total 


254.7 


Inner tubes 


$3, 368, 752 


Percentage increase - . 


255.3 


Percent of total 




Gasoline 

Percentage increase , 

Percent of total 


$138, 040, 970 
219.7 


Li brfcating oils 


$23. 427, 920 


Percentage increase .. 


331.5 


Percent of total . . . . 




Transr ortation of oil by pipe line 


$9, 021, 788 


Percentage increase 


350.0 


Percent of total 




Total 


$189, 717, 326 


Percertape increase 


237.1 


Perceijt of tota'. 


100.0 



Source: U. S. Treasury Department, Comparative Statement of Internal Revenue Collections by Tax 
Sources, 1930-38. 



" Ibid., p. 4.*. 



CONCENTRATION OF ECONOMIC POWER 
Chart 30 



151 



FEDERAL TAXES ON AUTOMOBILE TIRES 
GASOLINE AND OIL 

UNITED STATES, 1932-1938 



DOLLARS 

(MILLIONS) 



300 



250 



200 



AMOUNT IN DOLLARS 



DOLLARS 

(MILLIONS) 



300 



— 250 




200 



— 150 



100 



— 50 



1932 1933 1934 1935 1936 1937 



938 



INNER TUBES 
TIRES 
PIPELINES 
^1 LUBRICATING OILS 
GASOLINE 



AS PERCENTAGES 



PER CENT 

•aaa — lOO 




1932 1933 1934 1935 1936 1937 1938 



-0 



152 



CONCENTRATION OF ECONOMIC POWER 



The gasoline tax has been unusually popular, as it is generally con- 
sidered to relate closely to the motorists' use of the roads. In many 
States the proceeds are earmarked for road construction and repair. 
The relation actually is not close, however. The tax takes no account 
of relative wear and tear on the highways by different weights of 
vehicles; it makes no allowance for the use by taxpayers of the par- 
ticular sections of highways for which the tax money might have 
been spent; it makes no allowances for the relative use or profit de- 
rived from the highway by different types of vehicles ; and it in no 
sense measures the benefits from feeder roads to railroads, whose 
freight-handling speed has been greatly accelerated by highways 
built at the expense of motorists. 

The increase in gasoline taxes coincided with a declining cost of 
production of gasoline, hence the price did not rise appreciably, 
despite the increase in taxes levied. Yet the Federal tax is in addi- 
tion to State taxes imposed at much heavier rates. Table 51, chart 
31, gives data on the impact of State gasoline taxes. In addition, 
there is a Federal tax oi 1% cents per gallon (1 cent prior to July 
1940). The first State tax on gasoline was levied by Oregon in 1919. 
By 1929 all 48 States had adopted such taxes, and some cities soon 
found it advantageous to levy gasoline taxes for local purposes. The 
rates vary from 2 cents a gallon in the District of Columbia to 8 cents 
in Florida. In certain cities in Alabama the combined gasoline tax 
levied by city, county. State, and Federal Governments reaches the 
staggering total of 12 cents a gallon. By 1937 the total State and 
Federal taxes on gallonage sales of gasoline reached $960,000,000.^^ 

Table 51. — State gasoline tax receipts, average tax rate, and consumption in the 
United States, 1926 and 19S0-S7 



Year 


Rate per 
gallon ' 
(cents) 


Total tax 
receipts 

(000 
omitted) 


Gasoline 

taxed for 

highway use 

(1,000 gallons) 


Year 


Rate per 
gallon ' 
(cents) 


Total tax 
receipts 

(000 
omitted) 


Gasoline 

taxed for 

highway u.se 

(1.000 gallons) 


1925 


2,26 
3.35 
3.48 
3.60 
3.65 


$146,029 
494, 683 
537,589 
514, 139 
519,403 


6,457,783 
14, 751, 309 
15,407,650 
14, 250. 173 
14, 224, 321 


1934.. 

1935... 

1936 - 

1937. 


3.66 
3.80 
3.85 
3.91 


$565, 006 
618,802 
686, 631 
767, 930 


15,454,481 


1930 


16,264,961 


1931 


17,993,077 


1932 


19, 218, 121 


1933 


1 








1 





' Weighted average. 

Source: Harold M. Groves, Financing Governiuent, Henry Holt, New York, 1939, p. 3S7. 

In some States the gasoline tax is used solely for road purposes. 
In others, and in the Federal Government, it becomes part of the 
general Government revenues. Although levied on producers, the 
tax is regarded generally as an unconcealed retail sales tax, and is 
collected as such from the motorist at the time of purchasing gasoline. 

Lubricating oil. — Along with the gasoline tax, the Federal Govern- 
ment imposes a tax of 4}^ cents (4 cents prior to July 1, 1940) a gallon 
on lubricating oil. The tax, collected from manufacturers and pro- 
ducers,^* is passed on as a retail tax paid by consumers. It is in 
addition to taxes levied on the same product by States and local 
governments. In 1938 the tax contributed $30,000,000 to the 
National Treasiuy. 

« Groves, op. cit., p. 353 ff. 

« 53 Stat., 414 (1939) and Defense Act of 1940. 



CONOSNTRATION OF EJCONOMIO POWER 



153 



Ohaet 31 

STATE GASOLINE TAX RECEIPTS 

AVERAGE TAXRATE AND CONSUMPTION OF GASOLINE 
UNITED STATES. 1925 ond 1930-1937 




1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 




1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 




1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 



SOURCE! Grovit, HOrsM M., FINANCING GOVERNMENT, N*w York, 1939, p. 357. 
*W«t9httd Avvrof*. 



154 CONCENTRATION OF ECONOMIC POWER 

Tires and tubes. — The Federal Government imposes a manufac- 
turers' excise tax on rubber tires of 2K Qents a pound (exclusive of 
the weight of the metal rims or rim bases) ; and on rubber tubes of 
4% cents a pound on total weight. (These taxes, prior to July 1, 
1940, were 2% and 4 cents a pound, respectively.)" Thus, the ordi- 
nary tire for a medium priced car, weighing about 13 pounds, carries 
a Federal tax of 32 cents. The inner tube for that tire is taxed about 
25 cents. 

Taxes on tires totaled $33,500,000 in 1937, those on tubes $6,588,000. 
The former fell off to $22,083,000 in 1938, the latter to $4,688,000. 

Pipeline transportation of oil and gasoline. — The Federal Govern- 
ment levies a tax of 4}^ percent (4 percent prior to July 1, 1940) on 
the transportation cost of such products. For those petroleum com- 
panies which own their own pipelines and transport their own products, 
the tax is levied on an estimated fair price for such transportation 
facilities.*^ 

The Federal tax on this form of transportation totaled $11,600,000 
in 1938. This was in addition to pipeline charges imposed by States. 
The tax becomes a manufacturers' cost, easily calculable, and is 
passed on to the consumer of petroleum products. 

Crude petroleum.^— Up to June 30, 1938, the Federal Government 
levied a tax of Ms cent a barrel on the production of crude petroleum. 
The tax yielded $583,142 in 1938. When first imposed in 1931, the 
rate was Ko cent a barrel, which accounts for the higher yield in 
1931-34."^ 

Federal taxation for conservation and social security 

The Federal Government has used the tax instrument to conserve 
natural resources and to promote the security and welfare of various 
groups among its citizens. Sometimes the distinction of purposes is 
not precise, nor is the effect definite. For example, the Bituminous 
Coal Act of 1937 was passed to reestablish order and permit profitable 
activity in the industry, to improve general business conditions, and 
to ameliorate the condition of several million workers. The aims of 
the Social Security Act are only a little more specific. Title VIII and 
title IX, for instance, seek to improve working conditions by providing 
pensions for older workers and jobs or unemployment compensation 
for younger ones. In each instance, the taxing power of the Govern- 
ment is used to effect these social and economic purposes. (See table 
52, chart 32.) These taxes are sometimes regarded as special benefit 
levies, and hence not taxes at ail. For the purposes of this analysis, 
however, and to the extent that they are placed in a reserve, thej'' 
have the effect on purchasing power of regressive taxes. 

" 53 Stat.. 40!)-410 (1939) and Defense Act of 1940. 
« Ihid., p. 421. 

" U. S. Treasury Department, Comparative Statement of Internal Revenue Collections by Tax 
Sources, 1938. 



CONCENTRATION OF ECONOMIC POWER 



155 



Table 52. — Federal taxation for economic adjustment, conservation and social 

security, 1933-38 



Item 



Bituminous Coal Act 

Percentage increase 

Perrent of total 

Agricultural Adjustment Administration 

Percentage increase. 

Percent of total --_ -- 

Carriers, Taxing Act -._ 

Percentage increase 

Percent of total 

Social Security Act, title VIII. 

Percentage decrease 

Percent ( f total . 

Social Security Act, title IX 

Percentage increase 

Percent of total .-- 



Total 

Percentage increase . 
Percent i f total 



$140, 563, 249 



100.0 



$140, 563, 249 

i6o."o 



1934 



$500,308,155 
255.9 
100.0 



.$500, 308. 155 
255.9 
100.0 



1935 



$60, 938 



$325, 265, 335 
-35.0 
100.0 



$325, 326, 273 
-35.0 
100.0 



1936 



$668, 2S0 

996.7 

16.4 

$3, 145, 712 

-99.0 

77.1 

$230, 587 



6.7 



$33, 599 



0.8 



K 078. 178 
-98.7 
100.0 



Item 



Bituininous Coal Act 

Percentage increase 

Percent of total 

Agricultural Adjustment Administration. 

Percentage increase — 

Percent of total 

Carriers, Taxing Act 

Percentage increase 

Percent of total 

Social Security Act^ title VIII 

Percentage increase 

Percent of total 

Social Security Act, title IX .- 

Percentage increase 

Percent of total.. _ 



Total. ._ 

Percentage increase . 
Percent of total 



$1,634,641 

144.6 

0.2 



$91,91fi,461 

39,761.9 

13.5 

$506, 180, 184 



74.4 

$80,974,992 

240, 904. 2 

11.9 



$680, 706, 278 

16,591.4 

100.0 



1938 



, 177, 930 
94.4 
0.5 



$111, 



$462, 



098, 265 

20.9 

16.7 

141,425 

-8.7 

69.5 

611,365 

9.4 

13.3 



$665, 028, 985 
-2.3 
100.0 



1938 over 1933 » 



$3,116,992 
5,115.0 



$110,867,678 
48, 080. 6 



-$44,038,759 
-8.7 



$88, 577, 766 
263, 632. 1 



$524, 465, 736 
373.1 



■ Less than 0.1. 

' Or first year in which tax was effective. 

Source: Adapted from U. S. Treasury Department, Comparative Statement of Internal Revenue Col- 
lections by Tax Sources, 1930-38. 



156 



CONCENTRATION OF ECONOMIC POWER 
Chart 32 



FEDERAL TAXATION FOR CONSERVATION 
AND SOCIAL SECURITY 

UNITED STATES, 1933-1938 



TOTAL COLLECTIONS 

MILLIONS OF DOLLARS 
200 400 600 800 



Bituminous Cool Act 

Agricultural Adjustment Act 

Corrlers Taxing Act 

Social Security Act (Title 8).. 
Soclol Security Act (Title 9)... I 



IjOOO 



200 400 600 800 

MILLIONS OF DOLLARS 



1,00. 



mtbt^) BITUMINOUS COAL ACT 

4 




?°t:^oi?s1 AGRICULTURAL ADJUSTMENT ACT 

600: 




1933 1934 1935 1936 1937 1938 



1933 1934 1939 1936 1937 1938 



IvnlTuoNs) CARRIERS TAXING ACT 

20O 




mZuwi) SOCIAL SECURITY ACT (TITLE 8) 

600 ; 1 . r 



1933 1934 1935 1936 1937 1938 



1933 1934 1935 1936 1937 1938 



DOLLARS 

INS) 

r 



MILLIONS) SOCIAL SECURITY ACT (TITLE 9) 
100 r 




1933 1934 1935 1936 1937 1936 



SO(/>Ke: idopKd ('om u S.Tfeosuf» Deoonmenl, Bureau ol imernol R«v«nue, COMP/IRATIVE ST4TEMENT 
OF INTERNAL REVENUE COLLECTIONS BY TAX SOURCES. 1930-1938 



CONCENTRATION OF ECONOMIC POWER J 57 

Bituminous Coal Act. — In 1935 Congress set up codes of fair prac- 
tices for the bituminous-coal industry, and imposed an excise tax of 
15 percent of the value of coal sold at the mine, refunding 90 percent 
of the tax payments to all operators who complied with the code pro- 
visions. The act was intended to regulate the coal industry, and in 
1936 the Supreme Court decided that Congress did not have the power 
to levy penalty taxes for the purpose of regulating industry.^* 

The Guffey Act of 1937 was another effort to regulate the coal in- 
dustry. It is more specifically a tax on coal, but its purpose is iden- 
tical with that of the 1935 act, namely, the regulation of the coal 
industry. The act levies a 1-cent tax on the sale or other disposal of 
each ton (2,000 pounds) of bituminous coal produced in the United 
States. Cooperation is secured by the levy of a 19)^-percent tax on 
the fair market value of coal sold or disposed of, from which operators 
who comply with the code provisions are exempted. The enforcement 
of the act has resulted in an increasing yield from the tax, shown in 
table 52, reaching $3,178,000 in 1938. There is considerable complaint 
from some operators, but the severe penalty clauses of the act force 
them to comply. 

Agricultural Adjustment Administration. — With the advent of the 
New Deal in 1933, agricultural-adjustment taxes were passed to con- 
trol and regulate the production of farm products. Direct subsidies 
were made to farmers, paid for out of processing taxes and cotton- 
and tobacco-control taxes. The former were excises levied on con- 
cerns engaged in processing agricultural commodities. The latter were 
levied on cotton and tobacco growers. Cotton was taxed at 50 per- 
cent of the value of all excess above quotas, and tobacco at rates rang- 
ing from 25 to 33 K percent. Early in 1936 the Supreme Court de- 
clared these agricultural-adjustment acts unconstitutional, and the 
taxes were discontinued. At their peak in 1934 these taxes yielded 
over half a billion dollars. 

Carriers' Taxing Act. — Common carriers do not participate in the 
program of the Social Security Board, but have a separate program 
of social security for their employees. For some time prior to the 
passage of the general social-security laws, the common carriers had 
had various pension and retirement systems for their workers, and 
there was sireat pressure for a continuance of their own programs. 

The Railroad Retirement Board administers the Carriers' Taxing 
Act. As passed in 1936, and effective January 1, 1937, the act pro- 
vided a tax of 5}^ percent of pay rolls for employees earning less than 
$300 a month. The amount was collected from employers, who would 
deduct half of the tax from the salaries of employees.*^ Representa- 
tives of employees' organizations were also covered by the act. By 
1938 the carriers' tax collected in pay roll and employers' contribu- 
tions yielded a total of $11,098,000. 

Social Security Act. — In 1935 the Congress passed the Social 'Secu- 
rity Act, including the following provisions: 

Title I. Old-age assistance. — Sets up a national piogram of old- 
age assistance for the needy aged, 65 years or older. Financed 
by grants-in-aid to the States on a matching basis. Federal 
grants were not more than $15 per eligible person until January 
1940, when the maximum was set at $20 per eligible person. 

t8 Carter v. Carter Conl Co. (298 U. S. 238 (1936)). 

" 53 Stat.. 179-183. The law graduates the tax so that it levels off in 1949 at 7M percent of pay rolls, 
shared equally by employer and employee. 



158 CONCENTRATION OF ECONOMIC POWER 

Title II. Old-age insurance. — Establishes a system of old-age 
contributory insurance for certain working groups. 

Title III. Unemployment insurance. — Establishes unemploy- 
ment insurance for States which agree to participate. 

Title IV. Dependent children. — Provides Federal aid through 
States to dependent children. 

Title V. Categorical aids. — Provides assistance through States 
for maternal and child-health services, aid to crippled and 
handicapped children, and vocational rehabilitation. 

Title VI. Public health. — Provides Federal aid in the extension 
of Dublic-health services. 

Title VII. Social Security Board. — Sets up the Social Security 
Board, and outlines its duties. 

Title VIII. Old-age insurance taxes. — Provides for the accu- 
mulation in the Treasury of an insurance reserve for the old-age 
benefits mentioned in title II. The act sets a rate for 1937-39 
of 2 percent of the pay rolls of all covered workers receiving less 
than $3,000 a year, half to be paid by the employer, and half 
by the employee. For the next 3 years the rate was set at 4 
percent; and finally was to level off in 1949 at 6 percent. In 
1939 Congress froze the rate at the 1 percent level until further 
legislation. 

Title IX. Unemployment-insurance taxes. — Levies a Federal 
tax of 1 percent in 1936, 2 percent in 1937, ^nd 3 percent there- 
after, on employers in covered industries having 8 or more 
workers. The act provides that the Federal Government will 
return 90 percent of the tax to States which enact unemploy- 
ment insurance systems compatible with the Federal act. The 
remaining 10 percent is retained by the Federal Government. 

Title X. Aid to blind. — Provides Federal aid through States for 
the impoverished blind. 

Funds for old-age insurance and unemployment compensation are 
provided by pay-roll taxes levied on workers and employers. In 
1938, as indicated in table 52, old-age-insurance taxes paid $462,- 
141,000 into the Treasury, while unemployment-insurance taxes paid 
in $88,611,000. A]l other services provided for in the Social Security 
Act are paid out of general revenues. 

The old-age-insurance taxes are collected by the Bureau of Internal 
Revenue of the Treasury, not by the Social Security Board. They 
are placed in a special old-age-reserve account, and benefits, begin- 
ning in 1940, are to be paid from this reserve fund. Since for many 
years to come the funds collected will exceed the benefits paid out, 
the balance is to be invested in Federal securities bearing at least 
3-percent interest. 

Prohibitive Federal taxes 

Since 1789 the Federal Government has used the taxing power to 
encourage or discourage, or even destroy, certain businesses, regulate 
others, and prevent still others from entering the field. At times the 
tariff has been used for these purposes; at others, direct taxes have 
been levied. Always such taxes have been the result of pressure 
exerted upon Congress by one or another business group or interested 
party. Usually, where recognized harmful commodities or practices 



CONCENTRATION OF ECONOMIC POWER 



159 



are concerned, public indignation has forced Congress to try to curb 
them by legislation. 

Table 53, chart 33, shows the use of taxes for prohibitive or regu- 
latory purposes. The Federal Government has made frequent use 
of the commerce clause of the Constitution to regulate the sale of 
commodities which are sent across State lines. 

Table 53. — Prohibitive Federal taxes, 1930-38 
[Dollar figures in thousands] 



Source 


1930 


1931 


1932 


1933 


1934 


1935 


1936 


1937 


1938 


1938 
over 
1930' 


Adulterated, etc., butter, 
mixed flour 


$12 
2.0 


$11 

1.8 

-6.4 

$589 

98.2 

2.1 


.$14 

2.7 

25.6 

$491 

97.3 

-16.5 


$9 

1.9 

-31.9 

$489 
98.1 
-0.6 


$17 
3.1 

80.0 
,$529 

96. 1 
8.3 


$17 

2.8 

-2.2 

$564 

96.3 

6.6 


$16 
2.9 
-0.9 
$554 
96.1 
-1.9 


$21 
3.4 

27.0 
$574 
94.4 

3.7 
$6 

1.0 


$41 

6.9 

98.8 

$544 

90.4 

-5.2 

$5 

0.9 

-16.7 

$11 

1.8 

53.7 


$29 


Percent of total 


Percent increase . 


"mi 

-$33 


Narcotics .-_ 

Percent of total 


$577 
98.0 


Percent increase 


"-S.'7 
-$1 


Marijuana 




Percent of total ... 












" " 




Percent increase 
















-i6.'7 
$7 


National Firearms Act 










$4 
0.8 


$5 
0.9 
17.6 


$6 

1.1 

20.1 


$7 

1.1 

10.3 


Percent of total 










Percent increase . 










"139.6 














Total 

Percent of total 

Percent increase _ 


$589 
100.0 


$600 

100.0 

1.9 


$.'>05 
100.0 
-15.8 


$498 
100.0 
-1.4 


$551 

100.0 

10.6 


$586 

100.0 

6.5 


$576 
100.0 
-1.7 


$608 

100.0 

6.4 


$602 
100.0 
-1.0 


$13 
""Z2 







I Or first year thereafter in which the tax was effective. 

Source: Data taken from U. S. Treasury Department, Comparative Statement of Internal Revenuft 
Collections by Tax Sources, 1930-38 . 

Adulterated butter, etc. — Manufacturers of processed or renovated 
butter pay a special tax of $50 a year, and those who make adulterated 
butter pay a tax of $600 a year. Wholesale dealers in adulterated 
butter pay a tax of $480 a year; retailers $48 a year.^" 

Manufacturers of mixed flour must pay a tax of $12 a year.^^ This 
is regarded, not as a prohibition against the manufacture of mixed 
flour, but as a means of securing registration and providing for the 
inspection of such operations. 

The tax yield from these combined sources is not large, totaling 
only $41,498 in 1938. 

Narcotics. — The regulation of the sale and use of narcotics has for 
many decades been troublesome. ^ Of late years, the connection be- 
tween drugs and crime has received special attention, resulting in 
levying special taxes to regulate the medicinal use of drugs, and to 
prohibit their use for illegitimate purposes. 

Although it is generally recognized that regulatory or prohibitive 
taxation is not within the strictest interpretation of the Constitution, 
the Supreme Court has upheld the laws.^^ 

A tax of 1 cent an ounce is levied on opium, coca leaves, and their 
compounds or derivatives. ^'^ Opium for smoking is subject to a manu- 
facturers' tax of $300 a pound. Five years' imprisonment, or a 
$10,000 fine, or both, is imposed for violation of the law. The scandals 

80 53 St'jI. 381 (1939). 
•I Ibid, p. 382. 

" See the discussion of this problem in Facing the Tax Problem, Twentieth Century Fund, New York 
1937. ch. 13. 
«' 53 Stat. 269, 278-279 (1939). 



261085— 40— No. 20- 



160 CONCENTRATION OF ECONOMIC POWER 

Chart 33 

PROHIBITIVE FEDERAL TAXES 

UNITED STATES, 1930-1938 



DOLLARS 

(THOUSANDS) 

650 — 



TOTAL COLLECTIONS 



600- 

550- 

500 

450- 

400- 

350- 

300- 

260- 

too 1 

150 
100 
50 



^ 



1930 1931 



1933 1934 1935 1336 1937 



DOLLARS 

(THOUSANDS) 

— 650 



-600 
-550 
-500 
450 
-400 
-350 
300 
250 
■200 
150 
100 
50 
•0 



FIREARMS 
^ ADULTERATIONS (Butteh. mixed flour, etc 1 
M MARIJ 



IJUANA 
NARCOTICS 



DOLLARS 

(iHOu6was) 
600 — 



NARCOTICS 



500- 

400- 

yx>- 

200 

100 
0- 



DOLLARS 

(THOUSANDS) 

600 — 



500- 
400- 
300 
200 



ADULTERATIONS 

leoTTER, MIXED FLOUR, ETC.) 



1930 '31 '32 '33 '34 '35 '36 '37 '38 



100 — 




rrrt m B-n P7X V^ 



1930 '31 '32 '33 '34 '35 '36 '37 '38 



DOLLARS 

(TH0U5AWS) 

600 



500 

400 
300 
200 

100 




RS 

DS) 


FIREARMS 




- 




- 


- 




- 


- 




- 


- 




- 


- 


- 







DOLLARS 

(THOUSANDS) 

600 



MARIJUANA 



1930 '31 '32 '33 '34 '35 '36 '37 "38 



500 
400 
300 
200 
100 




1930 '31 '32 '33 '34 '35 '36 '37 '38 



CONCENTRATION OF ECONOMIC POWER IgJ 

exposed in 1936 and 1937 revealing the peddling and use of the drug 
marijuana among young people resulted in the levying of prohibitive 
taxes by the Federal Government. For those who have not paid the 
registration tax and are therefore not recognized as professional per- 
sons requiring the drug for medicinal purpKJses, the tax is $100 per 
ounce or fraction thereof. The tax is not expected to produce revenue, 
but is used to secure the registration of persons who use or dispense 
the drug, and to control the drug itself. 

National Firearms Act. — As part of the struggle against crime, the 
National Firearms Act was passed, imposing heavy taxes on the sale 
of firearms which are frequently used by criminals, such as machine 
guns, revolvers, and pistols. The tax law provides for registration of 
arms and manufacturers, dealers, and owners. Failure to register such 
weapons constitutes a serious crime, and Federal authorities have used 
this provision, like the income-tax law, to proceed against criminals 
wanted for other offenses. The revenue part of the act provides a 
tax on manufacturers and importers of $500, on dealers of $200, and 
on pawnbrokers of $300 a year.^* In 1938 the combined yield totaled 
$10,665. It is not clear whether this act actually prevents the illegal 
manufacture, importation, or sale of firearms used by criminals, but 
it does provide a means of proceeding against criminals who, in a 
collection of sovereign States, are very difficult to apprehend and hold 
legally. 

«< 63 Stat., 392-393. 



PART IV 

THE SOCIAL-ECONOMIC EFFECTS OF THE 
REVENUE SYSTEM 



163 



THE SOCIAL-ECONOMIC EFFECTS OF THE REVENUE 

SYSTEM 

WHO PAYS THE TAX BILL? 

THE PER CAPITA TAX BURDEN 

Several metliods of displaying the impact and effects of taxation are 
in popular use. One is the "per capita tax burden," in which total 
taxes collected are divided by the number of people in the United 
States. On this basis it is estimated that in 1938 the Ifevy on the 
people of tliis country, exclusive of social-security taxes, was $96.76 
per person, $40.10 of it going to the Federal Government, and $'56.66 
to the State and local governments.^ 

This, the largest per capita tax burden since 1922, was interpreted 
by some to mean that every man, woman, and child in the Nation 
bore taxes of almost a hundred dollars during 1938. 

It is impossible, however, to treat taxes in this fashion. The per 
capita figure gives no indication of the actual impact of taxes paid, or 
of their efiect on individual living standards or the economy as a whole. 

A determination of per capita taxes of the Nation, or of any political 
unit within the Government, is valuable because it accommodates 
changes in revenue collections to shifts in population. But this does 
not mean that the taxes imposed actually affect the Individual as 
the per capita figures indicate. Underlying the assumption of per 
capita tax burdens is the assumption that the individual's taxable 
status had remained the same throughout the period. Any change 
in these conditions, such as is constantly taking place, renders the 
"per capita tax" concept worthless as a measure of the impact of the 
tax system upon individuals. 

TAXATION AND NATIONAL INCOME 

Table 54 shows tlife relationships of tax collections to national 
income. The Brookings Institution, in its recent study. Capital 
Expansion, Employment, and Economic Stability, regards these 
facts as ominous, saying: 

The percentage of national income absorbed in taxes has shown a progressive 
increase. In 1913 only about 7 percent was taken in taxes; in the twenties the 
range was from 10 to 12 percent; while since 1931 the range has been from about 
17 to 22 percent. * * * The expanding volume of taxes and the increasing 
percentage of the national income absorbed affects investment in two ways. 
First, it reduces the supply of funds available for investment. * * * The 
second effect * * * arises from the bearing of increasing expenditures upon 
the budget and the growth of the public debt.^ 

Tliis study noted yearly fluctuations, resulting from changes in both 
the national income and the tax statutes. The relation between 
tax collections and annual income is observable in the table. (See 
also charts 34 and 35.) 

' National Industrial Conference Board, Enterprise and Serial Prt)gress, New York, 193U, p. 170. 
'Harold O. Moulton, et al., Canital Expansion, Employment, and Economic Stability, Brookings 
Institution, Wa.'^hington, 1940, pp. 271-273. 

165 



166 



CONCENTRATION OF ECONOMIC POWER 



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CONCENTRATION OF ECONOMIC POWER 



167 



Chart 35 

TAX COLLECTIONS AND NATIONAL INCOME 

BY LEVEL OF GOVERNMENT 
UNITED STATES. 1913 S 1923-1939 



NATIONAL INCOME 



DOLLARS 

(BILLIONS) 

iOO 




TAXES AS PERCENT OF NATIONAL INCOME 

STATE a LOCAL 
FEDERAL 




1913 1923 1925 1927 1929 1931 1933 1935 1937 1939 



source: Adopted Irom H.G. Moultsn, tt ol., CAPITAL EXPANSION, EMPLOYMENT, AND ECONOMIC STABILITY, 
Brookings Instilullon, Woshinqlon, D C , 1940, p. 272. 



168 



CONCENTRATION OF ECONOMIC POWER 



Table 54. — Tax collections and national income, 1913, 1923- 
[Dollar figures in millions] 





National 
income 


Tax collections 


Taxes as percentage of 
nat'onal income 


Year> 


Total 


Percent- 
age 
change 


Federal 


Percent- 
age 
change 


State 
and 
local 


Percent- 
age 
change 


Total 


Federal 


State 

and 

. local 


1913 


$33, 000 


$2, 259 




$662 




$1, 597 




6.8 


2.0 


4.8 


1923.. 

1924 

1925 


68. 000 
70. 000 
76, 000 


7,234 
7.812 
7,884 


220.2 

8.0 

.9 


3.032 
3,193 
2,966 


358.0 

5.3 

-7.1 


4,202 
4,619 
4,918 


163.1 
9.9 
6.5 


10.6 
11.2 
10.4 


4.4 
4.6 
3.9 


6.2 
6.6 
6.5 


1926 

1927 

192S- 

1929 

1930 


77,000 
77. 000 
80,000 
82. 691 
69, 104 


8. 605 
9,059 
9,342 
9.759 
10,266 


9.1 
5.3 
3.1 
4.5 
5.2 


3.207 
3,337 
3,194 
3.328 
3,468 


8.1 
4.1 
-4.3 
4.2 
4.2 


5.398 
5,722 
6.148 
6,431 
6,798 


9.8 
6.0 
7.4 
4.6 

5.7 


11.2 
11.7 
11.7 
11.8 
14.8 


4.2 
4.3 
4.0 
4.0 
5.0 


7.0 
7.4 
7.7 
7.8 
9.8 


1931 

1932... 

1933 

1934 

1935. 


54,249 
40, 089 
42, 504 
50,611 
55,794 


9,300 
8,147 
7,501 
8,773 
9,731 


-9.4 
-12.4 

-7.9 
17.0 
11.0 


2,717 
1,789 
1,786 
2,892 
3,546 


-21.7 

-34.2 

-.2 

61.9 

22.6 


6,583 
6,358 
5,715 
5,881 
6,185 


-3.2 

-3.4 

-10.1 

2.9 

5.2 


17.1 
20.3 
17.6 
17.3 
17.5 


5.0 
4.5 
4.2 
5.7 
6.4 


12.1 
15.8 
13.4 
11.6 
11.1 


1936 

1937 

193S... — . 
1939 


65,226 
71,883 
63.993 
68 500 


10, 498 
12,300 
14, 000 


7.9 
17.2 
13.8 


3,847 
5.028 
5,936 
5.416 


8.5 
30.7 
IS. 1 
-8.8 


6,651 
7,272 
8,064 


7.5 
9.3 
10.9 


16.1 
17.1 
21.9 


5.9 
7.0 
9.3 
7.9 


10.2 
10.1 
12.6 

















1 National Income is for calendar year; taxes are for fiscal years ending June 30. 

Source: Adapted from H. Q. Moulton et al., Capital Expansion, Employment, and Economic Stability, 
Brookings Institution, Washington, 1940, p. 272. 

Moulton argues that ' corporate and personal income tax rates 
should be reduced in order to reduce the percentage of national income 
taken by taxes, and so leave funds free for economic expansion. The 
argument does not stand up under analysis. In chart 36 the data on 
national income and tax collections are plotted, in relation to gross 
business capital formed, exclusive of inventories, for the period 
1923-38. The time span covers both the prosperity era of the 
twenties, characterized by low income tax rates, and the entire period 
of New Deal spending, with jrreatly increased surtaxes on individual 
incomes and corporation profits. "' 

If it is true that hieh taxes cause curtailed investment of business 
capital, these figures should show it. But in onlv 2 prosperous years, 
1924 and 1927, and only 2 depression years, 1930 and 1938, did an 
increase in tax collections coincide with a decrease in capital formation 
or a decrease in tax collections coincide with an increase in capital 
formation. In the remaining 11 j^ears, 5 in prosperity and 6 in de- 
pression, tax collections and capital formation either rose or foil 
simultaneously. It seems clear that taxes, while important, do not 
determine whether capital investment shall expand or contract. Nor 
does the evidence present any cause ior alarm in the present ratio of 
tax collections to national income. 

The yearly variations in tax collections noted in the table can have 
little immediate effect on investment, and only if the "extractions" are 
so heavy as to actually curtail investment funds can they be reararded 
as dangerous in the long run. The Brookings study acknowledged 
that this effect could only occiu* when investment capital is scarce, 
whereas during the whole period of expanding tax collections idle funds 



CONCENTRATION OF ECONOMIC POWER 169 

have continued to pile up in increasing amounts. There is no evidence 
that the present tax structure has limited the amount of investment 
capital available. 

Certain economists fail to credit public expenditures with the 
income-producing ability attributed to private expenditures, saying 
that taxes "absorb" national income. As has been pointed out 
repeatedly here, this charge is unsound, for a very substantial part of 
aU Government expenditures goes into various activities which add 
materially to the wealth and income of the Nation. It is impossible, 
therefore, to say that absorption of the national income through taxes 
will inevitably curtail investment and the production of income. 

LoweU Harriss, in the Twentieth Century Fund tax study, con- 
cluded : 

Statements that taxes absorb or take a certain percentage of the national 
income are invalid or at least misleading, especially if there is an implication that 
the sum paid in taxes is a burden, a weight, or a reduction of the total income.* 

His reasons for this statement are summarized as follows: 

1. The methods of computing national income do not permit 
such statements, for, if the basis is that of goods and services 
produced, the net income which results cannot be reduced further; 
if the estimate is of income paid out this sum available for dis- 
tribution cannot be reduced further, 

2. Items not included in estimates of national income are a 
large and unusually stable part of all economic effort whose 
exclusion exaggerates the amplitude of fluctuations in national 
income and influences the statements about tax burden related 
to it. 

3. Tax payments are not withdrawn from the flow of funds in 
economic life. To so deduct them from national income is to 
disregard their contribution to that income. 

Of the realized incom.e of the Nation, defined as — 

the aggregate amount of money estimated to have been received by all individuals 
as a return for labor, management service, afid investment, or from Government 
relief payments during the year, plus in some instances * * * the value of 
goods used in personal consumption by their producers * — 

total tax collections were 22.4 percent in 1938, 9.5 percent of which 
were Federal revenues, and 12.9 percent State and local. 

As noted earlier, the Government is becoming increasingly more 
important in the economic life of the Nation. In 1929 realized income 
from governmental sources totaled $6,819,000,000, or 8.6 percent of 
the national income; by 1937 the sum had reached $11,566,000,000, 
or 16.7 percent.^ However, both the amount of income from. Govern- 
ment and its relation to total national income shift with changes in the 
general econoro.y. For example, in 1936 income from Government 
was higher in both am.ount and proportion of the total than in 1937. 
The amount in 1937 was higher than in any year since 1932 except 
1936, but its proportion of the total was less than in any year since 
1932. 

This raises the question ot tne relative position of the public and 
private sectors of the economy. The launching of the recent pre- 

3 C. Lowell Harriss, The Tax Burden and the National Income, The Tax Magazine, .Tanuary 1938. 
* National Industrial Conference Board, Enterprise and Social Progress, p. 170, footnote to chart. 
Ibid., p. 165. 



J 70 CONCENTRATION OF ECONOMIC POWER 

paredness progi'am indicates that the public sector will become 
increasingly dominant. On the other hand, it is quite possible that 
its role will vary with changing conditions in the national economy, 
and m.ay even become smaller. There is little in our experience, 
recent or remote, to permit any accurate prophecy. 

The ratio of governm.ental to private economic activity is unportant 
to the discussion of who pays the Nation's tax bill. If the Govern- 
m.ent assumes an increasing role as employer, producer, and distributor 
of economic goods, then more of the needed revenues are likely to be 
obtained from the Government itself. If the contrary condition pre- 
vails, then the private sector of the economy may be tapped for more 
tax revenue. 

The New Deal has insisted that the im.portant task is to raise the 
national income to $80,000,000,000 a year, or m.ore, m.aking sufficient 
tax revenues available at existing, or even lower, rates to liquidate 
existing deficits, balance the budget, and pay for the governm.ental 
services demanded by the people. Tliis reasoning is based on the 
ratio of the tax burden to total incom.e, which appears to sum, up 
briefly the effect of taxation on the economy. It conceals far too 
m.uch, however, to be the single factor in the determination of tax 
policy. 

Alarm.ists look at the mounting yearly figures on- the relation of 
taxation to the national income, and conclude that we are fast ap- 
proaching an abyss of econom.ic disaster. Yet the trend has not been 
steadily upward, nor has it been astoundingly rapid. In fact, except 
for the unusual years 1930-32 and 1936-38, the pattern has been one 
of a succession of plateaus. 

It is im.possible to tell, from any over-aU figures on the ratio of 
taxes to national incom.e, at what point that figure becom.es a threat 
to our econom.ic stabihty. Much more inform.ation than is now 
available on the role of the Governm.ent in the econom.y, on the 
shifting and incidence of taxes, and on the economic effects of fiscal 
policy is necessary for that purpose. 

The ratio of taxes to national income as a measure of the effect of 
taxation is subject to the same criticism as the per capita tax burden. 
The "national income" is a statistical concept which varies with 
different users. According to the Department of Commerce, it is an 
estimate of the net value of all commodities produced and all services 
rendered, arrived at by estimating the gross value of all goods and 
services produced, and subtracting the value of all raw materials and 
capital equipment consumed in the processes of production. It 
includes, generally, only those efforts whose results appear on the 
market place, leaving out, for example, services of a housewife in her 
home.^ This complicates any trend figures of national income, for 
many domestic activities have been transferred from the home to the 
factory, and manj^ services formerly rendered as part of the household 
arts now appear in the market place. Income trends covering any 
appreciable period of our national existence are in consequence much 
suspect. 

The estimates of national income are not only crude, and of doubtful 
value in describing trends, but are much too broad for use in measuring 
the impact of taxation. They do provide, however, a concept of great 
value in measuring the productivity of the entire economy. National 

• Robert Rr Nathan.-Income In the United- States, 192»-37, Washington, 1938, p. 3. 



CONGKNTRATION OF ECONOMIC POWER I'Jl 

income, likewise, may be used as a measure of the approximate base 
of taxable resources. But it does not in any way indicate the dis- 
tribution of income amoug individual income receivers, whose cir- 
cumstances are c^uite imlike, and who, therefore, feel quite differently 
the impact of the tax system. 

EFFECT OF TA\.\'^'ON ON DIFFERENT ECONOMIC CLASSES 

The extensive liteiature on the effects of the revenue system is 
largely academic, antl taken up with theoretical considerations of 
shifting and incidence of the various taxes, determined according to 
theories concerning prices and how the specific taxes affect price 
behavior. Valuable as these studies are, they do not determine the 
actual effect of the revenue system upon the taxpayers of the Nation. 
To do this, it would be necessary to examine very carefully all the 
tax payments made by all taxpayers to the several jurisdictions of 
Government. Even this would be only a beginning, however, for it 
would also be essential to determine whether those who paid the taxes 
actually bore their burden. 

No study of this magnitude has ever been attempted. Nor do 
av; 'lable Government figures on tax payments permit even summary 
conclusions on this problem. Revenue statistics, have been hedged 
about with great secrecy, and many tax statutes contain provisions 
guaranteeing complete concealment of information given by tax- 
payers. While such provisions undoubtedly serve a reasonable pur- 
pose in many instances, some tax administrators have come to frown 
upon any thoroughgoing economic analysis of the official records, which 
could be made by competent economists without in any way violating 
the provisions of confidence imposed by the tax laws. Such studies 
would aid greatly in determining the precise effects of revenue laws 
upon individual taxpayers and the various economic groups subject to 
them. 

Nevertheless, much progress has been made in determining the 
impact and effects of taxation on variously circumstanced groups of 
citizens. The most careful published analysis of this kind is the 
Twentieth Century Fund study which appeared in 1937. This study 
commented: 

The difficulties of ascertaining the distribution of the tax ijurden create an 
unfortunate temptation to conclude that principles of tax justice are not vitally 
important from the practical point of view. However, the difficulties must not 
be exaggerated. The skilled observer can make some progress toward an intelli- 
gent judgment. * * * The tax burden of an individual can be measured only 
after knowing what amomit of the taxes that he pays is shifted to others, and what 
amount of the taxes of others is shifted to him. In other words, the test is the 
taxes borne rather than the taxes paid. * * * In view, of th^jjc difficulties, 
very little confidence can be placed in the tax burden figures given in the recent 
flood of literature on "unseen" or "hidden" taxes. ^ 

In the Twentieth Century Fund stud}^, tvv^o wSlalos, New York and 
Illinois, were selected for comparison, because at the time of the 
study (1936), New York had no general sales tax and dcpendc<l largely 
on personal and corporate income taxes, while in Illinois just the 
reverse conditions prevailed. Fam.ilies of identical composition were 
chosen, and incomes ranged from. $500 to $1,000,000 or more. Five 
different series of conditions of im.pact, incidence, and effect of taxation 

' Twentieth Century Fund, Facing the Tn\ Problem, New "i'ork, 1937, pp. 220-237. 



172 CONCENTRATION OP ECONOMIC POWER 

were distinguished, in an effort to indicate the conditions prevailing 
among a substantial proportion of all taxpayers. In one of the most 
typical series of circumstances, the percentage of all taxes borne by 
New York families to total family income ranged from 13.2 to 84.5 
percent; for Illinois families the range was from 10.1 to: 80.8 percent. 
Safeguarding their data as carefully as possible, and" warning the 
reader that the findings are "too uncertain to warrant any conclusions 
beyond limited generalizations," the study is summarized as follows: 

1. The tax system as a whole is regressive for the lower income groups, 
and distinctly progressive for the upper income groups. 

2. The burden of the New York system exceeds that of the Illinois system. 

3. Urban tax burdens exceed rural tax burdens. 

4. The large number of taxes that can be shifted have so diffused the 
burden that it would be practically impossible for any individual Jo escape a 
substantial tax burden even though it would be possible to pay no tax di- 
rectly.' 

The fam.nies withincom.es below $2,500 a year spend a disproportion- 
ately large amount of their incom.e on consumption goods required 
to live. It is these families which are burdened heaviest by the 
various consumption taxes which loom so large in the total revenue 
system.. These families, according to the Twentieth Century Fund 
study, face a more regressive tax system than families with larger 
incom.es. Referring specifically to families with annual incomes over 
$1,000,000, the survey reports: 

These families can maintain their estates intact, however, and enjoy a free 
income of over S200,000, after allowing for all concealed taxes, simply by dividing 
the property and income between husband and wife. Also, they may reduce 
their taxes even further by sharing property and income with their children or by 
transferring part of their property to a personal holding corporation. It is 
possible for a family to be so wealthy that they cannot under any circumstances, 
by legitimate means, maintain their estate intact at death under the present 
tax systsm, but the Statistics of Income record few such cases. ^ 

The National Resources Com.ro.ittee, in its study of consumer 
expenditures referred to earlier,^" has obtained som.e material on 
personal taxes paid. The data were not sufficiently inclusive to 
portray the tax burden of the several incom.e classes in the population, 
but thev form.ed a useful basis for such a study made recently by Miss 
Helen Tarasov and Dr. Gerhard Colm., tax experts of the Department 
of Com.m.erce." 

These figures have been carefully assembled and meticulously 
treated, but the subject is so involved and the data sometimes so 
inconclusive or fragro.entary that the authors warn against too free 
use of the findinars by those inexpert in tax problems. The tax 
figures in tables 55 and 56 are taken from data supplied by Dr. Colm 
and Miss Tarasov. The tables are believed to represent fair approxi- 
mations of the existing conditions, and are the only data of this kind 
available. 

According to table 55, chart 36, the lowest income group, with 
less than $500 a year, is made up of families and single individuals 
whose average income is $346 ; they are 17 percent of all income groups 
in the Nation; despite their very meager income, they are confronted 
with an accumulation of hidden taxes and consumers' levies which 

« Ibid, p. 2:^7. 

'Ibid., p. 236. 

'« See p. 16. 

" Oerhard Colm and Helen Tarasov, Monoeraph No. 3, Who Pays the Taxes? Allocation of Federal, 
State, and Local Taxes to Consumers' Income Brackets, Temporary National Economic Committee, 
Wa.<:hin?tnn. 1940. 



CONCENTRATION OF ECONOMIC POWER 



173 



take 22 percent of it away from them. At the other extreme of the 
incom.e scale are famiUes and single individuals having incomes of 
$20,000 or more; their average income is $47,600; they make up only 
0.3 percent of all income groups, and pay out 37.8 percent of their 
income in taxes. 



Table 55. — Effect of the American tax system on the various income classes — 19S9 



Income classes range 



Under $500 

$500 to $1,000 

$1,000 to $1,500... 
$1,500 to $2,000.. 
$2,000 to .$3,000... 
$3,000 to .$5,000.. 
$5,000 to $10,000-. 
$10,000 to $15,000. 
$15,000 to $20,000 
$20,000 and over. 

Total 



Mean 
income ' 



$346 
847 
1,381 
1,929 
2.689 
4,121 
7,741 
12. 872 
19, 477 
47, 600 



1,693 



Percent- 

aee of all 

income 

units ' 



17.0 

29.5 

22.1 

13.1 

11.3 

4.6 

1.5 

.4 

.2 

.3 



100.0 



Percentage of income paid out 
in taxes 



Federal ^ 



7.9 
6.6 
6.4 
6.6 
6.4 
7.0 
8.4 
14.9 
19.8 
27.2 



State and 
local ^ 



14.0 
11.4 
10.9 
11.2 
11.1 
10.6 
9.5 
10.6 
11.9 
10 6 



9.2 



11.0 



Total' 



21.9 
18.0 
17.3 
17.8 
17.5 
17.6 
17.9 
25.6 
31.7 
37.8 



20.2 



' Taken from table C, "Basic Data on Consumer Incomes." 

2 Taken from table I, "All Taxps as Percent of Consumer Incomes, 1938-39." Business taxes were 
assumed to be shifted to consumer incomes. 

Source: Figures taken from various tablss in "Who Pays the Taxes, Allocation of Federal, State, and 
Local Taxes to Consumer Income Brackets, by Gerhard Colm and Helen Tarasov, Monograph No. 3, 
Temporary National Economic Committee, Washington, 1940. 

No reasonable progression is indicated in the tax burdens of the 
several income classes. For example, those with incomes from $5,000 
to $10,000, averaging $7,741, pay a smaller percentage of their large 
incomes in taxes than does the lowest group trying to subsist on an 
average of $346 a year. 

State and local taxes are higher than Federal taxes for all groups 
below $10,000, and lower for the groups above $10,000. Federal 
taxation is felt most by those with the higher incomes, upon whom 
income and profits taxes are heaviest. 

It appears from these figures that groups with incomes from $1,C00 
to $10,000 are most favored by existing tax laws. Their taxable net 
incomes are too small to be hard hit by the income-tax levies, and yet 
they have funds available above .the consumers' expenditures now 
taxed by various sales and excise levies. Here is a reservoir of tax 
sources which should commend itself from both a social and economic 
standpoint to seekers for additional tax revenues. 

The data do not indicate that the upper income groups are ex- 
cessively burdened, even though they pay a higher percentage of their 
incomes in taxes than other income groups. A ratio comparison 
between them and other income groups does not necessarily express 
their taxpaying ability, for expenditure studies show that their tax 
payments do not involve equal sacrifice with lesser-circumstanced 
groups. 

In this connection, table 56, chart 37, displays the proportion of 
income, savings, consumer expenditures, and taxes paid, for the 
several income groups. The lowest group, averaging $346 a year and 
making up 17.0 percent of all income groups, received only 3.5 percent 



174 



CXJNCENTRATION OF ECONOMIC POWER 




CONCENTRATION OF ECONOMIC POWER 



175 



of all income; made no aggregate savings; accounted for 5.2 percent of 
all consumer expenditures; and paid 3.7 percent of all taxes. The 
highest income group, averaging $47,600 a year and comprismg only^ 
0.3 percent of all income classes, enjoyed 8.4 percent of all income. 
They were individually able to set aside sums of money large enough to 
account for 30.4 percent of all positive savings made by the American 
people. Despite their luxurious standard of living, they accounted for 
only 3.1 percent of all consumer expenditures and paid 17.0 percent 
of all taxes. 

Table 56. — Proportion of income, savings, consumption expenditures, and taxes 
borne by the several income classes {1939) 





Mean 
income 


Percent of 

all income 

units 




Savings 


Percent of 
current 

consump- 
tion ex- 
pendi- 
tures 


Percent of 
total 
taxes 


Income classes range 


total 
income 


Percent of 

total 

savings 


Percent of Percent of 
positive income 
savings saved 


Under $500 


$346 
847 
1,381 
1,929 
2, 689 
4,121 
7,711 
12, 872 
19, 477 
47, 600 


17.0 

29.5 

22.1 

13.1 

11.3 

4.6 

1.5 

.4 

.2 

.3 


3.5 
14.6 
17.9 
14.9 
17.7 
11.1 
6.9 
3.0 
2.0 
8.4 


-7.2 
-2.5 
8.1 
7.4 
14.6 
16.3 
17.3 
9.1 
6.5 
30.4 




5.2 

17.8 

20.0 

16.4 

18.6 

10.5 

5.3 

1.9 

1.2 

3.1 


3.7 


$500 to $1,000 




12.8 


$1,000 to $1.500. 

$1,500 to $2,000 

$2,000 to $3,000. 

$3,000 to $5.000. 

$5,000 to $10.000 

$10,000 to $15,000 

$15,000 to $20,000 

$20,000 and over 


7.4 
6.8 
13.3 
14.8 
15.8 
8.3 
5.9 
27.7 


5.2 

5.8 
9.6 
17.0 
29.4 
35.8 
36.9 
42.2 


15.0 
12.9 
15.1 
9.7 
'■..2 
4.0 
3.6 
17.0 


Total 


1,693 


100.0 


100.0 


100.0 


100.0 


11.7 


100.0 


100.0 







Source: Figures taken from various tables in Who Pays the Taxes? Allocation of Federal, State, and 
Local Taxes to Con.sumer Income Brackets, by Gerhard Colm and Helen Tarosov, Monograph No. 3, 
Tem{>orary National Economic Committee, Washington, 1940. 

The higher income classes possess great income reserves above the 
needs and luxuries of life, or taxes imposed. In comparison with all 
other income groups in a democracy committed to the concept of 
placing the tax burden on those able to pay it, these Avealthy people 
are highly favored. 



261085— 40— No. 20- 



-13 



176 



CONCENTRATION OF ECONOMIC POWER 



Chabt 37 



INCOME, SAVINGS. EXPENDITURES 
AND TAXES PAID 



BY INCOME LEVELS 
UNITED STATES, 1939 

PER CENT OF ALL INCOME UNITS 

10 15 20 25 30 3e 



UNDER fSOO 

f500-$l,000 

$l.000-fl,500 

ff, 900-52,000 

f2/)00-$3.000 

$3,000 -15,000 

$5,000- $10,000 

$10,000-115,000--- 
$I5,000-$20,000--- 
$20,000 ANO OVER- 



UNOER $500 

$500-$l,000 

«1,000-it,500--- 
ll.SOO- $2,000"- 
12,000-13,000-- 
$3,000-$5,000-- 
$5,000 -$10,000— - 
$IO,000-$I5,000"- 
$l5.000-$20,000-- 
$20,000 ANO OVER- 



UNDER $600 

f500-$l,000 

$1,000-11,500—- 
$l,500-$2,000- 




PER CENT OF TOTAL INCOME 

6 10 15 20 25 30 35 40 45 




PER CEN1 

5 



OF CURRENT CONSUMPTION EXPENDIT 

15 20 25 30 35 



$2,000-13,000 

$3,000-$5,000 

$5,OOO-$IO,OC0--- 
$10,000-115,000--- 
$I5,000-$20,000-- 
$20,000 ANO OVER 



UNDER $500 

$900-$l.000 

11,000-$.' 500 

lf,500-$S,000 1 

$2,000-$3,000 

$3,000-15,000 

$5.000-$IO,000--- 
$I0,000-$I5.000 

$i5,ooo-$2q,ooo— - 

$20,000 AND OVER- 



UNDER $900 

«900-$l/)00 

fl.000-$l,900 

ll,500-$2,000 

$2,000-$3,000 

$3,000-15,000 

15,000-310,000 

110,000-115,000 1 

$15,000 -$20,000---^ 
$20,000 ANO OVER- 



UNOER $500- 

$500-$l,000 

$t,000-$!,500 

$l,900-$2,000 

$2,000-$3,000 

13,000-15,000 

$5,000-510,000 

1I0,000-$J5,000--- 
lI5,000-$20,000-- 
$20,000 ANO OVER- 




URES 

40 



PER CENT OF ALL TAXES PAID 

5 10 15 20 25 30 35 




40 45 



PER CENT OF TOTAL POSITIVE SAVINGS 

10 15 20 25 30 35 40 




PER CENT OF INDIVIDUAL INCOME SAVED 

10 15 20 20 30 35 40 45 




SOVfCe Fig</<>< lo»n t>orr. .0>i«ut <0Ue« l" MHO P£'$ THC TAXES? ALLOCATION CF FEOCRAL, STATE AND LOCAL TAXES TO 

COfiSUMER IfiCOME BRACKETS by Ct'hflrd C«"n Ofttf M«l»fl Teroiov, McnoQropft Mo 5. Ttmpcrory Notionol EcoA«#nie Co«nmin«t, 
Wo». ngton, DC . 1940. 



THE SHIFTING AND INCIDENCE OF TAXATION 

The literature on public finance is plentifully supplied with academic 
discussions of the shifting and incidence of taxation. The masterly 
discussion of the subject in 1892 by E. R. A. Seligman, long dean of 
tax experts in this country, is still standard, with some amplification 
in the way of modern illustrations and simplified explanations. 
Groves presents the subject very clearly in his Financing Govern- 
ment,^^ and his arrangement is followed in the outline presented here. 

Distinguishable stages in taxes are described as: 

1. Impact — the effect upon the taxpayer who actually pays 
the tax is called the "impact." 

2. Incidence — the place of the ultimate or final burden. 

3. Effect — all the consequences of a tax except its impact and 
incidence. (Example, a tax effect not related to either impact 
or incidence is tne cost of tax bookkeeping necessary to make 
tax reports to the Government.) 

It is apparent at once that these three supposedly different aspects 
of shifting of the tax burden are not necessarily unrelated. In fact, 
the impact and incidence of such a tax as the personal net income levy 
are identical, for it is paid by the person upon whom the final burden 
rests. Short of very elaborate studies of tax effects, it is extremely 
difficult to clearly separate incidence from effect. 

No satisfactory selection of taxes, or judgment of their social- 
economic effects, can be made until the problem of shifting has been 
resolved. Seligman long since pointed out that shifting is a price 
process.'^ If the tax is to be shifted, it must be passed on in the price 
of the commodity, property, or service taxed. The effect of a tax 
on the price is shown in relation to the supply of the object taxed. 
When the imposition of a tax does not affect the supply, the price 
of the object is unchanged; hence, the tax is not shifted. The impact 
and incidence of the tax are identical and, therefore, remain with the 
taxpayer at the point of levy. 

If a commodity tax increases cost of production and thus lim. the 
supply available, the price of the commodity is raised. In such a 
case shifting occurs, but the incidence of the tax is obscured. It may 
be, and usually is, passed on as part of the higher price to the ultimate 
customer. This type of tax shifting is "forward" from the individual 
who bears the impact of the tax to the one who finally pays it. " Many 
manufacturers' excises are often shifted forward through several 
relays of taxpayers before they are finally paid by the ultimate con- 
sumer. What occurs in this complicated situation is not clearly 
known in fact, although theoretical assumptions can be set up to 
explain different tax effects. 

'2 Harold M. Groves, Financing Government, Henry Holt, New York, 1939. 

'3 For a (;ood brief discussion of the theory of shifting of taxes, see M. Slade Rendrick's book Taxation 
Issued; Harpers, N' w York, 1933, cb. V. ^ 

177 



178 CONCENTRATION OF ECONOMIC POWER 

Not all iaxcs are shifted forward. Groves uses as an illustration 
the imposition of a processing tax on butter. If the tax is sufficiently 
high to impair the sale of butter, it may be necessary, in order to meet 
the selling market, to force a lower price for the raw materials. In 
this case, the milk producer may suffer the effects of the tax in a 
lowered price for his product. 

Nor do raw-m.aterial producers always bear the eft'ects of tftxes which 
are shifted backward. In some cases, where competitive conditions 
do not permit price rises, employers succeed in cutting wage costs, 
which means that the tax burden is shifted back to the workers in the 
industry. 

Another form of shifting, namely, "capitalization," is recognized, 
and the sale of farm land is the usual example given. Property taxes 
are relatively stable and can be computed for some reasonable span of 
future time. A prospective buyer easily ascertains the tax levy, and, 
having in mind some alternatives for the use of his capital, may obtain 
the land at a price which is less than its crop-production value by 
the amount of the taxes to be paid for a given period. As Groves 
says, "It is as though the government had imposed a mortgage (equal 
to the amount of taxes) on the land and the buyer bad purchased only 
the original owner's remaining equity." ^^ 

Information on tax capitalization is very fragmentar^'^. It is not 
clear whether such capitalization is confined to land taxation, how 
much it is used in land sales, or to what degree it has permeated other 
types of business transactions. As taxes become well defined in 
character and scope, and as they remain on the statutes long enough 
to be readily recognized as a part of business costs, they may be 
subjected to this form of shifting in the sales of stocks and bonds, in 
the operations of enterprises subject to severance taxes, and in special 
commodities which are taxed separately. ^^ 

These observations on the shifting and incidence of taxation presume 
certain competitive conditions, which may prevail in one sector of the 
economy and not in another, or which may be localized in given areas 
within the same sector and not reflect Nation-wide conditions at all. 
The number of sellers who are so situated that they can set and control 
their prices is not great. Even under monopolistic conditions where 
the producer may be expected to set prices at the point which will 
bring him the largest net profit, there are restraii.ing elements in the 
economy, such as possible competition from substitute commodities, 
price resistance on the part of the buying public, and difficulties in 
calculating taxes which vary with successive legislative acts or 
different administrative interpretations. All these factors play their 
part in preventing complete shifting of the tax by the person suffering 
its first impact. 

Although these qualifications complicate the problem of determining 
who pay the taxes, they do not make it less important. Granting the 
impossibility of determining precisely, at this stage of our knowledge, 
the incidence and shifting of the tax burden, there are some recogniz- 
able conditions which favor shifting. Groves indicates them as 
follows : 

H Groves, op. clt., p. 123. 

» Twentieth Century Fund, Facing the Tax Problem, New York. 1937, p. 244. 



CONCENTRATION OF ECONOMIC POWER 179 

1. Shifting is likely to occur when the tax levied strikes all 
competitors proportionately. 

2. If the clemand is inelastic, it is easier to pass the tax along 
in higher prices to consumers. 

3. In those industries-experiencing decreasing unit costs, taxes 
are more apt to be reflected in increased prices. 

4. Shifting occurs within a given field only when taxes are 
universal. 

5. Shifting is a slow and uncertain process. 

6. Taxes are usually more easily shifted in a sellers' than in a 
buyers' market ; in good rather than in bad times. 

With these qualifications in mind, and with the understanding 
that it is only one of the important elements in determining who 
pays taxes and what are the social-economic effects of the tax system, 
it is possible to indicate the incidence of certain broad groups of taxes. 

Poll taxes involve no sale or use of a commodit}" or property. 
Their impact and incidence are identical, and there is no evidence 
that they are shifted. 

Property taxes vary in the amount of shifting that occurs, 
dependent upon the type of tax and subject of the impost. Land 
situs taxes are probably not shifted, except in some instances 
where they are capitalized. Taxes on buildings and equipment 
are shifted, because they tend to decrease the supply and thus 
affect the price, so that the tax levy becomes a factor in rent, 
selling price, or the cost of business. Personal property taxes 
are probably not shifted if the goods taxed are being used by their 
owners. 

Net-income, inheritance, estates, gift, and net-projits taxes are 
levied on the basis of net remainder of income received after the 
costs of doing business have been taken care of. Their impact 
and incidence are considered identical, and no shifting occurs. 
Exceptions are frequently noted for some profits taxes, where 
some shifting is said to occur. 

Orofis income taxes are levied on payments for goods or services, 
but they permit no deductions or allowances for costs, and, 
unlike retail sales .taxes, are levied on every transaction 
where gross income appears. They are commonly referred to as 
"turn-over taxes." Bearing in mind the necessary qualifica- 
tions concerning shifting given above, it is presumed that such 
taxes are included in costs of production, and are shifted to the 
ultimate consumer. Competitive conditions and other factors, 
may operate to make this shifting imperfect. 

Excise taxes are commodity levies imposed on manufacturers 
and processors. They» are similar in their economic character 
and tax effects to gross income or transactions taxes. They are 
usually calculable and are probably shifted to the ultimate con- 
sumer. It may be, however, that shifting by capitalization is at 
work in certain well-established businesses, where the effect of 
excise taxes is noticeable in the price of corporation stocks. 

Retail sales taxes are consumption taxes. In some States the 
law provides that they must be added to the selling price and 
cannot be absorbed by the seller, in which case the tax is 
shifted. VHiere no such restriction exists, the shifting of the 



180 CONCENTRATION OF ECONOMIC POWER 

retail sales tax to the ultimate consilmer may be imperfect, with 
tax effects on intermediary business agents of varying but 
unknown amounts. 

Pay-roll taxes such as are extensively employed in financing 
the social security program are probably subject to much shifting, 
but their incidence is not known with any degree of precision. 
They are probably divided among employers, workers, and con- 
sumers, but in what degree or under what conditions it is im- 
possible to say. The opinion is growing that the levy falls largely 
on the working population, either as workers or consumers. 

Taxes on intangibles, such as mortgages and other business 
paper, are subject to shifting. The amount of shifting depends 
on conditions in the investment market. 



THE RATE STRUCTURE AND ITS EFFECT 

Representative Samuel Pettengill, in offering changes in the rate 
structure of the estates tax in 1934, said: 

If democracy is to survive, and if the system of private ownership of property 
which we call capitalism is to survive the time has certainly come when we must 
place much heavier restrictions than we have in the past upon the accumulation 
of great fortunes. The man who makes this statement is not a radical, he is a 
conservative. He is trying to conserve the best values of our civilization.^' 

Representative Pettengill compared the $64,770,000 collected in 
estates taxes by the Federal Government in 1930 with the rate struc- 
ture imposed in England at that time, concluding that if the British 
rates had been applied, the Federal Treasury would have collected 
almost nine times as much. He pointed out that these much heavier 
tax rates in Britain did not "discourage thrift nor the natural desire 
of men to make reasonable provision for their widows and children." 
He concluded that, "The concentration of wealth has dried up the 
purchasing power of the consuming masses of America"; this wealth 
"must- be more widely distributed through the imposition of [higher] 
taxes on large incomes and inheritance.'' *^ 

Quite the contrary viewpoint was expressed by Nicholas Murray 
Butler, president of Columbia University, in an address on preserving 
American democracy, when he said : 

American democracy * * * jj^ay be undermined subtly * * * by 
revolution in taxation * * *. The moment that the power of taxation is 
used to redistribute the national savings and to penalize as though they were 
criminals those individuals whose honest accumulations are large, that moment 
taxation has departed from the principles upon which a democracy rests." 

These speeches represent the two contrasting attitudes toward 
taxation which are struggling for mastery in the United States. 
Both maintain that they seek to preserve democracy and the capital- 
istic economy. Each wishes to use the tax system as fully as possible 
for that purpose. The first argues that income, gift, and inheritance 
tax laws and their progressive rate structures must be used to curb 
the increasing accunmlation of large hereditary fortunes and to 
redistribute wealth. The second denies the right, desirability, or 
possibility of appl3'"ing these rate structures to produce such effects. 

Taxes levied on net incomes of individuals and business institutions, 
gifts, estates, inheritances, and profits lend themselves to the applica- 
tion of a variable rate structure. ' Because they are levied on evidences 
of net economic gain, and hence do not take from individuals sums 
which they need for the necessities of life, or add to the costs of pro- 
duction for business institutions, they have acquired a halo of justice 
in comparison to other forms of taxation which commends them to the 

" Congressional Record, 73d Cong., 2d scss., pt. 3, p. 2636. 

" Reported in Oustavus Myers, The Ending of Hereditary American Fortunes, Julian Messner, New 
York, 1939, p. 342. 
" Ibid., p. 366. The address was delivered September 4, 1938. 

.181 



Jg2 CONCENTRATION OF ECONOMIC POWER 

public. Because they are probably less harmful to the economy 
than other forms of taxation, and iri fact may often exert a helpful 
influence in curtailing the concentration of wealth and offsetting 
consumers' taxes which limit the consumption of goods, such taxes 
on wealth and income have gained increasing support among econo- 
mists. 

With the modern emphasis on taxation as an instrument for the 
peaceful reorganization of economic life, and its partially successful 
use in some of the older capitalistic nations, notably England and 
Sweden, these various wealth and income taxes have become unusually 
important. Not only do they tap economic surplus, but their impact 
and incidence is well established. They cannot be shifted and hence 
they immediately affect the individuals or institutions taxed. Also 
they offer unusual possibilities for economic reform, because they per- 
mit application of a progressive rate structure levying increased taxes 
on higher wealth or income. By this method like amounts of net 
income or wealth bear identical taxes, while larger amounts are taxed 
at heavier rates. 

It is possible through the application of such a rate structure to 
levy taxes in some measure related to the ability of taxpayers to bear 
them. But the rates imposed have never been determined on any 
sound theory which actually considers the relative ability of different 
persons to pay, for they are not based on investigations of the compo- 
sition of income or wealth. Thus, two persons with identical incomes 
may differ widely in their economic circumstances and ability to pay 
the taxes imposed. This area of tax research is in its infancy, and 
requires careful exploration in order to establish rates which are 
economically sound and socially just. 

It is frequently charged that progressively hieh rates reduce the 
yield of the tax, because they are an open invitation for tax evasion, 
and because their imposition tends in the lone run to dry up the tax 
source. It was pointed out earlier (see pp. 98, 111) that despite the 
apparently hieh l^vy on the topmost bracket of inheritances or in- 
comes, the effective -rate is de dedly less, since an initial exemption 
is taken before the rates are applied, deductions are permitted bv law 
and different rates are applied to successive increments of wealth or 
income. There undoubtedly is some point of taxation beyond which 
a diminishing return is experienced in tax vield. In some instances 
where an income producer has such control over his activities, as a 
champion boxer or a movie star has, it may be that he can space 
his work within the year so as to control the creation of income sub- 
ject to upper-bracket taxation. 

In the recentlv published Duke University Journal, Law and Con- 
temporary Problems, the case for and against reduction of surtax 
rates on individual incomes was debated by two able tax experts, 
Prof. James D. Maeee, of New York University, and Prof. Harold 
M. Groves, of the University of Wisconsin.'^ The thesis of Dr. Magee, 
in presenting the proposal to reduce the surtax rates, is summed up 
in his statement that, "In the effort to equalize wealth by heavy sur- 
taxes we have seriously hampered economic recovery by lessening 
the funds available for investment in equity capital." His conclusion 
that there is a lack of equity capital is, iij view of statistical data 

i» Law and Contemporary Problem?, Duke University School of Law, Spring, 1940, pp. 183-193. 



CONCENTRATION OF ECONOMIC POWER 183 

offered in this monograph and developed at length in the Hearings 
on Savings and Investment of the Temporary National Economic 
Committee, without foundation.^" Never, even at the bottom of the 
depression, has there been any lack of capital seeking investment. 
Rather, all during this period there has been an excess of idle funds and 
a dearth of investment opportunities. The conservative explanation 
is that this lack of investment opportunities is due to lack of confidence. 
It seems much more likely to be caused by inability to see a chance 
for profit. 

Dr. Magee points out that tax-exempt mvestments have offered 
unusual inducements to those possessed of wealth, because of the high 
surtax rates on other types of investments. This is probably true, 
but it in no sense proves that high surtaxes lower the supply of equity 
capital. What it does show is that tax-exempt Government bonds 
prove exceptionally attractive to investors with vast surpluses not 
easily or safely invested during prolonged general economic depres- 
sion. The remedy lies in removing the exemption, rather than in 
lowering income-tax rates. 

Dr. Groves dismisses the argument that high surtaxes discourage 
new bus ness ventures, saying in part: 

There is no evidence that the productive eqiiipment of our economic system 
is inadequate to supply consumers' orders. We need not build new equipment 
just for its own sake. * * * fhe overwhelming need is more essentials for 
consumers who cannot afford them. There is no reason to believe that a greater 
supply of capital would solve this problem. A greater demand for it would help, 
but the sound stimulus for demand would be an indication that consumers' orders 
will soon encounter an inadequate source of supply. 

But it is said that it is profits and the margin of profits which make the eco- 
nomic system go. Of course, the high surtaxes are not usually levied on profits 
(most of which take the form of corporate earnings) but it is said that the former 
affect the latter indirRctly. Certainly business profits were greatly improved in 
1937 and again in 1939. If the theory that good profits insure future prosperity 
were tenable, the improvement should have led with all sureness to a further 
stimulation of business. Undoubtedly, business confidence is an important ele- 
ment in economic recovery. But the absence of confidence may not be caused 
entirely by the lack of adequate current profits. The diffidence may not be 
mainly a matter of governmental policy at all. It may be due to doubts about 
the future consumer demand, or the maintenance of peace, or the stability of the 
economic system itself. Reducing surtaxes would not do much to counteract 
most of these causes of difiidence, and it might positively encourage some of 
them.2i 

Most economic effort is not easily regulated, and it is doubtful 
whether any considerable part of economic endeavor is governed, 
althousrh it may be influenced, by what its tax effect will be. This 
is particularly true with the investments and earnings of large for- 
tunes, which are mostly hereditary in character. Here, unusual 
regard is had for safety of the investments and steady, regular returns, 
rather than differing tax effects. The proportion of large fortunes 
devoted to "risky" speculations is comparatively small, so that sharp 
fluctuations in incomes derived from such sources are normally not 
prominent. There is little evidence to support the view that succes- 
sive yearly changes in tax laws have had any pronounced effect on 
the year-by-year investment structure of such fortunes.^^ Rather, 
general economic conditions are probably the dominant factors 

- 20 Hearings before the Temporary National Econoniic Committee, Part 9, 1939. 
21 Ibid., pp. 192-193. 

-2 The writer has had occasion to examine the portfolios of a number of large fortunes and has checked 
his observations with prominent investment brokers who concur in this statement. 



134 CONCENTRATION OF ECONOMIC POWER 

determining the number and amount of large incomes available for 
taxation. For statistical proof of this situation, the effect of different 
tax rates in widely separated periods of time would have to be com- 
pared. Such a study, based on actual income-tax returns, should be 
made to clarify this and other controversial issues concerning the 
taxation of large incomes and fortunes. 

Of late, serious attempts have been made to reform the tax struc- 
tm'e, harmonizing the net income, gift, and estate taxes and rates to 
seciu"e the effect desired from these levies. More will be said of this 
procedure later, but it is sufficient here to point out that a progressive 
rate structure cannot limit the growth of large fortunes, or the con- 
centration of great wealth in a few hands, unless it is bolstered and 
protected by law and administrative procedure enabling the prin- 
ciple of rate progression to operate fully. Our laws have never 
achieved this, and, despite the reforms made, the full effect of pro- 
gressive taxation has never been felt. 



TAX EVASION AND AVOIDANCE 

Evasion of taxes is a technical term describing the illegal failure to 
report taxable sources, or the deliberate evasion of tax collection. 
Avoidance of taxes is the effort by the taxpayers to take advantage of 
loopholes or legal gaps in the statutes to avoid the full impact of taxes. 
Both are quite generally practiced, depriving the Government of 
considerable revenue, besides seriously impairing and at times greatly 
distorting the tax system itself. For, no matter how admirable a 
system has been enacted into law, its effect is lost if its provisions are 
evaded, legally or illegally. Any analysis of the social-economic 
effects of the revenue system, therefore, requires some discussion of 
tax evasion and avoidance. 

Evasion and avoidance of tax responsibilities had become so wide- 
spread by 1937 that the President asked Congress for a joint committee 
to investigate this aggravating problem. The resulting reports star- 
tled Congress into action, plugging loopholes, and created pronounced 
public disapproval of those who sought to evade the intent of the 
tax laws.^^ 

The Secretary of the Treasury informed the committee that 2,800 
field agents of the tax divisions of the Government are pitted in a 
most unequal contest against more than 45,000 attorneys and tax 
accountants engaged in aiding clients with their tax reports. He said: 

The most resourceful bfains of the legal world are engaged actively in trying to 
avoid taxes for their clients. Among these are men who received their early 
training from the Government, and who use the skill they acquired in that service 
against the younger men who take their places. * * * 

The ordinarily accepted standard by which many wealthy taxpayers judge the 
efficiency of the tax attorney is the amount that he can fcave them in taxes. The 
most ingenious attorney, therefore, becomes' the most successful and the most 
sought after. ' He feels that his sole duty is toward his client. If he is honest, he 
will not condone perjury, but he feels little moral or social responsibility to the 
Government. Therefore, if he can invent a new scheme for circumventing the 
intent of the tax laws, which will be upheld by the pourts, he is weir within the 
ethics of his profession regardless of the unfortunate effect that such -a scheme 
will have upon the general application of such laws.^^ 

An examination of personal income-tax returns by the Treasury 
Department revealed tax evasions and avoidance amounting to mil- 
lions of dollars. Ten different groups of methods were shown, as 
follows: 

1. Setting up foreign personal holding companies in the Ba- 
hamas, Panama, Newfoundland, etc., where taxes are low and 
corporation laws lax. 

2. Obtaining spurious deductions for interest from insurance 
policy loans in foreign life insurance companies which were created 
for the purpose of tax avoidance: 

3. Use of domestic personal holding companies to benefit by 
the reduced rates effective in 1936. 



"Hearings before the Joint Committee on Tax Evasion and Avoidance, 76th Cong., 1st sess., 1937. 
" Ibid., pt. I, pp. 9-10. 

185 



|g(J CONCENTRATION OF ECONOMIC POWER 

4. Incorporating yachts and personal estates, turning over to 
them securities with income sufficient to cover their operations, 
which would otherwise not be deductible from income. 

5. The artful use of family trust and personal holding-company 
loans to obtain deductions for interest and losses not renlly in- 
curred for business purposes as intended by law. 

6. Creating multiple trusts for relatives and dependents. This 
scheme splits the income in two or more parts, obtaining lower 
tax rat6s, while retaining control of the income in the trustee. 

7. The creation of family partnerships solely in order to split 
the income and reduce the rates applied to it. 

8. Use of percentage depletion by companies engaged in mining 
and petroleum production, permitting deductions of a percentage 
of gross income to cover depletion of their mines and wells. 

9. Filing of separate returns by husbands and wives in the 
eight States wliich have community property laws, affording 
residents of these States lower tax rates than those of other 
States. 

10. Establishment of pension trusts for high salaried officers 
of corporations, payments of wliich are exempted from taxation. 

Legislation followed tliis investigation, stopping some of the more 
glaring, though not necessarily the largest, methods of evasion. The 
personal holding company device, whether foreign or domestic, has 
been brought under substantial control and its special merit as a 
means of avoiding taxation eliminated. But multiple trust advan- 
tages have been destroyed only in part, and the division of income 
among members of the same family for tax avoidance purposes still 
plagues the Government revenue collectors. 

The irony of the situation is that the majority of taxpayers, those 
of small incomes, cannot afford to pay the legal talent needed to 
profit from these loopholes, but it frequently pays a wealthy person 
to employ skillful tax attorneys to stretch the law or cut around some 
of its provisions in an effort to escape taxation. The Bureau of 
Internal Revenue handles over 6,000,000 tax returns a year, yet its 
investigating and clerical force is able to audit carefully only about 
500,000 of them. The possibility of escaping detection, or of securing 
favorable adjustments either through litigation or settlement with 
the Treasury Department offers large taxpayers special inducements 
to seek to escape the full impact of the tax laws. The costs of col- 
lection are so great, and the litigation on involved cases so prolonged, 
that the Government seeks, if possible, to adjust tax claims and secure 
settlements out of court. ^^ Consequently, it proceeds only against 
the most serious offenders and then only when its chances of success 
are especially good. 

While the attempts to adjust personal income, estates, and gift 
taxes so that, combined, they will prevent evasion, and actually 
result in a single progressive tax structure affecting incomes and 
wealth, have been well aimed, their achievements are by no means 
entirely satisfactory. Increasingly sound administration and growing 
cooperation between tax-collecting groups have done much to prevent 
evasion. But there are still loopholes in every tax whiclv mitigate 

's Thus Qustavus Myers in The Ending of Hereditary Americari Fortunes, pp. 356-358, points out that 
the tax litigation over the settlement of the Viscount William Astor estate lasted from 1919 to 1939, or 20 
years. 



concent:ration of economic power 



187 



their combined usefulness in producing revenue out of surplus funds, 
or in curbing the continued excessive growth of large fortunes. 

The constitutionality of taxes on gifts in contemplation of death 
still remains doubtful, and the proofs of such a condition are still 
dubious. The extent to which the Government has been involved 
in suits over the application of the gift and estates taxes is indicated 
by Justice Stone in his recent book.^** Of 102 cases involving the 
question of the transfer by gift in contemplation of death, 20 cases 
covering $4,250,000 were decided in favor of the Government's con- 
tention; in 3 it was partially successful, but in 78 cases involving 
$120,000,000 it failed; and in 1 case the jury disagreed. In 56 of the 
78 cases wliich the Government lost, the gifts were made within the 
two-year period before death, but in 22 cases the gifts were made 
more than two years before the donor died. 

The practice of transfers of wealth through continuous trusts has 
by no means abated, and is being advocated by banks and other 
respectable financial institutions.^^ 

Groves summarizes the varying applications of trusts as follows i^^ 



Nature of trust 


Treatment under 


Federal law 


Most State laws 


Revocable and iinmcfiiato benefit to settlor 

Revocable but inime<liate benefit to beneficiary. . 


Taxable under estates tax 
Taxable 


Taxable under inheritance 
tax. 


Irrevocable, but immo'liritc benefit to settlor. 

Irrevocable, and immediate benefit to beneficiary 


do.._. 


Taxable 


Not taxable. 









An excellent summary of the problems of tax avoidance in the 
personal income-tax field has just appeared,^ in which the masterly 
studies of Mr. Randolph Paul are quoted repeatedly. He comes to 
four general conclusions about tax avoidance: 

First, a tax lawyer must be a skeptic, reading between the lines of 
the statutes to find the overtones rather than only the strict wording 
of the statute. 

Second, tax avoidance in some cases is still legitimate, but permissi- 
ble avoidance is diminishing, and is likely to continue to do so. Also, 
nonpermissible avoidance is becoming more expensive and also is 
decreasing. 

Third, there is no equitable basis for division of income within a 
family as a tax-saving device. Husbands, wives, and minor children 
living together should file a composite return. 

Fourth, the Treasury's attitude should be changed, to escape the 
argument that since the Treasury takes advantage- of every techni- 
cality to collect more taxes, the taxpayer is also justified in trying to 
use such technicalities to escape taxation. 

" Harlan Fiske Stone, Public Control of Business. Howell, .Soskin, New York, IQ'IO, pp. 273-28S. 

" Qustavus Mye-s, op. cit., pp. 355-^.5!). Thus, a pimphlet circulated by a leading; bank-trust company in 
New York in 1939 said, "When a will is filed for probate it becomes a public document that anyone can .see. 
The terms of the will are often reported in the press. Experience shows that there is much loss publicity 
with re.'^pect tn a trust agreement." Reeommendiug a "living trust" as the best form of passing on weilth 
to heirs, the bank holds forth this assurance, "If the trust is not made in coutempliition of death, the property 
is exempt from all such t axes on his death, and generally on the deaths of successive beneficiaries for so lonK 
as the trust lasts." 

i8 Orovos, op. cit., p. 2f)5. 

" Harry J. Rudick, The Problem of Personal Income Tax Avoidance, Law and Contemporary Problems- 
School of Law, Duke University, Spring, 1940, pp. 242-265. 



][88 CONCENTRATION OF ECONOMIC POWER 

The filing of separate personal income-tax returns in certain States; 
the operation of community tax laws, which reduce the effect of 
inheritance taxes in some States, ^the fact that gift tax rates are still 
considerably lower than estate tax rates; the use of trusts; the migra- 
tion of elderly persons to fix domiciles in low-tax States; the difficulties 
of determining contemplation of death in the transfer of ownership of 
wealth; and the absence of an adequate undistributed profits tax — 
all these combine to militate against the effectiveness of progressive 
forms of taxation in attaining a higher measure of tax justice and a 
more equitable and economic redistribution of wealth in the United 
States. 



TAX EXEMPTIONS 

A most reprehensible form of tax favoritism benefiting the wealthy, 
who need such favors least of any group in the population, is the 
issuance of tax-exempt Government securities. 

Paul Studenski, tax consultant for various vState and Federal Gov- 
ernment agencies, and professor of public finance at New York Uni- 
versity, appearing before the Senate Committee on Taxation of 
Governmental Securities and Salaries in 1939, said: 

The paramount fiscal issue * * * before the committee, in my opinion, is 
the preservation in our tax system of the democratic principle of taxation of 
ability to pay. The greater part of our tax system tends to be regressive in 
nature; that is, to bear more heavily on the people of small means than on those 
of larger means. The only segment of our tax system based on the principle of 
ability to pay is that represented by our income and inheritance taxes. Although 
these taxes supply only 14 percent of the entire revenues of the country at this 
moment, their importance is far greater than is indicated bj"^ this proportion; they 
add equity to our tax system as a whole. This is their prime significance. It is 
exceedingly important, therefore, that these taxes be protected against any possible 
impairment which might interfere with their effective operation * * * Xax 
avoidance undermines the integrity of our tax system and the morale of our tax- 
payers. We cannot profess to be taxing in accordance with ability to pay while 
we are offering a wide loophole to our wealthy citizens to avoid the application of 
this principle of investing some of their wealth in wholly exempt securities.™ 

Increased resistance to taxation, the depressed earnings during the 
past decade of so many citizens, and the requirements of governmental 
bodies for larger funds have built up a deficit spending program which 
has greatly increased the dependence of all levels of government on 
borrowings. Tax-exempt securities, long used to help defray the 
costs of government, have increasingly gained favor among wealthy 
persons who possessed large uninvested surpluses, and many others 
who sought to defer payment for government services. By 1937, the 
total of such tax-exempt issues exceeded $65,000,000,000, distributed 
as indicated in table 57, charts 38 and 39. The distribution among the 
several political divisions of government was as follows : 



Political unit 



Amount 
(billions) 



Per- 
centage 



State and local governments 

Federal Government and instrumentalities: 

Wholly exempt 1.., 

Partially exempt , 



$19.3 



17.3 
29.0 



29.4 



26.4 
44^.2 



The tax-exempt securities of local, State, and Federal Governments 
are bonds issued against these several governments, certain Liberty 
bonds. Treasury iiotes, and certificates of indebtedness. Federal in- 
strumentalities, such as the corporations set up under various con- 
gressional acts, also issue tax-exempt securities. Certain Liberty 

31 Paul Studenski, Hearings before tho Special Committee on Taxation of Governmental Securities and 
Salaries, Senate, 76th Cong., 1st sess., Washington, 1939, p. 553. 

189 



190 



CONCENTRATION OF ECONOMIC POWER 



bonds, 4 and 4% percent bonds, United States savings bonds, Treasury- 
bonds, and the issues of some Federal instrumentalities are partially 
exempt from taxation.. 

Table 57. — Estimated distribution of tax-exempt securities by cl(isses of holders, 

June SO, 1937 

[Dollar figures in billions] 





Wholly exempt 


Partially ex- 
empt 


Total 


Holders of securities 


State and local 


Federal instru- 
mentalities 


U. 8. Govern- 
ment 


U. S. Govern- 
ment and 
Federal instru- 
mentalities 


Amount 


Per- 
cent 




Amount 


Per- 
cent 


Amount 


Per- 
cent 


Amount 


Per- 
cent 


Amount 


Per- 
cent 




Governments, their 
agencies, trust funds, 
investment funds, 
Federal Reserve 
banks 


$4.3 

2.8 
1.8 
.8 

.8 

.5 
8.3 


22.3 

14.6 
9.3 
4.2 
4.2 

2.3 
43.1 


$0.8 
.3 


36.4 
13.6 


$3.5 

5.9 
1.3 
1.1 
.3 

.1 
2.9 


23.2 

39.1 
8.6 
7.2 
2.0 

.7 
19.2 


$6.5 

8.7 

3.7 

.8 

2.1 

.4 

6.8 


22.4 

30.0 
12.8 
2.8 
7.2 

1.4 
23.4 


$15.1 

17.7 
6.8 
2.8 
3.2 

1.0 
19.0 


23.0 


Active banks, excluding 
mutual savings banks. 

Insurance companies 

Other corporations 

Mutual savings banks... 
Other tax-exempt insti- 


27.0 
10.4 


.1 


4.5 


4.3 

4.8 






1.5 


Individuals 


1.0 


45.5 


29.0 






Total 


19.3 


100.0 


2.2 


100.0 


15.1 


100.0 


29.0 


100.0 


65.6 


100.0 







Source: Adapted from Hearings before Special Committee on Taxation of Governmental Securities and 
Salaries, Senate, 76th Cong., 1st sess., 1939, p. 14. 

Individuals hold an estimated $19,000,000,000 of all such issues, or 
29 percent. These represent investments made by persons with sur- 
pluses over the needs of living. According to the spending patterns of 
the American people, 18 percent of the consumer units, witli incomes in 
excess of $2,000 a year, made more tlian 93 percent of all savings; the 
2.4 percent with incomes of $5,000 or more accounted for 63 percent 
of all savings. ^^ While small savers do find tax advantages in the 
savings bonds issued by the Federal Government, the usual Govern- 
ment security is of too large denomination to be readily available to 
persons of small means. In terms of a cross section of the income 
.groups in the United States, it is obvious that tax-exempt securities 
owned by individuals are held largely by those relatively few with 
substantial wealth. 

Whether tax-exempt securities are sought more by people of un- 
usually large wealth than by middle-class savers is another question. 
Prof. Harley Lutz, urging the continued issuance of tax-exempt se- 
curities, told the Senate investigating committee tliat such was not 
the case, that, "The Treasury's assertions that wealthy people are 
loading their estates with tax-exempt securities are erroneous. ^^ He 
ofi'ered as supporting evidence of his position a study of investment 
items in estates tax returns filed for the years 1926-36, inchisive. 

3> National Resources Committee, Consumer Expenditures in the United States, Washington, 1939, p. 48. 
See also pp. 310-11 of tliis study. ,„ .. ^„, . 

32 Hearings before the Special Committee on Taxation of Governmental Securities and Salaries, op. ctt., 
pp. 93, 117, and appendix D, pp. 171-172. 



CONCENTRATION OF ECONOMIC POWER 



191 



CO 

CO 

< 

W 
O 




K£>S 



261085— 40— No. 20- 



-14 



192 



CONCENTRATION OF ECONOMIC POWER 



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H 

a: 

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UJ 

(/) 

\- 

Q- 



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Q. 2 



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CONCENTRATION OF ECONOMIC POWER 



193 



These data have been reassembled in table 58, charts 40 and 41 in 
this treatise. They show nothing concerning trends, for as Dr. Liitz 
presented the data, they simply lump the situation for the 11 years; 
but they do show the location of tax-exempt seciu"ities in estates of 
various sizes. Far from supporting Dr. Lutz' position, they refute it 
and corroborate the position of the Treasury, 



Table 58. — Amounts of certain investments in estate-tax returns, 1926- 
108,503 estates, by size of net estate 

[Dollar figures in thousands] 



Item 



Returns 

Federal bonds 

Wholly pxempt»_ 
Partially exempt- 
State and local bonds 

All other bonds 

Capital stock... 



No net taxable 
estate 



Amount 



SO.OOC 

$131,992 

22, 285 

109, 707 

75.947 

292, 091 

1, 128, 026 



Per- 
cent 



46.1 
10.4 

3.7 
16.8 

4.2 
12.3 

8.2 



Under $50 



Amount 



21, 276 

$108, 310 

17, 749 

90, 561 

68, 491 

279, 519 

972, 873 



Per- 
cent 



19.6 
8.5 
2.9 

13.7 
3.7 

11.8 
7.1 



$50-$100 



Amount 



10, 349 

$78, 637 
17, 123 • 
61,514 
54, 870 
205, 526 
757, 557 



Per- 
cent 



9.6 
6.1 
2.^ 
9.3 
3.0 
8.7 
5.6. 



Item 



$100-$1,000 



Per- 
cent 



Over $1,000 



Amount 



Per- 
cent 



Total 



Amount 



Per- 
cent 



Returns 

Federal bonds 

Wholly exempt __ 

Partially exempt. 

State and local bonds 

All other bonds 

Capital stock 



23, 824 

$451, 157 

172,703 

278, 454 

594, 012 

1,081,419 

5, 081. 805 



22.0 
35.3 
27.8 
42.2 
32.4 
45.7. 
36.9 



3,054 

$509, 053 

389. 997 

119,056 

1, 038, 704 

507, 976 

5,844,838 



2.8 
39.8 
62.9 
18.1 
56.7 
21.5 
42.4 



1C8, 503 

$1, 279, 149 

619, 857 

659, 292 

1,832,024 

2, 366, 534 

13,785,099 



100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 



Source: Adapted from report by Harley L. Lutz in Hearings before the Special Senate on Taxation of 
Governmental Securities and Salaries, U. S. Senate, 76th Cong., 1st sess., 1939, pp. 171-172. 

The extent of the concentration of ownership of tax-exempt secur- 
ities can be seen in the following display of estates of $100,000 or more: 



Item 



Securities held by estates of 



$100,000 


$1,000,000 


or more 


or more 


21.8 


2.8 


74.9 


39.7 


90.7 


62. g 


60.1 


18.0 


89.2 


56.8 


67.2 


21.6 


79.2 


42.4 



Percentage of all estates 

Percentage of securities held 
Federal bonds: 

Wholly exempt 

Partially exempt 

State and local bonds. 

All other bonds 

Capital stocks 



194 



CONCEiNTRATION OF ECONOMIC POWER 




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CO 

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a: 

liJ 

a: 

X 



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- 




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CONCENTRATION OF ECONOMIC POWER 



195 



Chart 41 

TAX RETURNS ON 108,503 ESTATES IN 
THE UNITED STATES 

AGGREGATE 1926-1936 

NUMBER OF RETURNS BY SIZE OF ESTATE 

(Thousands) 
10 20 30 40 

NO NET TAXABLE ESTATE 

UNDER $50,000 

$50,000 -$100,000 
$IOOpOO-$ 1,000,000 
$1,000,000 AND OVER 




SIZE OF ESTATE BY TYPE OF INVESTMENT 

GOVERNMENT BONDS STATE 6 LOCAL BONDS OTHER BONDS 



NO NET TAXABLE ESTATE - 
UNDER $50,000 

$50,000 -$100,000 

$ 1 00.000 -$ 1 ,000,000 --- - 
$1,000,000 AND OVtH 



K 






CAPITAL STOCK 



DOLLARS (Billions) 

3 4 5 6 



NONET TAXABLE ESTATE—- 

UNDER $50,000 -- 

$50,000 -$100,000- 

$100,000 -$1,000,000 -- 

$1,000,000 AND OVER - 



PER CENT 
10 20 30 40 50 60 70 80 90 100 



ALL ESTATES 



10 20 30 40 50 60 70 80 90 100 

PER CENT 



196 CONCENTRATION OF ECONOMIC POWEB 

Little further argument is needed to prove that large estates hold 
most of the tax-exempt securities issued, and that they hold propor- 
tionately more of such securities than of tax-bearing bonds and stocks 
(wholly exempt Federal bonds, 90.7; tax-exempt State and local 
bonds 89.2; other bonds 67.2; capital stocks 79.2). 

Even if it is argued that an estate of $100,000 is not a "large estate," 
the figures for estates over $1,000,000 bear out the same contention. 
Slightly less than 3 percent of all probated estates are in tliis class. 
They hold 62.8 percent of wholly exempt Federal bonds, 56.8 percent 
■ of all State and local bonds; onlj^ 21.5 percent of taxable private 
bonds; and 42.4 percent of capital stocks. Our wealthy citizens have 
found it decidedly to their advantage to buy and hold tax-exempt 
Government securities. Because of their immense fortunes, they can 
afford to sacrifice, in part of their holdings, high interest rates and 
speculative returns for assured incomes and safety.^^ 

Persons with estates under $50,000 cannot afford tO invest in low- 
interest-bearing tax securities, regardless of their added features of 
tax exemption and guarantee by the Government. While 19.6 per- 
cent of all probated estates are less than $50,000, they owned only 2.9 
percent of the wholly exempt Federal securities, and 3.7 percent of 
the tax-exempt State and local bonds. But they had 11.8 percent 
of all other bonds and 7.1 percent of capital stocks. These estates are 
composed largely of tangible and real property, rather than of stocks 
and bonds. The stock and bond equities of modern business and the 
securities issued by governments are both owned primarily by that 
small group of the population with estates of $100,000 or more. 

Tax-exempt securities have become increasingly attractive to 
banks and financial institutions whose caution in business ventures 
seeks the safety of Government guarantees rather than the gains of 
business enterprise. As the wealth of the Nation is lodged increasingly 
in fewer hands, and as it is set up in trusts and* other forms to he 
passed on from one family generation to another, so the financial 
institutions intrusted with these great investment funds become 
increasingly conservative. 

They are imder no such obligation to return large gains to their 
stockholders and depositors as they were in an earlier and more 
venturesome age when the "get rich quick" spirit permeated the 
business world. Not being the masters of business which the public 
had been led to believe up to 1929, and rapidly reduced to the status 
of custodians of funds rather than business risk takers and investment 
counselors, many bankers have become ver^'^ cautious. The chaotic 
and fast-moving events of the past two decades have found them 
increasindy investing their reserves in safe, low-interest-bearing, tax- 
exempt Government securities. Thus, by 1937, active banks held 27 
percent of all tax-exempt Government issues; 39 percent of all wholly 
exempt Federal bonds; 30 percent of all partially exempt Federal 
securities; with lesser amounts of State and local securities. To the 
extent that active banks are loaded with long-term, tax-exempt Govern- 
ment securities, they fail to fulfill their essential purposes as financial 

" In the Duke University Law School's symposium on taxation mentioned earlier, Paul V. Betters uses 
the Lutz table on investments as revealed by estates, coming to the same conclusion as did Dr. Lutz. The 
same faulty statistical treatment led the author to remark, "These figures hardly bear out the constantly 
repeated plaint of Treasury ofTicials that the wealthy are escaping taxes by sinking their funds in fax-exempt 
bonds, and also shed considerable light on the consistent failure of Treasury spokesmen to offer tangible 
statistics, rather than generalities, in support of their arguments. • ♦ * It is simply not the fact that 
wealthy people are loading their estates with tax-exempt bonds in order to escape their just share of income 
taxes." Federal Income and Estate Taxation, op. cit., pp. 224-225. 



CONCENTRATION OF ECONOMIC POWER 197 

institutions, and limit their usefulness as business investment agents. 
The whole economy, therefore, suffers from their nonperformance of 
this fmiction, although investment m Government bonds is preferable 
to hoarding. 

Insurance companies entered the field of tax-exempt securities on a 
large scale during the depression, when their mortgage securities, 
which had proved so lucrative during the 1920's, became a drug on the 
market. By 1937, they owned 10.4 percent of all tax-exempt Govern- 
ment issues. 

The Under Secretary of the Treasury in his testimony before the 
Senate committee outlined the following arguments against the 
issuance of tax-exempt Government securities. 

Such tax-exemption favors the wealthy by breaking down the 
progressive chara,cter of the income tax-rate structure. Thus, the 
witness pointed out that for a married man with a net income of 
$500,000, a "3 percent fully tax-exempt security aft'ords the same 
return after Federal income tax as a taxable security yielding 10.71 
percent." Contrast this situation with the man with an income of 
$5,000. In his case a 3 percent tax-exempt security is the equivalent 
of only a 3.2 percent taxable security.^* 

The issues of tax-exempt securities have reached an amount in 
excess of the demand for them on the part of individuals in higk 
income brackets. But the unusual advantage of safety possessed by 
such Government issues makes them salable to financial institutions 
which are not particularly benefited by their tax-exempt feature. 
They would, in all probability, continue to bu}^ Government securities 
even without the exemption. To the extent, however, that the 
exemption is an additional attraction, it tends to retard the investment 
of capital in venturesome enterprise. The accumulation of institu- 
tional capital during the past several decades, and the demand for 
safety in the investment of sUch capital naturally residt in increasing 
purchases of Government securities. Here is a normal market for 
such securities, and one which does not require the incentive of tax 
exemption. Also the removal of this incentive w^ould probably - 
increase the interest of individual investors of great wealth in venture 
enterprises. 

The Treasury contended that the discontinuance of tax exemp- 
tion would materially increase Government revenues, but that even 
without such an increase the step should be taken for the reasons just 
cited. The opposing side argued hotly that this would add $113,000,- 
000 a year to the costs of State and local governments.^^ Recrimina- 
tions between experts spotted the hearings, indicating ultimately only 
that there is little conclusive evidence of the probable effect of the 
removal of the exemption. Roy Blough, Chief of the Division of Tax 
Research of the Treasury, summed up that Department's position in 
the following statement: 

The existence of 100,000 taxpayers, who reported about $4,000,000,000 of net 
ncome or more than one-fourth of the total income reported on individual income 
tax returns, and who are in position to gain by tax exemption — and have gained 

3' Statement of John W. Hanes, Under Secretary of the Treasury, before the Special Committee oa 
TavBtion nf rinvernmentnl Feni'jties anri Salarip<;. op. rit.. pp. 4-34. 

, »» This was the contention of Harley Lutz, and his figures were quoted freely by other witnesses, or used 
as the basis of their computations. Dr. Paul Studenski took reasonable exception to them on the basis 
that they would not become operative until all existing tax-exempt securities had matured and been replaoed. 
by taxable securities, which would not occur within 15 or 20 years. 



198 



CONCENTRATION OF ECONOMIC POWER 



an undetermined amount- 
income tax.38 



-constitutes a serious threat to the progressiveness of 



Tax exemption is not confined to Government securities. Govern- 
mental instrumentalities are untaxed, on the theory that the trans- 
action is simply a pocket-to-pocket affair which adds nothing to the 
revenue system and coniplicates Government finance. As government 
takes over more activities from the private sector of the economy, 
this exemption may embarrass those local governments which depend 
largely on such activities for revenue. Conflicts arise out of this im- 
munity, and friction increases between taxing jurisdictions. Contro- 
versies over the application of such State levies as the sales tax have 
increasingly occupied the attention of tax experts, and the end is not 
yet in sight. Whether publicly operated utilities should bear taxes is 
still an unsettled issue in some localities. 

Among the principal beneficiaries of tax exemption are those insti- 
tutions which, though privately owned, are operated for nonprofit 
purposes, such as educational, philanthropic, and religious groups. 
Long-established custom has exempted from taxation the properties 
used directly for such purposes. In some places where these institu- 
tions are located, the result is a greatly increased burden on local tax- 
payers. Thus, in a certain small town in the West, a religious body 
owns extensive properties within the town limits, whose exemption 
from taxation adds over a third to the tax bill of every taxpaying 
citizen of the community. 

Exemption of real property from taxation is quite extensive. Jen- 
sen reported that $20,506,000,000, or 11.6 percent of the real property 
of the United States in 1922, was exempt from taxation. The range 
was from 25.8 percent of the property located in the Mountain States 
to 6.6 percent of that in the West North Central States." In table 59 
more recent data on tax-exempt land and improvements are shown. 

Table 59. — Real property and improvements exempt from taxation, 192S-37 
[Dollar figures In millions] 



Year 


Amount 


Percent- 
age 
increase 


Year 


Amount 


Percent- 

aee 
increase 


1923 


$20, 919 
21,117 
22, 751 
24. 518 
24, 791 




1933 ,. 


$25, 192 

25, 079 

1 26, 301 

5,382 


1.6 


1925 


■ 0.9 

7.-7 
7.S 
1.1 


1935; - 


-.4 


1927 


1937 - 


4.9 


1929 


1937 over 1923 


25.7 


1931.. - 











I Preliminary. 

Source: Adapted from National Industrial Conference Board, Enterprise and Social Progress, 1939, p. 60. 

The value of such tax-exempt property has grown by 25.7 percent 
from 1923 to 1937. More significant still is the fact that it increased 
even during the depression when property values generally were 
declining. A higher value of real property was exempt from taxation 
in 1937 than at any time during the previous 15 years. 

" Roy Blough in Hearings Before the Special Committee on Taxation of Governmental Securities and 
Salaries, op. cit., p. 584. „,. ,„„ 

" Jens P. Jensen, Property Taxation in the United States, University of Chicago Press, Chicago, 1931 
p. 126. 



CONCENTRATION OF ECONOMIC POWER IQQ 

A practice wliich has become quite popular in certain parts of the 
country of late is that of offering tax exemptions and other induce- 
ments to industries if they will locate there. Even when these 
proposals are legal, being local in character and not part of a national 
economic plan, they represent favoritism extended to certain busi- 
nesses over others in the same area. Furthermore, they tend to 
disrupt industrial conditions in widely separated parts of the country. 
Such special inducements to industry do not aid the economy in the 
long run, but tend to complicate the problem of devising an equitable 
tax system for the Nation and its subdivisions. 

Considerably more mformation is needed before any final recom- 
mendations regarding tax exemptions can be made. Many tax 
agencies do not now compile such data, and it is impossible to secure 
an accurate basis for sound judgments. There are many ramifica- 
tions of the problem, but the size of the tax burden and tiie increasing 
demand for Government services make it imperative that every 
legitimate tax source contribute its just share to the cost of Govern- 
ment. 



DOES THE REVENUE SYSTEM RETARD RECOVERY? 

FEAR, LOST INCENTIVE, DANGER TO INVESTMENT FUNDS 

Extreme critics of the present revenue system declare that capital is 
on strike against the imposition of new and heavier taxes; the frequent 
and unpredictable changes in the Federal revenue laws throw business- 
men into confusion; the growing public debt menaces the economic 
structure; business profits are scarce and risk capital has gone into 
hiding because substantial returns are not in sight, or are immediately 
taken over by the Government through oppressive taxes. The 
incentive to lay by a fortime for one's children is presumably killed 
by the high estate- and gift -tax rates which whittle down the accumu- 
lations of a lifetime so that there is little left to pass on. Punitive, 
prohibitive, and regulatory taxes have been imposed in an ever- 
widening circle to affect more and more of the business system. The 
cost and intricacy of the accounts required by the Government not 
only impose a heavy burden on private business, but tax the time 
and capacity of businessmen who seek to obey the law. All these — 
and more — are the doleful plaints of those who object to the present 
revenue system. . • 

Widespread resistance -to taxation, alo'ng with the belief that tax 
payments do not benefit the taxpayer but only enrich grafters and 
politicians who render no service to society, always afford a fertile 
field for propaganda for those to whom a low tax bill, statutes full of 
loopholes, and weak business regulation mean larger profits. 

As the revenue system becomes perfected, the chances for escaping 
taxation grow fewer, and as the need for revenue increases, the levies 
become heavier. With these forces at work, and particularly in time 
of depression, it is only natural that those opposed to further taxes 
should try to play upon the prejudices of the people for support. 

During the worst years of the depression, the Federal Government 
widened the base of taxation in its effort to obtain much-needed funds, 
im.posing, as has been indicated earlier, a whole series of excise and 
occupation taxes M^hich brought an increasing number of businesses 
and consumers into direct contact with the Federal tax collectors. 
The individual income and corporation tax structure was also substan- 
tially revised; not only were the rates raised, but loopholes were 
closed. New taxes were also imposed. Among them was the undis- 
tributed-profits tax, passed in 1936 in an attempt to get at the accumu- 
tions of business institutions which were not passed on in dividends 
to their stockholders. While the yield of this tax was never great, it 
was seized upon as a rallying point for those who considered the 
burden of taxes oppressive. They held that this tax prevented the 
accumulation of reserves and penalized small or new enterprises. 
The hue and cry raised about it was calculated to convince -the man 
in the street that the Federal Government had run amuck in a mad 
desire to ruin business through taxation. The tax became virtually 

200 



CONCENTRATION OF ECONOMIC POWER 201 

inoperative iii 1938, and was repealed in 1939, but has since been 
referred to repeatedly as a horrible example of governmental inter- 
ference with business. 

During May and June 1939, the Ways and Means Committee of 
the House of Representatives held hearings on tax irritants and 
restraints, at which representatives of business organizations testified. 
The Under Secretary of the Treasury also invited business groups 
and individual taxpayers to present their cases before a special com- 
mittee of the Treasury which held periodic meetings during the fall 
of that year, and the response was considerable. There is conse- 
quently a body of information concerning the attitude of business 
groups and individuals who find fault with the present revenue system. 
It contains much opinion and judgment concerning the effects of the 
tax system on business recovery, but it offers little objective data 
evidencing such effects. 

Ellsworth C Alvord, formerly a high-rankmg official in the Treasury 
Department under Secretary Mellon, and now a tax attorney in 
Washington, appeared as an officer of the United States Chamber of 
Commerce to present the chamber's program for tax reform.^* He 
urged a program including: 

*1. A transition from Government spending to private 
investment. 

2. A souiid constructive fiscal program for the Federal, State, 
and local governments. 

3. A decrease in the demands for Federal assistance-. 

4. A reduction in relief rolls with corresponding increase in 
private pay rolls. 

5. A substantial increase in national income. 

These objectives are to be attained through: 

1. Adjustment of tax rates to the point of maximum business 
activity and hence maximum productivity. 

2. Removal of tax barriers to private enterprise and invest- 
ment. 

3. Assurance of stability and certainty in the revenue system. 

4. Simplicity and ease of tax administration. 

5. An effective control of expenditures, so that they jnay be 
kept within the revenue yields of a reasonably permanent tax 
system enacted to carry out the foregoing program. 

There is little to question in these general statements. It is only 
when the specific tax proposals are examined that their direction can 
be discerned. The United States Chamber of Commerce believes 
that these worthy objectives can be attained through: 

Reduction in the normal tax rate on corporations, with special credits to reduce 
the application of the tax on smaller corporations; no undistributed-profits tax; a 
carry-over of net business losses for 3 years; simplification and easement of the 
individual capital gains provisions; treatment of long-term gains and losses of 
corporations as ordinary gains and losses to accord corporations similar treatment 
with individuals; an annual declaration of capital stock value; permission for 
affiliated groups to file consolidated returns; exempting intercorporate dividends 
from taxation, and excluding corporate dividends from individual normal tax; 
the enactment of fairly permanent reveniie law, the basic principles of which are 
to remain in force for a period of at least 10 years; the reduction of individual 
surtaxes to the point where they will not discourage private investment and 

" Hewings before the Ways and Means Committee on Revenue Revision, 76th Cong., 1st sess., Wash- 
ington, 1939, pp. 73-117. 



202 CONCENTRATION OF ECONOMIC POWER 

individual initiative; a substantial reduction in the tax on capital gains; an effec- 
tive earned-income credit; a revision and simplification of the estate tax laws, 
including a substantial reduction in the present ''confiscatory" rates ; a provision for 
setting aside adequate funds, free of taxation (through insurance or otherwise) 
for the payment of the estate tax; the repeal of the capital stock and excess-profits 
taxes as soon as the revenue requirements permit; removal of inequities now 
existing in the excise tax system; a procedure for the collection of excise taxes 
comparable to that for the income tax.^' 

Many of the specific items mentioned above sliould be classed as 
"irritants," &nd some have already been removed. The 1939 Revenue 
Act provided that corporations and individuals might deduct their 
net operating business losses occurring in 1 year from their profits in 
the succeeding 2 years. The remaining parts of the undistributed- 
profits tax were removed from the statutes. Banks and insurance 
companies with incomes below $25,000 were accorded the same 
benefits of lower and graduated rates that are permitted other cor- 
porations. Corporations were afforded relief by allowing them to 
deduct their net long-term losses from the year's ordinary income. 
Corporations were authorized to revise upward their capital stock 
valuation during each of the next 2 fiscal years. Under older practices 
where a taxpayer retired a debt by payment of less than its face 
value, the difference was subject to income taxation. This was 
changed by the 1939 Revenue Act, which permitted corporations in 
unsound financial condition to scale down their debts without being 
subject to the old provision of tax payment on their face value. 

But the major proposals for change made by business groups center 
around modifications in the personal and corporate income and estates 
taxes. The U. S. ChamJ^er of Commerce has long contended that 
the levies upon business income are oppressively heavy, resulting in 
curtailment of profits and investments and retarding economic recovery. 
On this point Alvord offers some supposed facts to substantiate his 
claim that; 

Many corporations are pa.ying more than a third — in some instances 50 per- 
cent — of their net income in taxes. In our opinion this is well above the point 
of maximum productivity. Attached is a table prepared from registration 
statements filed with the Securities and Exchange Commission, showing the total 
taxes paid and their relation to the net incomes of certain groups of corporations. 
It would seem that further proof is unnecessary.'"' 

The data bearing on the corporation tax burden is so scanty that 
it must be examined with great care in order to throw as much light 
as possible upon it. The table which Mr. Alvord submitted in his 
testimony has been reproduced in table 60, in which columns (1), 
(2), (5), (7), and (8) constitute the data presented by him to the 
Ways and Means Committee hearing. Columns (3), (4), (6), (9), 
(10), and (11) have been added from the original sources. They are 
essential in order to fully answer the points raised by the witness. 

" Ibid., pp. 102-103. 

" Ibid., p. 103, and table, p. 111. 



CONCENTRATION OP ECONOMIC POWER 
Table 60. — Corporation taxes, 1937 



203 



Industry 



(1) 



Steel producers 

Meat packers 

Chain variety stores 

Automobile manufacturers 

Tire and rubber manufacturers 

Agricultural implement manufac- 
turers 

C i garette manufacturers. _ _ _ _ . 

SuRar refiners 

M ail-order houses 

Oil refiners 

Oflfice equipment manufacturers 

Cement manufacturers 

Department stores _ . 

Container and closure manufacturers. 

Chain grocery and food stores 

Chemical and fertilizer manufacturers. 

Totol 



Number 
of regis- 
trants 



(2) 



205 



Taxes 



I'rovision for 
Federal in- 
come tax 

(3) 



$54. 236, 187 

4, 625, 756 

11,799,626 

63, 337, 069 

6, 356, 294 

23, 255, 640 
17, 2S6, 886 
3, 560, 637 
13, 861, 853 
81,817,646 

8, 306, 861 
835. 079 

7, 318, 321 

9, 713, 988 
1, 997, 619 

31, 989, 781 



340, 299, 243 



Other 



(4) 



$94, 723, 741 
16, 869, 881 
18, 005, 371 
89, 529, 197 
37, 578, 605 

16, 154, 685 

7, 499, 299 

12, 184, 991 

11, 465. 362 

141, 763, 756 

6, 65'i. 971 

2, 053, 354 

23, 439, 965 

8,917,316 

13,341,305 

23, 148, 513 



Total 
(5) 



$148, 959, 928 
21, 495, 637 
29. 804, 997 
152, 866, 266 
43, 934, 899 

39, 410, 325 

24, 786, 185 
15, 745, 628 

25, 327, 215 
223, 581, 402 

14, 963, a32 
2, 888, 433 
30, 758, 286 
18,631,301 
1.5, 338, 924 
55, 138, 294 



883, 631, 555 



Net taxable 
income 



(6) 



$253, 978, 702 
23, 950, 472 
76, 316, 594 
314. 772, 315 
33, .534, 737 

89,174.058 

100, 644, 637 

23, 281, 609 

67, 340, 858 

604, 539, 989 

43, 035, 146 

7, 406, 319 

36, 258, 394 

53, 875, 674 

11,437,423 

225, 507, 697 



1, 965, 054,624 



Industry 
(1) 



Net income 
after taxes 



(7) 



Percent of 
gross taxes 
to net in- 
come after 
taxes 

(8) 



Percent of 

income tax 

to net 

taxable 

income 

(9) 



Gross profits 



(10) 



Percent of 

gross taxes 

to gross 

profits 

(11) 



Steel producers 

Meat packers 

Chain variety stores I 

Automobile manufacturers 

Tire and rubber manufacturers 

Agricultural implement manufac- 
turers 

Cigarette manufacturers 

Sugar refiners 

M ail-order houses 

Oil refiners ^ 

Office equpiment manufacturers 

Ce ment manufacturers 

Department stores __ 

Container and closure manufacturers 

Chain grocery and food stores 

Chemical and fertilizer manufacturers 



$199,742,515 

19,324,716 

61, 516. 968 

251, 43,5, 246 

27, 178, 443 

65, 918, 418 
83, 357, 751 
19, 720, 972 
53, 479, 005 

522. 722, 343 

34, 728, 285 

6,571,240 

28, 940, 073 

44, 161. 686 

9, 439, 804 

193, 517, 916 



Total— - 1,624,755,381 



74.6 
111.2 
46.2 
60.8 
161.7 

59.8 
29.7 
79.8 
47.4 
42.8 
43.1 
44 

106.3 
42.2 

162.5 
28.5 



21.4 
19.3 
15.5 
20.1 
19.0 

26.1 
17.2 
15.3 
20.6 
13.5 
19.3 
11.3 
20.2 
18.0 
17.5 
14.2 



$894, 947, 106 
502, 484, 080 
305, 069, 430 
759, 053, 325 
266, 549, 519 



235, 
1,98, 

68, 

296 

2. 030, 

145, 

30, 
332, 
138, 
212, 
433, 



689, 005 
902, 809 
727, 495 
976, 843 
939, 391 
885, 332 
302, 235 
075, 475 
046, 937 
185, 626 
708, 358 



J6.6 
4.3 

9.8 
20.1 
16.5 

16.7 
12.5 
22.9 

8.5 
11.0 
10.3 

9.5 

9.3 
13.5 

7.2 
12.7 



53.2 



17.3 



6, 851, 543, 036 



12.6 



Source: Compiled from W. P. A.— Securities and Exchange Commission Reports on the Census of Ameri- 
can Listed Corporations, New York, 1938-39; also for columns (1), (5), (except for "Steel producers"), (7). 
and (8), statement of Ellsworth C. Alvord in hearings before the House Committee on Ways and Means, 
76th Cong., 1st sess., on Revenue Revision, 1939, p. 111. 

These data were assembled in the Securities and Exchange Com- 
mission study, "Census of American Listed Corporations," which 
appeared during 1938-39 as a series of reports. They cover items of 
information furnished by Hsted corporations to the Securities and 
Exchange Commission, and represent the bookkeeping accounts of the 
corporations in question. They comprise income and property taxes, 
and, contrary to the statement of the witness, in most cases include 
rather than exclude excise and sales taxes. These listed corporations 
are- large enterprises operating nationally, or even internationally. 
They are not necessarily typical of American business. 



204 



CONCENTRATION OF ECONOMIC POWER 



n 
o 



LJ 

o 
o 
z 

Q^ 

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^ CO 

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UJ 

a: 
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o 
o 




CONCENTRATION OF ECONOMIC POWEK 



205 



Mr. Alvord concluded from these data that, "* * * in a sur- 
prisingly large number of instances corporations in this country are 
paying more than 50 percent of their net incomes in taxes." *^ This 
he deduces from a reading of column 8, which in his table was erro- 
neously captioned, "Percent of taxes to net income," and which ia 
correctly headed in our table, "Percent of gross taxes to net income 
after taxes." The distinction is obvious, and important. 

Substantially different conclusions are reached from reading the 
table than those upon which the Chamber of Commerce tax specialist 
argued for a reduction in corporation income taxation. According 
to the books kept by the corporations listed, their tax bill in 1936 
was as follows: 



Item 


Amount 


Percentage 


Provision for income tax . . 


$340, 249, 253 
523,382,312 


39.4 


other taxes — property, etc ... - -- -- 


60.6 








Total taxes 


863, 631, 565 


100.0 







Obviously, it is incorrect to compare a gross tax bill with net income, 
for gross taxes are related to gross income. In fact, column 4 of the 
corporation report is captioned, "Taxes (other than Federal income 
and excess profits) charged to profit and loss as costs." Yet Mr. 
Alvord combined cost taxes and net income taxes, presuming them ta 
be the total tax bill paid by the corporations, and used the total to 
ascertain the "percent of taxes to net income." In this way he deter- 
mined that taxes were 53.2 percent of the net income of the listed 
corporations, a really heavy burden which he declared was hazardous 
to stable business conditions. 

The relation of gross corporate taxes to gross income is shown in 
column 11, where not 53.2 percent, but 12.6 percent of gross corporate 
income goes into taxes. This is the figure which Mr. Alvord should 
have presented if he wished to show the impact of "total taxes," 
for in this total are included property, excise, and sales taxes which 
are to some extent passed along to consumers and do not become a 
direct charge upon corporate income. 

If, on the other hand, he wished to show the relation of taxes to the 
net income of corporations, he should have ascertained net taxable 
income (column 6), and the relationship of provisions for income tax 
payments (column 3) to it. This result appears in colurnn 9 of the 
table, where the corporation tax directly affecting the dividends of 
investors is 17.3 percent, and not 53.2 percent as assumed by Mr. 
Alvord. 

The range of income tax burdens on particular industries is from 
11.3 percent for cement manufacturers to 26.1 percent for agricultural 
implement concerns. The topmost levy is far below the 50 percent 
which the witness testified was burdensome to business. 

Moreover, the amounts taken by corporation income taxes, and 
therefore not distributed to the stockholders of these enterprises, are 
in addition to sums extracted by the corporations themselves from 
net earnings, and piled up in the funds set aside for depletion and de- 

<• Ibid., p. 80. 



206 CONCENTRATION OF ECONOMIC POWER 

preciation reserves. Such reserves are established on a most generous 
basis, and inchide not only actual replacement costs but funds which 
often take on the character of internal surpluses used later for exten- 
sions and improvements. 

If the stockholders from whom such sums are withheld own their 
stocks long enough to receive added earnings as a result of the use of 
such sums, or if the value of their stocks is thereby increased, manage- 
ment has not treated them unfairly. But for those who dispose of 
their stocks without realizmg such advantages, these internal savings 
of corporations have no such attractions, and amount to levies on their 
rightful earnings. Table 60 shows the size of such tax-exempt de- 
preciation and depletion accounts, and compares them to corpora- 
tion taxes. 

The bookkeeping methods of reporting corporations permit a segre- 
gation of the accounts into "depreciation and depletion reserves" and 
"maintenance and repairs." The latter fund is presumably spent to 
maintain the operating efficiency of the plant and equipment, the 
former to replace worn-out or obsolete plant and equipment. Com- 
bined, these reserves are 77.7 percent greater than total taxes imposed 
on corporations. Thus, for the year 1937 the corporations listed put 
aside $896,941,829 in depreciation and depletion reserves and another 
$754,696,685 for maintenance and repairs. The tax bill paid by the 
corporations out of net earnings was $366,737,323; while the taxes 
which thev paid but probablv passed on to ultimate consumers totaled 
$557,661,273. 

The practice of setting aside depletion and depreciation reserves is 
not uniform. Cement manufacturers put aside 12.8 percent of their 
annual gross sales for this purpose in 1937 ; while meat packers laid by 
only 0.7 percent. The internal problems of these various industries 
are complex and different, hence the task of ascertaining the reason- 
ableness of exemptions fromi taxation for depletion and depreciation is 
extremely difficult. 

The presumed detrimental effects of the present revenue system on 
business is urged by the recent Brookings Institution study. Table 62 
is taken from that study. Regarding the table, the Brookings study 
says: 

One means of revealing the burden of corporate taxation is by comparing the 
amount of taxes with the gross income, since it is out of gross income that taxes as 
well as other costs are met. It is sometimes argued that, inasmuch as sonie types 
of corporation taxes may be passed along to the consumer in the form of higher 
prices, they constitute no real burden to the corporation. It is clear, however, 
that insofar as taxes are added to the price to consumers, the volume of sales and 
hence gross income would be reduced. Thus a comparison of gross income with 
taxes would still roughly indicate the burden. ^' 

" Harold Q. Moulton, et al., Capital Expansion, Employment, and Economic Stability, Brookings 
Institution, Washington, 1940, p. 273. 



CONCENTRATION OF ECONOMIC POWER 



207 



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208 



OONCENTKATION OF ECONOMIC POWER 

Table 62. — Taxes as percentage of gross income 



Classification 


1923 


1926 


1929 


1932 


1935 


1937 


Balls (class I roads):' 


1.16 
3.91 


1.60 
4.21 


1.33 
4.64 


0.35 
7.86 


0.67 
5.76 


1.64 


State and local taxes... — - 


5.78 




5.07 

.87 
6.05 


5.81 


5.97 


8.21 


6.43 


7.42 


Utilit es: , , ^ 
1. Traction (5 companies) : 


1.46 
4.78 


.78 
4.47 


.72 
4.83 


1.06 
6.38 


1.46 


State and local taxes 


7.66 




6.92 


6.24 


5.25 


5.55 


7.44 


9.12 


2. Light and power (8 companies): 


2.86 
5.31 


3.91 
6.00 


3.27 
6.26 


2.82 
8.39 


3.89 
8.79 


5.69 




8.97 




8.17 

2.00 
5.62 


9.91 

2.38 
6.19 


9.53 

2.09 
7.15 


11.21 

2.23 
8.72 


12.68 

2.02 
8.98 


14.66 


3. Gas (8 companies): 


2.16 


State and local taxes 


10.12 




7.62 

3.32 
12. J3 


8.57 

3.40 
12.42 


9.24 

2.81 
13.01 


10.95 

2.46 
14.47 


11.00 

3.67 
14.93 


12.27 


4. Water (fi companies) : 


4.51 


State and local taxes - 


17. 32 


Total taxies ^ ---- ' 


15.45 


15.82 


15.82 


16.93 


18.60 


21.83 


6. Telephone (8 companies): 


1.64 
5.22 


2.30 
5.62 


2.23 
6.27 


2.23 
7.38 


2.41 
7.63 


3.68 


State and local taxes — ' 


9.01 




6.86 


7.92 


8.50 

1.58 
.68 


9.61 

.65 
1.85 


10.04 

3.70 

.57 


12.59 






Industrials: . ^ 
1. Motors (3 companies): 




4.18 








.96 








2.26 


2.50 


4.27 


5.13 


2. Iron and steel (5 companies): 




1.15 
2.10 


1.26 
2.11 


.13 

7.37 


.85 
3.36 


2.68 


State and local taxes - -• - 




2.25 






3.25 

2.32 

.95 


3.37 

2.41 
.83 


7.50 

.19 
1.99 


4.21 

2.61 
1.58 


4.93 


3. Electrical equipment (3 companies): 





4.21 


state and local taxes - --^ 




2.22 






3.27 


3.24 


2.18 


4.19 

1.06 
1.41 


6.43 


Trade— Chain stores (7 companies):' 




1.03 

.67 


.67 
.63 


.34 
1.07 


1.50 


State and local taxes 










1.70 

. 3.89 
. 3.11 


1.30 

3.98 
2.79 


1.41 

.76 
10.64 


2.47 

3.76 
3.72 


3.22 


Mining (6 companies): 




5.69 










"i 


. 7.00 


6.77 


11.40 


7.48 


8.69 



1 ■Ryrlndes switching and terminal companies. 

• Data fof me are based on five companies; for all other years, on seven. 

Source: Harold O. Moulton, et. al., Capital Expansion, Employment and Econom Stability, Brookings 
Institution, Washington, 1940, p. 274. 



CONOBNTRATION OF ECSONOMIC POWEiR 209 

Obviously, any comparison of taxes paid by corporations to their 
gross income tells very little about the incidence of taxation. Nor is 
it necessarily true tha,t taxes passed on to consumers in higher prices 
result in reduced sales, and hence burden the corporations taxed. 
The competitive conditions prevailing in the market place affect 
various businesses differently, and hence have much to do with deter- 
mining the incidence of taxation. Among regulated public utilities, 
for example, the tax imposed is included in the rate base and passed 
on to the ultimate consumers. But these individual imposts are not 
large enough, nor felt directly enough by most consumers as to curtail 
their use of streetcars, gas, electricity, water, and telephones. Factors, 
other than taxes govern the domestic consumption of utility services. 
If this were not true, and known to be true by the utility corporations,, 
they would hardly give such widespread publicity to the impact of 
taxation on consumers, lest it hurt business. 

The same reasoning applies to other groups described in the table, 
so that the use of gross income figures to show the burden of taxation 
on corporations is of doubtful value, despite the attempt of the 
Brookings Institution to give it important significance. 

The table has value for other purposes, however. For example, it 
shows that the taxes imposed on representative businesses are pri- 
marily State and local government levies on real and personal prop- 
erty, and on income; hence thev are not determinable by the Federal 
Government and cannot be aflfected directly by national tax policy. 
Yet the attack on corporation levies seeks primarily to change the 
Federal statutes. The reason for this is obvious. State and local 
taxes, except for relatively small corporation franchise and income 
taxes in some States, are property taxes and other levies which are 
probably calculated ag business costs and are added to selling prices. 
The Federal taxes, on the other hand, are primarily levied on corpora- 
tion income and profits, and cannot be passed on to consumers. 
Hence they become extractions frofn the investors who own the cor- 
porations, and arouse the bitter opposition of business managers. 

Table 63, chart 43, presents indexes for the corporations listed in 
table 62 on a base of 1929 as iCo. Taxes, Federal, State, and local, 
have increased since 1929, but at different rates for different types of 
business enterprise. Clearly, no single statement of tax incidence or 
impact wUl apply to all business. In some instances Federal taxes 
have increased more rapidly than other taxes, in other instances the 
reverse is true. Increases in tax burdens generally comcide with 
increases in gross income, in such a way as to permit the conclusion 
that gross income is the determining factor, for corporations with the 
greatest increases in gross income also experience the greatest increases 
in taxes. Taxation, therefore, tends to follow changes in income 
rather than to cause such changes, and it seems fairly clear that taxes 
are incidents in business rather than determiners of business activity 
and income. 



210 



COXCENTRATION OF ECONOMIC POWER 



Table 63. — Tax and income data for selected corporations 
(Index numbers 1929=100] 



Classification 


1923 


1926 


1029 


1932 


1935 


1937 


Ralls (class I roads):' 

Gross income 


98.6 
86.2 
83.1 
95.0 
70.7 

86.9 
97.4 
98.2 
92.0 
66.6 

55.7 
48.7 
47.2 
70.5 
34.7 

74.5 
71.2 
58.6 
68.1 
38.3 

69.1 
81.9 
64.4 
65.9 
55.5 

63.9 
46.9 
63.2 
72.7 

57.9 


100.7 
121.1 
91.3 
99.6 
82.7 

94.7 
178.6 
101.2 

97.1 
107.3 

76.9 
92.0 

73.7 
85.7 
61.9 

88.1 
100.2 
76.3 
86.5 
42.8 

87.3 
105.8 
&3.4 
86.5 
77.8 

92.0 
94.9 
82.5 
85.8 
83.7 


100.0 
100.0 
11)0. 
100.0 
100.0 

100.0 
100.0 
100.0 
100.0 
100.0 

100.0 
100.0 
100.0 
100.0 
100.0 

100.0 
100.0 
100.0 
IM.O 
100.0 

100.0 
100.0 
100.0 
100.0 
100.0 

100.0 
100.0 
100.0 
100.0 
100.0 

100.0 

100. n 

100.0 
100.0 
100.0 

100.0 
100.0 
100.0 
100.0 
100.0 

100.0 
100.0 
100.0 
100.0 
100.0 

100.0 
100.0 
100.0 
100.0 
100.0 


50.8 
13.3 
86.0 
102.5 
19.2 

93.6 
87.4 
101.2 
109.0 
64.7 

90.5 
78.0 
121.2 
113.7 
106.4 

88.6 
94.3 
108.0 
113.9 

77.8 

99.5 
87.1 
110.6 
130.6 
93.5 

91.6 
96.4 
107.8 
102.0 
123.5 

32.6 
13.6 
88.8 
70.4 
37.7 

25.1 
2.0 
87.5 
64.0 
18.4 

35.6 
2.7 

85.7 
71.4 
37.7 

27.6 
5.3 

105.5 

119.9 

6.4 


55.0 
27.6 
G8.4 
99.3 
38.6 

84.1 
115.0 
120.0 
104.6 

63.7 

95.6 
113.7 
134.2 
119.7 

92.9 

90.0 
87.0 
113.1 
113.9 
45.2 

101.4 
132.7 
116.4 
131.5 
94.9 

99.9 
108.1 
121.7 

77.1 
115.0 

100.9 
235.8 
85.4 
25.6 
69.3 

54.9 
36.9 
87.4 
64.3 
12.0 

54.3 
58.9 
103.6 
68.4 
47.1 

86.4 
81.4 
115.3 
119.3 
41.8 


6o 6 


Federal taxes. . ■ _• . . . 


81 3 


State and local taxes 


SI 7 


Interest 


95.9 
34.3 

86 


Dividends , 


Utilities: 

Tractions (5 companies): 
Gross income 


Federal taxes 


160 6 


State and local taxes 


145 7 


Interest 


102 4 


Dividends 


68 8 


Light and power (8 companies): 

Gross income.. _ 


107 8 


Federal taxes 


187 5 


State and local taxes 


154 3 


Interest ... 


103 2 


Dividends 


100 7 


Oas (8 companies): 

Gross incom«- 


104 I 


I cderal taxes ... . 


107 1 


State and local taxes 


147 3 


Interest- - 


109 3 


Dividends 


41 7 


\^ fiter (6 companies): 

Gross income 


107 


federal ta.xes- 


171 9 


State and local taxes.. 


142 4 


Interest 


120 1 


Dividends, -. 


88 4 


Telephone (8 companies): 

Gross income.. 


!12.8 


Federal taxes. 


180.7 


State and local taxes 


162 1 


Interest.. 


68 4 


Dividends 


130 S 


IndiLstrials: 

Motors (3 companies): 

Gross income 


U2 I 


Federal taxes 






375 4 


State and local taxes 






198 9 


Interest 








Dividends _ 






120.2 


Iron and steel (5 companies) : 

Gross income 




94.0 
85.4 
93.5 
132.9 
63.0 

79.4 
76.5 
91.0 
174.9 
61.3 

81.1 
79.0 
90.3 
147.0 
63.9 


107.4 


Federal taxes 




228.3 


State and local taxes 




114 9 


Interest. 




54.2 


Dividends /. 




88.6 


Electrical equipment (3 companies) : 

Gross income 




93.9 


Federal taxes 




164.2 


State and local taxes 




252.6 


Interest 




:«. 6 


Dividends 




152, 5 


Mining (6 companies) : 
f iross income.. 




130.7 


Federal taxes 




183.4 


State and local taxes ;... 




145.6 


Interest. 




33.8 


Dividends 




96.4 









' Excludes switching and terminal companies. 

Source: Adapted from Capital Expansion, Employment, and Economic Stability, Brookings Institution, 
Washington, D. C, 1940, p. 402. 



CONCENTRATION OF ECONOMIC POWEIi 



211 



Chart 43 

TAXES AND INCOME IN THE UNITED STATES 

SELECTED CORPORATIONS FOR SELECTED YEARS 
INDEX 1929 = 100 

CLASS I RAILROADS 




UTILITIES 




200, 



LIGHT ANO POWER 




GAS 

-STATE & LOCAL TAXCS^ 




WATER 

- STATE R LOCAL TAXES — '•. 



FH:: 



I20'-FEOERAL TAXFS* ihCOM£v-\ >f."'''~ 

100 -^— '~ ~' *- | «:^.""^ i J '^ I - 



1 '00 




INDUSTRIALS 




IRON AND STEEL 

-_..l 1 1 1 Jj,o 

— L i— . -ifi^'t 7«fiv «» 

_._- 1 I L_i"^!?:!£"\-/-'"" 

STATE 6 LOCAL TAXESv \ I 



MINING 

I FEDERALJTAXES-^ J 

STATE 6 LOCAL TAXES»k \ >'^,,, 
'■ ■ •' /^^ 




iOUlCC: AdocleiJ (rom CAPITAL EXPANSION, EMPLOYMENT AND ECONOMIC STA6lLlT», B'OOkiOfS iMI.toIion, WoihingUn.OC- 
IS-iO, pAOE 



212 CONCENTRATION OF ECONOMIC POWER 

Martin TaitePs monograph in the T. N. E. C. series, Profits, 
Productive Activities, and New Investment, offers striking evidence 
of these conclusions. In the prosperous twenties, with the exception 
of the depression year 1921, profits of the corporate system as a 
percentage of produced income ranged from 10.2 to 16.3 percent, 
after payment of Federal income and profits taxes. Following the 
depression period 1930-33, the corporate system recovered so that by 
1936 profits after payment of Federal income and profits taxes were 
10.9 percent of. produced income. During the twenties, Federal 
income and profits taxes ranged from 2.1 to 3.8 percent of produced 
income; in 1936 they were 3.3 percent. 

Taitel concludes that the failure of the business system to continue 
the maintenance or expansion of the national income is not due either 
to the amount of profit income or the rate of return on capital. His 
study shows: 

Factors other than the amount or the rate of profit have been the major deter- 
minantB of the level of capital expenditures of groups of companies in the same 
industry, and hence, of business as a whole. Of these factors, the most important 
have been the level of output and the pressure upon business for the introduction 
of available new technologies. 

One of the anomalies of our economy has been that years of high profits have 
not invariably been followed by years of high levels of business activity, or employ- 
ment, or of profits. This indicates that high profits, in and of themselves, are 
not sufl5cient for the continuance of a high level of national income. High 
profits have been attained in the periods 1912-13, 1919, 1923, 1925-26, 1928-29, 
and 1936-37, after expansion from the low levels of the preceding periods of. 
recession or depression. Yet each of these high-profit periods was followed by a 
decline in business activity. Furthermore, each of the two periods of greatest 
corporate profits, 1916-19 and 1928-29, was followed by an unprecedented decline 
in business activity. 

Similarly, years of low profits have not invariably been followed by years of 
low levels of business activity and of profits, which indicates that low profits, 
in and of themselves, cannot be responsible for a continuance of a low level of 
national income. 

******* 

AU this implies neither that high profits retard and low profits stimulate 
business activity, nor that the volume of profit has no influence on the national 

gcome. But it does mean that factors other ,than the volume of profits are at 
ftst at some times the major determinants of the level of the national income. 

******* 
Concentration of income and wealth is the most important single factor leading 
to a volume of capital expenditures inadequate for the maintenance and expansion 
of the national income. The importance of concentration lies not in the fact 
that it leads to a high rate of savings. For a high rate of savings in itself is no 
barrier to a sustained high national income. Rather, the importance of concen- 
tration lies in the fact that pavings are made by individuals and groups who do 
not or will not themselves consume the output of the capital goods which their 
savings can create. ^^ 

The Brookings study makes much of the downward trend in 
amounts carried to surplus since 1931. In this connection the study 
says: 

It should be borne in paind, however, that net income is affected quite as much 
by the volume of business as by the weight of taxation; hence taxation policy 
cannot be held entirely responsible for the decrease in the amounts carried to 
surplus. *< 

M Pro (Its, Productive Activities, and New Investment. T, N. E. C. Monogiaph No. 12. 
«« Ibid., p. 278. 



CONCENTRATION OF ECONOMIC POWER 213 

This is a monumental imderstatement of the true situation, for it 
is obvious from the percentage of corporate net incomes taken by 
taxes tliat taxation does not determine corporation income and is not 
responsible for the loss of business surpluses. Surplus is variously 
defined as the excess of assets over liabihties, and as the amoimt of 
undistributed earnings kept in the corporation for use in unforeseen 
emergencies. Without exception the corporations listed in the table 
showed dividend payments to stockholders all during the depression 
and post-depression period. In addition to profits, many of the 
corporations laid by substantial sums in their surplus accounts. It 
would seem that the tax system had worked little hardship on such 
successful business enterprises. 

Noel Sargent, secretary of the National Association of Manufac- 
turers, testified before the Revenue Revision subcommittee of the 
Ways and Means Committee that: 

Full business recovery, * * * a high national income, and a sound fiscal 
position involve reduction of Federal surtax rates which discourage investment 
of savings in private industry.*^ 

Sargent reported the results of a questionnaire sent to 709 com- 
panies, members of the National Association of Manufacturers, 
who gave 1,045 reasons for their deep concern about the future of 
business profits, summing up the study with the comment, ''The 
principal factor given as causing this doubt was the present tax 
burden." *^ He contended that the rates on personal incomes had 
become so fantastically high that a lowering of the sm'tax rates would 
bring increased revenue, as a result of the increased income from the 
use of ventiu'e capital in business enterprise. At this juncture he 
offered evidence which can be tested by objective measiu-ements. 
Sargent said that tax rates were lowered from 1921 to 1922 and 
again from 1924 to 1925, yet tax revenues increased. He pointed 
out that: 

In those particular years there was no great change in the national income of 
the country. So that your tax yield was not affected by an increasing national 
income. I grant you, if the national income had increased enormously, then 
you would be able to say that the lowering of taxes and a higher yield at the 
lowered rates really were due solely to the increase in tax[able] income, and had 
no relation to taxes, but as it happens the national income had no particular 
change in those particular years. ^^ 

An examination of the data shows that current production income 
increased 13 percent from 1921 to 1922, and gained 8.6 percent from 
1924 to 1925.** Individual taxable net income increased 9.2 percent 
from 1921 to 1922, individual returns increased 1.9 percent, and the 
amount of taxes paid increased 19.7 percent.*® The number of cor- 
poration returns increased 7.4 percent from 1921 to 1922, net income 
of corporations gamed 60.6 percent while taxes paid grew 11.7 per- 
cent.^° 

It appears that despite the reduction in tax rates referred to by 
Sargent, the increases in total income and in income subject to taxation 
resulted in a substantially greater tax yield in 1922 than in 1921. 
The difference in tax rate in the 2 successive years could not have 
accounted for this increased tax revenue. Profit-yielding investments 
are not so sensitive to tax rates, and large shifts in investments do 
not occur with such rapidity. Nor wus the surtax rate in either year 

" Ibid., p. 146. *> Brookings Institution, America's Capacity to Consume, 1934, p. 148. 

« Ibid., p. 171. " U. S. Treasury Department, Statistics of Income, 1929, pp. 31-32. 

" Ibid., p. 159. M U. S. Treasury Department, Statistics of Income, 1929, p. 365. 



214 CONCENTRATION OF ECONOMIC POWER 

high enough to be regarded by investors as oppressive to business 
mccntivc. The real cause of the increased tax yield is found in mark- 
ed improvement in the general business situation after the slump 
of 1920-21. 

Likewise, from 1924 to 1925, current production income increased 
8.6 percent, personal income taxes paid grew 4.3 percent, and cor- 
poration income taxes advanced 32.8 percent.^^ 

This was in the midst of the "fabulous twenties" characterized by 
business expansion, speculation, and rapidly accumulated fortunes. 
Here, again, national income and taxable income increased, so that 
tax losses which might have been expected from reductions in rates 
failed to materialize. If, however, rates had been increased in these 
successive years, the tax yield would undoubtedly have been sub- 
stantially greater than it was, for the momentum of increases in 
national income was so strong that short of actual confiscation of 
wealth there was little chance that higher tax rates would cause a 
drop in produced income subject to taxation. 

Data have been presented in this treatise showing the impact of 
the income tax (pt. Ill, tables 31 and 40 give the facts). The dis- 
cussion of the tables showed that the effective tax rate is not nearly 
so severe as is customarily believed. This belief arises out of confusion 
concerning the graduated surtax rates, in which the top rate of 75 per- 
cent on incomes of $5,000,000 or more is popularly presumed to 
represent the severity of the impost, whereas that rate is actually 
levied only on the increment of $5,000,000 plus. It appeared, further, 
that the actual levy of income taxes, even on those possessing aijinuai 
incomes of $100,000 or more, leaves substantial sums with the tax- 
payers for savings and investments. There is no evidence in income 
or tax data indicating any threat from taxation to the savings required 
for business investment and expansion. 

Table 64 shows the yearly changes in income-tax returns and pay- 
ments. The net income available for taxation is subject to the varia- 
tions of the national economy, as a whole. Thus, the high peak of net 
income recorded. in 1929 has not been duplicated in any year since 
then, and the loss in income from 1929 to 1936 was 30.6 percent. 
During these years changes occurred in the tax statutes, increasing 
rates from 1931 onward. There were 16.4 percent more persons sub- 
ject to the tax in 1936 than in 1929, and the tax assessed increased 21.2 
percent. Despite a substantial loss in net taxable income, the yield 
of income taxes was larger. 

Table 64. — Yearly summaries of individual income-tax returns, net income, and 
tax assessed, with percentage change from previous year, 1929-36 





Returns 


Net income 


Tax assessed 


\ 


Number 


Percentage 
change 


Amount 


Percentage 
change 


Amount 


Percentage 
change 


1029 


2, 458, 049 
2, 037, 645 
1, 525, 546 
1, 936, 095 
1, 747, 740 
1,795,920 
2,110,890 
2, 861, 108 
+403, 059 


^ 


$20, 493, 491, 443 
13, 692, 584, 305 




$1, 001, 938, 147 
476,714.808 
246, 127, 177 
329,962,311 
374, 120, 469 
511,399.778 
657, 439, 343 
1, 214. 016, 803 
+212, 078, 656 




1930 


--17. 1 


-33.2 
-32.1 
-14.8 
-6.9 
+ 13.2 
+20.3 
+41.7 
-30.6 


-52.4 


1931 


-25.1 
+26.9 
-9.7 
4-2.8 
+ 17.5 
+35. 5 
+16.4 


9, 297, 017, 593 
7, 919. 587, 855 

7, 372, 660, 352 

8, 343, 558, 291 
10,034,105,975 
14, 218, 853, 550 

-6, 274, 637, 893 


-48.4 


1932 


+34.1 


1933 


+13.4 


rt34 


+36.7 


1935 


+28.6 


1936 


+84.7 


l936over 1929 


+21.2 











Source: U. S. Treasury Department, Statistics of Income, 1929, and annual issues through 1936. 
5' rhid 



CONCENTRATION OF ECONOMIC POWER 215 

Yearly fluctuations in net income reflect changes in the total 
economy, but annual changes in taxes assessed include also the 
change in tax rates. For example, net income subject to tax declined 
14.8 percent from 1931 to 1932, but changes in tax rates produced 34.1 
percent more revenues. 

A crude measure of the relative impact of the income tax is found in a 
comparison of the percentage of net income taken by the tax. In 1929 
income taxes took 4.9 percent of the net income subject to the personal 
income tax laws; in 1936 they extracted 8.5 percent from net incomes. 
In the over-all, therefore, the burden of net income taxes was and is 
light. 

A realistic interpretation of an important phase of the economic 
situation was made by M. L. Scidman, chairman of the taxation 
committee of the New York Board of Trade, when he appeared before 
the House Ways and Means Committee, saying: 

No owner of capital will deliberately keep it unemployed. Only when the 
possibility of profit is so uncertain or the risk of Toss so great as to make business 
ventures foolhardy will the owner prefer to conserve his capital by not risking it at 
all. It is for that reason that there are more idle dollars today than at any other 
time in our financial history.^^ 

Arguing further that our present resources are fully taxed, and that a 
mounting deficit and continued unbalanced Budget threaten the 
stability of the economy and retard business expansion, Mr. Seidman 
urged the necessity of bringing the fiscal system in balance by cur- 
taSing Government expenditures. The fear of mounting national 
debts and their ultimate repudiation, or drastic increases in taxation 
to pay them off, are believed to hang ominously over those who have 
capital to invest. Speaking to the point, the witness said: 

We have in the last 6 years gone from a four billion to nearly a ten billion dollar 
Budget. Business is too realistic not to understand that any sudden and sub- 
stantial cut in these expenditures would cause further serious dislocations in our 
economy. Some classes of expenditures, nonexistent 6 years ago, are now so 
deeply entrenched in our economy that we can never again get rid of them.*^ 

The nature of debt has been discussed earher. To an economist, 
private investment and private debt are synonymous, and the volume 
of such debts indicates the relative degree of prosperity that prevails, 
for debts means more production, more employment, more purchasing 
power. In these respects there is no essential difference between pri- 
vate and public debt. Throughout our history the amount of public 
and private debt has fluctuated from year to year, and the growth of 
the national economy has been measured by the total of both rather 
than by either alone. ^'^ 

In fact, it is impossible to determine the precise influence of each 
sector, private and public, on the investment structure and economic 
development of the Nation, so inextricably have they been bound 
together in that development. Only when public debt begins to 
overshadow private investment, even though the shrinkage of the 
latter is far more responsible than the growth of the former, is the cry 
raised that Government debt jeopardizes the solvency of the Nation 
and is forcing capital into hiding to escape tax levies which will destroy 
its earning power. 

Table 65, chart 44, offers certain pertinent data concerning the 
total debt of the Nation. The peak debt shown there is for 1929, 

" Hearings before the House Ways and Means Committee on Revenue Revision, op. cit., p. 175. 
»' Ibid., p. 170. 
" See pp. 34-36. 



216 



CONCENTRATION OF ECONOMIC POWER 



when the indebtedness of government and private businesses was 
$160,000,000,000. The interest charges on this enormous debt 
were 7.81 percent of the year's national income (table 66, chart 46). 
Of the debt 78 percent was owned privately, 22 percent publicly. 
The moral obligation to pay off these debts was identical, but the 
financial crash at the end of the year saw the wholesale repudiation of 
private indebtedness and the scaling down of private debt, as busi- 
nesses refinanced their obligations and investors withdrew from the 
market. While some local public debts were defaulted, they were 
relatively few, and public obligations enjoyed a strong position in the 
investment market resulting in low interest rates. 

Table 65. — Government and private debt in the United States, 1921-39 
[Dollar figures in millions] 





Governmental debts (Federal, 
State, and local) ' 


Private debt (long-term, 2 and 
banl£ loans and discounts) 


Total 


Year 


Amount 


Percent 
of total 


Percent- 
age in- 
crease 


Amount 


Percent 
of total 


Percent- 
age jn- 
crease 


Amount 


Percent- 
age in- 
crease 


1921 


$32, 663 
33,668 
34, 547 

34, 775 

35, 266 
37, 465 
44,954 
56, 794 
65, 502 
67, 110 


29.6 
28.2 
26.0 
23.6 
22.0 
24.0 
31.5 
37.9 
41.4 
42.6 




$77, 458 
85, 521 
98, 652 
112, 470 
124, 657 
118, 342 
97, 982 
93, 250 
93, 033 
90,700 


70.4 
71.8 
74.0 
76.4 
78.0 
76.0 
68.5 
62.1 
58.6 
57.4 




$110, 121 
119, 189 
133, 199 
147, 245 
159, 923 
155, 807 
142, 936 
150,044 
158, 535 
157, 810 




1923...:... 


3.1 

2.6 

.7 

1.4 

6.2 

20.0 

26.3 

15.3 

2.5 


10.4 
15.4 
14.0 
10.8 

-5.1 
-17.2 

-4.8 
-.2 

-2.5 


8.2 


1925 


11.8 


1927 


10.5 


1929 . 


8.6 


1931- 

1933 


-2.6 
-8.3 


1935 


5.0 


1937 


5.7 


1939 (estimated) 


-.6 



1 Includes interest-bearing debt of U. S. Government; securities of Federal agencies; and both long and 
short-term State and local issups. 
' Long-term private debt was estimated. 

Source: Adapted from table supplied by A. A. A., Division of Program Planning, Agricultural Industrial 
Belations Section. 

Table 66. — Interest on debt related to national income paid out, 1921-39 
[Dollar figures in millions] 



Year 


Interest 
charges 
on pri- 
vate long- 
term and 
Govern- 
ment 
debts 1 


National 
income 
paid out ' 


Interest 
charges 
as per- 
centage 
of na- 
tional 
income 


Year 


Interest 
charges 
on pri- 
vate long- 
term and 
Govern- 
ment 
debts ' 


National 
income 
paid out 2 


Interest 
charges 
as per- 
centage 
of na- 
tional 
income 


1921 


$4, 180 
4,598 
5,140 
5,724 
6,222 


$53, 644 
64,601 
72,580 
75,685 
79, 704 


7.79 
7.13 
7.08 
7.56 
7.81 


1931 


$6, 257 
5,944 
6,571 
5, 434 
5,450 


$61, 609 
46, 089 
57. 564 
71,013 
68,~:i000 


10.18 


1923 


1933 


12.90 


1925 


1935 


9.68 


1927 


1937 


7.65 


1929 


1939 (estimated).. - 


8.01 







> Government debt includes State and local debt on same basis as in table 65, but does not include securi- 
ties of Federal agencies. 

2 A. k. A. series. Based on Department of Commerce and W. I. King's estimates of nonagricultural in- 
come plus A. A. A. estimates of agriculture's contribution to the national income. 

■Source: Adapted from table supplied by A. A. A., Division of Program Planning. Agricultural Indus- 
trial Relations Section. 

A profit economy depends for its stability and growth on the volume 
of investment. As the private sector of the economy shriveled up 
early in the depression, it was necessary for the public sector to in- 
crease its borrowings to supplement private investment and to prevent 



CONCENTRATION OF ECONOMIC POWER 
Chabt 44 

GOVERNMENT DEBTS COMPARED WITH 
PRIVATE DEBTS* 

UNITED STATES 
ALTERNATE YEARS 1921-1939 



217 




1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 



PERCENTAGE BASIS 




1921 1923 1925 I 



927 1929 IS31 1 



933 1935 1937 1939 



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SW/fCf-AOopled from Toble Supplied by A A.A., DIvu.or 

* P,l.o.e Lon, T.rS D.bU.ond Bw-k Loor. OKd Diseo-r.. 



218 



CONCENTRATION OF ECONOMIC POWER 



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a. o 

<8 



ili 

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CONCENTRATION OF ECONOMIC POWEiR 



219 



business collapse. Thus, by 1939 public debt had become 42.6 per- 
cent of the total, private debt 57.4 percent; while the total volume of 
debt or investment had not yet returned to the level of 1929. 

Those who see grave danger in this shift from private to public in- 
debtedness contend that crushing taxes will have to be levied some 
time in the future to repay it, and that present interest charges weigh 
heavily on the national budget. As a matter of fact, hoAvever, favor- 
able conditions have made it possible for the Government to carry an 
increasing burden of debt without any proportionate increase in inter- 
est payrnents. Thus, in 1921 the Federal Government paid 4.3 per- 
cent for its borrowed money; this rate had dropped to 3.9 by 1929, and 
continued to drop thereafter as the amount of the debt increased until, 
in 1939, when the Federal debt reached $39,886,000,000, the highest 
point in its history, the interest rate was 2.6 percent. (See table 67.) 
The Federal debt increased 139.7 percent from 1929 to 1939, but the 
interest payments increased only 57.8 percent. 

Table 67. — Government debt and interest charges, United States, 1921-39 
[Dollar figures in millionsl 





Federal 


State and local 


Total government 




Debt' 


Inter- 
est » 


Rate of 
interest 
(percent) 


Debt 3 


Inter- 
est 


Rate of 

interest 
(percent) 


Debt 


Inter- 
est 


Rate of 
interest 
(percent) 


1921 


$23, 737 

. 22,711 

• 22.008 

20, 982 

20, 211 

19, 384 
18, 251 
17, 318 
10, 039 
15, 922 

16,520 
19, 161 
22,158 
26, 480 
27, 645 

32, 756 

35, S03 

36, 576 
39,886 


$1,030 
963 
927 
877 
830 

793 
723 
671 
657 
606 

689 
672 
742 
842 
751 

838 

924 

947 

1,037 


4.339 
4.240 
4,214 
4.180 
4.105 

4.093 
3.960 

3.877 
3.946 
3.807 

3. 566 
3.505 
3.350 
3.181 
2.716 

2. 659 
2.582 
2.589 
2.600 


$8, 476 
9.893 
10, 598 
11,633 
12,830 

13, 664 

14, 735 

15, 699 

16, 760 
17,985 

19, 060 
19, 330 
19.517 

18, 823 
18,972 

19,212 

19, 152 
19, 170 
19,200 


$380 
452 
484 
532 
585 

623 
672 
716 
763 
818 

863 
874 
878 
844 
833 

818 
797 
797 
799 


4.48 
M.57 
4. .57 
4.57 
4.56 

4.56 
4.56 
4.56 
4.55 
•4.55 

4.53 
4.62 
4.50 
*4. 48 
4.39 

4.26 
4.16 
(4. 16^ 
(4. 16) 


$32,213 
32, 004 

32, 606 
32,615 
33,041 

33, 048 
32, 986 
33,017 

33, 399 
33, 907 

35, 580 
38,491 
41,675 

45, 303 

46, 617 

51,968 
54, 955 
55, 746 
69, 086 


$1,410 
1,415 
1,411 
1,409 
1,415 

' 1,416 
1,395 
1,387 
1,420 
1,424 

1,452 
1,546 
1,620 
1,683 
1,584 

1, 6.16 
1,721 
1,744 
1,836 


4.33 
4.34 
4.33 
4.32 
4.28 

4.28 
4.23 
4.20 
4.25 
4.20 

4.08 
4.02 
3.89 
3 72 


1922 

1923.. 


1924 


1925 .. 


1926 

1927... 


1928 


1929 


1930 


1931 ' 

1932_ 

1933 

1934 . 


1935. 

1936.... 

1937 


3.40 

3.19 
3 13 


1938 


3 13 


1939 (Estimatedi . 


3.11 



• Interest-bearing di'bt (June 30), interest on which is exempt from Federal income tax. 
' Amount payable at June interest rate. 

' Debt of State and local governments (on or about June 30), interest on which is exempt from Federa 1 
income tax. 

* Department of Commerce debt studies (other years interpolated). 

Source: K. K. A. Division of Program Planning, Agricultural Industrial Relations Section. 

The Federal debt has become an important factor in the National 
Budget, despite the favorable terms upon which borrowings are made. 
In 1939, 11.5 percent of Federal expenditures went into interest pay- 
ments. (See table 25, p. 66.) With the passage of preparedness 
budgets and the failure of revenues to cover expend tures, not only 
will increased borrowings be necessary, but their magnitude requires 
serious attention on the part of fiscal officers of the Government. 

It is impossible to prophesy whether the Government might, at 
some time, plunge the economy into chaos by repudiating its debt, or 



220 OONCENTRATiON OF ECONOMIC POWER 

might enact staggering taxes to liquidate it. The answer is in the 
future, and subject to conjecture. It can be said, however, that since 
a stable National Government was established, the Federal Govern- 
ment has never defaulted its obligations. It is hardly likely that it 
will do so in the future. The national income, wiU probably recover to 
reach substantially higher levels, and when that occurs, the debt 
services will not create serious difficulties if a high income level can 
be maintained. This is the hope of most Government officials, and 
the basis of much Government policy. 

One test of the relationship of debt to economic stability can be 
made, n;Vrnely, the ratio of interest charges on the total debt to the 
national income. (See table 66.) During the prosperous twenties, 
interest charges ranged from 7.1 to 7.8 as a percent of national income. 
During the troublesome thirties they ranged from a high of 12.9 
percent in 1933 to a low of 7.7 percent in 1937. The present propor- 
tion of national income going for interest payments is approximately 
what it was in the heyday of American prosperity. 

If a sudden and unexpected recovery should occur in the private 
sector of the economy, making large demands for investment capital, 
and paying interest rates substantially higher than present Govern- 
ment rates, there might be some danger that the interest burden of the 
public debt would become a serious drain on the national budget. 
Should such substantial increases in national income take place, 
however, the increased yield of tax revenues would probably offset 
increased interest charges, and perhaps permit reductions in the prin- 
cipal itself, in any event, there is no basis for any expectation of such 
a sudden large expansion' in the private sector of tiie economy, or of 
greatly increased delnands for privdte investment capital in safe 
business ventures, as an immediate prospect. 

On the other hand, .with the increased emphasis on preparedness, 
Government investmehts and contributions to plant-expansion pro-< 
grams are the order of the day. Only a miracle would bring a large 
enough demand for private funds at a rate high enough to endanger 
the mterest and debt structure of the Government.^^ 

LOSS OF PURCHASING POWER 

It is clear, as has been pointed out, that a very substantial propor- 
tion of American families and independent individuals spend all their 
income on consumption goods as they receive it, and are unable to 
make savings.^^ Many more are living on meager, inadequate 
incomes. These are the people affected directly and adversely by the 
regressive revenue system which has developed in the United States. 
These regressive levies totaled $4,500,000,000, or 74 percent of all 
revenues. (See table 43.) Bearing primarily on small incomes, these 
regressive taxes reduce still further all too meager consumption 
incomes, extracting money which wotdd otherwise be used for increased 

Eurchases of consumption goods. Hence, in an economy whose weU- 
eing is so largely determined by what happens to mass purchasing 
power, it constricts economic activity, and detrimentally affects the 
entire economy. 

These generaUzations, though important, are not particularly 
helpful in locating focal points of regressive tax impact, or suggesting 

• «» Harold O. Moulton et al., Capital Expansion, Employment, and Economic Stability, Brookings 
Institution, Washington, 1940, gives the opposite viewpoint. 
•« See appendix A, pp. 307-313. 



CONCEiNTRATION OT ECONOMIC POWER 221 

remedies. Several of these have ah-eady been discussed in earHer 
treatment of specific taxes. Another of great importance is the 
influence of social-security taxation on the economy. One of the major 
factors in the shift of the Federal revenue system toward regressive 
forms of taxation during the past 6 years has been the addition of 
pay-roll taxes to support the social-security program.^^ 

Based upon pay-roll taxes directly paid out of employee's wages, or 
when paid on the basis of pay rolls by employers, indirectly passed 
forward to consumers in higher prices or backward to workers in 
lowered wages, such payments depend, as has been well stated by 
Withers in a recent study, "both directly and indirectly upon the 
amount that the inseciu-e contribute." ^^ It is generally conceded 
that these taxes operate as business costs, and even though sales 
resistance may tend to prevent some shifting to the ultimate consumer, 
the small amount of the tax on each article, and the piecemeal method 
of collection tend to promote shifting.^^ Furthermore, the imposition 
of pay-roll taxes in periods of unemployment may shift the weight of 
the taxes to employed workers in the form of less pay or part time 
employment. 

By January 1940 the amount collected under the old-age insurance 
provisions of the Security Act totaled $1,533, 946,100.^° But the 
amount disbursed was only $25,227,800. Thus, the reserve piled up 
in Government coffers, withdrawn from consumer purchasing power, 
by this one branch of the social-security program alone exceeds a 
billion and a half dollars. True, the Treasury does make use of these 
funds. 

From January 1936 through November 1939, the unemployment 
provisions of the Social Security Act forced pay-roll tax collections 
totaling $2,547,160,700. The sum of $805,069,000 was disbursed to 
unemployed beneficiaries and for administration of! the act. Thus the 
pile-up of unexpended reserves for unemployment insurance reached 
the staggering sum of $1,742,000,000. 

By January 1940 the imeconomic and imsound fmancial aspects of 
the social-security program had piled up reserves of cash extracted in 
regressive pay-roll taxes totaling more than $3,250,000,000. 

Epstein points out that: 

Congress removed the menace of the contemplated huge reserves (frona the old- 
age insurance provision, which John Flynn had called attention to earlier as be- 
coming eventually a $47,000,000,000 reserve). This was accomplished (in 1939) 
by the dual process of keeping the contributions stationary for a while and speed- 
ing and enlarging the disbursements.** 

It may be that the menace of this vast reserve of almost $50,000,- 
000,000 has been withdrawn. Nonetheless, the old-age insurance 
funds continue to be collected through a regressive pay-roll tax, and 
paid out on a highly selective basis to relatively few of the aged. This 
extraction from large numbers of workers of sikns which they need 
for their everyday living expenses loads a heavy burden on the econ- 

5' Gerhard Colm ailfl Helen Tarasov, Who Pays Taxes? The Allocation of Federal, State, and Local 
taxes to Consumers Income Brackets. Temporary National Economic Committee, Washington, 1940. 

M William Withers, Financing Economic Security in the United States, Columbia University Press, 
New York, 1939, p. 120. ^ ^ ^ 

«» Harley Lutz, Public Finance, D. Appleton-Century Co., New York, 1936, p. 404. 

M Abraham Epstein, Social Security— Where Are We Now? Harpers, June 1940, pp. 33-39. 

M Ibid., pp. 34-35. 



222 CONCENTRATION OF ECONOMIC POWER 

omy, and tends to prevent recovery. Epstein summarizes the situa- 
tion very well: 

There is only one way in which our old-age insurance system can be put on a 
stable basis in terms of the future needs. * * * The whole amount available 
for benefits comes from wage and pay-roll taxes. But when you are devising a 
system which chiefly aims to underpin mass purchasing power you obviously do 
not achieve your end if you confine the tax to the mass itself. Such a tax only 
distributes poverty among the poor. The aim can be attained only by a govern- 
mental contribution raised by a tax upon those whose purchasing power would 
not be affected by the tax. ^2 

Defenders of the social-security program tend to look askance upon 
any attempts to reform its financial basis, distrusting those who favor 
such attempts as enemies of the security program itself. They fear, 
understandably, that on a pay-as-you-go basis old-age benefits may 
suffer when they become a heavy burden on the general revenues. 
The illusion of an insurance reserve system is maintained in spite of 
the obvious differences between a compulsory universal Government 
plan and any private voluntary reserve system. There is every indi- 
cation that they are not alike, in either purpose or effect, and, there- 
fore, that they need not be financed on a comparable basis. 

Although both the old age and unemployment benefits are sound in 
aim and of great social value, it appears that their financial basis is 
detrimental to economic recovery and stability. It seems wise, there- 
fore, to reform the old-age payment system, making it a charge on the 
General Treasury, and to reduce the pay-roll charges for unemploy- 
ment insurance to a sum which would defray yearly unemployment 
benefits in the covered industries, amending the act to provide that 
the Treasury would make up any yearly deficiency which resulted. 
The release for consumer spending of the millions of dollars now col- 
lected in pay-roll taxes would have a most desirable effect on the 
national economy. 

Moreover, with the adoption of the preparedness program, employ- 
ment should increase substantially, accumulating more rapidly than 
ever the vast cash reserve from pay-roll levies. Furthermore, the 
constant changes in employment status of individual workers in this 
chaotic period will add greatly to the cost of record keeping and 
administration of the act. 

Price rises, and the inevitable lag in wage increases, will mean a 
further handicap to the workers as a result of their contribution to 
the reserve. Finally, the demobilization of armed forces, unemploy- 
ment, and depression which are generally the aftermath of war may 
fmd the unemployment-compensation program utterly inadequate to 
meet their demands, while the pile-up of undistributed reserves further 
aggravates an intolerable economic situation. 

«» Ibid., p. 37. 



IS THE REVENUE SYSTEM ADEQUATE? 

TO MEET GOVERNMENT NEEDS 

The present Federal revenue system is inadequate to meet either 
the current needs or extraordinary demands now being made upon the 
Government, To continue it much longer is to court economic 
disaster. Functioning in a peacetime economy, it has proved so 
recessive in character as to interfere seriously with business recovery^ 
because it so sharply curtails mass purchasing power. 

Furthermore, the yearly expenditures of the National Government 
continue in excess of revenues derived from this uneconomic and 
burdensome tax system. The estimate of this excess for the thread- 
bare thirties is more than $2,600,000,000 a year. Budgets necessarily 
continue to grow as the relief and security problems remain unsolved, 
yet tax revenues do not increase proportionately, in spite of higher 
rates, because the taxable sources have shrunk. 

While the recovery program has improved economic conditions, 
and total income has risen substantially since 1933, nothing short of a 
dramatic increase in national income not now on the horizon nor 
experienced during the past 10 years, can make the present revenue 
system defray peacetime budget costs. Under these conditions, the 
prospect of a balanced budget is slight. 

Excessive cost and waste in Government operations are frequently 
blamed for the size of the deficit. Studies on this point made by 
independent accounting and administrative agencies have usually 
suggested changes calculated to effect operating economies, but iot 
the most part they conclude that Government costs can be substan- 
tially reduced only by reducing the number and quality of services 
performed. 

Public administration has vastly improved in the last decade. The 
civil service has advanced the merit system, and the professional) na- 
tion of personnel and procedures has increased efficiency. There is 
undoubtedly room for further improvement and more economies in 
Government, but it is unrealistic to presume that in this direction 
lies the solution of the problem of balancing income and outgo. 

The analysis of Federal expenditures made in section 2 came to the 
conclusion that in all probabihty current Government expenses repre- 
sent the minimum level to be expected for several years to come. 
The new emphasis on military preparedness mdicates still further 
increases in cost. Pressure groups have been gaining headway with 
their programs for hospitalization and health services at public 
expense; the support of the social-security program may be shifted 
increasingly to a pay-as-you-go plan, which will add considerably to 
budgetary costs; Federal aid for education and for conservation of 
natural resources requires substantial: increases in Government 
expenditures. In terms of these requirements, the present level of 
Federal expenditures is woefully inadequate. 

223 

261085 — 40— No. 20 16 



224 CONCENTRATION OF ECONOMIC POWER 

Even without the preparedness program, the peacetime expenditm^es 
of the Federal Government which would provide reasonable sums for 
old and imminent new services would approach $10,000,000,000 a 
year. The revenue program in force in 1938 collected slightly more 
than $6,000,000,000 in taxes. 

Considering the peacetime budget and revenue system for the 
moment, four alternatives present themselves. One is to whittle 
down expenditures to a point where outgo is balanced by present 
income. This would mean a budget reduction of $2,000,000,000 or 
$3,000,000,000 a year, a reduction in Government services and relief 
that would seriously limit mass purchasing power and hamper re- 
covery. Such a procedure is not to be considered unless the private 
sector of the economy shows unmistakable signs of recovery sufficient 
to make public expenditures for relief no longer necessary. 

Another possibility is that taxable income will so increase as to 
yield, under the present rates, sufficient revenue to defray Govern- 
ment expenditures. AQ during the late thirties this had been held 
before us as a realizable hope Yet, despite the considerable recovery 
in .national income experienced since the trough of the depression, 
substantial borrowings have been needed every year, and the end is 
not yet in sight. 

A third alternative is to continue pump priming and deficit budget- 
ing in an effort to achieve this increase in taxable income by Govern- 
ment action. Yet this hope is founded on the belief that present 
levels of national income are stUl depression levels rather than some- 
what normal levels following the drastic events of the early thirties. 

A fourth, and considerably more realistic approach, especially in 
view of the newly adopted preparedness program, and valid. also in 
terms of the need for increased peacetime expenditures, is to revamp 
the present revenue structure, first to obtain revenues large enough 
to pay for a full complement of the social services which should be 
provided at public expense, and second to achieve a tax system which 
promotes the fullest measure of recovery and social-economic adjust- 
ment. 

TO DEFRAY THE COST OF NEW SERVICES 

The demand for Federal aid in education gained great momentum 
in an increasing number of States as the depression broke down the 
real property tax base upon which schools depended. The President 
heeded this demand by appointing the Advisory Committee on 
Education in 1936. This Committee, composed of leading educators 
and public men, made a thorough study of the problems involved in 
supporting an adequate minimum of common schooling. They found 
great disparity in the ability of different States to support education, 
and a wide range of educational offerings in the States despite their 
increasing interdependence. 

The disparity between educational advantages of States was 
brought out in the testimony before a congressional committee on a 
bUl for Federal aid in 1937.^^ Illiteracy among school-aged persons 
ranged from a low of 0.8 percent in one State to a high of 14.9 percent 
in another. Average annual expenditures per pupil ranged from a 
niggardly allowance of $24.50 to the substantial amount of $137 69. 
Average annual teachers' salaries ranged from $465 to $2,361 The 

M statement of Howard A. Dawsou, Hearings on House Resolution 5962, 76th Cong., 1st sess., 1937. 



CONCENTRATION OF ECONOMIC POWEK 



225 



value of school property ranged from $62 per pupil to $570. By 1935 
over 48,000 schools, 1 out of every 8, had been forced to curtail the 
school year, and many were entirely closed for lack of funds. 

This was not the result of pubhc unwillingness to provide for edu- 
cating the young. Some States have insufficient taxable income to 
permit a complete array of necessary services. Ashby portrayed this 
situation graphically in his appUcation of a m.odel tax plan to the 
several States. He determined that in 1932 the yield of revenue from 
the model tax system in Alabama and Mississippi would have been 
so low that 80 and 96 percent of the total yield, respectively, would 
have been needed to defray the costs of a reasonably adequate school 
system, while only 21 percent of the tax yield would have supported 
a similar program in New York State. ^* Yet the mobility of popula- 
tion has increased at such an astounding rate that no State could 
conduct its affairs without suffering considerably from the educational 
lags of other States. 

The President's Advisory Committee^ on Education proposed a 
limited program of Federal participation in education in addition to 
already existing services, amounting to grants-in-aid totaling $140,- 
000,000 by 1945. This was recognized as only the beginning of an 
attempt to provide an equalizing fund which would bring the larger 
resom-ces of the National Government to the aid of the poorer and 
more impoverished States. 

An indication of the probable future educational burden to be carried 
by the Federal Government is given in table 68, chart 46, showing 
the trend of development since 1910, and the participation of the 
several governm.ents in educational expenditures. Once the Federal 
Government has been committed to participation in the support of 
general education, it will probably take over an increasing share of 
the burden, as it has done in other lines. This is particularly likely 
in face of the restricted nature of local and State tax resources and 
the limitation of expenditures in many States due to the break-down 
of their tax systems. 



Table 68. — Tax revenues expended for public schools, by level of Government, for 
selected years, 1909-10 to 1935-S6 

(Dollar figures in millions] 





Total 


Federal ' 


State 


Local 


Year 


Amount 


Percent 
of total 


Amount 


Percent 
of total 


Amount 


Percent 
of total 


1910-- 


$376. 8 
895.7 
1, 982. 3 
1, 982. 8 
1, 727. 4 
1, 895. 6 


$1.5 
4.7 

10.1 

12.4 
8.9 

11.6 


0.4 
.5 
.5 
.6 
.5 
.6 


$63.1 
132.1 
326.5 
380. 7 
400.6 
553.6 


16.7 
14.7 
16.5 
19.2 
23.2 
29.2 


$312. 2 
758.9 
1, 645. 7 
1, 589. 7 
1,317.9 
1, 330. 4 


82.9 


1920 


84 7 


1930 


83 


1932 


80 2 


1934 


76 3 


1936 - 


70 2 







' Includes amounts listed as Federal appropriation for tlie District of Columbia and Federal aid for 
vocational education. Excludes $14,536,010 of Federal aid for rural teachers in 1933-34. 

Source: Clarence Heer, Federal Aid and the Tax Problem StafI (Study No. 4) Advisory Committee on 
Education, Washington, 1939, p. 32. 

9* Lyle W. Ashby, The Eflorts of the States to Support Education, National Educational Association, 
Washington, 1936, p. 50 fi. Reported also by Groves, Financing Government, pp. 556-557. Similar and 
other supporting data are offered by John K. and Margaret A. Norton, Wealth, Children, and Education, 
Teachers ColIe;ie, Columbia University, New York, 1938; publications of the Ad\isory Committee on 
Education, Washington, 1939; Paul R. Mort, Federal Support for Public Education, Teachers College, 
Columbia University, 1936. 



226 CONCENTRATION OF ECONOMIC POWER 

Dr. Clarence Heer, tax specialist for the President's Advisory 
Committee on Education, summarized his careful findings on the 
subject of Federal support for education as follows: 

1. From the point of view of all four of the major tests of a good tax system — 
fiscal adequacy, administrative efficiency, equity, and economic effects — Federal 
aid for education offers a better method of raising new money for schools than 
State and local taxation. 

2. From the point of view of fiscal adequacy, Federal aid is superior because it 
places the responsibility for raising new school funds on the level of Government 
which has the widest range of productive tax sources at its disposal, and which 
is in the best position to exploit those sources effectively. 

3. From the point of view of administrative efficiency. Federal aid for educa- 
tion is to be preferred because it will permit the needed school revenue to be 
raised by methods which involve less annoyance and expense to the taxpayer, 
which present fewer opportunities for tax avoidance and evasion, and which entail 
relatively lower administrative costs. 

4. From the point of view of equity. Federal aid for education presents the 
more desirable alternative because it will place the responsibility for obtaining 
additional school revenue on the level of government best fitted to distribute its 
taxes according to the principle of ability to pay. To the extent that public 
education is a matter of national concern. Federal aid will make it possible more 
nearly to equ...lize the burden of maintaining a national minimum of educational 
opportunity throughout the country. To the extent that education is a State 
and local function, Federal aid will provide a means of correcting the inequities 
in the present system of school support which result from the extraterritorial 
shifting of State and local taxes. 

5. Finally, from the point of view of economic effects, Federal aid for education 
offers the better m'ode of procedure because the Federal Government has far 
greater freedom than have the States and localities to select fiscal measures 
appropriate to given economic and social objectives.^* 

Present Federal expenditures are quite inadequate to defray the 
costs of conserving the Nation's natural resources which have been 
so ruthlessly exploited. Yet the problems of restoring the fertility of 
much of our soil, reforesting our denuded areas, reclaiming our swamp- 
lands, making the most econom.ical use of our waterways, controlling 
seasonal floods, and reestablishing the wildlife areas of the Nation 
press insistently for solution. In this process fiscal policy and the 
tax system can be employed to excellent advantage. 

The Federal Government has begun to map the natural resources 
of the Nation and determine the needs for conservation. Reports 
concerning our forest areas are typical of the waste and m.isuse of our 
resources generally. One-third of the continental area of the United 
States is suitable for forests. At best, only 2 percent of the tim.ber- 
growing area of the Nation is being used intensively. The combina- 
tion of destructive cutting and fire have destroyed more than 75,- 
000,000 acres of tim.ber-growing areas. Original stands of saw tim.ber 
have been reduced by m.ore than 75 percent. In the higher grade 
tim.ber the drain in even a subnorm.al year is nearly a half m,ore than 
the annual growth. The report of the Forestry Service concludes: 

To meet the real needs of our people with a margin for export and for safety, 
growth must be nearly doubled. To accomplish this the area under intensive 
forest management must be increased at least 10 times and that under extensive 
management at least 3 times. This will require about 75 years of greatly enlarged 
efforts. * * * Since the time of settlement, timber products such as lumber, 
worth perhaps $100,000,000,000, have been drained off from the forests with 
only the most inadequate provision for renewal. * * * 'phg annual cost [of 

»• Clarence Heer, Federal Aid and the Tax Problem, Advisory Committee on Education, Staff Study 
No 4, Washington, 1039, pp. 86-87. 



CONCENTRATION OF ECONOMIC POWER 



227 







228 CONCENTRATION OF ECONOMIC POWER 

an adequate program of reforestation] during the next 20 years ♦ * * would 
average about $245,000,000.'>» 

Fiscal policy and taxation are very useful instruments for reforesta- 
tion. The program embraces a system of benefit payments to farmers 
for specific adjustment of their land usage, including the withdrawal 
of woodlands from cultivation, planting of suitable trees and coverage, 
and their proper care over a period of years. Adequate protection 
from insects and fire is essential. Forest credits extended by the 
Government to individuals and cooperative firms, which wiU include 
oversight of forest acreage and cuttings, planting, and harvesting ac- 
cording to proper practices, are an integral part of the program of 
conservation. Finally, the reorganization of property-tax laws and 
assessments, including in some instances a stumpage-value tax, is 
necessary to defer the cutting of immature timber.^^ 

Governments have given little attention to the problems of con- 
servation, particularly in relation to fiscal pohcy and taxation. Yet 
m any attempjb to establish an effective conservation program taxa- 
tion must be used as one of the instrumentalities. The results of 
studies now being pursued concerning our natural resources and the 
cost of a comprehensive program of conservation are uncertain, but 
it seems inevitable that a far-reaching reorganization of the entire 
tax structure wUl be involved. 

« U. S. Forestry Service, A National Forest Economy, June 1939, p. 17 fl. 

•' See Fred Rogers Fairehild, Forest Taxation in the United States, U. S. Department of Agriculture, 
October 1935, for a very comprehensive study of taxation of forest lands. 



THE BALANCED BUDGET 

The period 1930-40 will probably be remembered in fiscal history as 
the era of the great struggle over the "balanced budget." The issue 
formed the core of the conservative attack upon the New Deal. One 
school of thought held that unless the budget was balanced immedi- 
ately, disastrous inflation, financial panic, and deepened depression 
would result. To this group only a savage pull on the belt, a tighten- 
ing up to the point where expenditures woidd not exceed jbhe drasti- 
cally curtailed revenues of the depression period, would siifl&ce. As 
Herbert Hoover, able exponent of the balanced-budget philosophy, 
said in his message to Congress at the beginning of the most severe 
year of the depression: 

Ihe appropriations which I recommend be made for the fiscal year eading 
June 30, 1934, * * * provide for a temporary reduction in the rate of pay 
of Federal personnel, * * * and for other purposes, * * * effecting an 
additional saving of $55,000,000, and amending certain laws providing for benefits 
to veterans, producing a further saving of $127,000,000 * * *. I earnestly 
recommend to the Congress that there be no further grants of legislative authority 
for appropriation for Federal-aid highways until the financial condition of the 
Treasury justifies such action * * *. The estimates for public works * * * 
for 1934 show a marked reduction below the appropriations for 1933 * * *. 
In spite of the large reduction in expenditures, the revenues under existing laws 
are expected to fall short of providing sufficient mone}' to avoid a further increase 
in the public debt in the fiscal year 1934 by about $307,000,000. To meet this 
situation I recommend that the Federal tax on gasoline * * * be continued; 
* * * that the manufacturers' excise taxes now imposed on certain articles 
be extended and in part replaced by a general uniform tax (excluding food). I 
have been advised that the annual vield of such a general tax at a 2J4 percent rate 
would be approximately $355,000,000.68 

Herbert Hoover summed up his position in a concluding statement 
on the 1933-34 budget as follows: 

* * * A large excess of expenditures with consequent increase in the public 
debt is anticipated for the current fiscal year. 

Such a situation cannot be continued without disaster to the Federal finances. 
The recommendations herein presented to the Congress for further drastic reduc- 
tions in expenditures and increased revenues will serve to prevent a further in- 
crease in the public debt during the fiscal year 1934 only if Congress will refrain 
from placing additional burdens on the Federal Treasury. 

I cannot too strongly urge that every effort be made to limit expenditures and 
avoid additional obligations not only in the interest of the already heavily bur- 
dened taxpayer but in the interest of the very integrity of the finances of the 
Federal Government.^* 

Much water has gone under the bridge since these pronouncements 
were made. Even though President Hoover insisted that the budget 
must be balanced to prevent economic instabilit3\ the average amiual 
deficit, excluding debt retirement, for 3 years of his administration 
(1931-33) was $1,591,000,000. The advent of the New Deal and the 
relief program in 1933 brought the average annual deficit for the 

" Message of the President of the United States Transmitting the Budget for tho I'iscal Year Ending 
June 30, 1934, Washington, 1932, pp. VI, VII, VIII, and XI. 
«• Ibid., p. XVII. 

229 



230 CONCENTRATION OF ECONOMIC POWER 

period 1934-38 up to $3,037,000,0007° The range in deficits during 
the spen ding-program period was from $4,550,000,000 in 1936 to 
$1,384,000,000 in 1938. 

The theory underlying the unbalanced budgets of the period since 
1933, in contrast with that vhich motivated Hoover in his attempt 
to keep income and outgo balanced yer^rly, is that economic conditions 
do not observe calendar dates but rise and fall in cycles of depression 
and prosperity of varying intensities and duration. In this modern 
day when Government policy and the private b:usiness economy are 
inextricably bound together for better or for worse, it is essential that 
the fiscal policy of the Government be dovetailed with the needs of 
the national economy. Thus, the services and aid of Government 
are sought in times of economic stress more than in times of wide- 
spread prosperity. But these are precisely the times when tax 
collections fall off and funds available to aid the people are smaller 
than in prosperous periods. 

To attempt to balance the Federal Budget in such times is to weaken 
the very forces depended upon to keep the economy from skidding 
further into depression. Hoover's proposals for balancing the 
1933-34 Budget are an excellent example of this effect, for he not only 
attempted to reduce expenditures by cutting the pay rolls and other- 
wise limiting mass purchasing power on which the economy depended, 
but he proposed to further curtail purchasing power by the imposition 
of a general sales tax whose regressive effects would have been felt by 
business generally and by the masses of consuming citizens already 
suffering most from the depression.'* 

A cyclical budget has been in use in the Scandinavian countries for 
some time, with conspicuous success in Sweden. It requires that 
Government fiscal policy operate to compensate for oscillations in the 
private sector of the economy. On the downswing of the cycle, 
Government activity is increased in order to rnoderate and offset the 
decline in business activity ; on the upswing Government activities are 
tapered off to permit the private sector of the economy to achieve its 
fullest measure of success. Budgets are purposely unbalanced during 
the downswing of the cycle, when purchasing power must not be 
destroyed by increased tax collections, large borrowings are paid out 
through public works and Government activities in order to maintain 
economic well-being. Then, as the private sector of the economy 
recovers, income and other profit taxes are increased, revenues grow 
as the national income mounts, and emergency expenditures for relief 
and public works are reduced, so that the excess revenue is devoted to 
the payment of the national debt. 

This description fits the financial operations of many of the most 
successful private business concerns, for private business operates its 
capital structure on a long-term basis. The day of conthiually 
balanced books in private corporations has long since passed, and the 
requirements of modern business life are such that period book 
balancing is essential. Yet, the very businessmen who engage in 
such souna business practices deplore the same procedure by the 
Federal Government. 

" National Industrial Conferencfl Board, Economic Record, August 1939, p. 71. 

'1 Gerhard Colin, The Basis of Federal Fiscal Policy, Taxes, Commerce Clearing House, Chicago, 111., 
June 1939, discussed the theory of the balanced budget, saying, in summary, "If sound fiscpl policy Is defined 
as one consistent with sound economic policy, then no principle of public finance has been violated so much 
as the dogma that 'sound' fiscal policy requires a balanced budget." 



OONCEtNTRATION OF ECONOMIC POWER 231 

The distinction is made that private business has owners, to whom 
management' is responsible, and that deferment of private debt pay- 
ment is not a hazard to the general economy. Government, on the 
other hand, is often irresponsible, its ownership is widely diffused, 
and it pays its debts, not from the business take, but out of extractions 
from the public purse. Furthermore, one Government administration 
tends to place all the blame for unbalanced Budgets on the other 
political party, to employ such budgetary conditions for momentary 
political advantage, and to use a "bread and circus" program to 
obtain political support regardless of its accumulation of large debts 
which must be met at some future time. 

While the Federal Government should gear its fiscal policy and tax 
practices to changes in economic conditions, it must be remembered 
that approximately half of the revenues raised in the United States 
are State and local levies. The tax som'ces of local governments are 
too restricted and rigid to permit much experimentation with a local 
tax program intended to match the cyclical changes of the general 
economy, although even on this level more can and should be done to 
obtain the most desirable economic effects from taxation. In this 
connection, the plan proposed by William Stanley Parker of the 
Massachusetts State Planning Board has much merit.^^ He noted 
that city and town expenditures are approximately half of all public- 
works expenditures, hence what is accomplished to stabilize them over 
good and bad economic times will be most beneficial. 

The Parker propost^ mcludes making Federal grants available to 
localities only if they adopt a stabilization program for public works. 
The local governments would be required to establish an account into 
which would be deposited each year a stated percentage of the total 
estimated expenditures for that year, this fund to be held in negotiable 
municipal and other government bonds. This building up of a reserve 
would go on yearly. Then the problem arises when and under what 
circumstances withdrawals would take place. Mr. Parker has devised 
a formula which would remove these decisions from the realm of politics 
and place them on the basis of need for increased public works over 
the normal amount required yearly. The procedure is as follows: 

A. Assessed values: 

Assessed value last year, less average assessed values 2 preceding 

years, times last year's tax rate $ -- 

B. Percent taxes collected: 

Percent of taxes collected last year less average percent collected 
2 preceding years, times last year's assessed taxes 

C. Welfare expenditures: 

Welfare average of 2 preceding years less welfare last year 

Total 

If the result of the foregoing formula is a plus amount for any year 
applied, then conditions are considered so favorable as to require no 
additional expenditures beyond the current allotments for public 
works. But if a minus figure is secured, that amount is withdrawn 
from the credit reserve account and added to the current income 
account to be used for public works, thereby reducing the amount to 
be assessed in taxes to carry on the works program. 

Our national experience in attempting to set aside reserves for one 
purpose or another has not been entirely happy. Too often they have 

'• The Commonwealth of Massachusetts, A Policy for Stabilizing Public Expenditures, Report of the 
Committee on Public Works, March 15, 1938. 



232 CJONCBNTRATION OF ECONOMIC POWER 

been built up only to be wiped out by raids under the guise of pressing 
emergency. Moreover, Mr. Parker's proposal requires the invest- 
ment of reserve funds in securities which are themselves subject to 
depreciation during the depressions when they are most needed. Nor 
is it at all certain that a reserve system can be set up large enough to 
meet the needs of a prolonged depression. The pile-up of quantities 
of capital funds in such reserves might in themselves hinder economic 
development during periods of rapid economic expansion. 

State fiscal policies and tax systems are somewhat more flexible than 
those of local governments. But States cannot control individually 
enough of the whole economy to make their budgetary decisions of 
decisive importance. The taxable resom-ces of States, while more 
nearly approximating those of the National Government in range, are 
limited by their boundaries. 

Most States hesitate to enact a model tax program, lest bordering 
States lure their wealthy residents and enterprises away with tax 
reductions. Any drastic change in" fiscal policy calling for periodic 
budget-balancing, or a double budget system of capital and operating 
accounts on a cyclical basis, intended to meet changing conditions in 
the economy, would subject any State to severe competition from 
other States. 

There is relatively little continuity in political administration ; many 
Governors are elected for 2- or 4-year terms and usually do not succeed 
themselves. Hence, long-range budgeting with regard to economic 
fluctuations rather than a continuation of annual or biennial budgets 
has little prospect of success. Furthermore, assumption by States of 
services formerly carried on by local governments and the added costs 
of welfare have greatly increased State budgets, while the lag in public 
action has continued archaic tax systems often yielding too little 
revenue to balance current expenditures. In this dilemma. States 
are torn asunder by embattled pressure groups, preventing any sound, 
long-range planning of fiscal policy. 

The Federal Government must lead the way in this important use 
of the budget and tax programs to promote recovery. As James 
Harvey Rogers ably expressed the situation: 

As in depression tatal income declines, so in prosperity it increases. Moreover, 
as in a depression it is beneficial to the economy as a whole that falling incomes be 
bolstered by increasing outlays of the Government and by reduced contributions 
by the people to the Government; so, in prosperity it is equally beneficial to the 
economy as a whole that money incomes be damped by reducing Government 
expenditures and by increasing the payments of the people to the Government. 
In this way and in this way only^-so far as economic investigation or good sense 
has revealed — can money incomes be maintained, can consumers' goods.be made 
to flow in approximately full amounts to consumers, and can the wheels of industry 
be permitted to turn at any pace approaching that of full employment." 

Scientific budget construction is in its infancy in the United 
States. Detailed functional studies of departmental Budgets are 
almost iionexistent, and much work needs to be done before the Budget 
can be :iegregated into the two parts of current operations and capital 
or investment accoimts. Yet such treatment is essential to an;^ 
adequate program of long-range budgeting of Government expendi- 
tures. It is probably the best method of obtaining popular support for 
the economic use of fiscal operations. The current-expense budget 
would cover all, or nearly all, items of customary budgeting. The 

" James Harvey Rogers, Capitalism in Crisis, Yale University Press, New Haven, 1938, pp. 46-47. 



CONCENTRATION OF ECONOMIC POWER 233 

capital or investment account would provide for the items which so 
greatly increase costs during economic emergencies, such as unem- 
ployment relief beyond the customary welfare expenditures, or high- 
ways and waterways construction intended to add substantially to 
capital investment and provide employment during a depression. 
Such a procedure is not simple, either in theory or practice, and 
only through trial and error methods could it be developed to yield 
maximiun results. But the Swedish Government has found it very 
satisfactory as it permits current budget balancing of normal expenses, 
and cyclical balancing of investment or capital accounts. The experts 
meeting m the Cliicago Round Table discussion of this topic listed the 
following as types of expenditures which should be induded in the 
cyclical budget and not financed thi-ough current tax revenues during 
depression: ^^ 

1. Nonrecurrent emergency expenditures. 

2. Loans and investments. 

3. Expenditures for pubhc works. 

4. Permanent appropriations not to be spent during the current 

fiscal year. 

5. Pubhc debt retirements. 

Federal budgeting has always been planless. Had the Government 
followed any sound plan of cyclical budget balancing, it would have 
entered the depression of the 1930's in a much stronger position 
to cope with the staggering costs incurred without plunging so deeply 
into debt. As the Chicago University experts so well pointed out: 

Part of the debt problem in the United States today is due to the errors of the 
Mellon regime, which reduced debt retirement and stimulated a boom at the 
very moment when debt liquidation and restriction of speculative effervescence 
were deeirable.''' 

Those who oppose cyclical budgeting argue that deficits are easier 
to accumulate than to pay off, and that the unpopularity of higher-tax, 
lower-expenditure pohticians during prosperous times renders cyclical 
budget balancing especially difficult to achieve. It follows, naturally, 
from these assumptions that continued unbalanced budgets mean 
much heavier burdens on the coming generations. Dr. Rogers 
brushes aside this view: 

To one particular claim of the extreme budget balancers, vigorous protests 
must be registered. That the building up of a large public debt at this time, or 
any other, will load future generations with a correspondingly heavy burden is a 
pure illusion. Each generation lives on the current production of consumers' 
goods and services of that generation. Whether our sons and grandsons live 
well or ill will depend on what kind of production system we pass on to them and 
how equitable a distribution system they manage to install in order to get the 
goods distributed to them. The size of the public debt will influence theii lives 
as it does ours, primarily, by affecting the distribution of the total national income. 
The holders of the Government bonds will find their income increased by the 
interest payment on them, and these interest payments will come piesumably 
then, as now, from the revenues of the Government collected more or less as now 
through taxes and other contributions required of the public. This particular 
aspect of the national-debt problem gives grounds for no great fears." 

Much more will be heard on this topic of the annual versus the 
cyclical budget m the years to come. For the tune being, both major 

'< Public Policy Pamphlet, Balancing the Budget, University of Chicapo Press, July 1937. Signed by 
Frank Bane, Paul Betters, Carl Chatters, Paul H. Douglas, Simeon E. Leland, H. A. MlUis, Clarence E. 
Ridlev, H. C. Simons, Donald Slesinger, Jacob Viner, and L. D. White. 

» Ibid., p. ill. 

'• James Harvey Rogers, op. cit., pp. 48-49, 



234 CONCENTRATION OF ECONOMIC POWER 

political parties have laid the subject away, and even in the heat of 
a Presidential campaign year little is said about it. Neither party 
could safely propose a completely pay-as-you-go preparedness pro- 
gram, even if it were economically sound, for their constituents 
would never consent to bear the taxes required. The only other 
alternative in the face of an immediate need for very substantial 
revenues is to raise the debt limit iand borrow extensively. This has 
already been done in part, without any serious party opposition, and 
increased borrowing wUl probably be resorted to for a large part of 
the cost of mihtary preparedness. 

Such a procedure, however, does not forever remove the necessity 
of long-range planning of Government expenditures and revenues. 
Nothing has happened to alter the pressmg need for a cyclical ap- 
proach to budget making and tax reform. Therefore, when the 
economy becomes more settled, and the preparedness program has 
been accepted as an integral, perhaps dominant, part of Federal ex- 
penditures, a decision on this most important advance in governmental 
policy will have to be made. 



THE PREPAREDNESS PROGRAM AND TAXATION 

As this is being written in the summer of 1940, fundamental changes 
occur daily all over the world, influencing whatever judgments and 
proposals are made concerning the relationsliips of fiscal policy and 
taxation to the preparedness program. The United States Congress 
has already raised the debt hmit from $45,000,000,000 to $49,000,- 
000,000, and levied various taxes calculated to produce slightly more 
than $6,500,000,000 during the fiscal year ending June 1941. It seems 
clear that this is only a beginning, no matter which of several probable 
alternatives is taken. 

There are at least four possibilities to be pursued. The first pre- 
sumes immediate or early participation in the war in Europe. If this 
participation is to succeed, it can no longer take the form of supplies 
and equipment alone, for the casualties already suffered a. d the need 
for aviators and skilled ground crews will mean the use of men as 
well. This alternative involves the fullest use of our economic and 
military forces. 

The second alternative dift'ers from the first only in point of time. 
It presumes that the Germans and Italians will be unable to subdue 
England immediately following their success in France, and the war 
will be prolonged through another year. In that event, it is highly 
probable that the United States would enter the conflict on the side 
of the Allies. The conflict would be carried on in Europe and again 
the fullest use of all our resources would be essential for ultimate 
success. 

The third alternative facing the United States presumes that no 
matter what the outcome of the European conflict may be, this Nation 
Avill not enter it, but will devote its energies to a defense program. 
There are several variations of the defense program under review, 
each dependent upon many factors. One presumes defense of the 
Western Hemisphere, in furtherance of the Monroe Doctrine, and as 
the easiest, least expensive, and strongest defense that could be made 
against the totalitarian powers. The second envisages the prepared- 
ness and defense of only a part of the Western Hemisphere, possibly 
some distance beyond the Panama Canal. The third is based on a 
defense of the boundaries of the United States, and possibly including 
Canada. 

There is a fourth alternative which also has several variations. 
That is the possibility, remote at present, that the totalitarian powers 
wiU be defeated in Europe without our intervention, in which event 
the problem of continued preparedness in this country would depend 
upon the nature and decisiveness of the defeat, and the possibility 
of a prolonged peace which would permit us to reduce our armament 
program to pre-war dimensions. 

These various alternatives affect fiscal policy and taxation. All of 
them require the fullest use of our manpower and resources. They 
imnlv a focusing of national policy on building our military and naval 

236 



236 CONCENTRATION OF ECONOMIC POWER 

forces up to a point where they can successfully withstand armed 
invasion, and ultimately defeat the totahtarian powers. Short of 
such a defeat, there is little prospect of ever again being able to estab- 
Ush a peacetime economy in which mihtary preparedness recedes to 
insignificance. 

To continue throughout a period of years in a state of armed pre- 
paredness on such a scale as to be able to repel massed invasion on a 
moment's notice will mean a radical reorganization of the economy 
and all of its forces, including the entire tax structure. No detailed 
blueprint of such an altered tax structure can be made at this time, 
for the outline which the economy will take is not visible. It will 
necessarily be built on the experiences we have accumulated, which 
makes this analysis of importance as a reference and guide, even 
though the actual system to be evolved may differ radically from the 
present one. 

War and military preparation are not new phenomena in the United 
States. Occasionally, for relatively brief periods, they have com- 
pletely dominated our economy, and long after the cessation of active 
warfare they have continued to influence the peacetime economy. 
In this connection, table 69 shows the average annual Federal ex- 
penditures for the 10-year periods preceding and following wars in 
which the United States has been engaged. 

Table 69. — Average annual Federal expenditures for the 10 years preceding and 
following the major wars of the United States 

[In millions of dollars] 



War of 1812 (ended 1815) 

Mexican War (1846-48) 

Civil War (1861-65). -... 

Spanish-American War (1898) . 
World War (1917-19) _... 



10 years pre- 
ceding war 



9.0 

26.2 

60.1 

342.1 

696.9 



10 years follow- 
ing close of war 



19.3 

55.3 

332.5 

561.2 

3, 914. 1 



Source: Harold M. Groves, Financing Qovernment, New York, 1939, p. 527. 

This tabic shows the aftermath of successful wars, in which the out- 
comes have been decisive enough to let us lay aside plans for con- 
tinued pre;>aredness and devote ourselves and our resources to the 
furtherance of peacetime activities. 

As was shown in chart 5, page 59, mihtary expenditures have played 
an important role in Federal budgets ever since World War I, so that 
in effect the economy has never been free from the influence of military 
preparedness or the costs of war since 1916. In table 70, chart 48, 
the data are arranged somewhat differently. These are peacetime 
expenditures for military purposes, segregated into payments for 
national defense, veterans' pensions and benefits, and interest on that 
part of the national debt incurred for military purposes. Since 1933, 
increasing attention has been given to preparedness. The amount 
thus spent rose from slightly less than $500,000,000 in 1934 to a httle 
over $1,000,000,000 in 1939. Yet even this large increase is dwarfed 
by the allotments already made for 1940-41, and those which undoubt- 
edly will be made in an effort to prepare either against an assault or for 
a possible offensive against the totalitarian powers. 



CONCENTRATION OF ECONOMIC POWER 237 

Table 70. — Expenditures for military purposes by the United States for selected years 

1916-39 







[In mUlioBS 


of dollars] 












Class of erjjenditure 


1915 


1925 


193i 


1933 


1934 


1936 


1936 


1037 


1S98 


10391 


National defense . . . 


260 

176 
23 


549 

656 
890 


664 

973 
461 


633 

849 
459 


494 

554 
419 


663 

604 
429 


880 

2,348 
333 


885 

1,128 

357 


980 

572 
374 


1,017 
540 


Veterans' pensions and bene- 
fits.-. 


Interest on public debt ' 


366 


Total 


459 


2,095- 


2,098 


1,941 


1,467 


1.696 


3,561 


2,380 


1,026 


1,013 




Total expenditures ^ 


1,048 


3,345 


4,635 


3,864 


6,011 


7,010 


8,666 


8,442 


7,691 


9,402 




Percent 


National defonsft 


24.8 

16.8 
2.2 


16.4 

19.6 
26.6 


146 

21.5 
10.2 


16.4 

21.9 
11.9 


8.2 

9.2 
7.0 


0.6 

8.6 
6.1 


10.2 

27.1 
3.8 


10.6 

13.4 
4.2 


12.8 

7.5 
4.9 


10.7 
6 7 


Veterans' pensions and bene- 
fits 


Interest on public debt • . - 


3.7 


Total.. 


43.8 


62.6 


46.3 


50.2 


24.4 


24.2 


41.1 


58.2 


25.2 


20 1 






Total expenditures ' 


100.0 


100.0 


100.0 


100.0 


100.0 


100.0 


100.0 


100.0 


100.0 


100.0 



• The total interest payments for 1915 and 1925 were assumed to be interest on war debts, although a very 
small proportion of the outstanding debt was Jor other than war purposes. The interest figures for 1932 to 
1939, inclusive, are an approximation obtained by attributing to war debts the percentage of tlie total interest 
payments for the year that the outstanding war debt was to the total net debt. The war-debt figure (about 
$15,000,000,000) used for this entire period was the estimate of the National Industrial Conference Board. 
This approximation of the proportion of interest payments attributable to military purposes is undoubtedly 
an understatement because the interest rates on the war debt incurred during and after the last war are higher 
than the average interest rate paid on Government borrowing since 1932. 

2 Exclrsive of debt retirement. 

3 Estimated amounts from the 1939 Budget. Actual appropriation may be more or less than the<!e esti- 
mates. 

Source: Harold M. Groves, Financing Government, Henry Holt, New York, 1930, p. 528. 

The table emphasizes the weight of military expenditures in the 
total Budget, whether ui war or peace. In 1915 almost 44 percent of 
the Federal Budget went for military activities, and even in the greatly 
enlarged Budget of 1939, 20 percent was so spent. There is no such 
thing as an economy whose efforts are devoted singly to peace or war, 
for the activities of both overlap, coincide, or are superimposed one 
on the other. But national policy can determine which sector of the 
economy shall have the go-ahead signal, and which shall be sub- 
ordinated to the other. 

The New Deal has dehberately used fiscal policy and public expendi- 
tures to promote peacetime recovery, and these efforts cannot be 
neglected or lost sight of just because national policy now and for 
some time to come will be focused on mihtary preparedness on a 
colossal scale. Preparedness is not an end in itself, nor can a pre- 
paredness economy become a substitute in a democracy for peacetime 
recovery and prosperity. Should such a fundamental shift in purpose 
occur, we would have a militarized nation with military objectives, 
both of which on a long-term basis are inimical to the development of 
democracy. This difference in purpose between the United States 
and the totalitarian nations comphcates the problems confronting us. 

Extensive military activities m this country are emergency features 
of an economy whose true and long range objectives are directed 
toward peaceful social-economic development. When they become 
the dominant necessity, it is presumed that they will remain so only 
for the duration of the emergency. When the emergenc}^ is past, 
the country will still be confronted with the problems of a matured 



238 



CONCENTRATION OF ECONOMIC POWER 



Chart 47 

EXPENDITURES FOR MILITARY PURPOSES 

UNITED STATES GOVERNMENT FOR SELECTED YEARS 
1915-1939 



DOLLARS 

(MILLIONS) 

4,000 — 



DOLLARS 

IM'LLIONSI 

— 4P00 



3^000 



1,000 



PER CENT 
100 



S< 



w ..- 



I 



^ 




i 



3P00 



2,000 






1925 1932 '33 '34 '35 '36 '37 '38 

NATIONAL VETERANS' PENSIONS 

m m 

DEFENSE AND BENEFITS 

PERCENTAGE OF TOTAL GOVERNMENTAL EXPENDITURES 



INTEREST ON 

m 

PUBLIC DEBT" 



PER CENT 
100 



^ 




11 



1 



1932 '33 '34 '35 '36 '37 '38 1939 



SOunee: «»•««. motoM M , FWANCWO COVIRNMENT, M« rorli. I»39, p 52« 
*Sm NoH V-Toblt on itunMMtn »or Milllor, Pgt»OMl 



OONCBNTRATION OF ECONOMIC POWEiR 239 

economy in which an advanced technological development has caused 
pronounced maladjustments in the use of the manpower, capital, and 
resources of the Nation. 

The American people must keep before them this dual purpose of 
maintaining the basis of democracy and at the same time immediately 
developing an adequate national defense, no matter how serious the 
crises through wliich they pass, for they gain little by defeating 
totalitarianism abroad if they lose democracy at home. 

Nonetheless, the requirements of the preparedness program will 
tax every resource at our command. A modern mechanized defense 
program will cost many billions of dollars. In, Germany, where the 
entire economy has been pointed toward military preparations since 
1935, direct military expenditures have grown from $2,600,000,000 
in that year to $4,400,000,000 in 1938;" totaling $14,600,000,000 for 
the 4-year period. In the same period the United States has spent 
$3,934,000,000 on mihtary activity. 

Experts in military science are unwilling to risk an estimate of the 
cost of providing an adequate modern defense, because of the mcal- 
culables involved. But many agree that a sound preparedness 
program will undoubtedly exceed the costs we incurred in World War 
No, 1, when our total military expenditures were $32,048,000,000 
and the costs resulting directly from the war added another $18,- 
830,000,000 for the period 1917-21.^8 jf ^j^jg reckoning be sound, 
then we face a minimum program of $50,000,000,000 for military 
activities. A prolonged conflict, or even a long continuance of 
the preparedness program and defense activities, would bring these 
approximations of cost far short of actual expenditures. 

There is some talk of gearing our national economy to a defense 
program totaling $100,000,000,000, but even the conservative esti- 
mate of half that amount requires a radical revision of internal 
economic policy, touching practically every aspect of our national 
life. Such a preparedness program requires the fullest use of our 
manpower, our natural and developed resources, our equipment, and 
our capital. In terms of such magnitude, appropriations of a few billion 
dollars and the efforts to fund the preparedness program on a pay-as- 
you-go basis are pigmy attempts to master a giant. 

The realization is growing that this is no ordinary war, but a des- 
perate struggle for survival of the American people and the demo- 
cratic way of life against a totalitarian philosophy and a state which 
is ruthlessly imposing its v/iil upon nation after nation. , To be success- 
ful against such forces we must revamp our social structure and 
reshape our economic practices. In doing so fiscal policy and taxation 
become a vital instrumentality. Several plans have been proposed 
which require careful consideration. 

" These are estimated figures which undoubtedly understate the ease considerably, as they cannot take 
into account all changes In currency values, internal purchasing power, etc. Also, comprehensive sum- 
maries are' not available. Moreover, Germany devoted its entire economic r^ources to the military pro- 
gram, so that these direct expenditures are probably only a minor part of the cost of equipping the German 
military machine to its level of 1940 efficiency. The figures are.talten from Groves, Financing Govern- 
ment, op. cit., p. 530. 

" Leo M. Cherne, Adjusting Your Business to War, Tai Research Institute of America, New York, 
1939,'pp. 6-7. The figures citf d are from a balance sheet of World War expenditures con-strocted by the 
International Business Machines Corporation. 



261085— 40— No. 20 17 



240 CONCENTRATION OF ECONOMIC POWER 

THE TAX EXPERIENCE OF WORLD WAR I 

World War I broke out in Europe in 1914 at a time when depressed 
economic conditions in the United States had caused widespread 
unemployment; steel production was at 30 percent of capacity, 
and a third of American railroads were insolvent.'^ By the end of the 
winter of 1914-15 this paralysis of our economic life had passed, and 
foreign orders were coming in rapidly. The war had been under way 
almost 3 years when the United States entered on the side of the Allies. 
In April 1917 Congress passed a war budget of $5,000,000,000, 
$3,000,000,000 of which went into mobilization activities and $2,000,- 
000,000 was loaned to the Allies for purchases in this country. The 
sums were almost immediately found inadequate, and by June 30 
approximately $15,000,000,000 had been appropriated. 

The injection of these vast military expenditures caused serious 
dislocations in the economy, such as bidding for workers and goods 
and inflationary conditions generally. By November 1918 the 
wholesale price level was double that of July 1914, and the disastrous 
effects of an uncontrolled inflation were in full swing. Both the public 
generally and its leaders were bewildered by the rapid changes which 
occurred in the economy, and almost no one understood the possible 
role of taxation and fiscal policy in palliating the effects of the inflation- 
deflation spirals. 

The first national income tax was inaugurated in 1913. It was 
unfamiliar, contained large loopholes, and did not immediately 
assume a firm place in the fiscal system of the Nation. No further 
revenue measures were enacted until 1916, and the experience of the 
intervening j^ears was colored by domestic and foreign chaos and war. 
But increased Federal Budgets necessitated substantial revisions in 
tax laws, which largely took the form of changed rates on individual 
and corporate incomes. 

The Revenue Act of 1916 provided certain rudimentary forms of an 
excess-profits tax. The Secretary of the Treasury w^as allowed to 
determine when, in his judgment, the profits of a corporation were 
unreasonable, and it was then necessary for individual stockholders 
to list for income taxation their pro rata share of such gains as if they 
had been received in dividends. A special tax of 12)^ percent of net 
profits was levied on manufacturers engaged directly in making and 
selling munitions and other articles of war. Certain occupational 
taxes were imposed on brokers, proprietors of amusement places, and 
manufacturers of tobacco products. These taxes were calculated to 
provide the increased Federal revenues required and to prevent unde- 
sirable economic consequences from war business. It is a matter of 
record that it did not accomplish either purpose, but this fumbling 
beginning was the basis for further tax reforms and still remains as 
the substantial core of the Federal tax system. 

The war period witnessed the enactment of a series of Federal 
revenue laws, each seeking to obtain more revenue to defray the costs 
of government, which constantly leaped ahead of tax receipts. There 
was increasing concern, also, over inflation and the rapid growth in 
war-profits fortunes. 

In addition to already existing revenue laws, a special preparedness 
fund Avas passed in March 1917, providing an excess-profits tax on 

" Ibid., p. 172. - 



CONCENTRATION OF ECONOMIC POWER 241 

corporations and partnerships and an additional estates tax. The 
former provided a tax of 8 percent of the amount by which net income 
exceeded $5,000 and 8 percent of tlie actual capital invested ill the 
business. Invested capital was calculated as follows: actual cash 
paid in; actual cash value, at time of payment, of assets other than 
cash; paid-in or earned surplus; and undivided profits used in the 
business. The estates tax raised the 1916 rates, the rate structure 
ranging from 1}^ percent of net estates exceeding $50,000 to 15 percent 
of amounts above $5,000,000. While receipts from this act raised 
considerably more revenue than the 1916 act, they were still utterly 
insufficient to meet the increased costs of mobilization and other 
Federal expenditures. 

The second revenue act of 1917, passed in October of that year, is 
generally referred to as the War Revenue Act.' It frankly recognized 
the unusual conditions of wartime and sought to make 'those profiting 
from war activities bear a larger share of the costs of war. The nor- 
mal tax on personal incomes was raised from 2 to 4 percent. The 
exemptions of $1,000 for single persons and $2,000 for married couples 
was allowed for the normal tax but did not apply to surtaxes. Many 
of the changes made at that time have been regarded as fundamental 
to the personal income-tax structure ever since. Surtaxes were im- 
posed, ranging from 1 to 50 percent. Corporations were taxed 6 per- 
cent on net income, instead of 2 percent as in 1916. 

The special feature of the wartime taxation was an excess-profits 
tax levied on corporations, partnerships, and individual businessmen. 
Domestic corporations were permitted an initial exemption of $3,000 
and a further exemption of not less than 7 percent nor more than 
9 percent of the invested capital for the taxable year.*" 

An undistributed-profits tax was included in the Wa^. Revenue Act. 
In addition to all other taxes, a lO-percent tax was levied on all net 
income remaining undistributed in corporation treasuries 6 months 
after the end of the fiscal or calendar year. 

The Revenue Act of 1918, the final wartime revenue measure, was 
actually passed in February 1919. The income features of the act 
applied to the calendar year 1918 and to fiscal years ending within 
that calendar year. 

The normal tax was 6 percent on the first $4,000 of personal net 
income subject to tax, and 12 percent on net income subject to tax 
above that amount. The surtax ra<tes began at 1 percent on net income 
in excess of $5,000 and advanced to 65 percent on net income in excess 
of $1,000,000.«\ _ 

The corporation-income tax was also increased in the 1918 act. The 
levy was 12 percent on taxable income. Domestic corporations were 
given a statutory exemption of $2,000 and allowed tax credits for war- 
and excess-profits taxes paid or accrued, as well as interest received 
from Federal obligations, and dividends from domestic corporations 
other than personal-service corporations. In addition to this income 
tax, corporations were obliged to pay a war-profits and an excess- 
profits tax.. The excess-profits tax was 65.percent of the income in 
excess of 20 percent of the invested capital of the corporation for the 
year. Corporations whose income did not exceed 2^0 percent of the 

«' Leo riKTnc,"op. cit., p. '219. The exact percontage used within the range 7 to 9 percent was equal to 
the proportion that the average anntial net income during the pre-war years 1911, 1912, and 1913 bear to the 
invested capital for the same period of time. 

M Ibid., p. 220. 



242 CONCENTRATION OF ECONOMIC POWER 

invested capital were taxed 30 percent of their net income exceeding 
excess-profits credits. The calculation of the credits and computa- 
tion of average invested capital led to much dispute and interfered 
with the effectiveness of the statute.*^ 

The war-profits tax was based on a specific exemption of $3,000 
plus the average net income for the pre-war years 1911-13. When 
the corporation had no net income for that period, or the average 
income was less than 10 percent of the invested capital for the taxable 
year, the credit allowed was $3,000 plus 10 percent of the invested 
capital for the taxable year. The war-profits tax applied after these 
exemptions and credits was limited to 30 percent of the net income 
between $3,000'and $20,000, and 80 percent of the net income over 
$20,000. 

In addition to these revisions and extensions of previous statutes, 
the 1918 act levied a capital stock tax of $1 on each $1,000 of fair 
average value of capital stock, with an exemption of $5,000. The estates 
tax was revised, with rates ranging from 1 to 25 percent on taxable 
estates. Taxes on transportation tickets, insurance payments, 
amusements, and luxuries were imposed, along with many other 
nuisance levies. ^^ 

This combination of taxes was never adequate to meet the costs of 
war, to prevent the undesirable enrichment of war profiteers, or to 
prevent or retard inflation and its disastrous consequences. The 
revenue program of World War I must be put down as a failure. As 
Bernard M. Baruch, former Chairman of the War Industries Board, 
summarized the situation: 

Inflation enormously increases the cost of war p-nd multiplies burdens on the 
backs of generations yet to come. The war debt of the Nation is necessarily in- 
curred in terms of debased dollar values. In the inevitable post-war deflation 
the debt, of course, remains at the inflated figure. Thus, the bonds that our 
Government sold in the World War for 50-cent dollars must be paid through 
the vears by taxes levied in 100-cent dollars. For example, our total war expendi- 
ture" was $39,000,000,000 incurred in terms of 1.917, 1918, 1919, and 1920 dollars. 
In terms of the purchasing power of 1913 dollars it would have been only $13,000,- 
000,000, or in terms of 1930 dollars probably not more than $15,000,000,000. 
Such a grotesque result would be almost unbelievable were the figures not Uving 
facts. If anything can be done to avoid this practical doubling of the economic 
burden of war, certainly we should spare no effort to accomplish it.** 

Congress has from time to time held prolonged hearings, seeking to 
profit by the disastrous experiences of the first World War, and has 
collected a body of factual data and comprehensive conclusions in the 
reports of the 'War Policies Commission in 1931 and the munitions 
investigation of 1935.^^ Yet these appear to have been blithely dis- 
regarded in formulating the revenue program to defray the costs of 
preparedness in June 1940.** 

THE KEYNES PLAN 

The British economist, John Maynard Keynes, has developed a 
plan for a fiscal policy and tax system which he believes necessary in a 
democracy in order to meet the problems of a wartime economy." 

82 Ibid., p. 222. 
M Ibid., p. 223. 

M Hearings before the War Policies Commission, 71st Cong., 2d sess., p. 33. 

85 Ibid., and hearings before the Special Committee Investigating the Munitions Industry, Senate, 74tn 
Cong., 1st sess. 
S6 gge sec. 3. 
«' How to Pay for the War, Harcourt, Brace, New York, 1940. 



OONCBNTRATION OP ECONOMIC POWER 243 

He assumes, reasonabl}'', that the total output of the Nation must be 
as large as the fullest use of its manpower, capital, and material 
resources will permit; that war needs have priority over other needs, 
but that a balanced economy is vital, providing for both the civilian 
and military sectors, to the utmost limits of capacity. 

Such a situation is vastly different from a peacetime economy in 
wliich the amount of goods in the market place is largely governed by 
the money in the pockets of the purchasing public. Here the supply of 
goods depends not so much on demand as on effective organization of 
those resources of the Nation which are not used in the making of war. 
Wlien full capacity is reached, actual unemployment disappears, 
and the amount of goods available for civilian consumption is what is 
left after the war machine has been provided for. 

In wartime, money earnings as a whole increase substantially, 
but the goods available to the civilian sector of the econonjy increase 
more slowly, and in many instances actually decrease. The increased 
emphasis on production, principally of war goods, calls for maximum 
employment, enlarging the pay envelope available to consumer 
units, through increased wages and employment. Bulging pockets in 
a market where the lands and amount of goods are restricted, inevitably 
means higher prices. If this situation is not controlled, the inflationary 
spiral results, prices rise more rapidly than wages, and profiteers grow 
rich on the "take." The tax system cannot be made to keep pace 
with these forces, and as they accelerate it lags further' behind, quickly 
proving itself unable to provide needed revenues on a pay-as-you-go 
basis, or to control the inflation. 

In Keynes' opinion, only a many-sided plan can hope to cope with 
this complex situation. As he says, "The aim * * * is to devise 
a means of adapting the distributive system of a free community to 
the limitations of war." ^* He offers three main objectives: 

1. Provision of an increased reward as an incentive, and recog- 
nition of increased eft'ort and risk, to which free men, unlike 
slaves, are entitled. 

2. The maximum freedom of choice to each mdividual, as to 
his use of that part of his income which he is at liberty to spend, a 
freedom which properly belongs to independent personalities, 
but not to the uuits ina totalitarian ant heap. 

3. Mitigation of the necessarj'' sacrifice for those least able to 
bear it, a use of valuable resources which a ruthless power avoids. 

Keynes' plan for achieving these objectives under conditions of war 
financing has four interrelated elements: 

1. The withdrawal from immediate consumption of a part of 
each individual's income, so as to prevent overaccumulations of 
funds in the hands of consumers. This withdrawal will take the 
form of forced loans, which the government wiU take, obligating 
itself to return them with interest at some time following the close 
of war when the depressed conditions of the economy will be 
greatly benefited from the increased purchasing power thus made 
available. 

2. The fimds thus collected during the war and used by the 
government for wartime purposes will be paid after the war by a 

««n)id, p. 7. 



244 CONCENTRATION OP ECONOMIC POWER 

capital levy which will make it unnecessary to burden the nation 
with a staggering debt. 

3. Recognizing the condition of many people whose low 
incomes do not permit further withdrawals for deferred payment 
funds, an exempt rninimum is provided, a sharply progressive 
scale of deferred payments based on increments of income is 
used, and a system of family allowances made to ease the burden 
on those who have no satisfactory margin above the barest 
necessities of life. 

4. Provision of an ''iron ration" of absolute necessities which 
will not be permitted to vary in cost or consumption as general 
prices change. 

The" timing" in this bold proposal is left up to the Government, 
which shall determine from general economic conditions when to 
release funds from the deferred-payment accounts, in the inevitable 
depression following the war. The passage of a capital levy would be 
up to the Parliament in power during that post-war period. Its 
size would be determined by the amount of debt incurred to finance 
the war, and the forced lo'ans to be repaid. 

A capital levy made during the war to finance it cannot prevent 
inflation through curtailing purchasing power and lessening the 
demand for consumers' goods, for it does not divert such mass pur- 
chasing power. After the war is over, however, it provides an 
immediate means of paying off the war debt, distributes purchasing 
power among the consuming public, and reduces savings in a period 
of constriction of the investment market when they would inevitably 
remain idle. Also, it redistributes wealth on a more equitable basis. 

Wliat are the alternatives confronting the British nation? As 
Keynes points oiit, the so-called "normal" methods of meeting wartime 
needs arc a combination of stiff taxation along accepted lines, volun- 
tary savings stimulated by active propaganda, and sufficient inflation 
to raise income to the level needed to produce high tax yields and large 
savings. Then, by withdrawing an adequate amount of potential 
consumers' purchasing power through taxation and borrowings, the 
force which otherwise would irresistibly raise prices and bring on the 
inflationary spiral can be controlled. But Keynes believes it is 
impossible to achieve this, and at the same time preserve the best 
objectives of a democracy in wartime. The controls necessary for 
this method of preventing inflation deny the basic objectives of 
democracy. If strict controls are not established, the inflationary 
spirals cannot be prevented. 

Germany has apparently been successful in enforcing a wartime 
fiscal policy which has prevented inflation and at the same time 
provided the nation with the resources needed to wage a successful 
war. But she has done so through the imposition of drastic con- 
trols, including a comprehensive system of rationmg and frozen 
prices, a system of direct deductions from wages for social and gov- 
ernmental purposes, and a complete regimentation of workers, man- 
agement, and owners of business. But Germany is a totalitarian 
state which mocks the wealoiesses of dehiocracy and its inability to 
marshal its economic forces for successful war activities. Germany, 
furthermore, has no obligation to preserve any measure of free enter- 
prise or individual choice. To adopt her policies would be to deny^ 
the very essentials of democracy. 



CONCpNTRATION OF ECONOMIC POWElR 245 

Probably the soundest criticism to be leveled at the Keynes plan 
is that it involves drastic changes of fiscal policy and taxation, so 
radical in comparison with the customary procedures as to appear 
revolutionary. Whether anything short of such drastic changes will 
suffice can be proved only by experience. It is hardly likely that 
the Keynes plan will be adopted, however, not only because of its 
complexity, but because it involves great sacrifices of wealth, and 
much foresight and abstinence on the part of the whole population. 
Even the stress of war seems insufficient to force such widespread 
changes in public policy. 

THE FLYNN PLAN 

The Senate committee investigatmg the munitions industry de- 
voted considerable time to the study of wartime taxation and price 
control, with John T. Flynn, noted publicist and authority on finance, 
as consultant to the committee. He is largely responsible for a plan 
which seeks to defray the cost of war on a pay-as-you-go basis, 
thereby removing the forces which cause- inflation and its evils.*^ 

Senator Arthur Vandenberg, member of the committee, stated 
Flynn's fundamental thesis succinctly as follows: 

It is proposed to strike at the economic heart of the war profit by the simple 
fundamental device of requiring that no future war be fought on borrowed 
money, but should be paid for substantially by current taxes. It is the process 
of making war on borrowed money which primarily creates the sinister inflation 
out of which grows: 

1. The opportunity for swollen profits. 

2. The economic dislocation of the war era. 

3. The post-war calamity of deflation. ^"^ 

The Flynn plan consists primarily of dependence on drastically 
revised corporate and personal income taxes. The former pro\'ides 
that corporation profits up to 6 percent of the capital value of such 
corporations will bear a 50-percent tax. An excess-profits tax of 
100 percent will be levied on all profits above 6 percent. To cite 
Flvnn's example, a corporation with an adjusted declared value of 
$100,000,000 makes $50,000,000 in a war year. Profits of 6 percent 
of the declared value, or $6,000,000, would be taxed at 50 percent, or 
$3,000,000. The remaining profits of $44,000,000 would be taxed at 
100 percent. Thus this corporation would pay a total tax of $47,- 
000,000. leavina: it with a net profit after taxes during that war year of 
$3,000,000. 

The personal income-tax changes proposed are also very drastic. 
The elaborate mechanism of normal and surtaxes is to be eliminated, 
and a rate structure imposed wliich does not permit even the topmost 
tax-free income to exceed $10,000. As Flynn says: 

That may look verv drastic to the man who is making S50,000 now and who 
made $100,000 a year 'in the last war, but it ought not to be so bad, because, after 
all, you ought not to be accused of unreasonableness when you a.sk a man to run a 
factory for the same sum that you pay a general commanding in the field." 

In order to speed up the collections from these taxes, Flynn proposed 
tliat they be collected on a quarterly basis. He also advised requiring 
corporations to file with the Government a list of officers' salaries 

f« Hearings before the Special Committee Investigating the Munitions Industry, U. S. Senate, Part 22, 
Wartime Taxation and Price Control, 1935. 
'" Ibid., p. 6243. 
" Ibid., p. 6186. 



246 CONCENTRATION OF ECONOMIC POWER 

which could be pubHshed in case of any attempt to raise them unduly 
during the war period. 

Several objections have been offered to Flynn's pay-as-you-go plan. 
One is that the enormous amounts immediately necessary for war 
expenditures cannot be made available through a tax program de- 
pendent on earnings and profits. Borrowings alone can provide such 
sums with dispatch. It may well be that in armchair contemplation 
of preparedness and war, the Flynn plan seems to possess unusual 
merits of controlling inflation and post-war deflation, but in such an 
emergency as now confronts us, we cannot wait for the slow accumu- 
lation of income-tax receipts. The realities of the situation oblige the 
Government to raise immediately many billions of dollars to capitalize 
and conduct a war economy. Flynn attempted to meet this need by 
suggesting short-teiTn Government loans to anticipate tax collections,^^ 
But there is no evidence to support the view that even when the tax 
system is bringing in revenue, the returns will be at all sufficient to 
meet the requirements of preparedness and war, even though prices 
are controlled and war costs rigorously held down. Germany's ex- 
perience, wliile not entirely clear, indicates that taxation even of the 
most oppressive kind was insufficient to equip a modern war machine, 
and entirely too meager to defray the costs of actual war operations. 
The sums used are so vast, and the war emergencies develop so 
rapidly, that money becomes immediately necessary if the outcome 
is to be successful. In these situations, the long view is usuall}" and 
necessarily overlooked, and the emergencies are met as realistically as 
possible. 

The corporation income taxes proposed by Flynn are much more 
severe than present rates. Wliile he argues that they do not limit 
profit, but merely appropriate a very substantial part of the profits 
made, still they may v/ell restrict incentive and make it necessary 
either to depend upon the most ardent patriotism of management 
and owners, or to establish some system of governmental control over 
operations which will raise production to the required wartime level 
in the time available. To take such chances is most hazardous. The 
War Department states: 

The attitude of the War Department with regard to war-profits taxation should 
be clearly understood by all those engaged in business in this country. The War 
Department does not look with disfavor upon war taxation to curb excessive profits, 
but merely takes the viewpoint that excess profits must not be curbed beyond a 
point where incentive to production will be removed. * * * It has always 
maintained that a war-tax measure must not impose so much of a burden on in- 
dustry that the production of war munitions and materials might thereby be 
hampered, crippled, or even destroyed. It has recognized that excessive taxes 
might well result in a failure to produce sufiicient munitions when needed and 
this would be paid for not in dollars and cents but in lives and the consequences 
of possible defeat.'* 

THE FLEXIBLE FINANCE PLAN 

A number of experts have been worldng on the problem, of develop- 
ing a fiscal plan which would be geared to the several important 
changes occurring in the -economy so that the maximum desirable 
effect might be produced. Am.ong the m.any professional people who 
have done original research in this im.portant field are Gerhard Colm, 

'2 John T. Flynn, An Approach to the Problems of War Finance in Annals of the American Academy 
of Political and Social Science, January 1936, p. 222. 
M Leo Cherne, op. cit., pp. 73, 213. 



CONCEiNTEATION OF ECONOMIC POWEOR 247 

fiscal expert in the Bureau of the Budget; Alvin Hansen, professor of 
political science at Harvard University and advisor to the Federal 
Reserve Board; Marriner Eccles and his associates at the Federal 
Reserve Board ; and Richard Gilbert, economist in the Department of 
Commerce. 

There are at least three distinguishable and different phases of the 
fiscal program, each geared to fit a different aspect of the changing 
economic situation resulting from the emphasis on a preparedness 
program in our economy. Described by Colm and others, they are 
as follows: 

1 . The beginning period. — This is characterized by the present 
economic conditions of widespread unemployment, large unused 
resources of material, plant, and equipment. In this period, 
while the entire economy is still operating on a peacetime basis 
and with its attention focused on peacetime needs, the center of 
attention is shifted to military preparedness, and the demands of 
the peacetime civil sector of the society become secondary. 

This initial period necessitates making great sums of money 
immediately available for plant expansion, part payment of in- 
dustrial orders, reorganization of the mihtary services, continua- 
tion and expansion of public works vital to preparedness and for 
which, later on, no surplus man-power will be available, large- 
scale projects for training skilled workers, and adjustro.enta 
between the preparedness program and the requirements of 
the civ^il sector of the economy." 

Neither the present tax system nor any proposed revisions 
which could be made immediately effective would bring in suffi- 
cient current revenue to meet the cost of initial expenditures for 
the preparedness program. On the present annual basis of re- 
turns, income-tax receipts would not be available until J941, 
almost a year after the preparedness program has been started. 
Revenues fi'om the excise features of the revenue act are too 
small to defray preparedness costs. 

Borrowing becomes essential to meet the immediate needs of 
the preparedness program. Irf the present capital market such 
borrowings can be made on most favorable terms. The debt 
limit must be raised substantially to make this possible. 

During this period of change-over to a preparedness economy, 
when full employment has not yet been attained, an increased 
excise-tax program adversely affects the buying power of the 
people, and it would be advisable to defer the collection of such 
excises until sometime in 1941, when the preparedness expendi- 
tures have raised the level of mass purchasing power. 

2. The second period. — This second period, dependent upon 
several incalculable factors, is characterized by a very substan- 
tial measure of employment and use of our resources, principally 
for preparedness purposes. This period will probably be reached 
during 1941. 

In this stage of developing the preparedness economy a large 
proportion of its costs should be paid for out of taxes on income 
and wealth. Care should be taken to avoid undesirable social 
consequences resulting from wartime profiteering and ''millionaire- 
making," without setting up any barriers to the attainment of the 
central purpose of an adequate preparedness program. 



248 CONCENTRATION OF ECONOMIC POWER 

Specifically, the rate structure of the personal income tax 
should be revised, with well-graduated rates, and the loopholes 
removed. Such loopholes seriously impair the income tax, and 
particularly in such a time of national emergency cannot be 
defended. 

The deductions permitted in the Federal estates tax should be 
revised, and specific exemptions lowered. It is suggested that 
the initial allowance be $10,000. 

A war excess-profits statute is essential. Colm. suggests that 
it follow the provisions of H. R. 7645, Seventy-sixth Congress, 
where, after establishing a base period net income based upon 
average annual net income for 3 of the 4 years, 1935-38, rates 
are applied as follows: 

Tax 'die. 
Excess of income over base period: pen-ent 

10 percent or less 10 

10 to 25 percent 25 

25 to 50 percent 50 

Over 50 percent 75 

Special amortization features should be provided to cover new 
investments in industries whose expansion facilitates the prepared- 
ness program. 

3. The third period. — In this period of the preparedness economy 
full employment will have been achieved, the preparedness or 
actual war program will be under way, and the maximum 
resources of the economy will be in use, and incipient or actual 
scarcity will be noticeable. In this phase of the economy the 
pressure for price rises and inflation are to be expected. 

Consequently, the fiscal policy and tax program should be 
made to fit these changed economic conditions as nearly as 
possible. 

The personal income tax should be altered once more, broaden- 
ing the tax base by lowering exemptions and increasing rates. 

Depending on the economic situation at this timxC, the excess- 
profits tax should be revised to ciu'tail profits drastically. 

A selected list of commodities, including such things as auto- 
mobiles, radios, gasoline, refrigerators, etc., which can be safely 
dispensed "with, should be subjected to high excise taxes definitely 
intended to curtail mass luxury consumption, and the limitation 
of supply would beneficially aft'ect the efforts devoted to the 
preparedness program. 

A general "turn over" tax should be enacted, based on the 
"value added by manufacture," with tax credits allowed for 
Federal and State pay-roll taxes in force, and tax exemptions for 
the necessities of life. The proposed tax rate is 4 percent to begin 
with, but if more money is needed to supplement other revenues, 
then the rate should be advanced to obtain the required sum. 

In all three periods it will probably be necessary to borrow, 
but such borrowings should be made so far as possible from 
financial institutions, in order to free their capital for social use. 
Under the incentives and impact of the fiscal and tax programs, 
the hoardings of individuals will in all likelihood be released in 
forms other than loans. 

Th^ fullest effect of this somewhat complicated tax program and 
fiscal policy cannot be achieved, providing vast sums of money as 



CONCENTRATION OF ECONOMIC POWER 249 

needed and preventing undesirable effects on the economy, unless the 
program is closely geared to the entire administrative poHcy and 
defense program. As this must necessarily be under the supervision 
of the executive branch of Government, which is in the best position 
to know the needs of the moment, it seems desirable to haye the 
Congress empower the Executive to apply one or another of these 
taxes and fiscal controls as they are required. A safeguard on such a 
wide grant of powers might be acliieved in a provision for a financial 
commission to study the prevaiUng economic conditions and make 
forecasts of impending changes. This commission would advise the 
President as to the times suitable for the enforcement of one or another 
of the provisions mentioned here. 

THE PREPAREDNESS AND WAR TAX PROPOSALS COMPARED 

Four different sets of proposals, or plans, for fiscal policy and taxa- 
tion during a preparedness or wartime period have been discussed, 
namely : 

1 . The congressional proposals. 

2. The Keynes plan. 

3. The Flynn plan. 

4. The Flexible Finance plan. 

Each has undoubted merits, each fails to meet certain important 
issues. But running through them all is the purpose of providing 
greatly enlarged revenues during this critical period, and at the same 
time using fiscal policy and taxation to regulate the economy, prevent- 
ing as far as possible the chaotic aftermath of inflation-deflation and 
the further unbalance of the economy resulting from the accelerated 
concentration of wealth and income. 

It is significant that in this emergency conservative tax experts, 
who normally consider sinful the use of taxation for any purpose except 
revenue, find themselves without popular support and either mffintain 
a dismayed silence or begin to advocate taxation for regulation of the 
economy. 

The tax proposals thus far enacted by Congress have been very 
hesitant attempts to meet the needs of a defense economy. They fall 
far short of providing the required revenues for the next fiscal year, 
they depend upon coUections to be made at the very close of that year, 
and they involve much guesswork as to the amounts available at that 
time. The debt limit has been raised, but by too small an amount to 
permit the extensive borrowing immediately essential in launching a 
vigorous and thorough preparedness program. A mechanical 10- 
percent increase in all brackets of the income tax merely continues the_ 
old inequalities in rates, instead of providing the sound revision 
needed to force every income class to bear its rightful share of such 
taxes. The gaping loopholes through which some citizens escape their 
obligations are continued in these congressional proposals. 

The various forms of " ability- to-pay" taxes — personal and corporate 
net income, gift, and estates — have not been coordinated for the 
greatest combined effectiveness. Emphasis on increased excise and 
sales taxes when unemployment and depressed purchasing power are 
widespread is unwise, and the immediate collection of large aggregate 
sums in such tiaxes will seriously- hinder the recovery which is basic to a 



250 CONCENTRATION OF ECONOMIC «POWER 

successful attack on the problems of preparedness and a peacetime 
economic recovery. 

On the credit side of the ledger, it can be noted that the Congress 
recognizes, as it did not in World War I, the dangers lurking in a policy 
of u^imited borrowing and inflationary prices. To counteract this 
danger it has levied much heavier taxes on the net earnings of indi- 
viduals and businesses. 

The Keynes plan possesses more theoretical than practical sig- 
nificance for us. Even in Britain, where the war has become a 
horrible reality calling for the utmost in personal and material 
sacrifice, there is little prospect of the adoption of such a complex 
and long-range proposal. Its dependence upon a post-war capital 
levy to reimburse those who have paid the costs of war through forced 
loans, thus revitalizing the waning purchasing power of the masses 
during deflation, seems quite hazardous and likely to defeat the entire 
plan. No one can control or obligate future parliaments or congresses. 
The great sacrifices made by all levels of the population during war, 
and the huge losses sustained by those formerly possessed of great 
wealth, make it doubtful that further confiscations of wealth during 
the chaotic period of post-war reconstruction can be enacted into law. 
Failing this, the very heart of the Keynes plan is gone. 

Frankly facing the realities of the American situation, where State 
and local governments collect approximately half of all taxes in the 
United States, Federal fiscal and tax policy cannot overlook the inter- 
relationships of the governments. It may be that the preparedness 
program will increase Federal taxes and expenditures to a point where 
they form 75 percent or more of all governmental budgets. Even so, 
however, State and local budgets will probably increase during this 
period of preparedness. Thus, the regressive and rigid character of 
State and local fiscal policies must be taken into account in planning a 
beneficial tax structure. None of the proposals or plans thus far 
offered consider this important factor. 

Both the Flynn and Flexible Finance plans, while making use of 
taxes with which the American people have become reasonably 
familiar since the last war, recommend drastic rates to raise revenues 
establish as much of a pay-as-you-go program as possible, and prevent 
the accumulation and concentration of wartime profits. Whether the 
proposed rates are so drastic as to impair production and retard the 
defense program cannot be foreseen. But it may well be that in the 
initial stages of the preparedness program the tax burden should be 
considerably less severe than they propose, with a stepping up of rates 
as it becomes apparent that this is necessary and desirable. This 
does not mean, of course, that the income tax rates should be so low 
as to permit wartime profiteering, but it does insure that the primary 
objective of this period, the building of defenses, is not hindered by 
the tax program. 

Those who prefer to proceed aimlessly with a patchwork system of 
taxation, without regard for the inflationary possibilities confronting 
us, will see in the intricacy of these plans, and in the necessary controls 
and timing, such complexity as to endanger the possibility of their 
success. They will prefer to go on in a pragmatic fashion, altering 
the fiscal policy and tax practice with changing circumstances. But 
it is this very procedure which spells defeat, which insures an inade- 
quate tax system in times of emergency, and which renders more 



CONCENTRATION OP ECONOMIC POWEiR 251 

clumsy and ineffective whatever price control mechanisms are estab- 
lished. 

While the Flexible Finance plan seems more feasible than any of 
the others discussed, still there is a recognized difficulty in 'attempting 
to establish any single preconceived plan. This well-meshed mecha- 
nism of different taxes, with proper timing, is expected to reduce 
inflation to a controllable minimum. It is expected to maintain 
purchasing power at a reasonably high level, to direct the flow of 
purchases into desirable channels without imposing the totalitarian 
controls which destroy the essentials of democracy. It likewise 
stimulates development of the kind and amount of production 
required for an adequate defense program. The proposal depends for 
these desirable effects very largely on the time at which the various, 
taxes are apphed. The suggestion that this timing be left to a finance- 
committee and the Chief Executive is difl5cult to attain, as judged by 
American poUtics and practices. The Congress is not hkely to 
delegate such responsibilities short of the direst emergency, which 
does not now prevail and which, if it occurs, will probably come too 
late to permit effective timing of the tax mechanism. 

In fact, although Congress is not following any clearly defined fiscal 
policy, it has already adopted a whole series of proposals which repre- 
sent the groundwork of the structure which will be elaborated as 
time goes on. It is hardly likely, short of a radical change in the 
present situation, that so careful and thorough a plan as the Flexible 
Finance plan can be substituted for the pragmatic approach of 
Congress. It seems more practical in this emergency to try to fit the 
essentials of sound planning into the congressional acts, molding them 
as much as possible into a structure which will accomplish certain 
well-defined purposes. These purposes require the reorganization of 
the tax system on all governmental levels, integrating it into the needs 
of our modern economy, to aid in preparedness and in peacetime 
recovery. 

The pay-as-you-go principle should be adopted as far as possible, 
but, even so, substantial borrowing will be necessary. Various non- 
fiscal devices are essential to prevent undue inflation and the after- 
math of deflation, but the tax program can in itself help to prevent 
unusual accumulations of wealth and income, undue profits, and 
unwise use of increased purchasing power in the hands of some ele- 
ments in the consuming population. If Congress and the adminis- 
tration time the imposition of various taxes wisely, they can do a 
great deal toward preventing both inflation and deflation. 

It is argued by some, proceeding from an analysis of the present 
state of the economy with its vast number of unemployed and its 
idle resources of plant and equipment, that even a preparedness 
program spending $5,000,000,000 in the next year cannot make full 
use of these forces. They believe that the technological economy is 
so advanced that even the stress of war cannot immediately use all the 
employable labor force. Short of placing an army in the field, or 
expending considerably more than $5,000,000,000 on preparedness, 
they feel that the changes to be expected will take not more than 



252 CONCENTRATION OF ECONOMIC POWER 

2,000,000 additional workers from the ranks of the unemployed during 
the coming year.^* 

It is true that even after 6 months of war England still had several 
hundred thousand unemployed on the dole. Much of this was due to 
faulty organization of the economy incident to getting a;large >^artime 
machine rolling. It is hardly to be expected that the "United States 
will entirely escape this initial confusion, so that for some time to come 
the need of providing for the unemployed and the presence of unused 
equipment will confront us. 

Nor can it be presumed that a disjointed and depression-ridden 
peacetime economy will automatically be cured by superimposing a 
preparedness economy on its faulty base. Many of the faults may be 
even more aggravated by this move. 

Turning several billions of dollars of additional piu'chasing power 
into the economic stream will raise the level of national well-being 
considerably, but it will not produce full employment, generally 
diffused purshasing power, or complete use of plant and equipment. 
Certain bottlenecks and log-jams will be immediately noticeable in the 
economy, which if taken by themselves would present a distorted 
picture. But unless circumstances change so completely and quickly 
as to require the expenditure, say within the next. 2 years, of 
$10,000,000,000 to $50,000,000,000,' or some combination of events 
puts a substantial body of men under arms or removes them from the 
labor market, there is little prospect of relegating the requirements of 
the peacetime sector of the economy to the background. Under no 
circumstances can either the needs of preparedness to meet the present 
crisis or the requirements of a badly disrupted civil economy be 
neglected. In discussing fiscal policy and taxation, both aspects of 
our democratic economy must be considered. 

«4 The Economic Outlook for June 1940, published by the Congress of Industrial Orjianizations, estimates 
that the war preoaredness expenditures durin? the next year will provide jobs for 2,000,000 worlcers. The 
estimate of unem'ployed in April 1940 was 11,259,000. Thus, in terms of such reasoning, the problem of idle 
men and idle plants which has been the ba,sis of so much of the discussion in this monograph has special 
significance. 



TAX RECOMMENDATIONS 

THE BASES OF REFORM 

This rnonograph has attempted to present the principles underlying 
a sound fiscal policy and tax system, to trace the present program of 
expenditures and revenue collections, and to analyze the social- 
economic effects of taxation in the United States. Inevitably, any 
such critical appraisal as has been made here leads to a discussion of 
specific reforms which might improve fiscal policy and taxation. But 
rapid shifts in the economic situation may make irrelevant certain 
suggestions, and changes in tax statutes may render particular reforms 
unnecessary. Frequently, reform proposals depend on a chain of 
circumstances which, when broken up, requires abrupt shifts in the 
reforms suggi^sted. These factors inhibit the offering of tax reforms 
through the medium of a monograph which may have a longer life 
than certain phases of the revenue system whose reform is sought. 
Tax reform is j^roperly the subject of memoranda rather than of books. 

Yet there are some tax reforms which, following the general theories 
laid down here, should be discussed specifically. Some who want 
fundamental revision of the fiscal system will be impatient with the 
piecemeal character of the reforms suggested. But a comprehensive 
program of change would have to be introduced over a long period. 
What appears essential is to lay out the agenda of taxation, based on 
a broad appraisal of economic conditions, trends, and estimates of 
future change. Thereafter, the timing of particular reforms would 
depend upon practical considerations. 

No tax reform can proceed with confidence without considering the 
economic trends affecting Federal, State, and local governmental 
jurisdictions. It will be remembered that by 1938 the revenue 
system collected $14,811,000,000, of which 41 percent came from 
Federal sources, 26 percent from States, and 33 percent from, local 
governments. Any .major change in the tax structure of either of 
these three will seriously affect the other two, so inextricably are they 
bound together. 

Some such changes are noticeable. General property, for example, 
has long been the basic support of local and State governments. Yet 
the economic life of the Nation has so altered, with waves of urbani- 
zation and suburbanization, with industry supplanting agriculture, 
that the property tax base no longer seems to respond to improved 
conditions in the general economy. 

Table 71 offers summary data on general property taxes from 1915 
to 1937. The peak yield was recorded in 1925, and since the trough 
of the depression in 1932 general property tax revenues declined more 
than 20 percent. This national condition obscures certain State 
trends. Property-tax yields in 14 States recovered from the low 
point in 1932, but the five largest gains made were the result of 
establishing selective property taxes, such as taxes on oil lands; and 
in two others rate increases accounted for the recovery .^^ Property 
tax revenues declined in 34 States after 1932. 



" Bulletm of the Department of Commerce, Bureau of the Census, Washington, June 30, 1939. The 
reader ■will recall that general property taxation is recorded here for State revenue purposes only. 

253 



254 



CONCENTRATION OF ECONOMIC POWER 



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256 CONCENTRATION OF ECONOMIC POWER 

Nor is this condition confined to the States, for many counties and 
some of the larger cities are having great difficulty adjusting their 
revenue programs to restricted property-tax receipts. New York 
City, for exam.ple, finds itself saddled with a burden of debt, increased 
dem.ands for public services, and a narrowing property-tax base, 
resulting from, devaluations of property and the growth of a com.m.uting 
population of higher-incom.e people who use the services provided by 
the city but escape its property-tax levies. The result is that New 
York has been forced to enact a city retail-sales tax to obtain increased 
revenue and to raise its assessed property tax to $2.84 a hundred, tlie 
highest in its history.^^ 

Other cities, such as Scranton and Pittsburgh, Pa., have devised 
schem.es to secure higher tax returns from, urban property by taxing 
vacant lots at double the rate of im.proved property.. But whatever 
the device used, the trend seem.s indicative of a perm.anent condition 
which will require fundam.ental reform, to effect a cure. 

The duplication of taxation between States and Federal Govern- 
ments is proving costly in adm.inistration and hi the time and m.oney 
of taxpayers. By 1935 there were more than 800 dual impositions 
on the sam.e tax base by the Federal and State Governro.ents. Taxa- 
tion will never exert its full effect in aiding economic recovery until 
the tax structure is viewed as a single entity. Such a streamlining 
of tax organization is tim.ely, because local and State govornm.ents 
are facing budget deficits and restricted tax resources. Because of 
well-developed tax resistance on the part of their citizens, they now 
turn expectantly to other governm.ental jursidictions for help. The 
localities seek to shift som.e of their burden to States, and States, in 
turn, ask the Federal Governm.ent for aid. 

Increasing tax resistance, coupled with th j greatly expanded and 
com.plex tax system needed to tap the various form.s of wealth and 
incom.e produced in an industrial society, necessitates the establish- 
m.ent of the m.ost econom.ical and efficient tax administration possible. 
This does not necessarily m.ean concentration of tax administration 
within the Federal Governm.ent; on the contrary, it may well mean a 
m,ore reasonable division of tax sources and a clearer disilnction be- 
tween adm.inistrative responsibilities of Federal, State, and local 
governm.ents. 

The m.ost suitable unit of governm.ent should collect the tax and 
allocate a proper share to alh other governm.ents concerned. This 
process has m.ade substantial headway in certain States, particularly 
in gasoline and autom.obile property tax levies, which are best collected 
by the State licensing such property, and then allocated to the counties 
and cities to m.eet road costs, on som.e equitable basis of the volum.e 
of gasoline sales and ownership of autom.obiles there. 

The State trade barriers erected to control the interstate m.ovement 
of goods, through the tax device, em.phasizes the need for closer 
cooperation between the various levels of government. Such tariffs 
augur little good for the prosperity of the Nation as a whole, and it 
becom.es the duty of those responsible for economic policy and taxa- 
tion to make clear the undesirability of taxation for these purposes. 

Grants-in-aid have proved an effective device for distributing funds 
collected by governments with broad revenue powers to those gov- 
's The National Association of Buildine Owners and Manaeers met in New York City in June 1940 and 
claimi'd that conditions in 70 overtaxed major American cities were sinjilar to New York's. Time, July 
1, 1940, pp. 66-67. 



OONOBNTRATION OF ECONOMIC POWER 257 

^rnments with large unmet social needs. They form an excellent lever 
to use in obtaining uniformly high public perfoi.iiance, and can un- 
doubtedly be used very effectively in obtaining desirable changes in 
tax systems. 

Fundamental tax reorganization cannot be secured through the 
efforts of professional reform groups, or of pressure groups, helpful 
though these efforts may be in particular cases, for in the last analysis 
they are private agencies. 

Taxation has become so essential to various Government depart- 
ments that many of them conduct their ov/n tax research to further 
particular programs. Thus the Department of Agriculture is greatly 
concerned about the effects on farmers of land taxation; the Federal 
Reserve Bank needs an extensive array of current information on 
taxation to keep abreast of its banking and inv?stmeut problems, and 
the Social Security Board must formulate the policy underlying tax 
support for its security programs. 

The Treasury Department holds a unique position, because it has 
immediate access to tax records invaluable in making tax studies. A 
tradition of secrecy has been developed concerning these tax records, 
intended to protect the anonymity of taxpayers. Carried to extreme, 
however, it has prevented the assembly, and publication of data con- 
cerning the impact of taxes, without which far-reaching reform can- 
not safely be made. 

During 1939 the Treasury, acceding to the insistent demand of 
business organizations and citizens to be heard by a Federal agency 
responsible for formulating tax policy and recommending changes to 
the Congress, held informal private conferences v/ith such groups. 
This procedure did not, how^ever, offer an adequate method for the 
other major government departments to present their specialized 
knowledge and requests. 

It seems unrealistic to expect that any single department of Govern- 
ment can speak for the administration on tax matters. The interests 
and purposes of the different^ departments are too distinct, and no 
department is willing to yield its position. 

Xet the need for a clearing house for tax policy is daily becoming 
more pressing. The Bureau of the Budget, staffed by experts di- 
rectly responsible to the President, seems a logical place to vest the 
authority for collecting and reviewing tax data and recommending 
the position of the Administration's tax program with respect to 
Federal, State, and local fiscal policy. This situation has already 
been recognized in the establishment of a fiscal division within the 
Bureau of the Budget. Just as it was ultimately, though belatedly, 
recognized that no existing department could collect the information 
needed to work out a proper Federal budget, and establish controls 
on estimates and expenditures, backed by Presidential authority to 
insure impartiality and adequate treatment, so now it is apparent that 
problems of fiscal policy and tax practice are interdepartmental, and 
best handled. in the same way. 

The Fiscal Division of the Budget Bureau, adequately staffed, 
would serve to correlate departmental activities so that the tax divi- 
sions of the several departments would not unnecessarily duplicate 
effort. It would review the research done in these departments, and 



258 CK)NCENTRATION OP ECONOMIC POWER 

from time to time obtain the assistance of appropriate departments 
in the conduct of further research. It would prepare, as part of the 
technical work of the Bureau of the Budget, the revenue program best 
suited to meet proposed expenditures. Thus the President, and 
through him the Congress, would be offered a coordinated program 
of income and expenditure. 

While such a fiscal division would untangle many interdepartmental 
snarls which should no longer be allowed to impede cooperation, it 
would also perform many other essential duties. The costliness and 
inefficiency of overlapping tax jurisdictions have long been under fire, 
but the efforts at reform are sporadic, and depend upon voluntary 
enthusiasms which ''blow hot and blow cold." The problems, how- 
ever, are continuing ones, whose character and emphasis change from 
year to year. It is essential that a suitable Federal agency be made 
responsible for collecting and maintaining current information on 
intergovernmental tax problems, conducting the research and con- 
ferences between these levels of government which are essential to 
adequate policy-making and legislation. 

The Bureau of the Budget, and more particularly the Fiscal Divi- 
sion, can assume this function. Private and professional bodies 
would be encouraged to assist in the work to be done, but the Division 
would be in a position of responsibility, providing the channeling of 
effort and the continuity of activity essential to the ultimate solution 
of these problems. 

The establishment of a Fiscal Division in the Bureau of the Budget, 
however, will not solve our tax problem.s. Now more than at any time 
in our history we need to work out the agenda of tax reform, to be 
established over a number of years. Basing its recommendations on 
the economic and social problems which confront us, and not forgetting 
the immediate changes needed, the Division should work out the objec- 
tives of an adequate fiscal policy, and a plan for achieving them as 
rapidly as possible. 

A large part of the data needed could 'be assembled in a brief time. 
Some of the more crucial problems have not bepn studied, primarily 
because no one assigned to the task has had access to the necessary 
records in the Bureau of Internal Revenue and other Government 
departments. Such problems include a detailed survey of an adequate 
sample of both individual and corporate income returns, with a view 
to determining the exact composition of the various taxable income 
levels. The estate tax should be subjected to the same rigorous 
scrutiny, as should the gift- tax provisions. Such knotty problems as 
joint and separate individual income returns, individual and partner- 
ship returns, trusts, tax-exempt securities, and many others, would be 
clarified by these studies. 

It should be a primary responsibility of the Fiscal Di\4sion to 
develop the necessary administrative and research machinery required 
to assemble data pertinent to a long-range tax reform program. All 
the interested Government agencies should share in this task, as well 
as those individuals and private organizations interested in tax 
problems. 

SPECIFIC RECOMMENDATIONS 

Besides the changes in planning and administrative techniques men- 
tioned, there are a number of specific recommendations upon which 
there is substantial information and considerable agreement among 



CONCBNTRATION OF ECONOMIC POWEiR 



259 



tax experts. Some of the particular recommendations are the crea- 
tion of certain authorities; others have reached their present stage 
through discussion by quahfied persons. Few, if any, are new with 
this study, although some of them have taken on new significance as 
-a result of the new information gathered. 

These recommendations are controversial, and have engendered 
much heat in the clash over their adoption. They are offered here, 
not with the expectation of their immediate or complete acceptance, 
but rather to assemble them beside our basic data on expenditures and 
revenues, where their worth can be measured. There is no adequate 
method of determining the priority of importance or of inauguration 
of these changes, hence they are grouped so far as possible into tliree- 
divisions, satisfying the need for new large tax sources, and for reforms 
in progressive and regressive taxes. 

l\lew tax sources 

The continued failure of the property tax base to recover its im- 
portance in the tax structure indicates more and more that the changes 
taking place in our economy have permanently altered the importance 
of property in relation to other forms of economic wealth. Any ade- 
quate tax system must take accoimt of this shift from an agrarian to 
^n industrial society, and develop a new or revised tax to tap industrial 
income and yield substantial, steady revenue for the support of 
government. 

A new, inclusive tax intended to meet this situation is offered in the 
igross income or gross sales tax. This tax is discussed briefly here. 

Confronted with a 33-percent drop in real-property tax yield in 
1933, at a time when the State was forced to assume increased respon- 
sibilities for the support of public education, Indiana enacted a gross- 
income tax.^^ West Virginia, because of failure of property and other 
tax yields, had passed a gross-sales tax in 1921. These gross income 
and gross-sales taxes are often referred to as turn-over taxes because 
they extract a tax on the basis of every transaction which turns goods 
or services from one purchaser to another. In the process the inci- 
dence of a tax becomes obscured, but it is probably pyramided in 
successive prices until paid by the ultimate purchaser. 

These taxes are properly described as "glorified sales taxes." A 
study of the yields shows the relative importance of each source in their 
total: 



Source of gross income tax 


Indiana 


West Virginia 




Percent 
63 
17 
20 


Percevi 

71 


Wholesale sales . -- 


8 




21 








Total 


100 


100 







While these taxes provide very substantial and comparatively stable 
revenues, they are detrimental to any economy suffering from under- 
consumption and lack of mass purchasing power. Not only do they 
pyramid, but their dependence upon purchases of consumers' neces- 
sities renders them both uneconomic and antisocial. While such taxes 



'• H. D. Anderson, Our California State Taxes, oh. VI, Gross Receipts and Gross Income Taxes, pp 
149-169. 



260 



CONCENTRATION OF ECONOMIC POWER 



might be used to limit consumers' buying during a period of full em- 
ployment, thfey cannot be defended at any other point in the business 
cycle, and should be avoided if the tax system is to be used to promote 
recovery. 

One of the national pension organizations sought certain modifica- 
tions in the gross income tax, proposing a general transactions tax on 
an ''added value" basis. It differs from the tax just described in that 
the cost of materials is deducted from gross income, leaving a taxable 
income based on the value added to the materials. In this way it is 
hoped to avoid the regressive pyramiding effect of the gross-income or 
gross-sales tax. An estimate of the base for such a tax appears in 
table 72. 

Table 72. — Estimate of tax base for "added value" taxation 
[Estimate based on U. S. Government statistics for 1935] 



Groups 



Gross income 



Cost of mate- 
rials 



Taxable balance 



Manufacturing .. 

Retail sales 

Wholesale sales 

Real estate, including rentals. 

Construction 

Service establishments 

Agriculture 

Mining . . 

Electric light, power, and gas 

Transportation 

Communication 

Finance 

Waees, salaries, and interest. 

Miscellaneous 

Gifts 

Inheritances 

Total 



$44, 993, 

33, 161, 

72, 119, 

52, 000, 

1, 622, 

25,000, 

9,000, 

2,800, 

3,000, 

6,000, 

4,000, 

125,000, 

62,000, 

25, 000, 

4,000, 

9,000, 



698, 673 
276,000 
078, 000 
000, 000 
862, 000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 



$25, 978, 100, 553 

21, 554, 829, 400 

61, 301, 216, 300 

41, 600, 000, 000 

681, 602, 040 

250, 000, 000 

900, 000, 000 

1, 200, 000, 000 

600, 000, 000 



100, 000, 000, 000 
""2," 500, 000," 000 



$19,015, 

11 ; 606. 

10,817, 

10, 400, 

941. 

24, 750, 

8,100, 

1, 680, 

2,400, 

6.000, 

4,000, 

25, 000, 

62, 000, 

22, 500, 

4,000, 

9, 000, 



598, 02O 
446, 600 
861,700 
000,000 
259, 960 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000.000 
000,000 
000,000 
000, 000 
000,000 



478, 696, 914, 573 



256, 485, 748, 293 



222,211,166,280 



Source: Social Security For All, and How to Get It, General Welfare Federation of America, Washington, 
1939, p. 17. 

The table indicates that the defects of a gross income or sales tax 
have been only partly remedied. The tax remains decidedly regres- 
sive, unless some substantial offsets or exemptions are made for small 
income groups. Covering every form of business transaction, it offers 
possibilities for a vast single system of taxation, but raises grave doubts 
of the justice of a flat levy on ail forms of business transactions. It 
has no relationship to net gain or worth, and may be a serious drag 
on an economy so maladjusted that many of its people are living on 
a bare subsistence level. The revenue possibilities of the tax are 
enormous. Either as a partial substitute for property taxes, which 
are likewise regressive in character, or as a source of additional funds, 
the tax has much to commend it. But before any such inclusive 
added value tax is seriously considered, much more information should 
be assembled thaa is now available on its incidence and effect, and 
other economically sounder possibilities should be explored. 

It is possible that an added value tax on manufactured goods, ap- 
plied either as a necessary supplement to existing revenues or. as a 
partial replacement of excises or property taxes, would be a helpful 
addition to the revenue structure. A combination of added value 
taxes on manufactured goods and property income taxes might proVe 
a great boon to the econoniy. 



OONCENTKATION OF ECONOMIC POWER 261 

Pauj Studenski, tax expert at New York University, advocated 
such a tax in his testimony in the congressional hearings on changes in 
the social-security laws. He said in part: 

In my opinion, you really should seriously consider adding to our Federal 
revenue system a gross receipts tax of the sort described [the "value added by 
manufacture" tax on manufactured goods] because such a gross-receipts tax would 
be in the nature of a payment by industry for the benefit received from the opera- 
tions of the Government. Such a tax, levied at a moderate rate, would produce 
stable revenue, and it would not be pyramided. * * * 'po give stability to 
our Federal system, I think we should add thereto such a gross-receipts levy, but 
I am not certain that we have as yet the statistical basis necessarj' for the intro- 
duction and operation of such a gross-receipts tax.**^ 

The search for new taxes will probably be of continuing importance 
as our budgets increase and our taxing jurisdictions meet new tax 
impasses; probably by far the greatest hope for desirable change, 
however, is to be found in improving and rearranging the taxes with 
which we are already familiar. With greater emphasis on solving. 
the problems of recovery, we can achieve full employment of our re- 
sources, and attain a level of national income sufficient to yield needed 
tax revenues without experimenting with untried tax sources on the 
one hand, or unduly increasing the tax burden on the other. 

A recent Government research memorandum regards fuU employ- 
ment as possible when the national income is raised approximately 
$30,000,000,000 above present levels. Nothing so far proposed in the 
national-defense program, or in the private sector of the economy, 
can possibly yield this increased income. Hence, we may expect for 
some time to come, barring a greatly expanded defense program, 
continued mass unemployment and the need to achieve recovery by 
the fuller use of our manpower and resources, rather than depending 
on a scarcity economy. If we could achieve full employment now, we 
could, by revising our tax system, secure revenues large enough to 
defray the costs of a comparatively high grade of government. It is 
in this direction that our efforts should be directed. 

Specific changes in tax laws 

The Twentieth Century Fund considered this problem in its study, 
making both staff and committee recommendations, many of which 
still remain unmet and therefore vahd.^^ Randolph E. Paul, eniinent 
tax attorney and author of a well-documented series of studies on 
Federal taxation, has made keen analyses of the legal loopholes, 
ambiguities, and inequities in certain parts of the present tax system.* 
The National Tax Association has had continuing committees at 
work on various phases of taxation for a number of years, publishing 
important studies currently.^ Congressional committees have de- 
voted prolonged study to these problems, and made many substantial 
improvements. Numerous other societies, organizations, and indi- 
viduals have devoted serious attention to the problems of specific 
changes required in our tax laws. Alany of their findings and sug- 
gestions have been draAvn upon in the following recommendations. 

" Hearings Relative to the Social Security Act Amendments of 1939, before the House Ways and Means 
Committee, 76th Cong., 1st sess., AVashington, 1939, vol. 2, pp. 962 ff. 

»» The Twentieth Centurv Fund, Facing the Tax Problem. New York, 1937. 

' Randolph E. Paul et al.. Studies in Federal Taxation, Oallaghan & Co., Chicago, 1937; also, Selected 
Studies in Federal Ta.xation, same publisher, 1938; also, The Law of Federal Income Taxation, same pub- 
lisher, 6 vols., 1934. 

2 National Tax Association, Final Report of the Committee of the National Tax Association on Federal 
Taxation of Corporations, Robert M. Baig, chairman, 1939. This is one of the most recent e.xamples.of the 
association's work. 



262 CONCENTRATION OF ECONOMIC POWER 

Changes in personal income taxes. — The revisions in exemptions and 
certain other .changes made in the emergency legislation passed by Con- 
gress in June 1940 have improved the personal income tax consider- 
ably, widened its base, and provided for much greater participation 
of many more citizens in the direct tax program of the Government. 
These changes should remain as permanent features of the tax. In 
addition, it is suggested that the merits of the following proposals be 
thoroughly canvassed: 

1. Revision of rate structure. — The 1940 revisions simply in- 
creased surtax rates a flat 10 percent, and added a defense tax of 
10 percent on the total tax, thereby accentuating rather than 
correcting existing inequities. The most reasonable rate changes 
should be determined, based on the ratio of tax to the net income 
available for taxation, for the entire range of reported incomes. 
The present tax especially favors net incomes ranging from 
$5,000 to $50,000, favors those from $50,000 to $100,000, and 
does not extract excessive taxes from even those above that 
amount. It leaves almost untouched incomes from $2,000 to 
$5,000. Because of the number of persons in these brackets, 
and their relatively comfortable circumstances, there is a possi- 
bility of greatly increasing the income tax yield by higher levies 
upon them. Thus, while we can reasonably secure more revenue 
by applying higher rates to the entire body of net income receivers, 
the unequal levies within the rate structure should be adjusted. 
Furthermore, since States also levy on the same net incomes, 
ftdjustment3 should be made between the two Governments. 
In this connection, it would seem reasonable to work out a single 
income tax levy, with provisions for refunds to States. 

The fear that higher surtaxes will defeat there own purposes 
through a lowered proportionate yield is unwa^anted, especially in 
a preparedness boom economy,^ According to available evidence, 
England has had an adequate amount of investment capital 
despite successive increases in income-tax rates. A comparison 
of rates in force in the United States and Great Britain (1940 
revision in the United States, and 1940 appKed rates in England) 
is as follows. 





Net taxable income 


Tax paid (married person, no 
dependents) 




United States 


England 


$4,000 , ■ . . . . 


$70 

317 

2,336 

30, 738 

255, 392 






$872 


$8,000: ...... . 


2.248 


$20,000 _" 


8,220 


$80,000. 




52, 072 


$400,000 ..., 


323, 072 







Obviously, it is not suggested that British precedent be fol- 
lowed precisely, for the tax systems and economic conditions of 
the two countries are. dissimilar. But the table illustrates the 
severity of taxation in one of the outstanding conservative cap- 



' In this- connection, see the excellent discussion df higher surtax effects'by James D. Magee and Harold 
M. Groves, Federal Income and Taxation, Law and Contemporary Problems. Journal of the Duke Uni- 
Tersity School of Law, spring qusrter, 1940, pp. l83-i8C. 

* Compiled by Martin Krost, Bureau of Research and Statistics, Federal Reserve Board, Washington, 
1940. 



CONCENTRATION OF ECONOMIC POWER 263 

italistic nations of the world, as compared with that now in force 
in the United States. 

Further, fundamental changes in income-tax rates, calculated 
to yield more revenue, should be adopted after an analysis of the 
effect of the total revenue system, with the intention of substi- 
tuting income-tax yields for consumers' taxes, which have a de- 
pressive effect on the economy. 

2. Personal exemption.— The present method of granting ex- 
emptions of $800 and $2,000 and credits for dependents, before 
applying successive surtax rates, results in an unequal allowance 
to different taxpayers. A higher tax yield can be obtained from 
progressively higher taxable incomes by permittmg exemptions 
and credits as deductions from the tax assessed, or as a credit 

. against the normal income only. 

3. Compulsory joint returns. — The present provision permitting 
either joint or individual returns results in tax avoidance through 
transfers of property and the filing of separate returns at lower 
tax rates. The law should set up a "financial family" allowing 
a single tax return for husbands and wives to avoid the oppor-. 
tunity for such favoritism. 

4. Short-term trusts. — The law should be corrected to eliminate 
avoidance through the creation of a short-term trust whereby a 
person transfers property to another. Paul suggests that a 
simple method of closing tliis loophole is to tax the grantor on 
the income from property so transferred. 

5. Capital gains.— The present law permits the taxpayer to be 
taxed on his long-term capital gains at certain fixed rates, rather 
than adding such gains to his regular income-tax report. It is 
recommended that long-term capital gains be treated like other 
gains. 

6. Tax-exempt securities.— This subject has been treated pre- 
viously. A sound income tax requires that the issuance of tax- 
exempt securities be prohibited. 

7. Surplus accumulations of eorportulions. — Corporation direc- 
tors often choose to accumulate surplus rather than increase 
dividends. This may result in unfairness to individual stock- 
holders, and it reduces the yield of the income tax. Several 
suggestions may be offered to correct this situation, at least in 
part. Corporations might he required to disburse a certain 
percentage of income in divijdends, or issue certificates of partici- 
pation in undistributed profits to stockholders, who would be 
required to report them as income subject to taxation. 

There are a number of other loopholes to be closed in the personal- 
income tax, m.any of which have been discussed previously, but these 
constitute major changes which will improve the tax itself and yield 
substantially more revenue. 

Changes in the corporate income tax. — The National Tax Associ- 
ation's Committee appointed to study corporate taxation summarized 
its extensive investigation with the conclusions that: 

Except for the special provisions governing personal holding companies and 
corporations improperly accumulating surpluses, the 1939 statute represents a 
complete abandonment of the effort to use the corporation tax to make the per- 
sonal-income tax effective. * * * • The enactment of the undistributed- 
profits tax was of real significance in that it marked a recognition of the inequity 
involved in the failure to bring corporate savings fully and promptly to account 



264 CONCENTRATION OF ECONOMIC POWER 

for personal income-tax purposes. * * * A. majority of the members [of 
the committee] desire to record their sympathy with this objective of the law, 
and to regret the absence of any provision in the revenue act as it now stands 
for applying the personal-income tax fully and promptly to all corporate savings. 
By its action in 1939, allowing the undistributed-profits tax to lapse, Congress 
merely retreated from this problem without solving it. Today it remains before 
us as perhaps the most important in the whole field of Federal corporate taxation.* 

The committee of tax experts of the National Tax Association 
reached their conclusions regarding corporate taxation from the 
premise that the major purpose of special taxes on corporations is to 
make the personal net-income tax effective. For this purpose, undis- 
tributed-profits taxes must be levied on these business enterprises. 
In addition, it appeared reasonable to the Committee that corporations 
be taxed: 

1. For the special benefits arising from the distinctive privileges 
that are granted by the Government to this particular form of 
business organization. 

2. For the benefits, in common with all forms of business 
organization, arising from the maintenance by the Government 
of a favorable framework and environment in which to operate.^ 

To accomplish the first purpose it was recommended that a capital- 
ization or franchise tax be levied instead of an income tax. With 
incorporation under Federal statutes rather than in the present 
unsound manner under State laws, corporations could be regulated 
and taxed equitably. 

To achieve the second purpose, some form of profits taxation may 
be continued, but including all business profits whether made by 
individual proprietors, partnerships, or corporations. Or, the desired 
result may be achieved by reforming the business tax into an added 
value levy on the additions made to materials through the manu- 
facturing process. 

If, in view of the present entrenched corporate tax structure, no 
such basic reform is feasible at this time; still, certain changes can be 
made to improve present statutes. The following changes are 
suggested. 

1. Insurance taxation.— Liie insurance has becom.e a gigantic 
business which enjoys preferential treatment through tax exemp- 
tion. For exam^ple, with alm.ost $1,000,000,000 of gross income 
in 1937, life-insurance companies paid only $392,000 in Federal 
incom.e taxes. So-called mutual fire insurance companies are 
not even required to file incoro.e returns. The law should be 
changed to tax such companies on the same basis as other bas- 
in esses. 

2. Building and loan associations. — Court decisions have re- 
m.oved these businesses from income taxation. But such de- 
cisions were rendered in a day when little attention was paid to 
the equity of the tax structure. To the extent that these enter- 
prises are profit-making businesses, and not bona fide cooperative 
organizations, they should be subject to the sam.e treatment 
accorded other profitable businesses. 

3. Excess-profits tax. — A tax on unusiial profits has been 
recommended for enactment in order to insure against the 

» Final report of the Committee cf the Natioaal Tax Association on Federal Taxation of CorporatlonsJ 
op. cit., pp. 48-40. 
» Ibid., p. 60. 



CONCENTRATION OF ECONOMIC POWER 265 

accrual of unusual gains from wartime industries. An excess 
profits tax was passed in October 1940. It is a complicated 
measure, not satisfactory to any group and will probably be 
revised in the near future. H. R. 9513, Seventy-sixth Congress 
embodies the essentials of a suitable excess-profits tax. A base 
period net income is determined, in this instance the average of the 
corporation's aimual net income for three of its taxable years end- 
ing during the calendar years 1935, 1936, 1937, and 1938, the 
choice to be made by the corporation. If the corporation has 
not had that long a life, the average income since its establish- 
ment is taken as the base period net income, except that in no 
case shall this be less than 5 percent nor more than 15 percent 
-of the adjusted capital investment of the corporation. Excess- 
profits rates are applied to that part of the income above the 
base period income. The rates suggested in H. R. 9513 apply 
to all corporations with net taxable incomes of $10,000 or more. 
Tax rates range from 10 percent of the net income which exceeds 
the base period net income by 10 percent, to 75 percent of that 
portion which exceeds the base period net income by more than 
50 percent. 

The passage of an appropriate excess-profits tax cannot come 
too soon for the good of the economy. Already certain American 
industries are pUing up amazing wartime profits. The annual 
return on net worth, on the basis of earnings during the first 
quarter of 1940, for six representative m.achine tool corporations 
ranged from 24.8 to 66.8 percent;, for five aircraft corporations 
from 28 to 52.4 percent; and for one automobile company, it 
was 44.7 percent. 

But, at best, as World War I proved^ an excess-profits tax is a 
crude instrument, for controlling profits and preventing inflation. 
Alternative defenses, such as the power to commandeer property 
and develop Government production, should also be utilized. 

Gijt and estate tax changes. — It is essential to coordinate the gift 
and estate taxes with the personal incom.e tax in order to obtain a 
complete and equitable tax levy on individuals possessing wealth and 
income. Besides the suggestions appearing elsewhere in the m.ono- 
graph, certain specific recommendations can be made here. 

1. Contemplation oj death.-^The difficulty of interpreting and 
enforcing the gift tax statute can be partially eliminated by 
establishing an age limit, say 60 years, beyond which all gifts 
m.ade are considered in contem.plation of death. 

2. Gift tax exemptions. — The exem.ptions perm.itted under the 
gift tax are very generous. To provide a more reasonable basis 
of taxation, it is suggested that tax exemptions of gifts to indi- 
viduals be permitted only when gifts are made to immediate 
family members. 

3. Inclusion of gifts. — Gifts made durmg the Hfe of the donor 
should be included in the taxable estate, assessing the tax against 
the total estate, and permitting deductions for gift taxes paid 
previously. Martin Krost gives a case illustrating the meaning 
of a coordination of income, estates, and gift taxes. He points 
out that a gift of $10,000 from an estate which at the death of the 
donor will amouut to somewhat more than $1,000,000 avoids a 



266 CONCENTRATION OF ECONOMIC POWER 

prospective estates tax of $3,200, while paying a gift tax of onlv 
$150. 

4. Revision of estates-tax rates. — The exemptions of $40,000 
each for gifts, estates, and insurance permit a tax-free estate of 
$120,000 to pass to legatees. This defeats the true purpose of 
the estates tax. An over-all limitation on exemptions should be 
made, low enough to permit taxation on practically the whole 
estate. An inclusive tax statute could then be devised,, with 
graduated rates. 

5. Power of appointment governing estates tax. — ^The practice of 
establishing trusts with power of appointment to issue of the 
legatee means that no estates tax is assessed, even though the 
estate held in trust passes from the original legatee to a new heir. 
Tins practice should be stopped by proliibiting such appointments 
to issue. 

6. Continued holdings. — The Twentieth Century Fund stud,y 
suggested levymg a particularly high tax on property which 
passed tjirough two or more generations. The recommendation 
has merit, but requires carefully assembled data from an ex- 
amination of original records before proceeding further. 

Pay-roll taxation. — The 1939 revisions of the social-security laws have 
Hberalized old-age payments, and have frozen pay-roll taxes at a rate 
lower than that to have been imposed in 1940. Nevertheless, neither 
objective of the social security program has been achieved, for we have 
neither an adequate old-age pension nor an economically sound 
bads of support. It is recommended that the pension be made 
universal and that it be supported through a general fund set up and 
maintained in the Treasury Department for tliis purpose. 

. It is further recommended that the unemploym.ant compensation 
program of the Social Security Act be carefully scrutinized with a view 
to revising the pay-roll rate structure, increasing the coverage, and 
prolonging the benefit period. The effects of the defense economy on 
the whole tax base and program of unemployment compensation 
should be examined by a committee appointed by Congress for this 
purpose. 

Tax incentives 

Much has been written about the need to provide incentives to- 
business through tax exemptions or allowances. Most of the sug- 
gestions are motivated by the desire of certain groups to escape taxa- 
tion. But there are some which emanate from disinterested and 
scientific sources intent upon using taxation to induce econonlic 
recoveiy. S. 3560, Seventy-sixth Congress, offered by Senator Joseph 
C. O'Mahoney, is an excellent example of a tax incentive proposal of 
this kind, intended to provide a labor differential which will increase 
employment. 

Incentive taxation has long held unusual attraction, and comes to 
the fore in every prolonged economic crisis. The proposal takes one 
of several forms, usually tax subsidies based upon increased employ- 
ment. In the roost notable example of the use of a pay-roll incentive, 
the German "Papen plan," the tax subsidy approached 50 percent t)f 
additional pay rolls, without any appreciable improvement of the 
generally depressed economy. Yet, the chaotic circumstances pre- 
vailing at the time of its imposition may accoimt for its ineffectiveness, 
rather than its own inherent weak-^/^sses. 



CONCENTRATION OF ECONOMIC POWER 267 

Congress devoted serious attention to the problem in 1939, render- 
ing a report which collected much opinion on the subject from all parts 
of the country. The study concluded: 

It is urgently recommended that Congress experiment for the next 5 years at 
least by trading tax credits against dollars actually invested by industry in 
modernizing, expanding, or developing production, and for additional employ- 
ment.'' 

Another form of incentive taxation is that which penalizes the with- 
holding of economic resources from productive use. Some have 
suggested the taxation of idle bank deposits. One plan offered by a 
correspondent is as follows: 

1. Tax the average monthly balances held by banks as demand 
deposits for the account of individuals, after deducting an 
exemption of $5,000, at, say, one-fourth percent a month. The 
tax to be collected monthly by the banks and transmitted to the 
Treasury. The banks to be paid for this service. 

Make provisions against evasion. This is not difficult. 
Effective provisions have already been worked out. 

2. Assess a graduated tax on cash held by corporations at the 
end of each year which is in excess of the reasonable requirements 
for working cash capital, commitments, and reserves, according to 
the size and nature of the business. 

3. As there is a large volume of capital funds held idle at the 
present time, and as extensive new investment in plant expansion 
would be unprofitable so long as there is an excess of plant 
capacity, and as individuals with surplus funds are either unwilhng 
or unaHe to spend them on consumers' goods, it will be necessary 

'for the Government to assume a part of the function of investment 
at least until a condition of balanced prosperity is restored. 

Therefore, let the Government offer to borrow at a low rate of 
interest the existing idle funds owned by individuals and spend 
the money on public works. This could be done within 2 or 3 
years, and then the Budget could be permanently balanced.* 

Colm has suggested a tax on unused funds considerably less 
•elaborate than the foregoing. He proposes to determine "disposable 
funds" as the excess of ''accrued funds" (which are income plus depre- 
ciation and depletion) over "used funds" (which are funds used for 
taxes, distributed dividends, and plant and equipment expenditures). 
A tax is to be imposed on these disposable funds, say at 20 percent. 
This amount is paid into the Treasuiy along with the regular income- 
tax payment. Whenever in any taxable year the used funds are higher 
than the accrued funds, the taxpayer acquires a claim against the 
Bureau of Internal Revenue for that amount. The claim is not paid 
in cash, but applies on future tax liabilities. 

Ail such proposals represent attempts to use the tax procedure to 
achieve economic recovery. They are not to be dismissed lightly in a 
day when every social and economic force must be applied to the 
problems besetting our economy. But they are substantial depar- 
tures from proven tax methods, and inject .untried elements into our 
pohtical economy which require careful consideration before being 
applied. 

' Report of the subcommittee of the Senate Committee on Finance, Survey of Experiences in Proflt- 
Sharin? and Possibilities of Incentive Taxation. Washmgton, 1939. p. 2S6. 
* Suggestions made in a memorandum by George Richmond Walker, Boston,, Mass., April 15, 1940. 



268 CONCENTRATION OF ECONOMIC POWER 

It is seriously recommended, despite the increasing emphasis on a 
preparedness economy which may well shove such far-reaching 
proposals into the background, that they be included for study in any 
agenda of tax reform. Scientific information on these new proposals 
is almost entirely lacking, but the need for new tax sources, and the 
imperative demand for an economically sound tax revision necessitate 
the inclusion of every reasonable suggestion in the list of reforms to be 
studied. 



GENERAL CONCLUSIONS 

This monograph has attempted to assemble and analyze pertinent 
data concerning the expenditure program and tax system of the 
Nation, to determine the bearing of both on economic conditions and 
the full employment of manpower, capital, and resources. Much 
new statistical material has been assembled which is fundamental to 
an adequate tax program, and many competent sources have been 
examined and reported. 

This monograph supplements certain other studies of the Temporary 
National Economic Committee, notably the following: 

Concentration and Composition of Individual Incomes, by 
Adolph J. Goldenthal. 

Financial Characteristics of American Manufacturing Corpora- 
tions, by Charles L. Merwin, Jr. 

Taxation of Corporate Enterprise, by Clifford J. Hynning. 

Who Pays Taxes? the Allocation of Federal, State, and Local 
Taxes to Consumers' Income Brackets, by Gerhard Colm and 
Helen Tarasov. 

Industrial Reemployment Plans, by Arthur J. Dahlberg. 

If emphasis on the preparedness program continues to increase, 
then much of the material presented here will have great significance, 
for it offers an appraisal of the economic problems besetting the 
Nation, in relation to the tax system. Further, various proposals 
thus far made for meeting the needs of a war defense economy are 
covered. 

If, on the other hand, the major emphasis should return to domestic 
economic problems, this monograph should be of help in pointing out 
the hazards and pitfalls of unsound tax proposals and experiments, 
and in suggesting desirable changes in a peacetime tax structure. 

Whether in a defense or a peace economy, it becomes increasingly 
clear that the local, State, and Federal tax systems require substantial 
revision. As debt mounts and expenditures increase, further delay 
in facing our tax problems becomes more hazardous to economic 
stability. 

The specific suggestions made in this monograph will not be repeated 
here, but it is important to recall that they fall into two general classes, 
those fundamental reforms which require drastic changes in the inter- 
related tax systems of the different governmental levels, and those 
specific detailed changes in the tax statutes which can usually be made 
without regard to fundamental reforms in the entire tax structure. 
Both require appropriate machinery. The former can best be met by 
designating a fiscal unit of the Federal Budget Bureau to collect data 
and cooperate w^ith other departments and organizations in a long- 
range, careful attack on tax problems. The latter can proceed at 
once, following appropriate collections of information and designing 
of tax statute changes. Obviously, of course, their efforts should be 
correlated. 

269 



270 CONCENTRATION OF ECONOMIC POWER 

The basic reforms in the Federal tax system revolve around an 
effective income-tax structure, supplemented by certain levies on 
business privileges, such as a tax on "value added by manufacture." 
Through a thorough-going revision of income, estates, profits, and 
gift taxes, with proper credits to States participating in .the combined 
program, a sound tax system can be developed to aid in stabilizing 
■either a preparedness or a peacetime economy. 

Basic reform.s in the State and local government tax structures are 
necessary, and can be achieved through the adoption of 'added value" 
taxes on State corporations and businesses, and property income 
taxes, plus certain registration and control taxes required to regulate 
business activities. 

A suitable division of sources becomes essential to any such reform 
of the tax structure, and a m.echanism. must be developed for the most 
economical and efficient adm.inistration of these interrelated aspects of 
a Federal, State, and local tax system.. 

Much of the confusion resulting from the all-too-frequent tax 
changes ro.ade by State and Federal Governm.ents can be avoided only 
by taking drastic steps to bring our archaic tax system into alinem.ent 
with the level of econom.ic developm.ent we have attained. To avoid 
further gaps between the two, we must develop a machinery of tax 
adm.inistration which, while in no sense capricious, can deterro.ine 
when and how to apply certain phases of the tax program, in order to 
produce a desired econom.ic effect. This m.ust not be taken to m.ean 
that the elected representatives of the people are to abdicate their 
powers to pass tax laws; m.ucb m.ore administrative discretion is re- 
quired, however, to operate a tax system, which takes cognizance of the 
business cycle, and dovetails various elements in the tax program, to 
the recognized phases of that cycle in order to obtain the m.axim.um 
econom.ic benefit fr'^m. the tax progi'am.. 

Finally, it is now clear that tax reform is a continuing process to be 
shared by all levels of governm.ent. Under proper auspices, these 
various levels of governm.ent can be adequately represented. The 
character of the tax system, denotes the social enlightenment of the 
people subject to it. An econom.ically sound plan of taxation will be 
built on the fundam.ental principle that citizens should bear the direct 
costs of governm.ent in proportion to their econom.ic ability to do so. 
No better principle has been discovered worthy of a dem.ocracj'" which 
seeks to achieve a high standard of living and maintain economic 
prosperity. 



APPENDIX A 
THE ECONOMIC STRUCTURE OF THE UNITED STATES 

PRODUCTION AND DISTRIBUTION IN THE UNITED 

STATES 

Productive capacity depends on the natural resources of the 
country; the population and manpower available to transform these 
natural resources into goods and services; wealth in the forms of 
improvements to land, productive assets of livestock, machinery, and 
vehicles; public utilities for power generation and transmission, light, 
heat, and transportation; and stocks of goods. 

The Brookings Institution's careful and conservative studies on the 
distribution of wealth and income in relation to economic progress 
revealed that in 1929 only about 80 percent of the available productive 
capacity in the United States was actually employed. Yet even this 
80 percent was so unevenly distributed that production ranged from 
45 percent of practical capacity in the locomotive industry to 92 
percent in the full-fashioned hosiery industry. The over-all propor- 
tion of unused capacity remained fairly constant for the first years 
of the present century, although the total volume of production grew 
enormously. After 1929, however, production fell off more than a 
third from its high point.* Idle men, idle machmes, and idle capital 
'characterized the economy of the next 10 years. 

NATIONAL WEALTH 

In table 1, chart 1, the total wealth of the United States is displayed 
for the years since 1922. Data are arranged in current dollars, and 
in hypothetical 1926 dollars based on the general price level index. 
Index columns are added, with a base of 1922 as 100, to permit com- 
parisons for successive years. 

Certain conclusions important for their bearing on taxation can be 
drawn from the figures. National wealth fluctuates, whether judged in 
current or adjusted dollars. In terms of current dollars, the national 
wealth for every year since 1922 has exceeded $300,000,000,000, 
except for the period 1932-35. In terms of price-level dollars, it has 
not fallen below $309,000,000,000 since 1922. In current dollars, the 
peak was reached in 1929, when the total was $354,000,000,000. As 
a result of the depression, the total wealth in terms of 1926 dollars 
dropped from $367,000,000,000 in 1931 to $341,000,000,000' in 1936. 

1 The Brookings Institiilion, America's Capacity to Produce, Washington, 1934. 

271 



26I08S— 40— No. 20 19 



272 CONCENTRATION OF ECONOMIC POWER 

Table 1.- — Total and per capita wealth of the United. States, 1922~S7 





Current dollars 


Hypothetical 
lars ba-:ed 
dcx of th 
price level 


1926 dol- 
on the in- 
e ?eneroI 


Year 


Total 


Per capita 


Total 




Thousands 
of dollars 


Percent 
of 1922 


Dollars 


Percent 
of 1922 


Thousands 
of dollars 


Percent 
of 1922 


1922' ..- 


306, 764, 080 
309,117,658 

306, 226, 330 

307, 254, 801 

310, 060, 969 
326, 707, 495 
340.612,841 
353, 620, 986 
344, 154, 405 

321, 969, 909 
298, 960, 109 
288, 867, 130 
286, 569, 312 
290,975,369 

307. 639, 205 
321, 791, 722 


100.0 
100.8 
99.8 
100.2 

101.1 
106.5 

in.o 

115.3 
112.2 

105. 2 
97.5 
94.2 
93.4 
94.9 

100.3 
104.9 


2,792 

2,771 
2,705 
2,675 

2,661 
2,764 
2,842 
2,910 
2,796 

2,594 
2,392 
2,297 
2,263 
2,282 

2, 395 
2,490 


100.0 
99.2 
96.9 
95.8 

95.3 
99.0 
101.8 
104.2 

loai 

92.9 
85.7 
82.3 
81.1 
81.7 

85.8 
89.2 


332, 715, 920 
320, 329. 180 
315,372,120 
309, 109, 450 

310, 060, 968 
326, 707, 495 
331,013,440 
337, 746, 880 
350, 462, 730 

367, 126. 460 
387, 254. 020 
384,131,820 
357, 764, 430 
343, 131, 330 

341,441.960 
341,581,812 


lOOO 


1923 


96.3 


192t . - 


94.8 


1925 -- 


92.9 


1926 


93.2 


1927 

1928 


98.2 
99.5 


1929 -. 


101.5 


1930 


105. 8 


1931 


110.3 


1932 


116 4 


1933 


115.5 


1934 


107.5 


1935 --- 


103.1 


1936 --- -. 


102.6 


1937' . 


102.7 







1 The census estimate for 1922 was: Total wealth $320,803,862,000; per capita wealth $2,918. 
'Preliminary. 

Source: National Industrial Conference Bonrd, Enterpjise and Social Progress, New York, 1939, p. 58. 

The table also gives information concemin;? per capita wealth based 
on current dollars. A comparison of "wealth and population figures 
really means very little, for there is no such actual distribution of 
wealth, and hence taxable resources, as per capita figures would 
indicate. Yet the fig-ures have some comparative value, indicating- 
roufflily the relationships between total population and wealth for 
various time periods. For example, in 1922 there was $2,792 of 
wealth in the United States for every inhabitant living within its 
borders. The fio-ure declined somewhat thereafter until 1928, when 
it went above 1922. The peak was reached in 1929, when it was 4.2 
percent above 1922, and 15 percent above 1937. Since the popula- 
tion had risen steadily durine; that period, the amount of wealth which 
coidd have been distributed equally among the inhabitants of the 
United States in 1937 was considerably less than in 1929. The low 
per caoita figure was reached in 1934; yet the recover}'' experienced 
gince then, while substantial, has provided a per capita wealth con- 
siderably less than that of any year prior to 1932. 

A comnarison of the indexes of current and adjusted dollars shows 
that wealth in terms of purchasing-power dollars did not drop fi'om 
1929 to 1933 as far as wealth in current dollars. If adjusted dollars 
are an indication of true assets, It appears that total wealth did not 
decline until 1933. In that year, however, the Nation's wealth fell 
sharnly, reached its depression low in 1936, and remained at approxi- 
mately that level in 1937. 

Whereas in current dollars national wealth in 1936 equaled that of 
1922, in adjusted dollars it was slightly jrreater than in 1922. The 
important conclusion is that the Nation's assets, measured by a 
dollar adjusted to changes in purchasins: power, were greater in 1937, 
despit.e the depression, than they were in 1929. 



CONCENTRATION OF ECONOMIC POWER 



273 



Chaet 1 



TOTAL AND PER CAPITA WEALTH 

UNITED STATES, 1922-1937 



DOLLARS 

(BltLIONS) 

400 



TOTAL WEALTH 



DOLLARS 

(BILLIONS) 

-1400 



i926 Dollors*- 



350 



300 



-250 



200 




1924 1925 1926 1927 1923 1929 1930 1931 1932 1933 1934 1935 1936 1937' 



DOLLARS 
3,000 



2,500 -- 



^,000 K 



(,500 



PER CAPITA WEALTH 
(CURRENT DOLLARS) 




l_00o .'r-ir-sf^ ^-.-..; 



500 



oL^ ___________^ 

1922 1323 1924 1325 1926 i927 1S28 1929 1930 1931 1932 1933 1934 1935 1936 1937 



SOURCe: ENTERPRISE AND SOCIiL PROGRESS, Nolionol Induslriol Coo(wenc9 Boorii, New York. 1939, p 58 
* Rises ond Oclines Rep'eienI Chonges in Physicol Volume ol 1926 Price Levels, 



274 



CONCENTRATION OF ECONOMIC POWEU 



Judged either by current or adjusted dollars, the national wealth 
in 1937 was above that available during the early part of the pros- 
perous twenties. 

In table 2 the wealth of the United States is compared for 1929 
and 1936, the last year for which detailed figures are available. 
Wealth is not taxed as such, but various taxes have been devised to 
levy upon the forms of wealth or the income which they produce. 
Thus, these data serve as basic material in approaching the solutions 
of the tax problem. Unfortunately, only figures on current-value 
dollars are available. 

Table 2. — Classificntion of wealth in the Urdted Stales, 1.9^9 and lO.ifS 
[Dollar figures in millions] 



1929 



1936 



1936 over 1929 



Form of wealth 



Amount Percent i Amount Percent Amount Percent 



Total I. 



Land 

Real property and improvements 

(taxed) 

Real property and improvements 

(exempt) 

Productive assets (of individuals and cor- 
porations except utilities other than land) . 

Livestock 

Farm implements and machinery 

Manufacturing machinery, tools, and 

implements 

Motor vehicles 

Public utilities 

Railroads and their equipment 

Street railways _ 

Telegraph systems 

, Telephone systems — 

Pullman and other cars not owned by 

railroads 

Pipe lines 

Shipping and canals 

Privately owned water works 

Privately owned central electric light 

and power stations 

Stocks of goods 

In hands of producers 

Farmers 

Manufacturers 

Miners 

' In hands of dealers 

Wholesalers _ 

Retailers 

In hands of consumers 

Gold and silver coin and bullion 



$353,621 



100.0 



184, 971 
160, 453 

24, 518 

31,458 
6,490 
1,970 

15, 355 

7,643 

46, 173 

24,076 ; 

3,085 I 

343 
3,413 

483 I 

441 ! 

2,223 j 

885 



52.3 

45.4 

0.9 

8.9 
1.8 
.6 

4.3 

2.2 
13.1 

6.8 
.9 
. 1 

1.0 

.1 
.1 
.7 
.3 



$307, 639 



167,461 
141.679 
25, 771 

23, 223 

5,108 
1,436 

11,252 

5,428 

46,644 

23, 529 

2, 012 

389 

3,596 

363 

372 

2,275 

699 



11,224 ; 
91,019 

16,989 I 

(2,451)1 

(13, 815) j 

(723) 

12,610 

(5, 247) I 

(7, 263) ! 

56,857 I 

4,664 I 

I 



3.2 


12,808 


25.7 


70, 321 


4.8 


13,281 


(.7) 


(1,762; 


(3,9) 


(11,220; 


(.2) 


(299; 


3.5 


9,728 


(1.5) 


(5, 103) 


(2.1) 


(4,625; 


16.1 


36, 153 


1,3 


11, 158 



100.0 -$45,982 



54.4 -17,520 



46.1 

8.4 

7.5 
1.7 
.5 

3.7 

1.8 
16.2 

7.6 
.8 
.1 

1.2 

.1 
.1 
.7 
.2 

4.2 

22.9 

4.3 

(.6) 

(3.6) 

(.1) 

3.2 

(1.7) 

(1.5) 

11.8 

3.6 



-18,774 

1,253 

-9,235 

-1,382 

-534 

-4,103 

-2,215 

471 

-.547 

-473 

46 

183 

-120 

-69 

52 

-186 

1, .584 

-20,698 

-3, 708 

(-689 

(-2,595) 

(-424) 

—2, 782 

(-144) 

(-2,638) 

-20, 704 

6,494 



-11.7 



-28.2 
-21.3 
-27.1 

-26.7 

-29.0 

1.0 

-2.3 

-15.3 

13.4 

5,4 

-24.8 

-15,6 

2,3 

-21.0 

14,1 
-22,7 
-21,8 
(-28,1) 
(-18.8) 
(-58,6) 
-22,2 
(-2,7) 
(-36.3) 
-36.4 
139.2 



• Discrepancies between totals and sums of items are due to rounding of the latter. 

Source: Adapted from National Industrial Conference Board, Enterprise and Social Progress, 1939, p. 60 



The various forms of national wealth are as follows: 

Form of wealth: 

Land and improvements 

Productive assets 

Public utilities 

Stocks of goods 



1929 


1936 


52.3 


54.4 


8.9 


7.5 


13. 1 


15.2 


25.7 


22. 9 



100.0 



100.0 



Land and the improvements which have been made on it account 
for more than half of the wealth of the Nation. Despite the sub- 
stantial money loss sustained in these sources of wealth from 1929 to 



CONCENTRATION OF ECONOMIC POWER 275 

1936, as judged in current dollars, they have now become even more 
important among the various forms of wealth. 

Productive assets of individuals and corporations other than land, 
such assets as livestock, farm implements and machinery, manu- 
facturing machinery and tools, and motor vehicles, were 8.9 percent 
of all wealth in 1929, but they have declined 26.2 percent since then, 
to account for 7.5 percent of all wealth in 1936. 

Public utilities include the properties and equipment of railroads, 
street railways, telegraph and telephone systems, pipe lines, shipping 
and canals, privately owned waterworks, and electric and gas plants. 
In 1929 these pubhc utilities were 13.1 percent of the national wealth. 
By 1936 they had increased to 15.2 percent. But, in contrast to land 
wealth, which sustained a loss, public utihtics, measured by current 
dollars, actually increased 1 percent from 1929 to 1936. The wealth 
of telephone and telegraph systems, shipping and canals, and privately 
owned central electric light and power systems increased, while all 
others suffered loss. In 1936 the different, utilities ranked as follows 
in their percentage of all utility wealth: 

ITtility: 1938 

Railroads 50. 4 

Electric power 27. 5 

Telephone 7. 7 

Street railways 5. 6 

Shipping canals 4. 9 

Waterworks — 1- 5 

Telegraph 0. 8 

Pullman 0. 8 

Pipe lines 0- 8 

100.0 

Stocks of goods dechncd from 25.8 percent of national wealth in 
1929 to 22.9 percent in 1936, and in terms of current dollars the loss 
sustained was 22.7 percent. Goods in the hands of consumers de- 
clined most in relative position, as shown by the following figures taken 
from table 2: 

Stocks of goods: 1929 1936 

In hands of producers 4. 8 4. 3 

In hands of dealers 3. 5 3. 2 

In hands of consumers •_ - - 16. 1 11. 8 

Goods in the hands of consumers were 66 percent of all stocks of 
goods in 1929, and 61 percent in 1936, a decline of 36.4 percent in that 
period. However, by 1936 stocks of goods in the hands of producers 
and of dealers each declined 22 percent from the peak of 1929. 

Gold and silver bullion M^as 1.3 percent of all national wealth in 
1 929. By ] 936 the bullion program of the Government had increased 
our stock of these precious metals 139 percent, so that gold and silver 
accounted for 3.6 percent of the Nation's wealth. The value of 
these bullions in 1929 was $4,664,000,000: bv 1936 it had increased 
to $11,158,000,000. 

WEALTH OF THE STATES 

In table 3, the total wealth of the United States just describfid is 
distributed by States. In table 4, chart 2, it is distributed on a per 
capita basis by States. The tables should be considered together to 
bring out certain important relationships which would otherwise 
not appear. For example, in 1929, Montana ranked fortieth 



276 



CONCENTRATION OF ECONOMIC POWER 



among the States in terms of its proportion of national wealth, and 
moved up to twenty-fifth place in 1936. It is not densely populated, 
nor is it experiencing appreciable growth, so that it moved from 
thirteenth place in per capita wealth in 1929 to second in 1936. 



Table 3.— Total wealth of the United States, by States, 1929 and 1936 
[Dollar figures in millions] 





1929 


1936 


1936 over 1929 


StatP 


Rank 


Amount 


Per- 
cent 


Rank 


Amount 


Per- 
cent 


Amount 


Per- 
cent in- 
crease 


New York . 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 


$.54, 845 

30,677 

26, 885 

22, 214 

21, 394 

15, 709 

13,458 

11,515 

11,296 

10, 341 

9,eil 

9,014 

6,367 

5,740 

5,720 

5,523 

5,136 

4,937 

4,667 

4,605 

4, 531 

4,344 

3,931 

3,884 

3,553 

3,530 

3,164 

3.014 

2,994 

2,874 

2,807 

2,602 

2,231 

2,133 

2,085 

2,080 

1,976 

1,881 

1,834 

1,819 

1,636 

1,513 

1, 421 

1.382 

1, 185 

886 

744 

730 

650 


15.8 
8.8 
7.7 
6.4 
6.2 
4.5 
3.9 
3.3 
3.3 
3.0 
2.8 
2.6 
1.8 
1.7 
1.6 
1.6 
1.5 

a. 4 

1.3 

1.3 

1.3 

1.3 

1.1 

1.1 

1.0 

1.0 

6.9 

.9 

.9 

.8 

.8 

.7 

.6 

.6 

.6 

.6 

.6 

.5 

.5 

.5 

.5 

.4 

.4 

.4 

.3 

.3 



'.2 
.2 


1 
2 
3 
4 
5 
6 
7 
9 
8 
11 
10 
12 
16 
15 
19 
13 
17 
24 
14 
18 
20 
23 
21 
22 
26 
28 
27 
29 
30 
33 
37 
34 
39 
35 
36 
31 
32 
38 
40 
25 
41 
44 
43 
42 
46 
45 
47 
48 
49 


$50, 257 
27, 796 
20,243 
16, 616 
16, 075 
12, 460 
11,586 
9,560 
9,737 
7,853 
8,209 
7,259 
5,057 
5,08» 
4,099 
6,586 
4,373 
3,089 
5,387 
4,274 
4,084 
3,409 
3,717 
3,454 
2,962 
2.811 
2,831 
2,659 
2,627 
2,093 
1.711 
2,052 
1,539 
1,981 
1,903 
2, 552 
2,166 
1,558 
1,478 
2, 988 
1,273 
975 
1,152 
1,197 
833 
858 
698 
662 
6,51 


17.1 

9.4 

6.9 

5.6 

5.5 

4.3 

3.9 

3.2 

3.3 

2.7 

2.8 

2.5 

1.7 

1.7 

1.4 

2.2 

1.5 

1.1 

1.8 

L6 

1.4 

1.2 

1.3 

1.2 

1.0 

1.0 

1.0 

.9 

.9 

.7 

.6 

.7 

.5 

.7 

.6 

.9 

.7 

.5 

.5 

1.0 

.4 

.3 

.4 

.4 

.3 

.3 

.2 

.2 

.2 


-$4,588 

-2, 881 

-6, 642 

-5, 598 

-5,319 

-3, 249 

-1,872 

-1,955 

-1,559 

-2, 488 

-1,402' 

-1,755 

-1,310 

-651 

-1,621 

1,063 

-763 

-1,848 

720 

-331 

-447 

-935 

-214 

-430 

-591 

-719 

-333 

-355 

-367 

-781 

-1,096 

-550 

-692 

-152 

-182 

472 

190 

-323 

-356 

1,169 

-363 

-538 

-2f,9 

-185 

-352 

-28 

-46 

-68 

1 

-52, 587 


-8.4 


Pennsylvania. 


-9.4 


Illinois 


-24.7 


California 

Ohio 


-2S.2 
-24.9 


Michigan , 


-20.7 


Massachusetts . 

New Jersey 


-13.9 
-17.0 


Texas 

Wisconsin 


-13.8 
-24.1 


Indiana 


-14.6 


Missouri. -.. 

Minnesota. 


-19.5 
-20.6 


Connecticut . . ... 


-11.3 


Kansas.. ... 


-28.3 


Iowa . 


19.2 


North Carolina 


-14.9 


NBbraska. 


-37.4 


Virginia ... 


15.4 


Washington .. 


-7.2 


Maryland... 


-9.0 


Oklahoma 


-21.5 


Tennessee 


-5.4 


Kentucky . . 


-11.1 


Georgia 


-16.6 


West Virginia 


-20.4 


Alabama 


10.5 


Louisiana. , 


-11.8 


Oregon _ 


-12.3 


Colorado. 


-27.2 


South Dakota 


-39.0 


Florida 


-21.0 


North Dakota 


-31.0 


Maine:... 


-7.1 


Rhode Island 


-8.7 


District of Columbia . . 


22.7 


South Carolina 


9.6 


Arkansas. 


-17.2 


Mississippi 


—19.4 


Montana... 


64.3 


Idaho . . 


-22.2 


Arizona 


-35.6 


Utah .... 


-18.9 


New Hamp.shire ... 


-13.4 


Wyoming 


-29.7 


Vermont 


-3.2 


New Mexico 


-6.2 


Delaware 


-9.3 


Nevada 


.2 






Total 




1 347, 068 


100.0 




I 294, 481 


100.0 


-15.2 









• Excludes wealth items that cannot be distributed by States, 
items are due to rounding of the latter. 



Discrepancies between totals and sum of 



Source: Based on National Industrial Conference Board, Enterprise and Social Progress, New York, 
1939, p. 62. 



CONCENTRATION OF ECONOMIC POWER 277 

Table 4. — Per capita v:ealth of the United States, by States, 1929 arid 1936 





1929 


1936 


19.36 over 1929 


State 


Rank 


Amount 


Rank 


Amount 


Amount 


Percent 
increase 


Nevada 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 


$7, 220 
5,313 
4,413 
4, 306 
4, 074 
4, 029 
3,685 
3,610 
3, ,598 
3,562 
3,545 
3,536 
3,380 
3, 303 
3,291 
3,250 
3,207 
3,188 
3,181 
3,081 
3,061 
3,054 
2,989 
2,977 
2,975 
2,895 
2,820 
2,800 
2, 793 
2,683 
2,496 
2, 495 
2, 469 
2,239 
2,065 
1.968 
1,933 
],a34 
1,817 
1,775 
1.643 
1,514 
1,494 
1,449 
1,222 
1,206 
1,139 
1,019 
920 
" 2, 856 


1 
5 
4 
3 

19 
8 
11 
6 
26 
17 
10 
21 
2 
13 
30 
22 
9 
12 
16 
18 
7 
31 
23 
24 
14 
29 
28 
20 
33 
25 
34 
35 
27 
15 
38 
37 
32 
39 
43 
36 
41 
40 
44 
42 
47 
46 
45 
48 
49 


$6,511 
3,576 
3,885 
4,122 
2, 473 
2,742 
2, 625 
2,935 
2,265 
2,580 
2,700 
2,401 
5,628 
2,605 
2,189 
2,395 
2,742 
2,618 
2,583 
2,554 
2,795 
2,174 
2,373 
2,357 
2.602 
2,209 
2,233 
2, 440 
1,963 
2,323 
1,919 
1,834 
2,258 
2,590 
1,536 
1,592 
2,017 
1,349 
1, 250 
1,654 
1,265 
1,298 
1,198 
1,253 
968 
988 
1,165 
770 
736 
1 2, 293 
1 


-$709 

-1,737 

-528 

-184 

-1.601 

-1,287 

-1,060 

-675 

-1,333 

-982 

-845 

-1,135 

2,248 

-698 

-1,102 

-855 

-465 

-570 

-598 

-527 

-266 

-880 

-616 

-620 

-373 

-686 

-587 

-360 

-830 

-300 

-577 

-661 

-211 

351 

-529 

-376 

84 

-485 

-567 

-121 

-378 

-216 

-296 

-196 

-254 

-218 

26 

-249 

-184 

-563 


-9.8 


Wyomins; 


-32.7 


New York 


-12.0 


District of Columbia. 


-4.3 


South Dakota ^. 


-39.3 


California 


-31.9 


Idaho . .-.--- 


-28.8 


Connecticut 


-18.7 


Nebraska _. _ 


-37.0 


Illinois- -._ .. 


-27.6 


Wisconsin 


-23.8 


Arizona .. 


-32 1 


Montana 


66.5 


Michigan _ 


-21.1 


North Dakota 


-33.5 


Ohio ... - - 


-26.3 


Pennsylvania . 


-14.5 


Massachusetts 


-17.9 


Oregon 


-18.8 




-17.1 


Rhode Island 


-8.7 


Kansas _ 


-28.8 


Indiana 


-20.6 


New Hampshire 


-20.8 


Washington ... 


-12.5 


New Jersey 


-2.3.7 


Utah.. .... 


-20.8 


Maryland.. 


-12.9 


Colorado 


-29.7 


Maine 

Minnesota .... 


-13.4 
-23.1 


Missouri 


-26.5 


Vermont _. 


-8.5 


Iowa 


15.7 


West Virginia 


-25.6 




-19.1 


Virginia 


4.3 


Oklahoma 


-26.4 


Florida 


-31.2 


New Mexico 


-6.8 


North Carolina 


-23.0 


Tennes.see _ 


-14.3 


Kentucky 


-19.8 


Louisiana 


-1.3.5 


Georgia . . . . 


-20.8 


Alabama 


-18.1 


South Carolina i -. 


2.3 


Arkansas i 

M ississippi 


-24.4 
-20.0 


United States 1 


-19.7 









■ Excludes wealth items that cannot be distributed by States. 

Source: Based on National Industrial Conference-Board, Enterprise and Social Progress, New York, 1939, 
p. 64. 



278 



CONCENTRATION OF ECONOMIC POWER 



While the wealth of a State is a basic measure of its economic status 
and ability to support adequate social services through taxation, it is 
not conclusive evidence. Nor is there a one-to-one ratio between 
per capita wealth and realized income in the several States, as seen 
from table 5, chart 3, 



Table 5. — Per capita income in 


the United States by States, 1929 and 1936 


state 


1929 


1936 


1936 over 1929 


Rank 


Amount 


Rank 


Amount 


Amount 


Percent 
change 


District of Columbia 


1 
2 
3 
4 

5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
26 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
40 
47 
48 
49 


$1, 176 
1,084 
1,030 
962 
896 
889 
858 
809 
805 
775 
744 
736 
712 
700 
696 
680 
647 
645 
643 
625 
821 
595 
589 
585 
579 
567 
557 
550 
550 
560 
536 
611 
.500 
484 
463 
454 
451 
436 
411 
403 
389 
365 
351 
328 
307 
304 
296 
269 
264 


1 
2 
4 
5 
6 
3 
10 
8 
11 
7 
12 
18 
16 
9 
13 
14 
21 
17 
16 
19 
23 
25 
24 
27 
33 
22 
20 
28 
34 
29 
30 
26 
31 
42 
37 
35 
40 
39 
32 
38 
36 
43 
44 
41 


$1, 139 
790 
741 
732 
703 
760 
604 
621 
699 
648 
599 
637 
562 
618 
666 
665 
497 
540 
544 
513 
483 
455 
400 
441 
416 
486 
509 
435 
414 
434 
427 
446 
421 
292 
374 
398 
306 
316 
419 
344 
377 
286 
284 
293 


-$37 

-294 

-289 

-220 

-193 

-129 

-264 

-188 

-206 

-127 

-145 

-198 

-150 

-82 

-130 

-115 

-150 

-105 

-99 

-112 

-138 

-140 

-129 

-144 

-163 

-81 

-48 

-115 

-136 

-116 

-109 

-65 

-79 

-192 

-89 

-56 

-145 

-120 

8 

-59 

-12 

-79 

-67 

-35 

-23 

-67 

-75 

-54 

-2 


-3.2 


New Yorlc . . 


—27 1 


Delaware 


-28.1 


California 


-23.1 


Connecticut.. 


-21.5 


Nevada..?. 


— 14 5 


Illinois 


-29.6 


Massachusetts 


-23.2 


New Jersey 


—25.6 


Rhode Island 


-16.4 


Michigan 


-19.6 


Pennsylvania 


-26.9 


Washington.. ...... 


-21.0 


Wyoming. 


-11.7 


Ohio 


-18.7 


Maryland- 


-16.9 


Oregon _ 


-23.2 


Wisconsin 


-16.3 


Montana 


-16.4 


Colorado 

Arizona 


-18.0 
-22.2 


New Hampshire 


-23.6 


Maine 


-21.9 


Missouri 

Vermont- 


-24.0 
-28.2 


Indiana 


-14.3 


Minnesota 


-8.6 


Idaho . 

Nebraska 


-20.9 
-24.7 


Utah.:.. ....;.... 


-21.1 


Kansas 


-20.3 


Florida 


-12.7 


Iowa 


-15.8 


North Dakota 


-39.7 


Texas 


-19.2 


West Virginia 


-12.3 


South Dakota 


-32.3 


Oklahoma.. 


-27.6 


New Mexico 


1.9 


Virginia... 


-14.6 


Louisiana 


-3.1 


Kentucky 


-21.6 


Tennessee 


-19.1 


Georgia 


-10.7 


North Carolina 


45 284 


-7.5 


Alabama 


47 
48 
49 
46 


237 
221 
215 
262 


-22.0 


Arkansas.. 


-25.3 


Mississippi... 


-20.1 


South Cerolina 


-.8 






UNITED STATES 




655 




610 


-145 


-22.1 









Source: Adapted from National Industrial Conference Board, Enterprise and Social Progress. New York, 
1939, pp. 116-117 and population estimates of Bureau of the Census, as reported in Statistical Abstract of 
the United States, 1939, p. 9. 

Wealth is far from evenly distributed among the 48 States. The first 
7, or 14.6 percent of all, possess 52.6 percent of the Nation's wealth. 
The last 7 possess only 2.1 percent of the national wealth. The 
former, with the exception of California, are highly industrialized 
States; all have large populations, and powerful financial centers. 
The latter are either small or sparsely settled, with little manufac- 
turing industry or intensified agricultural development. 



CONCENTRATION OF ECONOMIC POWER 



279 




280 



CONCENTRATION OF ECONOMIC POWER 




CONCENTRATION OF ECONOMIC POWER 



281 



From 1929 to 1936 only Iowa, Virginia, Alabama, District of Colum- 
bia, South Carolina, Nevada, and Montana experienced an increase 
in total wealth. Five States, Nebraska, North and South Dakota, 
Arizona, and Wyoming, lost 30 percent or more of their assets in this 
period. Ten States lost less than 10 percent of their wealth. Among 
the latter were the two wealthiest, and three of the poorest States. 

Per capita wealth in the United States was $2,856 in 1929, and 
dropped to $2,293 in 1936, a decline of $563, or 19.7 percent. Only 4 
States, Montana, Iowa, Virginia, and South Carolina, experienced an 
increase in per capita wealth in 1936 as compared with 1929. Seven- 
teen States and the District of Columbia lost proportionately less 
wealth than the national average. They include sparsely and thickly 
settled States, and industrial and agricultural States, located on both 
coasts, in the North, and in the deep South. 

Among the 27 States which suffered a percentage per capita wealth 
reduction greater than the national average, 7 lost approximately a 
third of their assets. The States so seriously affected are as follows: 

Percentage decrease 
1936 over 1929 

South Dakota 39. 3 

Nebraska 37.0 

North Dakota . 33. 5 

Wyoming . 32. 7 

Arizona 32. 1 

Cahfornia ■ 31.9 

Florida ..... 31.2 

Per capita wealth declined most severely among certain predomi- 
nantly agricultural States, whose population either remained stable 
or increased. 

POPULATION 

Table 6, chart 4, gives the number and trend of population in the 
United States from 1750 to 1980. In these figures can be roughly 
traced the greatest migration of peoples known to history. The 
decennial gains in total population have been phenomenal. 

Table 6. — Growth oj population in the United States, 1750-1930, and estimates to 

1980 

(Population figures in thousands] 





Total num- 
ber 


Percent 
increase 


Domestic count 


Annual net immigration 


Year 


Number 


Percent 
increase 


Number 


Percent 
increase 


1750 


1,207 

23, 260 
31. 502 
39, 904 
SO, 262 
63,056 

76, 129 
92, 267 
107, 190 
123,091 

132, 630 
141,213 
147, 612 
151, 783 
153.628 












1850 


1,827.1 
35.4 
26.7 
26.0 
25.5 

20.7 
21.2 
16.2 
14.8 

7.7 
6.5 
4.5 
2.8 
1.2 


22, 970 
31,351 
39,617 
49,805 
62. 601 

75, 662 
91,231 
106, 763 
12'^, 849 




290 
1.51 
387 
457 
455 

467 

1,036 

427 

242 




1860 


36.5 
26.0 
26.0 
25.7 

20.9 
20.6 
17.0 
15.1 


-47.9 


1870 . 


156.3 


1880 


18.1 


1890 


-.4 


1900 


2.6 


1910 


121.8 


1920 


—58 8 


1930 


—43.3 


1940 - 




1950 










IfleO-, , 










1970 










1980 ....:.. 





















Source: Adapted from National Industrial Conference Board, Enterprise and Social Progress, New York 
1939, pp. 28, 29. 



282 OONCENTRATION OF ECONOMIC POWER 

Chart 4 

GROWTH OF POPULATION OF 
THE UNITED STATES 

1850-1980 



U.IO 
160 

140 


NS 








NUMERICAL GROWTH 








Ml 


-LlOf 
160 

140 

















> 




-^^ 


-= 







100 
80 
60 
40 

20 












y 


y 


/ 













100 
80 
60 
40 
20 








_^ 


y^ 


^ 




















^ 


y^ 




















^^ 


'^ 



















































































1850 i860 1870 1880 1890 1900 1910 1920 t930 1940 1950 I960 1970 1980 



PER CENT 
40 



PERCENTAGE INCREASE 



PER CENT 
40 




1850 1360 1870 1860 1890 1900 1910 1920 1930 1940 1950 I960 1970 1980 

.IONS RATE OF GROWTH milli 



iiUU 
















1 
1 
1 




— 


— 





too 

90 
80 
70 
60 
50 














. 


^^ ^ , i __ _ _ 










80 
70 
60 
50 
40 

30 
20 










\^^ 


















^yf^ 
















j^ 1 ! 1 1 




















i 
















y 






1 












/ 


y 








1 i 

i 1 
















1 










20 



1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 I960 1970 1980 



SOWKE: Mop'm 'com ENreffpSlse wo 5'>:'4L PPOSPESS. Nollwxil l/xJuic/-.!!! Coot«'tfK« 8oor<l, New York. I9S9, p 29 



CONCENTRATION OF ECONOMIC POWER 283 

Beginning with 1870, as a more reliable census than the earlier ones 
recorded in the table, population increased more than 25 percent in 
each decade until 1900; the count of that year and of 1910 each 
showed 20 percent more people in the United States; and despite a 
sharp decline in net immigration after 1910 the population increased 
16 percent from 1910 to 1920, and 15 percent from 1920 to 1930. 
By the 1930 census, the total number of inhabitants in the countiy 
reached its highest point up to that time, 123,091,000. 

Net immigration has reflected changes in public policy, national 
politics, and economics in the United States and the countries from 
which the principal streams of immigration have come. The depres- 
sions of 1914, 1922, and 1930, coupled with World War conditions 
and the relatively large population which had settled in this coimtry, 
resulted in the enactment of quota laws restricting immigration. The 
effect has been that fi'om the peak of 1910, when total net immigra- 
tion was 1,036,000, the net increase of newcomers over persons leaving 
the United States fell to 242,000 in 1930. Since then further dechnes 
have been noted. 

The projected figures 1940-80 are the results of careful statistical 
studies made by the National Resources Committee,^ estimated on a 
basis of medium fertility and mortalit}^, and no net immigration. The 
population, while increasing in each successive decade, does so at a 
much lessened rate. This is the result of two factors, the stoppage of 
net immigration, and the declining birthrate of the American people. 
The estimated decennial increase in population drops from 7.7 percent 
in 1940 to 1.2 percent in 1980. Yet it must be remembered that in 
actual numbers even these small percentages represent substantial 
increases in population. The expected gain in number of people from 
1930 to 1940 is 9,539,000; from 1970 to 1980 it is estimated at 1,845.000. 

In the five decades from 1870 to 1930, the Nation's population 
increased 72,829,000, whereas in the five decades from 1930 to 1980, 
it is expected to gain onl}' 30,537,000. Yet it is important for tax 
purposes and economic policy to know that population will in all 
probability continue to increase substantially ujitil, and beyond, 1980. 

In table 7, chart 5, the percentage distribution of the population by 
age groups is displayed. The period from 1930 to 1980 is expected to 
result in a very marked change in the composition of the population, 
as indicated in the following figures: 





Arp f-'roiip 


Percentage 




1930 


1080 


to4 -. 




9.8 
29.3 
38.1 
17.4 

5.4 


6..0 


5 to 19 - - - - 


19.6 


20 to 44 


33.7 


45to64 - 


25.9 


65 plus ^ - ---- - 


14.3 










100.0 


100.0 



'National Resources Committee, Population Statistics, National Data, Washington. October 1937, 

p. eflf. 



284 CONCENTRATION OF ECONOMIC POWER 

Chart 5 

POPULATiON OF THE UNITED STATES 

BY AGE GROUPS 
1930-1980 



MILLIONS 
160 



NUMERICAL BASIS 



140 
J20 
iOO 
80 
60 
40 
20- 



M 



m 



m 



1930 



PER CENT 
100 



80 



60 



40 



20 









1^ 



m. 



feiM . mm 




1940 



1950 



I960 



1970 




1980 



m 



65 years of age and over 
45-64 years of oge 
20 - 44 yeors of age 



S 5 -19 years of oge 



y////,. Under 5 years of age 






PERCENTAGE BASIS 




mm 

mi 



MILLIONS 
160 



140 
.120 
100 
80 
60 
40 
20 



PER CENT 
100 



80 



60 



20 



1930 



1940 



1950 



I960 



1980 



SOUUCe: Bosed upon ENTERPRISE AND SOCIAL PROGRESS, Nolionol Induslriol Con(tr«nc« Boom, New York, 1939, p 30 



CONCENTRATION OF ECONOMIC POWER 



285 



The first colum.n shows the actual age distribution of the population 
in 1930, and the second the expected composition in 1980. Relatively 
speaking, the child and youth population will decline in importance, 
the population from 20 to 44 will decline somewhat, and those over 45 
will greatly increase. As the Nation becomes matured, the birth rate 
declines, and longevity increases because of improved health and 
hygiene; hence the proportion of young people in the population 
becomes smaller. Whereas, in 1930 only 5.4 percent of the population 
were over 65, by 1980 that figure is expected to reach 14.3 percent. 



Table 7. — Percentage age distribution of population of the United States,^ 

and estimates to 1980 

[Population figures in thousands] 



19S0, 





Total 
popula- 
tion 


Percentage distribution 


Year 


0-4 years 


5-19 
years 


20-44 
years 


45-64 
years 


65 and 
over 


Total 


1930 . . . . .. 


123, 465 
132,630 
141,213 
147,612 
151, 783 
153.628 
30, 163 


9.8 
8.3 
7.9 
7.1 
6.7 
6.5 
-18.4 


29.3 
26.4 
23.0 
22.2 
20.6 
19.6 
-17.0 


38.1 
38.8 
40.0 
37.4 
35.0 
33.7 
10.1 


17.4 
20.2 
21.4 
23.3 
25.9 
25.9 
85.7 


6.4 
6.3 
7.9 
10.0 
11.9 
14.3 
232.2 


100.0 


1940 


100.0 


1950 


100.0 


I960- _-- 


100.0 


1Q70 


100 


1980 


100.0 


1980 over 1930 - 


24.4 







1 Estimates assume medium fertility, medium mortality and no net immigration. 

Source: Based upon National Indu.strial Conferenre, Enterprise and Social Progress, New York, 1939, 
p. 30. 

The expected population increase of somewhat more than 30,000,000 
from 1930 to 1980 will be at the expense of the people below 20 years 
of age. In that period, the proportion of children from infancy to 
4 years will have declined 18.4 percent, and of those from 5 to 19 
years, 17 percent. The population from 20 to 44 years will have 
increased 10.1 percent, that from 45 to 64 will have gained 85.7 per- 
cent, and people above 65 years v/ill have incrccased 232 percent. 

Wliiie the foregoing discussion of table 7 indicates the altering age 
composition of the population, it does not show the actual number of 
persons involved in these changes. Table 8 is offered for that purpose. 
The age groups in 1930 and 1980 compare as follows: 



Age group 


1930 


1980 


to4 


1 2 144, 000 
36, 193, 000 
47, 059. 000 
21,431,000 
'G, 638, 000 
123, 455, 000 


9, 906, OQO 


5tol9. 


30, 047, 000 


20to44 


51,817,000 


45to64 . . . --- 


39, S07, 000 


65 plus - --- 


22, 051, 000 


AIL. , --. - -. 


153, 628, 000 







The loss in the maximum school-attending group of the population 
is substantial. But this does not warrant the hasty conclusion that 
educational costs can be greatly lowered in the immediate future. 
These figures on total population of certaimages are not immediately 
translatable into school-attendance^ figures. A longer schooling period 
may be in prospect, which will more than offset the decline in school- 
age population. Also, the trend of population from 5 to 19 years 



286 



CONCENTRATION OF ECONOMIC POWER 



almost flattens out after 1950, with a loss from that date mitil 1980 
estimated at 7.7 percent. 

Table 8. — Age distribution of the population of the United Slates,^ 1 930, and estimates 

to 1980 





Total 
num- 
ber 


Per 
cent 

in- 
crease 


to 4 years 


6 to 19 years 


20 to 44 years 


45 to 64 years 


65 years and 
over 


Year 


Num- 
ber 


Per- 
cent 
in- 
crease 


Num- 
ber 


Per- 
cent 
in- 
crease 


Num- 
ber 


Per- 
cent 
in- 
crease 


Num- 
ber 


Per- 
cent 
in- 
crease 


Num- 
ber 


Per- 
cent 
in- 
crease 


1930^ 


123,465 
132, 630 
141, 213 
147, 612 
151, 783 
153, 628 
30,163 


""""7.'4 
6.5 
4.5 
2.8 
1.2 
24.4 


12, 144 




36, 193 
35, 052 
32, 540 
32, 721 
31,238 
30,047 
-6, 146 


-3.2 
-7.2 
.6 
-4.5 
-3.8 
-17.0 


47, 059 
51, 398 
56,029 
55, 199 
53,094 
51,817 
4,758 


'"'9.2 
9.0 
-1.5 
-3.8 
-2.4 
10.1 


21, 431 
26,730 
30,259 
34, 336 
39, 301 
39, 807 
18, 376 


""24."7 
13. 2 
13.5 
14.5 
1.3 
85.7 


6,638 
8,418 
11, 203 
14, 818 
17,995 
22,051 
15, 413 




1940 • 


11,0321 -9.2 
11,182 1.4 


26.8 


1950 


33.1 


1960 


10, 538 

10, 155 

9,906 

-2, 238 


-5.8 
-3 6 
-2.5 
-18.4 


32.3 


1970 


21.4 


1980 


22.6 


1980 over 1930. 


232.2 



> Estimates assume medium fertility, medium mortality, and no net immigration. 

Source: Based upon National Industrial Conferenc* Board, Enterprise and Social Progress, New Yorki 
1939, p. 30. 

From 1930 to 1980 there is a gain of 4,758,000 in the group aged 
20 to 44. But such a comparison conceals the trend, for the gain is 
registered between 1930 and 1950. From that date forward there is 
a slight decline each 10 years, resulting in a loss of 4,212,000 persons 
by 1980 from the peak number of 1950. 

The groups aged 45 to 64 and 65 and over show a continuous but 
uneven decennial gain from 1930 to 1980. For the former group, the 
rate of growth levels off after 1950, and declines sharply from 1970 to 
1980, so that the population in the last decade is almost static. In 
the group over 65, the rate of growth, while fluctuating, continues 
high throughout the 50-year span. Chart 5 shows these figures 
graphically. 

Table 9, chart 6, on the number of families in the United States, 
is also significant to a study of the tax problem. The data are not 
available on precisely the same basis as table 8, as they assume low 
fertility instead of m<!dium fertility. The family is a unit of major 
economic significance since a large part of tb(; durable and consumers' 
goods are purchased on a family basis, and the need for and use of 
many tax-supported social facilities «re determined by tbe number and 
character of families. 



Table 9. — Estimated number of private families in tJh 

decennial change 



I'nitnl States, 1920-8(1, and 



Year 


Number i 


Decounial 

jiercentHfie 

increa.se 


1920 

1930 


24,258,312 
29, 904, 063 
34, 367, 000 
39, 265, 800 


23.3 1 

14.9 ' 
14.3 


1940 


1950 





Decennial 

incre.n.se 
in number 



5,040,351 
4, 402. <)37 
4, 898, 201) 



Year 



1000 
1070 
1980 



Nuinl.cr ' 



J 43, 133,400 
.1 45. 000,4(J<) 
' 40, 40.'i. 000 



Decennial 

Ij^rcent^re 

incre-ise 



0.8 
5. 
I.O 



Decennial 

incrr'Tse 
in niiiriber 



X, '^07, fiOO 
2, rai. {yt)[} 
. 7-l-,.2()0 



I Number of familie.s is based on estimate of low fertility, medium niorfality, and no inimijrmtion. 
Source: National Resources Committee, Problems of a Changing Poijuhition. iy;-i8. p. 25. 



CONCENTRATION OF ECONOMIC POWER 



287 



Chabt 6 

ESTIMATED NUMBER OF PRIVATE FAMILIES 

UNITED STATES. 1920-1980 



TOTAL NUMBER 




1920 



1930 



1940 



1950 



I960 



1970 



1980 



DECENNIAL INCREASE 




SCXJKCe: PROBLEMS Of A CHANCING POPULATION, Notionol Rfiources CommillM, 1938, p. 25. 



261085— 40— No. 20 20 



288 



CONCENTRATION OF ECONOMIC POWER 



The number of families increased 23 percent from 1920 to 1930. 
It is predicted that the}^ will continue to increase, though not at the 
same high rate, until 1980. By that year it is estimated that the 
number of families will total 46,405,600, a gain of 55.2 percent since 
1930. The last column in the table indicates decennial increases. 
The importance of the displays of the whole numbers is shown in 
data for 1940 and 1950. Whereas the rate of increase drops in 1950, 
the actual gain in number of families is greater than in the preceding 
decade. 

The decennial increases for the population as a whole are not 
nearly so great as for the number of families. Families are growing 
smaller, and at the same time are becoming more numerous, because 
the birth rate "is declining and because by 1950 the number of young 
people will have reached its peak. 

NATIONAL LABOR FORCE 

The labor force is a productive asset of crucial importance to the 
economy. In table 10, chart 7, the age groups are arranged as new 
entrants to labor force, matured working population, and older 
working population. The figures represent the estimated total num- 
ber of men and women of these ages who will be available for employ- 
ment from 1940 to 1980. 



Table 10. — Estimated la^or force in the United States, 1940-80. 
[Population figures in thousands] 





New entrants to 
labor force, 20-24 
years 


Matured working 
population, 25-44 
years 


Older working popu- i 
lation, 45-64 years 

i 


Total, 20-64 
years 


Percent 
of total 
labor 
force ■• 


Year 


Num- 
ber 


Per- 
cent 
in- 
crease 


Per- 
cent of 
total 


Num- 
ber 


Per- 
cent 
in- 
crease 


Per- 
cent of 
total 


Num- 
ber 


Per- 
cent 
in- 
crease 


1 

Per- 
cent of 
total 


Num- 
ber 


Per- 
cent 
in- 
crease 


1940 

1950 

1960 

1970 

1980 

1980 over 
1940.... 


7,632 
7,56) 
fi.919 
7,031 
6,633 

-999 


-o'g" 

-8.5 

1.6 

-5.7 

-13.1 


16.1 
14.4 
12.8 
12.6 
12.0 


24,298 
27, 204 
27. 302 
25,906 
25, 498 

1,200 


"u'.o 

0.4 
-5.1 
-1.6 

4.9 


51.2 
52.0 
50.4 
46.5 
46.1 


15, 530 
17, 580 
19, 949 
22, 834 
23,128 

7,598 


"is." 2" 

13.5 

14.5 

1.3 

48.9 


32.7 
33.6 
36.8 
40.9 
41.9 


47,460 
52, 34.") 
54, 170 
55, 771 
55, 259 

7,799 


"'16.' 3" 
3.5 
3.0 
-.9 

16.4 


84.8 
85.8 
84.4 
83.6 
82.1 



' Excludes juvenile labor, 10-19 years, and gainful workei-s of 65 years and over. 

Source: Based on Enterprise and Social Progress, National Industrial Conference Board, New York, 

1939, p. 34. 

The potential new entrants to the labor force total 7,632,000 in 

1940, and 6,633,000 in 1980, a decline of 13 percent. The matured 
working population may anticipate an increase from 24,298,000 in 
1940 to 25,498,000 in 1980, a gain of 4.9 percent. The older working 
population is likely to experience the greatest increase of all, from 
15,530,000 in 1930 to 23,128,000 in 1980, a gain of 48.9 percent. 



CONCENTRATION OF ECONOMIC POWER 



289 



Chart 7 

ESTIMATED LABOR FORCE OF THE FUTURE 

UNITED STATES, 1940-1980 



MILLIONS 
60 



NUMERICAL BASIS 



MILLIONS 
60 






1950 



r960 



1970 



PER CENT 
100 



V///A 



^ 



Older Working Population --45-64 yeors of oge 

Motured Working Population 25 -44 years of oge 

New Entrants to Lobor Force— 20-24 years of age 

PERCENTAGE BASIS 



PER CENT 
100 



SCUffCr. tcsedcrrENTERPR"" AND SOCIAL PROGRESS, Nolionol lirfuslriol Conlerince Boord, N«« Ywk, I9J9, p. 34 



290 



CONCENTRATION OF ECONOMIC POWER 



The potential labor force will probably be distributed among the 
three age groups as follows: 





Age group 


Percentage in'— 




1940 


1980 


20to24 


16.1 
51.2 
32.7 


12 


25 to 44 ..- ---- 


46 1 


45to64 - 


41 9 







Whereas the working population aged 20 to 64 is expected to increase 
by 7,799,000 between 1940 and 1980, most of that gain will occur in 
the age group between 45 and 64. 

The distribution of the available labor force of the Nation from 
1870 to 1930 is shown in table 11, chart 8, and the percentage-change 
is shown in chart 9. It must be remembered that these are census 
data, and are, therefore, displays of the available labor force, both 
employed and unemployed, according to the occupational designations 
which respondents reported to the census takers. They are frequently 
confused, even in the writings of well-established social scientists, with 
the employed manpower of the Nation. What they represent, roughly, 
is the employment emphasis of the economic structure. 



Table 11. — Number and percentage distribution of all gainful workers by 
occupational categories, 1870-1940 



1870 



1880 



1890 



1900 



1910 



Agricoltare - 

Forestry and fishing - 

Extraction of minerals. - 

Manufacturing and mechanical industries 

Transportation and communication 

Trade.-.- - 

Public service 

Professional service. 

Domestic and personal service 

Clerical occupations 

Census errors 

Total' 



6,919,987 

47.3 

(6, 344, 987) 

(49. 1) 

63,196 

.4 

(.4) 

169, 499 

1.4 

(1. 3) 

3, 463, 781 

27.7 

(26. 8) 

403, 274 

3.2 

(3.1) 

673, 674 

4.6 

(4.4) 

70, 367 

.6 

(.5) 

332, 179 

2.7 

(2.6) 

1,208,142 

9.7 

(9.3) 

311,889 

2.5 

(2.4) 

35 



7,663,043 
44.1 



84,734 
.5 



256, 737 
1.6 



5, 267, 079 
30.3 



582,944 
3.4 



833, 717 
4.8 



1 107, 226 
.6 



643, 511 
3.1 



11,622,025 
8.7 



531, 083 
3.1 



8,451,097 

37.2 

(9, 033, 619) 

(38.7) 

169, 726 

.7 

(.7) 

396, 395 

1.7 

(1.7) 

7, 061, 138 

31.1 

(30. 3) 

1, 089, 161 

4.8 

(4.7) 

1,476,022 

6.5 

(6.3) 

I 185, 138 

.8 

(.8) 

881, 783 

3.9 

(3.8) 

I 2, 204, 891 

9.7 

(9.5) 

830, 311 

3.7 

(3.6) 



10, 248, 935 
35.3 



177,035 



681,417 
2.0 



9,054,982 
31.1 



1, 456, 732 
5.0 



2, 232, 771 

7.7 



260, 392 
.9 



1, 148, 155 
3.9 



1 2, 777, 610 
9.5 



1, 135, 204 



12,505,923 
100.0 

(12,930,923) 
(99.9) 



17,392,099 
100.0 



22, 735, 661 

100.0 

(23,318,183) 

(100. 1) 



29, 073, 233 
100.0 



12, 388, 30» 

32 5 

(11,458,309) 

(30. 8) 
241,806 

.6 

(.6) 

969, 804 

2.5 

(2.6) 

10, 514, 805 

27.5 

(28.2) 

2, 510, 498 

6.6 

(6. 7) 

3, 719, 797 

9.7 

(10.0) 

644, 705 

1.7 

(1.7) 

1,614,012 

4.2 

(4.3) 

3, 842, 352 

10.1 

(10. 3) 

1,631,926 

4.3 

(4.4) 

98, 322 

.3 

(.3) 

38, 167, 336 

100.0 

(37, 237, 336) 

(99. 9) 



See footnotes at end of table. 



CONCENTRATION OF ECONOMIC POWER 



291 



Table 11.- 



-Number and percentage distribution of all gainful workers by 
occupational categories, 1870-1940 — Continued 





1920 


1930 


1940 
(estimate) 


1940 over 
1870 


Agriculture,- - 


f 10,665,812 

25.6 

(11,199,102) 

(26.6) 

270, 214 

.6 

(.6) 

1, 084, 751 

2.6 

(2.6) 

12, 457, 631 

29.9 

(29. 6) 

3,053,783 

7.3 

(7.2) 

4,418,751 

10.6 

(10. 5) 

897,024 

2.2 

(2.1) 

1,999,168 

4.8 

(4.7) 

3,534,604 

8.5 

. (8.4) 

2, 950, 769 

7.1 

(7.0) 

281. 741 

.7 

(.7) 

41,614,248 

100.0 

(42, 147, 538) 

(100. 0) 


10,471,998 
21.4 


9,271,998 
17.5 


3,352,011 
56.6 












250,469 
.5 


270,469 
.5 


217, 273 
408.4 








980,199 
2.0 


1, 140, 199 
2.2 


970, 700 
572.7 






Manufacturing and mechanical Industries 


13,620,875 
27.9 


13,864,875 
26.3 


10,401,004 
300.3 




3, 998, 206 
8.2 


4, 874, 206 
9..2 


4,470.932 
1,108.7 






Trade ^ - 


6, 277, 574 
12.9 


7, 277, 574 
13.8 


6,704,000 
1,168.8 








1,218,257 
2.5 


1, 518, 257 
2.9 


1,447,890 
2,057.6 








2,927,322 
6.0 


3, 583, 322 
6.8 


3,251,143 
" 978.7 








5, 255, 803 
10.8 


5,412,803 
10.3 


4,204,661 
348.0 






Clerical occupations . 


3,829,217 
7.8 


5, 521, 297 
10.5 


6,269.408 
1, 670. 3 






























Total' 


48, 829, 920 
100.0 


52, 735, 000 
100.0 


40,229.077 
321.7 























Note: Figures in parentheses are revised to accord with corrections in census data. For somewhat differ- 
ent figures for agriculture in 1910, 1920, and 1930, see W. P. A. National Research Project, Report No. A 8, 
November 1938, p. 11. These figures are, however, annual averages based on numbers employed at first 
of each month. 

< Revised figures. 

» I^ess than 0.01 percent. 

» Totals include occupation figures (for 1920, male and female, 281,741; for 1910, male and female, 98,322) 
omitted in detail because not comparable with 1930 figures, (according to the Fifteenth Census of the 
United States, 1930, vol. 4). 

Source: H. Dewey Anderson and Percy F. Davidson, Occupational Trends, Stanford University Press, 
Stanford University, 1940, p. 16. 

The projection to 1940 is explained in the book from which the table 
is taken. ^ The authors are inclined to believe that the mass unem- 
ployment which has developed since 1930 will alter these figures some- 
what, so that the available labor force in 1940 may be expected to be 
less than shown in the table. 

The national labor force has undergone marked changes since 1870, 
The number of persons available for the various branches of the econ- 
omy has increased from 1870 to 1930 or 1940, although job designations 
and occupations within these branches have emerged, altered, and 
disappeared during this time span. How the economy has shifted in 

« H. Dewey Anderson and Percy E. Davidson, Occupational Trends, Stanford University Press, Stan- 
ford University, 1940. 



292 



CONCENTRATION OF ECONOMIC POWER 



Chart 8 

PERCENTAGES OF GAINFULLY EMPLOYED 

BY OCCUPATIONAL GROUPS 
UNITED STATES. 1870-1940 



AGRICULTURE 




MANUFACTURING S MECHANICAL INOC'STRIES 




I87ar ISSO IB90 1900 1910 1920 1930 I940 



1870 1680 1890 1900 1910 1920 1930 1940 



DOMESTIC a PERSONAL SERVICE 



I90O 1910 1920 1930 1940 



TRANSPORTATION & COMMUNICATION 



- 


- 


- 


- 


- 


- 


- 


_ - 


- ^ 


H ■ ■ 1 1 1 I ~ 


1670 
ENT 


1880 1890 1900 1910 1920 1930 1940 
PROFESSIONAL SERVICE 


- 


- 


- 


- 


- 


- 


- 


- 



IS70 ISSO 1890 1900 1910 1920 1930 1940 



1870 1880 1890 1900 1910 1920 1930 1940 



CLERICAL OCCUPATIONS 



EXTRACTION OF MINERALS 



1870 1880 1890 1900 1910 1920 1930 1940 



1870 ISSO 1890 1900 1910 1920 1930 I940 



PUBLIC SERVICE 



FORESTRY 6 FISHING 



1870 !8S0 1890 1900 1910 1920 1930 1940 



1870 1880 1890 1900 1910 1920 1930 l»40 



SOUnce: *dopl<4 frooi Andoon.H O.ood Oovidion, P E , OCCUPATIONAL TRENDS. Slonford Unixrtlly PrtM, 1940 



CONCENTRATION OF ECONOMIC POWER 



293 



UJ 

Q_ 
UJ 



< 
CD 



I- 
< 
-I 
1) 
Q_ 
O 



UJ 

< 
LU 

a: 
o 



< 

Q. 

Z) 

o 
o 
o 

>- 

CD 
O 

co 
a: 

UJ 

> 

o 

o 




294 



OONCBNTRATION OF ECONOMIC POWER 



its occupational patterns may be seen in the following figures taken 
from the table: 



Occupational group 



Percentage of labor 
force 




Agriculture--- --- 

Forestry-fishing 

Extraction of minerals 

Manufacturing-mechanical 

Transportation-communication. 

Trade---.. --- 

Public service 

Professional service 

Domestic-personal service - 

Clerical „.- 



Total - 



While the total population of the United States increased 33 percent 
from t910 to 1930 (table 6), the number of workers engaged in pro- 
duction, processing, and transporting of goods, combined, increased 
only 10 percent; service occupations in trading, managing, personal 
and professional care expanded 70 percent.* However, the numbers 
engaged in producing, processing, and transporting goods are so large 
in comparison with those employed in the services that they still form 
the dominant segment of the gainfully employed. 

In table 12, the decennial gains and losses in the national labor 
force are shown. The 1940 figures are projections. While the total 
population increased 218 percent from 1870 to 1930 (actual figures), 
the labor force increased 290 percent. This is the period of greatest 
and most rapid technological advancement in the Un^ited States. 
Since the rate of increase of the labor force was greater than that of 
the total population, soma have concluded that there was no over-all 
technological unemployment. The figures do not deal with actual 
employment of the labor fotce, hence tell very little concerning 
technological trends.* 

Table 12. — Decennial increase of workers by census categories, compared with that 
of the total "population and the total gainfully employed, 1870-194.0 

[Percentage] 



Census categories 


.1870 


1880 


1890 


1900 


1910 


1920 


1930 


1940 
(esti- 
mate) 


1940 
over 
1870 


Total population 




30.1 
(25.9) 

30.2 

39.1 

(34.5) 
29.4 

(20.8) 
69.3 

51.5 

52.6 

44.5 
45.3 
33.4 

63.6 

27.1 
70.3 


24.8 
(24.9) 

29.0 

30.7 
(34.1) 

10.3 
(17.9) 

88.5 

64.4 

34.'1 

86.8 
77.0 
17.8 
62.2 

48.5 
66.3 


21.3 
(21.3) 

22.2 

27.9 
(24.6) 

21.3 
(13.5) 

10.8 

46.7 

28.2 

33.7 
51.3 
17.5 
30,2 

27.6 
36.7 


21.0 
(21.0) 

23.5 

31.3 

(28. 1) 
20.9 

(11.8) 
36.6 

66.2 

16.1 

72.3 
66.6 
396.7 
40.6 

32.1 
43.8 


15.0 
(15.0) 

15.6 

9.0 

(11.7) 

-13.9 

(-6.9) 

11.7 

(-2.2) 

12.9 

18.5 

21.6 
18.8 
39.1 
23.9 

-8.0 
80.8 


16.1 
(16. 1) 

19.3 

17.3 

(17.3) 
-1.8 
(-1.8) 
-7.3 
(-6.4) 
-16.3 

9.3 

30.9 
42.1 
35.8 
46.4 

48.7 
29.8 


7.9 


232.8 


Population 10 years oM and 






Gainful workers 10 years old 
and o^er 




8.0 
11.5 
8.0 
16.3 

1.8 

21.9 
15.9 
25.6 
22.4 

H.Q 
44.2 


321.7 


Agrlculttu'e - 




56.6 


Torestry and fishing 




408.4 


Extraction of minerals 




572.7 


Manufacturing ' and me- 
chanical- 




^ 300.3 


Transportation and com- 

miinif>aHnn 




1, 108. 7 


Trade 




1,168.8 


Public service— - 




2.067.6 


Professional service -.- 




978.7 


Domestic and person^ serv- 
ice..- , 




348.0 


Clerical service 1 


1, 670. 3 



Source: n. Dewey Anderson and P. 
Stanford University, 1940, p. 21. 
(Figures, in parentheses are revised to 



E. Davidson, Occupational Trends, Stanford University Press, 



accord with census under- and over-count.) 
« Ibid., ch. I. • Ibid. 



CONCENTRATION OF ECONOMIC POWER 



295 



The decennial changes m the available labor force reveal a sharp 
reduction in growth after 1910, despite an accelerated expansion of the 
national economy. Agriculture, a principal user of labor, showed a 
decline both in percentage and ^lumber of available workers. In 
the other great employer of labor, manufacturing-mechanical pursuits, 
the Tate of growth slackened perceptibly, having reached its peak in 
the decade beginning 1930. 

The sex composition of the labor force has altered with the years. 
Males were 85 percent of all gainful workers in 1870, and had dropped 
to 78 percent by 1930. Females, on the other hand, were 15 percent 
of the national labor force in 1870, and increased to 22 percent in 
1930. This does not necessarily mean that males were crowded out, 
for the number of both sexes available for labor increased substantially. 

NATIONAL INCOME 

In t^ble 13, chart 11, the reaUzed national income is given for the 
years from 1922 to 1938. The data include both current dollars, and 
doUai^ adjusted by the general price level for the period. Index 
numbers are calculated with 1929 as a base of 100.0. The data are 
likewise given on a per capita basis to reflect population changes. 



Table 13. — Realized national income, total and per capita, in current dollars and 
constant dollars of 1926 purchasing power, 1922—38 





Total realized national income 


Per capita realieed national income 


Year 


Current 
income 


Income , 
adjusted 
by the 
general 

price 

level 


Current 
iflcome 


Income 

adjusted 

by the 

general 

price 

level 


Current 
income 


Income 

adjusted 

by the 

general 

price 

level 


Current 
income 


Income 

adjusted 

by the 

general 

price 

level 




Millions of dollars 


Indexes, 1929=100 


Dollars 


Indexes, 


1929-100 


1922 


67, 171 
65,662 
67,003 
70,051 

73,523 
73,966 
75,904 
79, 498 
72,398 

60,203 
46,708 
44, 713 
61,660 
66,254 

65,246 
69,419 
62,450 


61, 873 
68,044 
69,004 
70, 474 

73,523 
73,966 
73, 765 
75,929 
73,726 

68,647 
60,503 
59,301 
64,370 
66,337 

72, 415 
73,693 
69, 312 


71.9 
82.6 
84.3 
88.1 

92.5 
93.0 
95.5 
100.0 
91.1 

75. r 

58.8 
56.2 
64.9 
70.8 

82.1 
87.3 
78.6 


81.5 
89.6 
90.9 
92.8 

96.8 
97.4 
97.1 
100.0 
97.1 

90.4 
79.7 
78.1 
84.8 
87.4 

95.4 
97.1 
91.3 


520 
589 
592 
610 

631 
626 
633 
654 
588 

485 
374 
356 
407 
441 

508 
537 
480 


563 
610 
610 
614 

631 

626 
615 
625 
699 

653 
484 
472 
508 
520 

564 
670 
633 


79.6 
90.1 
90.6 
93.3 

96.5 
95.7 
96.8 
100.0 
89.9 

74.2 
57.2 
54.4 
62.2 
67.4 

77.7 
82.1 
73.4 


90.1 


1923.,....- 

1924.. : 


97.6 
97.6 


1925. 


98.2 


1926 


101.0 


1927 


100.2 


1928 


98.4 


1929- 


100.0 


1930 


95.8 


1931 


88.6 


19.32 


77.4 


1933..... 

1934 


75.6 
81.3 


1936....^ 


83.2 


1936 


90.2 


1937 .". 


91.2 


1938 


86.3 







Source: National Industrial Conference Bbard, Enterprise and Social Progress, New York, 1939, p. 79. 



296 



CONCENTRATION OF ECONOMIC POWER 
Chart 10 



TOTAL AHD PER CAPITA NATIONAL INCOME 

UNITED STATES, !S22-!.938 




1324 1^6 i92e i^V> 19J2 IS3« 



PER CAPffA IC^iOME, 



HO 
(OO 
90 


In Terms of Dollars*^ 


c*e 


i 
















llO 

too 


^ 

^ 


. — Lj— ^t--'^_, 


-!U. 


0^ 


^*^%. 


Pi 












l^rf» 










rchosing Power « 


:^! 


V 
















V 


\ 


i^Jf^ ^ 
















\ 


V 


*=m 


^ 




/ 


*^ 


\ 


70 
6C 

90* 
40 

30 

20 






















\ 




> 


^ 


r 


























> 


•"^ 


/^ 










46 

20 

10 
o 


































































































































































J-? 


\^ 


22 


19 


24 


15 


?.6 


I? 


23 


IS 


50 


!f 


32 


■ ;a 


5^.. 


' fS 


3fe- 


.15, 



RPR;SE AND 30CliL PROGRESS, Notionol 



<JONCENTRATION OF ECONOMIC POWER 297 

The table traces the over-all changes in national well-being. How- 
ever, certain qualifications, often overlooked in analyzing national 
income data, must be made. The table tells nothing about the 
actual distribution of income; it gives only a total figure on the 
amount of income produced and distributed. How it was made, and 
to whom dispensed, cannot be told from these figures. They reveal 
in only approximate fashion the income available for tax purposes. 
They do not actually show anything about the wealth and poverty 
of the various classes of the population, nor do they indicate a rise 
in living standards among the various elements in the population to 
correspond with an increase in national income. Much more detailed 
studies of income distribution are required for such purposes. Never- 
theless, the figures are revealing. 

The peak current dollar national income available to meet the 
living necessities, luxuries, and cultural desires of the people totaled 
$79,498,000,000 in 1929. That year showed the highest income in 
terms of price level dollars as well. The Nation's income, which 
grew rapidly during the prosperous era of the 1920's, dropped in 1933 
to the lowest level, in terms of current dollars, reached in any year 
since 1916. The income was lower in terms of purchasing power 
than in any year since the depression year 1922. A comparison of 
the percentage of gain or loss in the 8 years preceding and following 
the 1929 peak follows: 



Years 



Current 
dollars 



Price-level 
dollars 



From 1922 to 1929. 
From 1929 to 1936. 



39.1 
-17.9 



22.7 
-4.8 



The national income in terms of current dollars declined almost 
18 percent from 1929 to 1936; but in terms of purchasing power the 
decline was less than 5 percent. Those who possessed income avail- 
able for expenditure in like or nearly like amounts as in 1929 were 
actually benefited by the changes in price levels. For a very sub- 
stantial number of citizens, however, losses in money income kept 
them from maintaining their living standards, despite a favorable 
price level. 

The production of income is based upon various factors, controllable 
and uncontrollable, and in com.e figures reflect the sensitivity of the 
economy to them. The downward swing of the depression was 
arrested in 1934, and a rapid recovery began which by 1937 raised the 
national income almost $25,000,000,000 above the low point of 1933 
and within $10,000,000,000 of the all-time high of 1929. At that 
time, certain changes in public policy and private enterprise caused a 
drop in national inco?ne recorded for 1938. The 1938 loss in income 
reduced the total som.ewhat below 1936, but it still remained above 
1934 and 1935. 

The trend of the national income can be seen for the years since 
1922 in the index columns.- In 1938, for example, the current dollar 
income was 21.4 percent below that of 1929; while in commodity 
dollars it was 8.7 percent below 1929. Conditions in 1937 were even 
better when compared with 1929, for current income was 12.7 percent 
less, and adjusted dollar income was 2.9 percent lower. 



298 CONCENTRATION OF ECONOMIC POWER 

The conclusion that the people were only 2.9 percent poorer in 
1937 than in 1929 is unwarranted, however, for the distribution of 
the total income is not represented in the figures, nor have any popu- 
lation data been related to national income figures. 

In the last half of the table the data are arranged on a per capita 
basis. Here it appears that in 1937 the current dollar per capita 
income was 17.9 percent less than 1929; and on a price index basis it 
had fallen off 8.8 percent. Even these figures do not distribute the 
incomes among the population, however, and consequently cannot be 
taken as expenditure incomes. 

In 1929 there was realized a current dollar per capita income of 
$654, and an adjusted per capita income of $625. Thus for every 
family of man, wife, and two children in 1929, the economy bad 
reached a current income level of $2,616. By 1934 the national income 
of this hypothetical family of four persons had dropped to $1,628, 
The recovery of 1937 produced a family income of $2,148, reduced bj^^ 
the recession of 1938 to $1,920. Obviously, no such distribution of 
income or income-receiving units of population exists, but the figures 
do indicate something of the extent to which the national income can 
meet the living needs of the people, both in prosperity and depression. 

INCOME OF THE STATES 

In table 14, chart 11, the realized income of the Nation is distributed 
among the States which produce it. The table ranks the 48 States 
according to total income and percentage of total income, for the 
peak year 1929, and 1938,. the last year for which figures are available. 
The increase or decrease for the period is also shown. 

Like the Nation's wealth, the income produced and paid out is 
located in the States of large population, highly developed industries, 
and strong financial centers. The relative positions of the States did 
not alter greatly from 1929 to 1938; the top five States were the same 
in both years. Five States — Kansas, Oklahoma, North Carolina, 
North Dakota, and Idaho — changed in rank as much as five places; 
North Carolina and Idaho moved up, and the other three down. 

The wide disparity in State incomes is shown below: 



states 


Percentage of total 
income 




1929 


1938 


First 6 (New York, Pennsylvania, Illinois, California, Ohio) ■ 


46.1 
1.1 


4S.6 


Last 5 (Idaho, Vermont, New Mexico, Wyoming, Nevada) : 


1.1 







Nor did all States fare alike in the years following 1929. North and 
South Carolina, Louisiana, New Mexico, and the District of Columbia 
realized more income in 1 938 than in 1929. However, in each of these 
cases the gains were the result of relief and Government spending. 
This is shown by a comparison of total income (table 14), with private 
production income (table 15). In each instance a loss in private 
production incomes was registered for these States from 1929 to 1938. 

Despite Government spending some States sustained substantial 
losses in total income from 1929 to 1938. Twelve States, distributed 
throughout the Union, lost 25 percent or more of their income by 1938. 
North Dakota suffered most, with a loss of 43 percent in its total 



concp:ntration of economic power 



299 




300 CONCENTRATION OF ECONOMIC POWER 

realized income and 54.8 percent of realized private production 
income. As with most States, even these figures represent a con- 
siderable recovery from the trough of depression in 1933. In the case 
of North Dakota, for example, total income in 1933 was 58.2 percent 
less than in 1929, while total income from private production had 
fallen off 66.5 percent in 1934 (1933 figures not availabl'e). 

Table 14. — Realized national income by States, 1929 and 1938 
[Dollar figures in millions] 





1929 


1938 


1938 over 1929 


State 


Rank 


Amount 


Percent 
of total 


Rank 


Amount 


Percent 
of total 


Amount 


Percent 
change 


New York 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 


$13, 474 

7,026 

6,472 

5,248 

4,579 

3,540 

3,413 

3,200 

2,, 6.57 

2,114 

1,881 

1,825 

1, 424 

1,420 

1,233 

1,102 

1,100 

1,034 

1,004 

973 

960 

955 

949 

912 

809 

799 

777 

754 

732 

643 

609 

568 

547 

636 

528 

468 

4,58 

346 

328 

311 

277 

276 

266 

244 

244 

208 

172 

156 

80 


16.9 

8.8 

8.1 

6.6 

5.7 

4.4 

4.3 

4.0 

3.3 

2.7 

2.4 

2.3 

1.8 

1.8 

1.5 

1.4 

1.4 

1.3 

1.3 

1.2 

1.2 

12 

1.2 

1.1 

1.0 

1.0 

1.0 

.9 

.9 

.8 

.8 

.7 

.7 

. .7 

.7 

.6 

.6 

.4 

.4 

.4 

.3 

.3 

.3 

.3 

.3 

.3 

.2 

.2 

.1 


1 
2 
3 
4 
5 
8 
7 
6 
9 
10 
U 
12 
14 
- 13 
15 
19 
18 
23 
25 
17 
16 
20 
22 
24 
21 
29 
27 
32 
26 
30 
31 
28 
34 
35 
36 
37 
33 
38 
44 
43 
39 
41 
42 
46 
40 
47 
45 
48 
1 49 


$9, 770 

5,007 

4,538 

4,415 

3,464 

2.454 

2 530 

3,570 

5,328 

1,679 

1, .586 

1,539 

1,126 

1,314 

1,042 

892 

920 

777 

741 

928 

982 

852 

820 

774 

822 

640 

674 

517 

716 

524 

523 

673 

439 

410 

403 

366 

481 

273 

187 

198 

218 

210 

206 

169 

217 

145 

176 

133 

75 


15.7 

8.0 

7.3 

7a 

5.5 

3.9 

4.0 

4.1 

3.7 

2.7 

2.6 

2.5 

1.8 

2.1 

1.7 

1.4 

1.5 

1.3 

1.1 

1.5 

1.6 

1.4 

1.3 

1.3 

1.3 

1.1 

1.1 

.8 

1.1 

.8 

.8 

1.1 

.6 

.6 

.6 

.6 

.8 

.5 

.3 

.3 

.3 

.3 

.3 

.3 

.3 

.2 

.3 

.2 

.1 


-$3,704 

-2, 019 

-1,934 

-833 

-1,115 

-1,086 

-883 

-630 

-329 

-435 

-295 

-286 

-298 

-106 

-191 

-210 

-180 

-2r,7 

-263 

-45 

22 

-103 

-129 

-138 

13 

-1,59 

-103 

-237 

-16 

-119 

-86 

105 

-108 

-126 

-125 

-102- 

23 

-73 

-141 

-113- 

-59 

-60 

-60 

-75 

-27 

-62 

4 

-23 

-5 


-27.5 


Pennsylvania ... 


-28.7 


Illinois . 


-29.9 


California 


-15.9 


Ohio . 


-24.4 


Michigan - . -- .- 


-30.7 




-25.9 




-19.7 




-12.4 




-20 6 




-15.7 


Indiana 


-15.7 


Connecticut -. -.. 


-20.9 


Minnesota - 


-7.5 




-15.5 


Washington _ 


-19.1 




-16.4 




-24.9 


Kansas 


-26.2 


Virginia 


-4.6 


North Carolina 


2.3 


Georeia _.- 


-10.8 


Kentucky _.. .. 


-13.6 


Tennessee - . 


-15.1 




1.6 


Alabama 

West Virginia 


-19.9 
-13.3 


Nebraska 


-31.4 


Florida 


-2.2 


Colorado 


-18.5 


Oretfon 


-14.1 


District of Columbia 

Arkansas 

Mississinni - 

Rhode Island - . 


18.5 
-19.7 
-23.5 
-23.7 


Maine 


-21.8 


South Carolina 


5.0 


Montana 


-21.1 


North Dakotf . 


-43.0 


South Dakota,.. 


-36.3 


Utah_ 


-21.3 


New Hampshire... 


-21.7 


Arizona 


-22.6 




-30.7 


Idaho 


-11.1 




-29.8 


New Mexico. . . 


2,3 


WA'oming . . . 


-14.7 




-6.3 






Total 


1 


79,631 


100.0 


1 

i 


62,450 


100.0 


-17,181 


-21.6 




1 





Source: National Industrial Conference Board, Enterprise and Social Progress, 1939, pp. 116-117. 

Table T5, chart 12, shows income from private production. The 
same general ranking of States is seen as in the previous table, with a 
few exceptions. The national loss in private production income from 
1929 to 1938 was 30.9 percent. In 22 States the losses were greater 
than this figure. Although 1929 was not the peak year in privately 
produced income for all States, nevertheless no single State by 1938 
had regained that comparati v^»fxy high level. 



CONCENTRATION OP ECONOMIC POWER 3Q| 

Table 15. — Realized private production income, by States, 1929 and 1938 
[Dollar figures in millions] 



Plate 



New York.. 

Pennsylvania 

Illinois 

California 

Ohio 

Michigan 

Masfachusetts 

New Jersey 

Texas 

Missouri _.. 

Wisconsin 

Indiana -.. 

Connecticut 

Minnesota 

Iowa 

Washington 

Maryland 

Oklahoma 

Kansas 

North Carolina 

Virginia 

Kentucky 

Georgia 

Tennessee 

Louisiana 

Alaba"^a ; 

West Virginia 

Nebraska 

Florida 

Colorado 

Oregon 

Arkansas 

Mississippi. , 

Rhoiie Island.- 

^''^ai^e 

South Carolina 

District of Columbia. 

IMontana .• 

North Dakota.- 

South Dakota 

Utah 

New Hampshire 

Arizona 

Idaho. 

Delaware. 

Vermont.-- 

New Mexico 

Wyoming 

Nevada 



Total- 



1929 



Rank 



Amount 



$11,311 

6,137 

5,576 

4,496 

4.091 

3.037 

2.963 

2,767 

2,336 

1,844 

1,644 

1,628 

1,271 

1,238 

1,062 

975 

934 

905 

884 

846 

835 

835 

834 

798 

713 

701 

695 

667 

634 

558 

540 

4''9 

469 

461 

408 

392 

359 

307 

284 

270 

246 

244 

229 

218 

217 

180 

151 

132 

71 



Percent 
of total 



16.4 
8.9 
8.1 
6.5 
5.9 
4.4 
4.3 
4.0 
3.4 
2 7 
2.4 
2.4 
1.8 
1.8 
1.5 
1.4 
1.4 
1.3 
1.3 
1.2 
1.2 
1.2 
1.2 
1.2 
1.0 
1.0 
1.0 
1.0 
.9 



1938 



Rank 



Amount 



$7, 215 

3, 845 

3,500 

3,469 

2,733 

1.951 

1,873 

1,992 

1,807 

1,294 

1.255 

1,200 

894 

989 

786 

681 

720 

557 

566 

807 

719 

637 

660 

607 

628 

486 

386 
553 
375 
417 
312 
292 
298 
2^5 
354 
328 
201 
122 
122 
163 
168 
150 
159 
137 
109 
132 
98 
58 



Percent 
of total 



15.2 
8.1 
7.4 
7.3 
5.7 
4.1 
3.9 
4.2 
3.8 
2.7 
2 6 
2.5 
1.9 



1.3 

1.0 
1.0 
.8 
1.2 



47, 589 



100.0 



1938 over 1929 



Amount 



-$4, 096 

-2,292 

-2, 076 

-1,027 

-1,358 

-1,086 

-1,090 

-775 

-529 

-550 

-389 

-428 

-377 

-2'9 

-276 

-294 

-214 

-348 

-318 

-39 

-U6 

-198 

-174 

-191 

-85 

-215 

-196 

-281 

-81 

-183 

-123 

-167 

-177 

-163 

-123 

-38 

-31 

-106 

-1P.2 

-14S 

-83 

-76 

-79 

-59 

-80 

-71 

-19 

-34 

-13 



-21,283 



Percent 
increase 



-36.2 
-37.3 
-37.2 
-22.8 
-33.2 
-35.8 
-36.8 
-28.0 
-22.6 
-29.8 
-23.7 
-26. 3 
-29.7 
-20.1 
-26.0 
-30.2 
-22.9 
-38.5 
-36.0 
-4 6 
-13.9 
-23.7 
-20.9 
-23 9 
-11.9 
-30.7 
-28.2 
-42.1 
-12.8 
-32.8 
-22.8 
-34.9 
-37.7 
-3f. 4 
-30.1 
-9.7 
-8.6 
-34.5 
-57.0 
-54.8 
-33.7 
-31.1 
-34.5 
-27.1 
-36.9 
-39.4 
-12.6 
-25. 8 
-18.3 



-30.9 



Source: Adapted from National Industrial Conference Board, Enterprise and Social Progress, New 
York, 1939, p. 119. 



302 



OONX'ENTRATION OF ECONOAirC POWER 




CONCIJNTRATION OF ECONOMIC POWEE 



303 



LEVELS OF INCOME 

Income data thus far offered are aggregate figures, which do not 
reveal the income distributed among the various classes of income 
receivers. In table 16, the income levels of the population are arranged 
according to famihes and single persons living independently. These 
figures, which represent the first comprehensive study of actual in- 
comes, were compiled for 1935-36 by the National Resources Com- 
mittee.^ The total of 39,458,300 consumer units is divided as follows: 



Units 


Number 


Percentage 




29, 400, 300 
10,058,000 


74.6 


Single individuals . 


24 6 







Over 90 percent of the population is included within family units, 
and the other 10 percent is composed of single individuals hving 
independently. 

Table 16. — Distribution of families and single individuals and of aggregate income 
received, by income level, 19S6—S6 



Income level 



Under $250 

$25Cto $500 

$500 to $750. 

$750 to $1,000 

$1,000 to $1,250 

$1,250 to $1,500 

$1,500 to $1.750 

$1,750 to $2,000 

$2,000 to $2,250 

$2,250 to $2,500 

$2,500 to $3,000 

$3,000 to $3,500. 

$3,600 to $4,000 

$4,000 to $4,500. 

$4,500 to $5,000. 

$5,000 to $7,500 

$7,500 to $10,000 

$10,000 to $15,000.... 
$15,000 to $20,000.... 
$20,000 to $25,000.... 

$25,000 to .$30,000.... 
$30,000 to $40,000..-. 
$40,000 to .$50,000 ... 
.$50,000 to $100,000... 

$100,000 to $250,000.. 
$250,000 to $500,000 
$500,000 to $1,000,000 
$1,000,000 and over.. 

All levels 



Families and single individuals 



Number 



2, 123. 534 

4, 587. 377 

5, 771, 960 
5, 876, 078 

4, 990. 995 
3, 743, 428 
2, 889, 904 
2, 296, 022 
1, 704, 535 
1, 254, 076 

1, 475, 474 
851,919 
502. 159 
286, 053 
178, 138 

380, 266 

215, 642 

152, 682 

67, 923 

39,825 

25, 583 
17, 959 
8,340 
13,041 

4,144 
916 
240 

87 



39, 458, 300 



Percent 

at each 

level 



5.38 
11.63 
14.63 
14.90 

12.65 
9.49 
7.32 
5.82 
4.32 
3.18 

3.74 
2.16 
1.27 

.72 
.45 

.96 
.55 
.39 
.17 
.10 

.06 
.05 
.02 
.03 



100.00 



Cumu- 
lative 
percent 



5.38 
17.01 
31.64 
46.54 

59.19 
68.68 
76.00 
81.82 
86.14 
89.32 

93. OG I 

95. 22 

96. 4'J 1 
97.21 
97.66 

98.62 
99.17 
99.56 
99.73 
99.83 



99.94 
99.96 
99.99 



Aggregate income 



Amount (in 
ttiousands) 



$294, 138 

1, 767, 363 
3, 615, 653 
5, 129, 506 

6,589.111 
5,109,112 
4, 660, 793 
4,214,203 

3, 602, 861 

2, 968, 932 

4, 004, 774 
2, 735, 487 
1, 863, 384 

1, 202, 826 
841, 766 

2, 244, 406 
1, 847. 820 
1, 746, 925 
1, 174, 574 

889, 114 

720,268 
641,272 
390,311 
908, 485 

539, 006 
264, 498 
134, 803 
157, 237 



59, 258, 628 



Percent 

at each 

level 



0.50 
2.98 
6.10 
8.65 

9.42 
8.62 
7.87 
7.11 
6.08 
5.01 

6.76 
4.62 
3.14 
2.03 
1.42 

3.79 
3.12 
2.95 
1.98 
1.50 

1.22 
1.08 
.66 
1.53 

.91 
.45 
.23 
.27 



100.00 



Cumu- 
lative 
percent 



50 
3.48 
9.58 
18.23 

27.65 
36.27 
44.14 
51.25 
57.33 
62.34 

69.10 
73.72 
76.86 
78.89 
80.31 

84.10 
87.22 
90.17 
92.15 
93.65 

94.87 
95. 95 
96.61 
98.14 

99.05 
99. .50 
99.73 
100.00 



' Less than C.005 percent. 

Source: National Kesources Committee, Consumer Incc iios in the United States, Washington, 1938, p. 0. 

The table shows that 2,132,534 consumer units, comprising 5.4 per- 
cent of all families and single individuals, received 0.5 percent of all 
income, in allotments of less than $250 for the year 1935-36. At the 

« National Resources Committee, Consimier Incomes in the United States, 1935-36, Washington, D. O., 
1938. 

261085— 40— No. 20 21 



304 



OONCENTR,.VTION OF ECONOMIC POWER 



other extreme of the scale are 19,428 consumer units which each had 
from $50,000 to more than $1 ,000,000 at its disposal. They comprised 
0.4 percent of all consumer units, and obtained 3.39 percent of all 
income. ^ 

Sixty percent of all consumer units had less than $1,250 at their 
disposal, and received less than 28 percent of all income. Ninet}'' 
percent had less than $2,500 annual income, and received 62 percent 
of all income. Less than 3 percent of all consumer units had incomes 
available for use of $5,,000 or more. They received not onl}'- excep- 
tionally high incomes, but also a large proportion, 20 percent, of 
total income. 

INCOME LEVELS BY GEOGRAPHIC REGIONS 

In table 17, chart 13, the average incomes of families are given for 
different geographic regions of the United States. Table 17 shows 
both mean and median incomes for all families and nonrelief families. 
Regional differences appear, notably between the South aiid other 
sections of the country. Leaving out the South, the Mountain and 
Plains region ranked lowest in both mean and median incomes of 
nonrelief families. For median incomes of nonrelief families, the 
Pacific region was $265 above the Mountain and Plains region. For 
mean income, the New England region was,$474 more than the Moun- 
tain and Plains region. The Pacific region enjoyed the largest median 
income for all families and for nonrelief families. In terms of mean 
incomes, first place was taken by the New England region. 

Table 17. — Average incomes of families in 5 geographic regions, based on sample 

data. 1935-36 





Average income per family 


Geographic region 


Median 


Mean 




All fami- 
lies 


Nonrelief 
families i 


All fami- 
lies 


Nonrelief 
families ' 


New England - 


$1,230 

1,260 

905 

1,040 

1,335 


$1,365 

1,410 

985 

1, 2i0 

1,485 


$1,810 
1,786 
1,326 
1,363 
1,775 


$2,011 


North Central . - 


1,973 


South .. .- - 


1,431 


Mountain and Plains 


1,537 


Pacific 


1,937 







1 The nonrelief group excludes all families receiving any direct or vrork relief (however little) at any time 
during the year. 

Source: National Resources Committee. Consumer Incomes in the United States, Washington, 1938, p. 22. 



INCOMES RECEIVED BY DIFFERENT TYPES OF COMMUNITIES 

Table 18 gives figures for different types of communities, ranging 
from metropolitan to farm areas. The data cover only nonrelief 
families. The extremes are pronounced. Dwellers in cities of 
1,500,000 population and over are 11.3 percent of all families, but 
receive 17.1 percent of "all income, in average amounts of $2,704. 
Families living on farms are 24.8 percent of all families, have more 
members than any other group, and receive 17.5 percent of all income 
in average amounts of $1,259. These figures are averages only, and 
conceal a spread of incomes in which a substantial number of families, 
living in all types of communities, receive incomes decidedly below 
the average, and a very few families receive an unusual proportion of all 



CONCENTRATION OF ECONOMIC POWER 

Chaet 13 
AVERAGE INCOMES OF FAMILIES IN FIVE GEOGRAPHIC REGIONS 

UNITED STATES, 1935-1936 



305 




income in amounts in excess of $10,000 annually. Chart 14 displays 
the income patterns of nonrelief families by occupational groups. 

Table 18. — Average and aggregate incomes of nonrelief families ' in 6 types of 

community, 19S5-S6 



Type of community 


FamUies 


Average 
number 

of 
persons 

per 
family 


Average income 
per family 


Aggregate 
income 


Number 


Per- 
cent 


Median 


Mean 


Amoimt (in 
thonsands) 


Per- 
cent 


Metropolises: 1,500,000 population and 
over 2 ._ 


2,806,900 

4, 666, 700 

2,607,600 
4, 079, 700 


11.3 

18.7 

10.4 
16.4 


3.5 
3.5 

3.7 

3.7 


$1,730 

1,560 

1,360 
1.290 


$2, 704 

2,177 

1,813 
1,653 


$7,591,014 

10,161,241 

4, 728, 161 
6, 744, 813 


17.1 


Lartje pities: 100,000 to 1.500,000 popula- 
tion _ . ... . 


22.9 


Middle-sized cities: ?5,000 to 100,000 
population . 

Small citie?: 2.500 to 25,000 population.. 


10.7 
15.2 


All urban communities 


14,160,900 

4, 585, 700 
6, 166, 600 


56.8 

18.4 
24.8 


3.6 

3.7 
4.5 


1,475 

1,210 
965 


2,064 


29, 225, 229 


65.9 


Rural noufarm communities ' 


1,607 
1,269 


7,371,101 
7, 763, 570 


16.6 


Farms 


17 5 






All rural communities 


10, 752, 300 


43.2 


4.2 


1,070 


1,408 


15.134,761 


34.1 






All communities 


24,91.3,200 


100.0 


3.8 


1,285 


1.781 


44-, 359, 900 


100 







' Excludes all families receiving any direct or work relief (however little) at any time during year. 

' Metropolises of this size are in North Central Region only (New York, Chicago, Philadelphia, and 
Detroit). 

' Includes families living in communities with population under 2.500 and families living in the open 
country but not on farms. 

Source; National Resources Committee, Consumer Income-s in the United States, Washington, 1938. 
p. 23. 



306 



OONGENTRATION OF ECONOMIC POWER 



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CONSUMPTION 

The National Resources Committee has released data on the con- 
sumption patterns of families and individuals living alone, based on 
the same investigation as the income study just described.^ This is 
the first information obtained from a Nation-wide sample of consumer 
units, and gives material concerning their actual disbursements. 
These unique data are of primary value in an analysis of taxation, 
for they not only reveal the ability of the several income groups to 
pay taxes but also indicate their use of the funds available to them. 

Table 19, chart 15, displays consumer outlays for consumption 
needs, gifts and certain taxes, and savings. Dis-savings occur in the 
groups with incomes below $1,250. This means that their expendi- 
tures draw upon other assets or create debt. 

Table 19. — Aggregate outlay of American consumers ^ for consumption, gifts and 
personal taxes, and savings by income level, 1935-36 

[Dollar figures in millions] 



■ 


Families and 






Aggregate outlay for— 


Income level 


single indi- 
viduals 


income 


Current con- 
sumption 


Gifts and per- 
sonal taxes 2 


Savings 




Number 


Per- 
cent 


Amount 


Per- 
cent 


Amount 


Per- 
cent 


Amount 


Per- 
cent 


Amount 


Per- 
cent 


Under $500 


6,710,911 
5, 771, 960 
5, 876, 078 
4, 990, 995 

3, 743, 428 
2, 889. 904 
2, 296; 022 

2,958.611 

1, 475, 474 

1, 3,54, 078 

464, 191 

595, 908 
152, 682 
67, 923 
110, 135 


17.0 
14.6 
14.9 
12.7 

9.5 
7.3 
5.8 

7.5 
3.7 
3.4 
1.2 

1.5 
.4 
.2 
.3 


$2, 061 
3,615 
5, i30 
5,589 

5,109 
4.661 
4,214 

6,572 
4, 005 
4,599 
2, 045 

4,092 
1,747 
1,175 
4,645 

59, 259 


3.5 
6.1 
8.6 
9.4 

8.6 
7.9 
7.1 

11.1 
6.8 
7.8 
3.4 

" 6.9 
3.0 
2.0 

7.8 


$2, 817 
3,888 
5,209 
5,487 

4,807 
4,278 
3,794 

5,695 
3.348 
3,631 
1,494 

2,604 
925 
607 

1,630 


5.6 
7.8 
10.4 
10.9 

9.6 

8.5 
7.6 

11.3 
6.7 
7.2 
3.0 

5.2 
1.8 
1.2 
3.2 


$44 
109 
175 
109 

207 
187 

175 

290 
175 
226 
117 

270 
143 
95 
655 


1.4 
3.6 
5.7 
6.5 

6.7 
6.1 
5.7 

9.4 

5.7 
7.4 
3.8 

8.8 
4.7 
3.1 
21.4 


-$890 
-382 
-254 
-97 

95 
196 

24;; 

587 
482 
742 
434 

1,218 
679 
473 

2,360 


-13.4 


$500 to $750 .._ 

$750 to $1,000 


-6.4 
-4 3 


$1,000 to $1,250 - 

$1,250 to $1,500 

$1,500 to $1,750 

$1,750 to $2.000 

$2,000 to $2, 500... 

.$2,500 to $3,000 

S3.(i00 to $4,000 

$4,000 to $5,000 _ 

$5,000 to $10,000 _ 

$10,000 to $15,000 

$15,000 to .$20,000 

$20,000 and over 


-1.6 

1.6 
3.3 
4.1 

9.8 
8.1 
12.4 
7.2 

20.4 

11.4 

7.9 

39.5 


All levels- 


39, 458, 300 


100.0 


100.0 


.50, 214 


ICO.O 


3, 067 


ICXO 


5,978 


100.0 



' Includes all families and single individuals, but excludes residents in institutional groups. 
' Includes only personal income taxes, poll taxes, and certain personal-property taxes. 

Source: National Resources Committee, Consumer Expenditures in the United States, Washington 
1939, p.. 48. 

Families and individuals living alone with incomes below $500 were 
17 percent of all consumer units. So Uttle of the aggregate income, 
3.5 percent, is at their disposal, that their proportion of total con- 
sumption expenditures is less than 6 percent, and of gifts and personal 

' National Resources Committee, Consumer Expenditures in the United States, Estimates for 1935-36, 
Washington, 1939. 

307 



308 OONiCENTRATION OF ECONOMIC POWER 

taxes 1.4 percent. Even to achieve this level of expenditure they 
must use up reserves or go into debt for almost 28 percent of the sum 
spent. This segment of the population reports an excess of expendi- 
tures over income of $800,000,000, or 52.2 percent of all dis.-savings 
reported. The annual expenditures of famihes in this population 
group averaged $474, and of single persons living alone, $347. 

The population with incomes below $1,000 a year are 46 percent 
of all consumer units, yet they account for only 23.8 percent of all 
expenditures for consumption. Those with incomes above $3,000 
account for approximately the same amount of consumption expendi- 
tures^ namely, 21.6 percent, yet they are only 7 percent of all con- 
sumer miits. The disparity in these figures disproves the general 
belief that consumption expenditures are relatively inelastic. For 
the population with incomes above $10,000 a year, however, consump- 
tion expenditures do tend to reach a maximum, at which point the 
income is channeled off into other uses, notably savings. 

The columns of table 19 devoted to outlays for gifts and taxes cover 
only certain direct taxes, such as personal-income taxes, poll taxes, 
and some personal-property taxes, for which information was avail- 
able. Some taxes were included in the consumption expenditures of 
the various units. Since these visible and direct taxes fall primarily 
on single persons with incomes above $1,000 and families with incomes 
of $2,500 or more ($800 and $2,000, respectively, as of July 1, 1940), 
the data understate the tax burden of the lower-income groups, who 
bear a substantial proportion of sales and excise levies, and who also 
pay real-property taxes in the form of rent. Not only are the con- 
gumption purchases of lower-income groups meager, but their tax 
payments are often relatively heavy. 

With these limitations of the data in mind, it appears that 46 per- 
cent of the people, with incomes below $1,000, bear 10.7 percent of 
all gifts and certain personal taxes, while the 7 percent with incom.es 
above $3,000 bear 49.2 percent of all gifts and personal taxes. Viewed 
in another way, however, it appears that the population with incomes 
below $1,000 obtained 18.2 percent of all income, expended 3 per- 
cent of their income on gifts and certain specified personal taxes. The 
population with incomes above $3,000 had 30.9 percent of all income, 
8 percent of which was spent in gifts and personal taxes, leaving them 
with 92 percent for consumption purposes and savings. 

The final two columns of table 19 show the savings of consumer 
units. It has already been noted that 50 percent of all consumer 
units, those with incomes less than $1,250 a year, not only had no sav- 
ings, but required other income to meet their current needs. Total 
net savings in the year 1935-36, which was not a prosperous year and 
only 2 years removed from the trough of the depression, were 
$5,978,000,000. Who made these savings? Those with incomes of 
$20,000 or more, comprising 0.3 percent of all consumer units, ac- 
counted for 39.5 percent of all savings. In fact, after spending an 
average of $14,800 on current living, and paying income taxes which 
many wealthy people regard as confiscatory, these people actually - 
saved 50.8 percent of their income. 

The figures on savings do not support the traditional belief that 
poor people live frugally, and may put by enough from their incomes 
to lift them out of their humble circumstances. In reality, to eke out 
an existence they must use up all their income, and even this proves 
insufficient. Furthermore, that large population, 22.6 percent of all 



CONCENTRATION OP ECONOMIC POWER 



309 







310 



OONiGENTRATION OF ECONOMIC POWER 



consumer units, with incomes of $1,250 to $2,000, accounts for only 9 
percent of all savings made. 

The population with incomes between $2,000 and $5,000 are 15. S 
percent of all consumer units. They are, relatively speaking, in com- 
fortable circumstances, where funds above the necessities of hfe are 
available. They can be expected to save, and in fact account for 37.5 
percent of all money saved. 

But the people with incomes over $5,000 are the large savers. They 
are only 2.4 percent of all consumer units, yet they account, for 79.2 
percent of all savings. As in table 19, these figures take into account 
the negative savings made by the income groups below $1,250. 

To summarize, there were 39,458,300 consumer units in the Nation 
in 1935-36; they received $59,259,000,000; they used 84.7 percent of 
their incomes for current consumption, 5.2 percent for gifts and certain 
personal taxes, and saved 10.1 percent. 



EXPENDITURES OF FAMILIES AND SINGLE INDIVIDUALS 

In tables 20 and 21, charts 16 and 17, the average outlays of families 
and single persons living independently are displayed. All columns of 
both tables will aid in understanding the existing economic system, but 
the percentage distribution of expenditures is especially important. 

The trends of expenditure patterns are similar, though not identical, 
for families and single persons. Not only are incomes small for a very 
large proportion of the population, but most of these relatively small 
incomes go for current consumption needs. As income mounts, the 
sum used for the necessities and luxuries of life increases, but the pro- 
portion devoted to such purposes declines, making available larger 
amounts for other uses, principally savings. 

Table 20. — Average outlay of single individuals for consumption, gifts and personal 
taxes, and savings, by income level, 1935-36 





Single'individuals 


Average 
income 

per indi- 
vidual 


Average outlay per 
individual for — 


Percentage of income for — 


Income level 


Number 


Per- 
cent 


Current 
consump- 
tion 


Gifts 
and per- 
sonal 
taxes 1 


Sav- 
ings 


Current 
con- 
sump- 
tion 


Gifts and 
personal 
taxes ' 


Sav- 
ings 


Under $500 


2. 532. 627 
1, 972, 745 
1, 599. 030 

1, 108. 551 
877. 956 
546, 546 
398, 985 

493, 751 
161. 275 
172, 091 
61,596 

85, 898 

20, 861 

9,436 

16, 652 


25.2 
19.6 
15.9 

11.0 
8.7 
5.4 
4.0 

4.9 
1.6 
1.7 
.6 

.9 
.2 
.1 
.2 


$300 
623 
873 

1,119 
1,368 
1,617 
1,868 

2.225 
2.703 
3,411 
4,491 

6,827 
11,999 
17, 052 
43,884 


$345 
608 
815 

1,004 
1,180 
1,344 
1,501 

1,714 
1,990 
2,354 
2,842 

3,863 

5,829 

7, 719 

14, 671 


$4 
32 
62 

93 
124 

156 
187 

232 

291 
380 
523 

823 
1,517 
2,148 
6,642 


-$49 
-17 
-4 

22 

64 

117 

180 

279 

422 

677 

1,126 

2,141 

4,653 

7,185 

22, 571 


115.0 
97.6 
93.4 

89.7 
86.2 
83.1 
80.4 

77.1 
73.6 
69.0 
C3.3 

56.6 
48.6 
45.3 
33.5 


1.3 
5.1 
7.1 

8.3 

9.1 

9.7 

10.0 

10.4 
10.8 
11.1 
11.6 

12.0 
12.6 
12.6 
15.1 


-16.3 


$500 to $750 


-2.7 


$750 to $1,000 

► 

$l,n00 to $1,250 

$1,250 to $1.500 

$1,500 to $1.750 

$1,750 to $2,000..,.. _ 

$2,000 to $2.500 

$2,500 to $3,000 

$3,000 to $4,000 

$4,000 to $5,000 

$5,000 to $10,000 

$10,000 to $15,000.... 
$15,000 to $20.000.... 
$20,000 and over 


-.5 

2.0 
4.7 
7.2 
9.6 

12.5 
15.6 
19.9 
25.1 

31.4 
38.8 
42.1 
51.4 


All levels 


10,058,000 


100.0 


1,151 


"932 


103 


116 


81.0 


8.9 


10.1 



> Taxes include only personal income ta^es, poll taxes, and certain personal-property taxes. 

Source: National Resources Committee, Consumer Expenditures in tho United States, Washington, 
1939, p. 32. 



CONCBNTRATION OF ECONOMIC POWER 



311 



Table 21.' — Average outlay of American families for consumption, gifts and personal 
taxes, and savings, by income level, 1935-36 





Families 


Average 
income 

per 
family 


Average outlay per 
family for— 


Percentage of income for— 


Income level 


Number 


Per- 
cent 


Current 
consump- 
tion 


Gifts 
and 
person- 
al taxes' 


Sav- 
ings 


Current 
con- 
sump- 
tion 


Gifts 

and per- 

personsl 

taxes' 


Sav- 
ings 


Under $500 


4, 178, 284 
3, 799, 215 
4,277,048 

3, 882, 4M 
2, 865, 472 
2, 343, 358 

1, S97, 037 

2, 464, 860 
1, 314, 199 
1, 181. 987 

402, 595 

510, 010 
131,821 
58.487 
93.483 


14.2 
12.9 
14.6 

13.2 
9.8 
8.0 
6.4 

8.4 
4.5 
4.0 
1.4 

1.7 
.4 
.2 
.3 


$312 
627 
874 

1,120 
1.364 
1, 612 
1,829 

2,221 
2,715 
3,394 
4,391 

6,874 
11,353 
17, 331 
41,871 


$466 
707 
914 

1,127 
1,316 
1.512 
1,684 

1,968 
2,302 
2,729 
3,276 

- 4, 454 
6.097 
9.134 

14,822 


$8 
12 
18 

24 
34 
44 
63 

71 
98 
136 
211 

392 

840 

1,282 

6.820 


-$162 
-92 
-58 

-31 
14 
56 
92 

182 
315 
529 
904 

2,028 

4,416 

6,915 

21.229 


149.3 
112.7 
104.6 

100.6 
96.5 
93.8 
92.1 

88.6 
84.8 
80.4 
74.6 

64.8 
63.7 
52.7 
35.4 


2.6 
1.9 
2.0 

2.2 
2.5 
2.7 
2.9 

3.2 

3.6 
4.0 
4.8 

5.7 

7.4 

7.4 

13.9 


-51.9 


$500 to $750 


—14.6 


$750 to $1,000 

$1,000 to 3!i;250 

$1,250 to $1,500 

$1,500 to $1,750 

$1,750 to $2,000 

$2,000 to $2,500 

$2,500 to $3,000 

$.3,000 to $1,000 

$4,000 to $5,000 

$5,000 to $10,000 

$10,000 to $15.000 

$15,000 to $20, 000...- 
$20,000 and over 


-6.6 

-2.8 
1.0 
3.5 
6.0 

8.2 
11.6 
15.6 
20.6 

29.5 
38.9 
39.9 
60.7 


All levels 


29, 400, 300 


100.0 


1,622 


1,389 


69 


164 


85.6 


4.3 


lai 



1 Taxes Include only personal income taxes, poll taxes, and certain personal property taxes. 

Source- National Resources Committee, Consumer Expenditures in the United States, Washington 
1939, p. 20. 

In 1935-36 the average family spent $1,622, of which $1,389, or 
85.6 percent, went into current consumption, $69, or 4.3 percent, 
went for gifts and certain taxes, and $164, or 10.1 percent, went into 
savings. The average conceals the range, however. In 1935-36 
there were 327 consumer units with incomes of $500,000 or more; 
there were 2,123,432 with incomes of less than $250, and the total 
incomes of the two groups were just equal. The average income 
received by the group with $500 or less was $312; that of the class 
having $20,000 or more was $41,871, permitting the latter a standard 
of living 135 times better than the former. 

Proportionately rnore single individuals (60.7 percent) than 
families (41.7 percent) are found in the lowest brackets with incomes 
less than $1,000. Nevertheless, 132,847 persons living independently 
in 1935-36 had incomes of $5,000 or more, 16,652 of whom enjoyed 
incomes of $20,000 or more. 

The average single person had an income of $1,151, of which $932, 
or 81 percent, was spent in current consumption, ;$103, or 8.9 percent 
went into gifts and personal taxes, and $116, or 10.1 percent, was 
saved. Whereas families with less than $1,250 incomes experienced 
dissavings, single persons began to save on incomes of $1,000. Also, 
single persons of large incomes saved relatively large amounts of their 
incomes. Thus, single persons with incomes between $3,000 and 
$4,000 saved 20 percent, while families with such incomes saved 15 
percent. In the upper-income brackets, the single persons and 
families draw closer together, and in the bracket of $20,000 and over 
they are practically identical. 



312 



OONCENTRATION OP ECONOMIC POWER 



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OONCENTRATION OF ECONOMIC POWER 



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WHO OWNS THE UNITED STATES 

Various efforts to determine who actually owns the United States 
and reaps the major benefits of such ownership have been made by 
individual students, and can be summarized as follows: 

The-top 2.7 percent of all families, 800,000 of them, get incomes 
of $5,000 or more. In 1935-36 they received 20.9 percent of all 
income.^ 

The upper 10 percent of families accounted for more than 85 
percent of all savings.^ 

In May 1936, 400,000 families owned 72 percent of the demand 
deposits of the country.^" 

Families with incomes of $5,000 or more received 10.1 percent 
of all compensations paid employees in 1929." 

They collected 19 percent of all rents. ^^ 

They obtained 24.7 percent of all entrepreneurial incomes. ^2 

They received 40.7 percent of all interest paid.^^ 

They get 48.1 percent of all property income.^^ 

They receive 71.2 percent of all dividends. ^^ 

Part of their number receive the major benefits of insurance 
investments. Less than 13 percent of the matured policies 
received 85 percent of the money distributed by life-insurance com- 
panies in payment of claims. ^^ 

The employed members of these famihes are financiers, industrial 
and business managers, business owners, high grade agents and sales- 
men, and professional persons. The unemployed heads of such 
families are living on inheritances and investments. 

Less than 3 percent of the famihes of the Nation have such a large 
proportion of both wealth and income as to dominate American 
economic life. In the business community they are in control, despite 
the relatively large number of small proprietors who try to succeed 
as owner-operators. In manufacturing and distributive industry 
they are in an even more domuiant position; and in finance their 
'control is complete. Even in agricidture the concentration has 
reached a stage where farms of 1,000 or more acres, while only 1.3 
percent of all farms comprise 29.4 percent of all farm land; farms of 
500-1,000 acres add another 11 percent to the total acreage in large 
farms. 

It is true that the ranks of wealthy families are invaded by new- 
comers from time to time, yet within these few families, out of all 
proportion to their numbers, is a further concentration due to heredi- 
tary fortunes which have been added to and passed on from genera- 
tion to generation. A considerable part of the wealth of the Nation 
is now lodged in a few families which so skillfully handle their income 
and inheritance taxation that they continue to assume an ever larger 
place as "owners" in each successive generation." 

• National Resources CoHimittee, Consumer Incomes in the United States, 1935-36, Washington, p. 18. 

• Brookings Institution, America's Capacity to Consume, Washinrton, p. 94. 

'0 Theodore J. Kreps, Welfare Levels in American Life, ch. 7 in Social Education, Stanford Education 
Conference, MacMillan, New York, 1939, p. 135. 
» Ibid., p. 136. 

" Albert Q. Hart, How the National Income is Divided, University of Chicago, 1937. p. 22. 
« Kreps, op. cit., p. 136. 
•* Qustavus Meyers, The Ending of Hereditary American Fortunes, Julian Messner, New York, 1939. 

314 



THE ORGANIZATION OF ECONOMIC ACTIVITIES 

The production of the goods and services required for modern 
living is organized into various sizes and kinds of cooperative en- 
deavors, motivated by the desire for a return above costs, which has 
been called "profit." Presumably industry competes against indus- 
try, and unit against unit in the same industry,* each seeking to sell 
its goods or services. 

These enterprises, in return for certain privileges, are required to 
conform to certain laws of operation. They are provided with a 
tranquil atmosphere in which to operate, and guaranteed protection 
of their property. For these reasons, and because they are frequently 
the location of income production, they are often the situs of taxation. 

It is difficult to adequately describe business and service enter- 
prises in the United States. A recent study gives the number of 
American enterprises in 1935 as 9,334,437, employing an average of 
34,000,000 workers for the year, in units averaging 3.7 workers per 
enterprise.^® A regrouping of the data appears in table 22, The 
figures in the table show conclusively how misleading any single 
statement may be which attempts to summarize the number and 
kinds of business enterprises. The typical American enterprise is a 
farm worked by the farmer and a hired man. Agricultural enter- 
prises are 67 percent of all concerns, and nonagricultural enterprises 
33 percent. 

The dominant form of nonagricultural enterprise is retail trade. 
There were an estimated 1,450,655 retail concerns operating in 1935; 
they were 15.5 percent of all enterprises and accounted for that same 
percentage of all workers. Such establishments are usually small 
concerns, employing on an average only 3.6 workers. 

Manufactiu-ing, which has come to represent American economic 
fife in the popular mind, includes only 1.7 percent of all enterprises, 
but it employs 25 percent of all workers in its several branches. 
There is a marked concentration within manufacture, with a few large 
plants dominating the field in almost all branches of production; yet 
the average manufacturing enterprise in 1935 employed only 53 
workers. 

Table 22 gives no indication of the ownersliip of enterprises, but 
simply enumerates their number. Relatively speaking, the number 
of independent telephone and telegraph companies is very small, yet 
the table lists the total as 44,851. This is because the table lists as 
individual enterprises what may actually be multiple units of single 
large organizations or corporations. 

Some observers have felt that economic expansion is taking place 
in the service trades. In 1935 this field comprised 9.5 percent of all 
enterprises, but employed only 5.2 percent of all workers. This 
includes a large number of lawyers' and doctors' offices, in which only 
the professional person and his oflSce girl are employed. 

>' National Industrial Conference Board, Enterprise and Social Progress, New York, 1030, p. 233 ff. 

315 



316 OONCBNTRATION OF EOONOMIG POWER 

Table 22. — American enterprises, number and workers, 1935 



Activities 



Total, recorded and esti- 
mated -- 

Agricultural. _ 

Nonagricultural 

Manufacturing 

Mining and quarrying 3 

Transportation 

Steam railroads, class I 

Electric railroads * 

Motor bus transportation 

Motor trucl^ing for hire 

Public utilities . . . . 

Telephone and telegraph 3 

Light and power, commercial 
companies' 

Construction 

Trade 

Wholesale 

Retail... 

Financial 

Banks 

Financial institutions other 

than banks 

Insurance carriers 

Insurance agencies. 

Insurance and real estate 

Real estate 

Service... 

Personal services 

Business services 

Repair services . 

Custom industries 

Miscellaneous services 

Lawyers, physicians, surgeons, 
dentists 

Miscellaneous activities... 

Advertising agencies. 

Amusement places 

Cemeteries, privately operated. 

Hotels 

Oflice buildings 

Professional service 

Radio broadcasting... 

Tourist camps 

Warehousing 

Water works, privately owned. 



Enterprises 



Number 



9, 334, 437 



, 242, 500 

, 091, 937 

' 162, 000 

10, 135 

63,596 

144 

485 

1,751 

61, 216 

46,478 

44, 851 

1,627 

69, 838 

, 627, 411 

176, 756 

, 450, 655 

1 19, 723 

19, 581 

24, 520 

4,428 

35, 057 

21, 667 

14, 570 

891, 098 

355, 976 

29, 859 

97, 654 

85, 270 

5,949 

i 316, 390 

lOL 658 

1,212 

37, 677 

2,060 

28, 822 

9,061 

9,045 

564 

9,848 

3,014 

355 



Percent 
of non- 
agricul- 
tural 



100.0 

5.2 

.3 

2.1 



1.5 



2.3 
52.6 



3.9 



28. 



Percent 
of total 



100.0 



.33.1 
1.7 
.1 

.7 



.7 

17.4 

1.9 

15.5 

1.3 

.2 

.3 



.4 
.2 
.2 
9.5 
3.8 
.3 
1.0 



3.4 
1.1 



Workers 



Average 
number 
for year 



34, 103, 428 



12, 407, 614 

222,012,204 

8, 536, 440 

863, 948 

1, 434, 703 

994,078 

182, 165 

40,556 

217, 904 

626, 365 

400,808 

225, 557 

478, 330 

6, 652, 019 

1, 374, 942 

5, 277, 077 

913, 068 

266, 458 

171, 954 

286,202 

106, 018 

52, 361 

30,075 

1, 769, 698 

661, 305 

198, 236 

172, 213 

160. 343 

22, 976 

» 554, 926 

737, 333 

13,622 

189, 004 

14,508 

315,738 

86,926 

49, 725 

14,561 

15,823 

33, 944 

3,482 



Percent 
of non- 
agricul- 
tural 



100.0 

39.3 

4.0 

6.6 



2.9 



2.2 
30.7 



4.2 



8.2 



3.4 



Percent 
of total 



100.0 



36.4 

63.6 

24.9 

2.5 

4.2 

2.9 

.5 

.1 

.6 

1.8 

1.2 

.7 
1.4 
9.5 
4.0 
15.5 
2.7 



.5 
.8 
.3 
.2 
.1 
5.2 
1.9 
.6 
.5 
.5 
.1 

1.6 
2.2 



.6 



Aver- 
age per 
enter- 
prise 



3.7 



2.0 
7.0 

62.7 

85.2 

22.6 

6, 903. 3 

375.6 

23.2 

3.6 

13.5 

8.9 

138.6 
6.8 
4.1 
7.8 
3.6 
7.6 
13.6 

7.0 
64.6 
3.0 
2.4 
2.1 
2.0 
1.9 
6.6 
1.8 
1.9 
3.9 

1.8 
7.3 

11.2 
5.0 
7.0 

11.0 
9.6 
5.5 

25.8 
1.6 

11.3 
9.8 



1 Partly estimuced. 

' Since the available data are not exact, there is a variation of slightly more than 1 percent between the total 
nonagricultural and the constituent figures. 
' 1929. 

* Operating roads in 1932. 
« 1934, estimated. 

Source: Adapted from National Industrial Conference Board, Enterprise and Social Progress, 1939, p. 234- 

The relative importance of nonagricultural enterprises is as follows : 



Nonagricultural enter- 
prises 


Percentage 


Percentage 
of workers 


Nonagricultural enter- 
prises 


Percentage 


Percentage 
of workers 


Manufacturing 

Mining and quarrying 

Transportation 

Public utilities 


5.2 
.3 
2.1 
1.5 
2.3 
52.6 


38. 8 
3.9 
6.5 
2.8 
2.2 

3J.3 


Financial 


3.9 
28.8 
3.3 


4.1 




8,0 


Miscellaneous 


3.4 


Total 




100. a 


100.0 


Trade 















OONCENTRATION OF ECONOMIC POWER 317 

Typical nonfarm enterprises are shopkeeping and service activitipc 
of a personal or professional kind, for these two groups comp^e^^^^^^ 
75 percent of all enterprises. In terms of number of pLonrempfovId 
however, manufactunng leads all nonagricultural^nterprSS ^m^ 
^ter^^T-T^^T '^^^ ^'^^' r^ ^^™^ enterprises combbed 
in Til 9?"^ K- ^t ^''''''''' population of the United States is given 
m table 23, which covers enterprises in mining, manufacturing tmd? 
and service industries, but excludes agriculture, finandal Sftutiona' 
railroads or professional enterprise. From 1,174,000 bus^ess enter' 

ofllls oof rroS ''%'{ '""f "^"'^^ ''^Tf^ '^ reTchXTeS 
numbpriwV9 nnn. ^'^ depression which followed reduced the 
number by 2o2,00q enterprises m 1933. Thereafter each year saw a 
net mcrease until m 1938 there were onlv 111,000 fewer enternr^pt 
operating than in 1929, and in numbef of buZis conS th« 
national economy was back to approxhnately theWel of 1925^ 

Table 23. United States business population, 1900-38 
[Absolute figiires in thousands] 



Total enterprises 



Year 



1910. 



1920_ 

1921 

1922. 

1923. 

1924. 

1925. 

1926. 

1927.. 

1S28.. 

1929.. 



Number 



1930. 
1931. 
1932. 
1933. 
1934. 
1935. 
1936- 
1937- 
1938. 



1,174 

1,515 

1,821 
1,927 
1,983 
1,996 
2,047 
2,113 
2,158 
2,172 
2,199 
2,213 

2,183 
2,125 
2,077 
1,961 
1,974 
1,983 
2,010 
2,057 
2, 102 



Percent 
increase 



New enterprises 



Number 



29.0 

20.2 
5.8 
2.9 

.7 
2.6 
3.2 
2.1 

.6 
1.2 

.6 

-1.4 

-2.7 

-2.3 

-5.6 

.7 

.5 

1.4 

2.3 

2.2 



272 

358 

459 
483 
491 
469 
477 
496 
484 
483 
476 
453 

423 
355 
338 
345 
379 
392 
408 
400 



Percent 
increase 



Enterprises 
discontinued 



Number 



31.6 

28.2 
5,2 
1.7 

-4.5 
1.7 
4.0 

-2.4 
-.2 

-1.4 

-4.8 

-6.6 
-16.1 

-4,8 
2.1 
9.9 
3.4 
4.1 

-2.0 



Percent 
increase 



348 

353 
427 
478 
417 
411 
451 
471 
456 
463 
483 

481 
404 
4.54 
332 
319 
385 
382 
351 



40.3 

1.4 

21.0 

11.9 

-12.8 

-1.4 

9.7 

4.4 

-3.2 

1.5 

4.3 



Net gain 
or loss 



24 

10 

106 
56 
13 
62 
66 
45 
13 
27 
13 
-30 



-.4 


-58 


-16.0 


-49 


12.4 


-116 


-26.9 


13 


-3.9 


60 


20.7 


7 


-.8 


26 


-8.1 


49 



Willard Thorp in Hearings before the Temporary 



est^bltwi 'I'T^^T^^^ undergoing changes. New enterprises are 
established, and old ones disappear through failures, mergers, and 
c^-^ohdations. Table 23 gives some evidence as to the extent of 
such changes. The period after 1900 was one of g^earpoSion 

rXtedTn'^^h't'""' ^"^ ''^"^"!i^ f^^^^^'^' TheL'condXns are 
retlected m the figures on new and discontinued enterprises for both 
have gained m the successive decades of the century^ although the 
annual gain has not been constant. Since 1920 tlie greateTincrease 
L'lommTnirv" Th "l 1^2^;-h-,496,000 were ad'd^dtUTS! 
was 483^Xf '^(qoq^^ ^T^'f, ^uTIT ^^ enterprises discontinued 
i^thtt dnr T fl' ^'^^^^ fttributable to the crash which occurred 
in that 3 ear. In the years from 1929 to 1937, 3,493,000 new enter- 
prises have entered, and 3,591,000 discontinued business 



318 OONCEiNTRATION OF EOONOMIO POWEOR 

Table 24 gives index numbers showing the number of enterprises 
in comparison with the peak prosperity year 1929. In 1933 the 
number of enterprises was 11.4 percent below the peak. Despite a 
reduction in current national income of 21.6 percent from 1929 to 
1938 (table 14), and of private production income of: 30.9 percent 
("table 15) there were only 5 percent fewer business enterprises oper- 
ating in 1938 than at the peak of prosperity. Since 1929 the annual 
number of new enterprises has never equaled that year's figure. Nor 
did any depression year enumerated in the table see as many business 
enterprises discontinued as were closed in 1929 and 1930, although 
1922 was nearly as severe. 

Table 24. — Indexes of United States business population, 1900-1938 

[1929=3001 



Y'ear 


Total 
enter- 
prises 


New en- 
terprises 


Discon- 
tinued 
enter- 
prises 


Year 


Total 
enter- 
prises 


New en- 
terprises 


Discon- 
tinued 
enter- 
prises 


1900 


63.1 
68.5 
82.3 
87.1 
89.6 
90.2 
92. ,5 
95.5 
97.5 
98.1 
99.4 


60.0 
79.0 
101.3 
106.6 
108.4 
103.5 
105.3 
109.5 
106. 8 
106.6 
105.1 


51.3 
72.0 
73.1 

88.4 
99.0 
86.3 
85.1 
93.4 
97.5 
94.4 
95.9 


1929 


100.0 
98.6 
96.0 
93.9 
88.6 
89.2 
89.6 
90.8 
93.0 
95.0 


100.0 
93.4 
78.4 
74.6 
76.2 
83.7 
86.5 
90.1 
88.3 


100.0 


1910 


1930_-. 


99.6 


1920 


1931 


83.6 


1921 


1932 


94.0 


1922 


1933 


68.7 


1923 


1934.. 


66.0 


1924 


1935 :. 


79,7 


1925 


1936.. 


79.1 


1926 


1937. 

1938 


72.7 


1927 




1928 













Source: Table 23, p. 317. 



ROLE OF CORPORATE ENTERPRISE 

The business activities of the United States are carried on under 
various forms of ownership — indepc ^dent proprietorships, partner- 
ships, and corporations. In agricuLure, independent proprietorships 
predominate. Likewise, in nonagricultural enterprise independent 
shopkeepers are probably operating 60 percent or more of all business 
concerns. ^^ Approximately 30 percent are corporations, and the 
remaining 10 percent are partnerships. 

The corporation is relatively new among the various forms of busi- 
ness enterprise in the United States. At the beginning of the nine- 
teenth century there were only 225 private corporations in the coun- 
try, less than 20 of which were manufacturing and mercantile 
concerns. ^'^ During the first half of that century incorporation was by 
private statute, and not untU after the Civil War did general incorpo- 
ration become important. 

The corporation lends itself very readily to large-scale activities 
which require substantial capitalization, operation through multiple 
outlets, a guaranty of limited liability of owners, provision for stock- 
distribution plans of diffused ownership, and continuous existence 
regardless of the death or removal of managers and part-owners. The 
growth of this form of business enterprise was extremely rapid. Up 

i« The data are too frapmentary to allow any accurate figure. This approximation is made from data 
presented by Dr. Willsrd Thorp on crrporations and partnerships, and business enterprises, reported in 
Temporary National Economic Committee Hearings, Part. I, pp. 227-228. 

" H. Dewey Anderson, Our California State Taxes, Stanford University Press, 1937, p. 230 fif. 



OONCENTRATION OF ECONOMIC POWER 



319 



to the Civil War, independent ownership had dominated the business 
scene, both numerically and in volume of business done. By 1930, 
however, corporations had so increased in importance that they had 
become firmly entrenched as the leaders, both in their contribution to 
the national income, and in their volume of business. 

Table 25 gives certain data concerning the proportion of national 
income produced by various industries and volume of business done 
by corporations and other forms of enterprise in these industries. 

Table 25.' — Proportion of national income produced and volume of business done 
by corporations and other forms of enterprise, 19S7 





Percentage of 
national in- 
come produced 


Volume of business done 


Industry 


Corpora- 
tions 


others 




24.0 
13.5 
12.5 

u.a 

9.3 
8.9 
7.3 
2.1 
2.1 
1.6 
1.3 
4.2 


92 
68 
58 
30 
84 
7 
89 
96 
36 
100 
100 
33 


8 


Government, Tncluding work-relief wages „ 


12 


Trade .. ... „ 


42 


Services ». 


70 


Finance ^... 


16 


Agriculture . 


93 


Transportation — 

Mining 


11 
4 


Contract construction .. ... 


04 


Electric light and power and manufactured gas 










Miscellaneous 


67 


Total 


98.7 


60-«6 


35H« 







S«urce: Temporary National Economic Committee Hearings, Part I, pp. 96, 97. 

It is not the numerical importance of corporations which determines 
their dominant place in American economic life, but the fact that 
they produce such a large share of the goods and services of the Nation. 
Thorp estimates that corporations conduct between 60 and 65 percent 
of the total volume of business in the country, ^^ The corporate share 
in the production of economic goods ranged from 100 percent in the 
communication and power, light, and gas industries to 7 percent of 
agricultural production. But it is the dominance of corporations in 
large capital and labor-using fields which makes them such vital 
factors in the Nation's economy. Manufacturing under corporate 
control, for example, is 92 percent of all manufacturing. Even 
trade, a citadel long held by small independent proprietors against 
the encroachments of the corporation, had become 58 percent corpo- 
rate in terms of volume of business in 1937. All levels of Government, 
Federal, State, and local, have found the corporate form of organiza- 
tion suitable for business purposes in many instances, so that by 1937, 
58 percent of its operations were conducted by public corporations. 
The various professional and personal services are stUl some 70 
percent under individual proprietorships or partnerships. But even 
here, as chain systems and multiple outlets become more profitable 
than single units, the corporation is rapidly gaining hieadway.^® 

Table 26 is a measure of the importance of «ize of business concerns, 
in terms of number of workers reported by employers to the Social 
Security Board in 1937 for old-age pension purposes. The data 

'« Ibid., p. 97. 

'• See H. Dewey Anderson and P. E. Davidson, Occupational Trends, Stanford University Press, 1940, 
chapters on Trade, Professional Service, Personal Service, Manufacturing, for fuither data on this Bubject. 



261085— 40— No. 20- 



-22 



320 



OONCEiNTRATION OF ECONOMIC POWEH 



contain some duplications, which do not seriously interfere with com- 
parisons between various classes of employers. Also, the coverage is 
not complete for all employers of labor, and is primarily of value in 
describing conditions among nonagricultural enterprises. 

Table 26. — A sample of all manufacturing industries comprising 84 of 308 indus- 
tries — 32,4JfS manufacturing concerns employing 3,534,836 wage earners in 1933 



Industry 



Number of 
concerns 



Average niun- 

ber of wage 

earners 



Six largest concerns 



Percentage 
of all con- 
cerns 



Percentage 
of wage 
earners 



Agricultural implements 

Aircraft - 

Aluminum products 

Asbestos paclfing products 

Asphalted-felt-base floor covering, etc 

Bolts, nuts, washers, and rivets ... 

Boots and shoes - - 

Boxes, paper - - 

Canned and dried fruits and vegetables, etc. 

Carpets and rugs, wool -- 

Cars, electric and steam railroad 

Cash registers, etc ---- 

Cast-iron pipe fittings - 

Cement.- 

Chemicals. - 

Cigarettes - - 

Cigars - 

Clay products, etc 

Clocks, etc.. 

Clothing, men's, youths', and boys' 

Clothing, women's 

Coke-oven products. i -.- 

Collars, men's 

Confectionery 

Cordage and twine - -- 

Corn syrup, etc. --- 

Cotton goods. 

Dyeing and finishing textiles 

Electrical machinery, etc 

Engines, etc.. - , 

Explosives --- 

Fertilizers. - 

Firearms 

Forgings, iron and steel - 

Furniture .- 

Glass 

Hardware. ..- - -. 

nats, fur-felt --. 

Leather, tanned, curried, and finished -. 

Liquors, distilled and ethyl alcohol 

Machine tools -. 

Matches 

Meat packing, wholesale 

Meters, etc 

Motion pictures 

Motorcycles, etc 

Motor-vehicle bodies ^ 

Motor vehicles... 

Musical instruments, pianos 

Paper — 

Pencils, lead 

Petroleum refining , 

Photographic apparatus, etc 

Planing-mill products 

Plumbers' supplies -. 

Pottery . :.T 

Pulp _. 

Radio apparatus and phonographs 

Rayon, etc - 

Refrigerators, etc 

Rubber goods 

Rubber tires and inner tube." 

Sewing machines 

Shipbuilding and boatbuilding 

Shirts 

Silk and rayon goods 



145 

60 

95 

164 

12 

92 

1.014 

1,014 

1,656 

50 

43 

35 

50 

78 

341 

19 

619 

702 

52 

2.151 

6,240 

67 

9 

1,181 

100 

21 

785 

578 

1,040 

170 

28 

312 

21 

169 

2,250 

159 

367 

114 

311 

35 

229 

11 

949 

56 

82 

17 

632 

84 

36 

445 

24 

216 

77 

2,274 

224 

216 

124 

150 

21 

191 

331 

36 

28 

368 

457 

895 



11, 140 

7,816 
13, 634 
10, 6.'.9 

5,092 

8,486 
190, 914 
47.220 
84, 274 
21,296 
14. 266 
10,908 

9,454 
15. 829 
53,190 
22,544 
54. 558 
31,944 
12. 850 
19, 253 
159. 832 
13, 060 

1.213 
50, 609 
11. 145 

7.591 

370. 445 

66, 309 

130, 857 

23, 535 

4,168 
13, 063 

3,382 

7,953 
105, 488 
49, 797 
32,550 
12, 540 
44,191 

2,514 
12,714 

4,726 
113, 193 

3,156 
10, 777 

3,038 
145,745 
97, 869 

2,700 
87, 224 

3,469 
€9,047 

8,975 
35,388 
15,893 
23,632 
20,074 
32, 879 
44,306 
26, 398 
35,205 
52. 976 

6,313 
30, 855 
53,816 
110, 3?2 



4.1 

10.0 

6.3 

3.7 

50.0 

6.5 

.6 

.6 

.4 

12.0 

14.0 

17.1 

12 

7.7 

1.8 

31.6 

1.0 

.8 

11.5 

.3 

.1 

9.0 

66.7 

.5 

6.0 

28.6 

I'O 

.6 

3.5 

21.4 
1.9 

28.6 
3.6 
.3 
3.8 
1.6 
5.3 
1.9 

17.1 
2.6 

54.5 
.6 

10.7 
7.3 

35.3 

.9 

7.1 

16.7 
1.3 

25.0 
2.8 
7.8 
.3 
2.7 
2.8 
4.8 
4.0 

28.6 
3.1 
1.8 

16.7 

21.4 
1.6 
1.3 
.7 



OONCENTRATION OF ECONOMIC POWER 



321 



Table 26. — A sample of all manufacturing industries comprising 84 of 308 indus- 
tries — -32,445 manufacturing concerns employing 3,534,836 wage earners in 
1933 — Continued 



Industry 



Number of 
concerns 



Average num- 
ber of wage 
earners 



Six largest concerns 



Percentage 
of all con- 
cerns 



Percentage 
of wage 
earners 



Smelting and refining: 

Copper - -- 

Lead-. __. .- 

Zinc 

Soap --- 

Stamped ware, etc 

Steam and hot-water heating apparatus. 

Steel works and rolling-mill products 

Stoves, etc 

Sugar beet 

Sugar refining, cane _ 

Textile machinery.. 

Tin cans, etc 

Typewriters... 

Washing machines, etc. 

Watchcases 

Wire drawn irom purchased rods 

Woolen goods 

Worsted goods 

Wrought pipe, welded and heavy-riveted 



11 

7 

19 

212 

540 

198 

254 

528 

23 

13 

302 

116 

8 

39 

20 

65 

309 

186 

37 



5,596 

2,105 

6,866 

14,304 

32, 302 

22, 301 

276, 847 

30, 193 

10, 706 

11, 495 

18, 576 

23,343 

9,591 

6,956 

1,168 

14,656 

48, 536 

78, 691 

6,652 



54.6 

85.7 

31.0 

2.8 

1.1 

3.0 

2.4 

1.1 

26.1 

46.2 

2.0 

5.2 

75.0 

16.4 

30.0 

9.2 

1.9 

3.2 

16.2 



90.6 



70.2 
70.6 
16.3 
52.5 

57.6 
20.4 
80.1 
77.6 
47.9 
71.4 



68.3 
86.0 
52.6 
25.2 
38.4 
71.4 



Source: Anderson, H. D., and Davidson, P. E., Occupational Trends, Stanford University Press, 1940. 

Small employers, with less than 10 workers in their establishments, 
are 76 percent of all reporting, but they have only 11 percent of all 
employees. Large employers, having 100 or more workers made up 
primarily, if not entirely, of corporations, are less than 3 percent of 
all employers:, but they employ 62 percent of all workers. ^° 

While the dominance of large corporations is not the same in all 
fields, still it remains characteristic of the economy as a whole. Table 
27, chart 18, summarizes the proportion of business done, wage earners 
employed, or physical property operated by the smallest and largest 
groups in various types of business. The measures are not the same, 
so that, strictly speaking, the columns of the table may not be read 
vertically to determine relative concentration in the several industries. 
However, the same general conditions prevail. 

»« Ibid., p. 320. 



322 



CONCENTRATION OF ECONOMIC POWER 
Chabt 18 

COMPARISON BETWEEN SMALLEST AND 
LARGEST BUSINESS GROUPS 

BY CLASS OF ACTIVITY AND VALUE OF PRODUCT 



PER CENT OF BUSINESS 

20 40 60 80 ICO 




100 80 60 40 20 
PER CENT OF CONCERNS 



60 80 
PER CENT OF BUSINESS 



SO/Wf.- »dop.«l t-<«-: ENTERPR.se AND SOCIAL PROGRESS. N«.l.-»l 



InOuilrlol Con<er.nc. Board, N«. Yort, 1959. PP «»-«»»• 



OONCENTRATION OF ECONOMIC POWER 



323 



Table 27. — Smallest and largest groups, as percentages of total number and total 

volume of business 





Smallest group 


Largest group 


A.ctivlty and type of 




Percent of— 




Percent of— 


classification 


Description of size 






Description of size 


















classification 


Con- 


Busi- 


classification 


Con- 


Busi- 






cerns 


ness 




Gems 


ness 


Classification by 














value: 














Manufacturing, 


Value of product, 


32.9 


LI 


Value of product. 


o.e 


40.0 


1929. 


$5,000 to $19,999. 






$5,000,000 and over. 






Mining and quar- 


Value of product, 
less than $20,000. 


37.7 


1.4 


do 


.8 


30.0 


rying, 1929. 






Electric railways 


Operating revenue, 


60.4 


3.6 


Operating revenue. 


18.1 


88.6 


(operating). 


$250,000 and less. 






over $1,000,000. 






1932. 














Motor-bus trans- 


Revenue under $10,000 


42.4 


1.9 


Revenue over $500,000. 


3.8 


58.0 


portation, 1935. 














Motor trucking 


Revenue under $1 ,000 . . 


31.9 


2.0 


do 


.2 


16.1 


for hire, 19.3?. 














Construction, 


Value of work per- 


69.5 


iO.5 


Value of work per- 


.1 


13.3 


1935. 


formed, less than 
$10,000. 






formed, $1,000,000 
and over. 






Wholesale trade. 


Annual net sales. 


47.3 


4.9 


Annual net sales. 


3.0 


37.1 


1935. 


under $50,000. 






$1,000,000 and over. 






Retail stores, 1935_ 


Annual value of sales, 
under $10,000. 


59.0 


11.0 


Annual value of sales, 
$300,000 and over. 


.5 


20.7 


Insured commer- 


Deposits under 


6.5 


.1 


Deposits over 


.8 


55.1 


cial banks, 1936. 


$100,000. 






$50,000,000. 






Service establish- 


Annual receipts. 


35.3 


5.2 


Annual receipts, 


.6 


22.9 


ments, 1935. 


under $1,000. 






$50,000 and over. 






Advertising 


Annual billings, 


88.6 


24.2 


Annual billings. 


1.5 


44.2 


agencies, 1935. 


under $500,000. 






over $5,000,000. 






Public warehous: 


Annual revenue, 


16.5 


.6 


Annual revenue. 


1.7 


24.2 


ing. 1935. 


under $2,000. 






$250,000 and over. 






Classification by 














wage earners: 














Manufacturing, 


Less than 5 wage 


148.9 


'3.2 


Over 1,000 wage earn- 


.6 


2 24.5 


1929. 


earners. 






ers. 






Mining and quar- 


do 


127.8 


U.O 


Over 2,500 wage earn- 


.2 


» 16.4 


rying, 1929. 








ers. 






Classification by 














physical units: 














Farms, 1935 _ 


Under 10 acres per 
farm. 


8.4 


'.3 


Over 1,000 acres per 
farm. 


1.3 


5 29.4 


Hotels, 1935 


Less than 25 rooms 


45.4 


7.6 


Over 300 rooms. -. 


1.8 


39.7 



' Including concerns with no wage earners. 
' Percent of total number of wage earners. 
' Percent of total acreage in farms. 

Source: Adapted from National Industrial Conference Board, Enterprise and Social Progress, New York, 
1939, pp. 235-239. 

In 1937 the Twentieth Century Fund made a careful study of big 
business, from which the writer compiled table 26.^^ There were, for 
instance, 145 concerns manufacturing agricultural implements, em- 
ploying on an average 11,140 workers; but the 6 largest concerns, 
representing only 4.1 percent of all, employed 70.8 percent of all 
workers. In certain fields virtual monopolies exist, as seen from the 
following data where the 6 leading concerns employ more than 90 
percent of all the workers: 

Percentage 

Industry: of workers 

Asphalted felt 92. 1 

Cordage and twine 90. 4 

Sewing machines 90. 4 

Copper smelting 90. 5 

Cigarettes. _ - - 99. 4 

« Ibid. 



324 CONCENTRATION OP EOQNOMIC POWEiR 

In 20 of the sample of 84 industries, over three-fourths of all workers 
were employed by the leading 6 companies ; in 47 industries the lead- 
ing 6 concerns employed one-half or more of all workers. 

Corporations with assets of less than $50,000 are 52.7 percent of all 
corporations, but their share of the total business done is relatively 
small and they amass only 1 percent of all cash dividends. At the 
other extreme are the giants with assets of $50,000,000 or more. 
They number only 0.2 percent of all corporations, but they pay out 
58.9 percent of all cash dividends. 

Not only has the corporation come to play a dominant role in 
American enterprise in terms of its proportion of total capital, na- 
tional income, business profits, production of goods and services, and 
employment of workers, but within the corporations themselves 
ownership and control have become so concentrated as to permit a 
few giants to dominate much of American business life. In some 
fields the extent of domination is so great that a single corporation, 
or a few corporations, command the business field. ^^ 

In tables 28 and 29 the number and size of corporations and dis- 
tribution of dividends are displayed.'^' 

TaSle 28. — Number, size, and character of corporations, 1931-32 



Total assets > 



Number 



Percent- 
age 



Cash dividends — 



In dollars 



In per- 
centages 



Under $50,000 

$50,000 to $500,000 

$500,000 to $5,000,000... 
$5,000,000 to $50,000,000 
$60,000,000 and over... 

Total 



206, 477 

146, 242 

34,295 

4,389 

618 



52.7 

37.3 

8.7 

1.1 

.2 



$40,000,000 
218,000,000 
503, 000, 000 
824, 000, 000 
2, 270, 000, 000 



I.O 
5.6 
13.1 
21.4 
58.9 



392, 021 



100.0 



3, 855, 000. 000 



100.0 



• Involving a combined total of $280,083,000,000. 

Source: H.- Dewey Anderson, Our California State Taxes, Stanford University Press, 1937, p. 231. 



M These are the conclusions to be drawn from such scientific treatises as A. A. Berle and Gardiner Means, 
The Modern Corporation and Private Property; National Resources Committee, The Structure of the 
American Economy Part> I, Washington, D. C, 1939; hearings of the Temporary National Economic 
Committee, 193S-40; and National Industrial Conference Board, Studies in Enterprise and Social Progress, 
New York, 1939: etc. 

»' H. Dewey Anderson, Our California State Taxes, Stanford University Press, 1937, pp. 231-232. The 
Original data were compiled and presented by T. J. Kreps, Dividends, Interest, Profits, Wages, 1923-36, 
Quarterly Journal of Economics, vol. 49, August 1935, p. 583. 



CONCENTRATION OF EOONOMIC POWER 



325 



Table 29. 



-Distribution of dividends by net income classes, before and after pay- 
ment of Federal income tax, 1929 and 1936 





1929 


1936 


Net income class (in 
thousands) 


Dividends paid— 


Per- 
cent- 
age of 
divi- 
dends 
taken 
by tax 


Dividends paid— 


Per- 


Before tax 


After tax 


Before tax 


After tax 


ageof 
divi- 
dends 
taken 
by tax 




Amount 


Per- 
cent 


Amount 


Per- 
cent 


Amount 


Per- 
cent 


Amount 


Per- 
cent 


6 to 10 


$506.1 
930.7 
736.1 
645.8 
305.1 
377.6 
201.1 
213.3 
331.1 


11.9 
21.9 
17.3 
16.2 
7.2 
8.9 
4.7 
5.0 
7.8 


$506.1 
925.2 
713.2 
609.7 
283.5 
348.8 
185.9 
197.2 
309.2 


12.4 
22.7 
17.5 
14.9 
7.0 
8.6 
4.6 
4.8 
7.6 



.6 
3.1 
5.6 
7.1 
7.6 
7.6 
7.5 
6.6 


$412.8 

657.2 

502.1 

412.9 

164.2 

182. 1 

83.9 

87.0 

81.7 


16.0 
25.4 
19.4 
16.0 
6.4 
7.0 
3.2 
3.4 
3.2 


$402.7 

617.7 

441.8 

327.fi 

111.8 

109.6. 

42.8 

39.9 

33.6 


18.9 

29.0 

20.8 

15.4 

5.3 

5.2 

2.0 

1.9 

1.6 


2.4 


10 to 25 


6.0 


25 to 50 --. 


12.0 


60 to 100.. 


20.7 


100 to 150 .- 


31.9 


150 to 300 


39.8 


300 to 500 


49.0 


600 to 1,000 


64.1 


1,000 and over 


68.9 






Total 


4, 247. 


100.0 


4,078.7 


100.0 


4.0 


2,583.9 


100.0 


2, 127. 6 


100.0 


17.7 







Source: National Industrial Conference Board, Enterprise and Social Progress, New York, 1939, pp. 128, 



131. 



In fact, so important has concentration within the corporate struc- 
ture become that E. D. Kennedy in Dividends to Pay says: 

The essential diflference between the corporate money makers and the cor- 
porate money losers is the difference between operating on a monopoly basis 
and on a competitive basis. In more general terms, we may say that in this 
country we have two forms of capitalism— monopoly capitalism and competitive 
capitalism. * * * The greatest difficulty in detecting monopolies comes 
from the fact that even the most monopolistic industry usually contains at least 
two, and often a dozen or more, very large corporations which make an elaborate 
pretence of competing with each other. * * * The distinguishing charac- 
teristic of a monopolized industry is that, although it may have more than one 
large corporate member, it does not have many large corporate menil)ers. 
There are only two large sulphur companies, four large cigarette companies, 
three large copper companies, hardly a dozen large steel companies. * * * 
They cherish each other's profits almost as dearly as they cherish their own. 
And competition, particularly price competition, is to them an abhorrent term. 
But whenever they are accused of being monopolies they can always cite the 
presence of a competitor in the same field. The public does not yet realize that 
the so-called competitor does not necessarily compete. I suppose it imagines 
that the standard-priced cigarettes always sell for close to 15 cents a pack, 
regardless of the cost of the tobacco that goes into them, merely through a 
coincidence.^* 



M E. D. Kennedy, Dividends to Pay, Reynal and Hitchcock, New York, 1939, pp. 74, 76, 78. 



APPENDIX B 
SUPPLEMENTARY DATA ON GOVERNMENT EXPENDITURES 

(Note. — Tables 1 to 6 are detailed analyses of Budsret items, arranged according 
to function. They are summarized in table 25, p. 66.) 

Table 1. — Social welfare — Expenditures, 1939 

Sodal Security: 

Independent establishments: 

Railroad Retirement Board • $110,381,587.72 

Social Security Board 330,563,601.87 

Department of Commerce: 

Bureau of Census: Salaries, expenses. Social Security Act 81, 067. 92 

Total Social Security $441,026,257.8) 

Public Health: 

Independent establishments: 

Public Health Service' „... $1,925,551.74 

Health Survey 882.645.15 

Depnrtment of Interior: 

Bureau of Indian Affairs: Conservation of health 5,358,474.27 

St. Elizabeths Hospital: Salaries and expenses 1, 109, 329. 39 

Freedmen's Hospital - 221,250.39 

Department of Justice: 

Penal and correctional Institutions: 

Medical Center for Federal prisoners, maintenance 385,811.88 

Medical and hospital services. 601,458. 15 

Depnrtment of Labor: 
Children's Bureau: 

Maternal and child welfare, Social Security Act 323,928. 10 

Grants to States under Social Security Act: Material and 
child health service 3,739,063.23 

Total Public Health...... 14,547,512.30 

Relief: 

Independent establishments: 

Federal Emergency Relief Administration.... $1,659,785.82 

Federal Security Agency: 

National Youth Administration 78,102,755.96 

OflBce of Education: 

Assistance to professional persons 676,835.80 

Grants to States, emergency relief. 112.74 

Public Health Service: Assistance to professional persons. .. 193, 207. 69 

Federal Works Apency: 

Public Buildings Administration: Assistance to professional 

persons 14,050.93 

Work Projects Administration 2,161,500,665.13 

Department of Agriculture; 

Office of Secretary: Administrative expenses, emergency relief. 7, 717. 27 

Forest Service: Loans and relief -._ 45.34 

Bureau of Agricultural Economics: Assistance to professional 

persons.. . 621. 76 

Rural Electrification Administration: 

Loans to States, emergency relief 256,042.44 

Assistance to professional persons 116,406. 52 

Farm Security Administration' -^ 174,064,832.61 

Agricultural Adjustment Administration: Assistance for educa- 
tional persons, etc 107,422.82 

Department of the Interior: 

Office of Secretary: Administrative expenses, emergency relief- . 602.68 

Government in the Territories: Territory of Alaska, emergency 

relief 113,167.48 

Department of Labor: OflBce of Secretary: Assistance for educational 

persons. Ptc 16.28 

Treasury Department: Office of Secretary: Assistance for educa- 
tional rersons, etc - 1,494,617.71 

War Department: 

Quartermaster Corps: Assistance for educational persons, etc... 62,880.12 

Corps of Engineers: Assistance for educational persons, etc 100,711.73 

Disaster Loan Corporation, stock/. 8,000,000.00 

Total relief.... ?, 426, 362, 488. 83 

Housing, rehabilitation.- 

Independent establishments: District of Columbia Alley Dwelling 

Authority $65,133.97 

Federal Works Agency: U. S. Housing Authority 8,629,331.69 

Department of Agriculture: 

Farm Tenant Act: Resettlement projects 1,679,842.82 

Farm Security Administration: Rural rehabilitation, etc.. 8,688,341.32 

Total housing, rehabilitation - 18,962.649.70 

> Exclusive of items elsewhere classified. 

327 



328 OONCBNTRATION OF ECONOMIC POWEH 

Table 1. — Social welfare — Expenditures, 19S9 — Continued 

Education: 

Independent establishments: Federal Security Agency: 

Office of Education 1 - $5,316,642.82 

Vocational education - 21,804,047.72 

Department of the Interior: 

Columbia Institution for the Deaf 145,848.96 

Bureau of Indian AfTairs: Education. - 10,068,473.76 

Qovernment in the Territories: Public schools, Alaska. 85, 596:00 

Howard University - 1. 195, 806. 67 

Total education - $38,616,416.83 

Miscellaneous: 

Independent establishments: Federal Security Agency: American 

Printing House for Bhnd $115,000.00 

Department of the Interior: 

Bureau of Indian Affairs' 19,516,951.26 

Government in the Territories: Care and custody of insane, 
Alaska 205,504.35 

Total miscellaneous 19,837,455.61 

Total social welfare 2,959,352,779.78 

Source: Computed from The Budget of the United States Oovernment for the Fiscal Year Ending June 
30, 1941, statement No. 2, pp. A21 to A85. 

Table 2. — Interest and service on debt — Expenditures, 19S9 

Interest and service on debt: 

Public debt service $6,820,342.92 

Public debt:. 

Interest .-.- 940,539,763.60 

Sinking fund 48,517,050.00 

Retirement from gifts, forfeitures, etc 9,608,700.00 

Redemption, received as payment from foreign government — 120, 100.00 

Payment of interest on deposits of public moneys of Qovernment of the Philippine 

Islands. 2,123,887.45 

Bureau of Indian Affairs, interest on Indian trust funds 376,551.19 

Total. Interest and service on debt.... 1,008,106,995.06 

Source: Computed from The Budget of the United States Oovernment for the Fiscal Year Ending June 
30, 1941, Statement No. 2, pp. A21 to A85. 

Table 3. — Public Works — Expenditures, 19S9 

Parks, monuments, expositions, reservations: 

Botanic Garden $107,505.12 

Commission for Commemoration of the Battles of Chickamauga, etc... 35, 000. 00 

American Battle Monuments Commission.. 133,39.105 

George Washington Bicentennial Commission 18,705.88 

National Capital Park and Planning Commission 639,759.49 

Northwest Territory Celebration Commission... 27,041.67 

Pan American Exposition... 94,128.40 

Perry's Victory Celebration 13, 164.82 

Thomas Jefferson Memorial Commission 372,165.83 

United States Constitution SesQuicentennial Commission 88,047.81 

United States Golden Gate International Exposition Commission 1,020,325.13 

United States New York World's Fair Commission 2,338,966.47 

Memorial to persons killed in wreck of Shenandoah 2,500.00 

National Park Service (Public works fund) 8,522,118.33 

Forest Service: Park and recreational facilities 1, 126.28 

George Rogers Clark Sesquicentennial Commission _ 11, 198. 14 

Perry's Victory Memorial Commission 7,-480.84 

National Park Service 24,633,823.76 

War Department (civil funds), Quartermaster's Corps 2,022,992.88 

Total parks, etc $40,089,443.90 

Public buildines. erection, maintenance and rental: 

Architect of the Capitol i $3,275,902.87 

Judicial estahliphment: 

Care nf Supreme Court Building and grounds 61, 598. 78 

Repairs and improvements, District Court of the United States, for 

the District of Columbia 16,597.33 

Repairs and improvements, I'^nited States Court of Appeals build- 
ings, District of Columbia 10.835.64 

Executive office and independent establishments: 

Maintenance, Executive Mansion and grounds 160,476.08 

Supreme Court Buildine Commission 9.608.79 

Veterans' Administration: Construction and improvement of 

buildings 742,492.47 

Public Buildings Administration" 21,290,025.98 

General public works program: 

Public Buildings Administration 44,147.926.19 

Public Health Service: Building and structure (N. I. R. & P. W. 

A.) 849,689.90 

Department of Commerce * - 30,910.88 

* Exclusive of items elsewhere classified. 



CONCENTRATION OP BOONOMIC POWER 329 

Table 3. — Public Works — Expenditures, 19S9 — Continued 

Public buildings, erection, maintenance and rental— Continued. 
General public works pu-ogram — Continued. 
Department of the Interior: 

Bureau of Indian Affairs: Construction of bulldines ... Jl 286 77R r,\ 

St. Elizabeths Hospital 345401 18 

Department of Justine . 1206 446 82 

Department of State : Foreign Service buiidin? fund " " 38?' «4«' (u 

Department of Aericuiture: " «M>«.»4 

Rent of buildings _ j^j ot^r oi 

Physical improvements, Beltsville, Md " i sg/'sis'oo 

Bureau of Entomology and Plant Quarantine: Physical i'mprove- 

mentS..- 90 ggg pg 

Bureau of Aericultural Economics: Physical improvements 144'77l'7fi 

Department of the Interior: 

Buildings, United States Representative in Philippine Islands- 291 l?t9 75 

St Elizabeths Hospital: Recondition of structure 10 000 00 

Howard University: Structures.-. .'..'.'- 473 177 00 

Department of Justice: Penal institutions, structures 5 245 946 64 

Treasury Department: Custody of departmental buildings '664 999 80 

War Department: Construction and repair of hospitals.- "" 493' 9S8 13 

Veterans' Administration: Hospitals and dormitories '.'.'.'.'.. 6, 592 546 58 

Total public buHdincs, etc tan ann ^^^ na 

highways, airports, bridges, rivers, and harbors: "' »o»,dw. ih.to 

Executive offices and independent establishments: 
Civil Aeronautics Authority: 

Establishment of air-navigation facilities $5 269 738 00 

Emergency expenditures (P. W. A.) "" l'205'983'87 

Maintenance and operation of air-navigation facilities . " 6* 633' 284 00 

T, Emergency expenditures (N. I. R.) l,408;938.00 

Public Roads Admmistration 35 072 137 74 

General public-works program: ' 

Public Roads Administration 161 730 %0 22 

National Advisory Committee for Aeronautics ' 34' i84 00 

Department of Interior, Bureau of Indian Affairs: Roads and high- 
ways 3 Q7Q 201 49 

Navy Department, Bureau of Yards and Docks '. 13' 928* 698 27 

Department of State: 

Rio Grande rectification project- 377,991 28 

Rio Grande canalization " 696' 680 79 

War Department: Improvement of rivers and harbors... 72,856519 00 

Department of Interior: "' ' ' 

Bureau of Indian Affairs: Roads and highways . 24 091 87 
Government in the Territories: 

Wagon roads, etc., Alaska 157,375.09 

.^^°°s'^™Pt'OD jof roads, bridges, railroads, etc .. " 968690 50 

Navy Department, Bureau of Yards and Docks ' 29 743 844.' 10 
War Department: 

Quartermaster's Corps: Highways, roads, and streets 931,824. 19 

Corps of Engineers: Rivers and harbors, etc 40,968,425.71 

Total, highways, etc 375 079 568 12 

<3onservation, irrigation, flood control, power development, forests- 
Executive offices, independent establishments: 

Federal Power Commission: Payments to States under Federal 

Water Power Act.--: $16,755.52 

Civihan Conservation Corps .- 290,385 528 11 

General public-works program: ' 

Tennessee Valley .Authority 40, 806, 800. .57 

Department of Agriculture: Forest roads and trails .. 13,464,855.34 

Department of the Interior: 

Power-distribution system, Bonneville project 1,544,167.62 

Bureau of Reclamation 48,070.735.95 

Bureau of Indian Affairs: Construction of irrigation systems... 2, 791, 845. 97 

Department of State: Lower Rio Grande flood-control project 997,351.08 

War Department: Flood control 73,512,483.03 

Department of Agriculture: 

Forest Service 32,224.652.35 

boil Conservation Service 34,577, 1,52.07 

Conservation and use of agriculture land resources 477, 942, 480. 42 

Farm Security Administration: Flood control and other conserva- 

w'?° ;--V. . .. -- 979,677.18 

water facilities, and and semi-arid areas.. 257, 173.28 

Forest roads and trails 46 703 79 

Department of the Interior: - , . 
Office of Secretary: 

Division of Grazing -- 730,540.55 

Petroleum Conservation Commission 253 399 72 

Bonneville project 3,605,232.79 

War Minerals Relief Commission 28 273 10 

Bureau of Indian Affairs: 

Development of water supply 70, 109.49 

Irrigation and drainage 1, 133, O86. 71 

Bureau of Reclamation 31 258 692 18 

Bureau of Fisheries Z,5U, 192.97 

War Department, Corps of Engineers: Flood-control projects 7, 383, 006. 47 

Total, conservation, etc 1,066,492,896. 26 

' Exclusive of items elsewhere classified. 



330 OONCElNTRATION OF EOONOMIC POWER 

Table 3. — Public Works — Expenditures, 1939 — Continued 

Miscellaneous: 

Vpterans' Administration: Public Works Administration Act of 1938 $4,354,999.21 

Public Works Administration 407,937.587.19 

Department of State: Fence construction on boundary, Arizona. 21, 952. 11 

Rural Electrification Administration: Public buildings, parks, flood 

control, etc .--- -.- 38,921.87 

Department of Interior, Bureau of Indian Affairs: P. W. A. allotment- . 3, 644, 160. 57 

Navy Department, Bureau of Yards and Docks: 

Public buildings, flood control, etc 1,295,176.03 

Public buildings, flood control, etc., W. P. A 13,083,068.05 

War Department: 

Quartermaster Corps: Miscellaneous public works... 24, 165, 300. 63 

Corps of Engineers (Civil Function): Miscellaneous public works... 3,051,416.86 

Total miscellaneous $457, .592, 582. 52 

Total public works. 2,027,854,605.48 

Source: Computed from the Budget of the United States Government for the Fiscal Year ending June 30, 
1941, Statement No. 2, pp. A21 to A85. 

Table 4. — National defense — Expenditxires, 1939 

Army: War Department (military activities): 

Construction of buildings, etc., at posts $8,707,200.01 

Departmental salaries ' 4,333,089.59 

Contingent expenses 239.917.85 

Secretnry's office, military activity 235,986.05 

General Staff Corps 380,714.91 

Army War-College 73,929.07 

Adjutant General's Department 74, 559. 38 

Finance Department . 159,354,950.70 

Quartermaster Corps 103,359.3.53.66 

Signal Corps 6,276,362.07 

Signal Corps, Alaska Communication System.. 179, 117.77 

Air Corps..... 83,164.155.56 

Medical Department.. 1,396,449.35 

Corps of Engineers. 840.309.64 

Chemical Warfare Service 1,324,252.60 

Chlefsof Infantry, Cavalry, Field Artillery, and Coast Artillery 165, 245. 24 

Seacoast defenses 7,317,891.05 

National Guard Bureau.. 43,010, 118.27 

Organized Reserves 9,939,856.91 

Citizens' military training 6,516,028.66 

Miscellaneous.. 1,001.036.22 

Military Academy 3. 184. 255. 16 

Ordnance Department 28,640,360.78 

Total Army. $469,715,140.50 

Navy Department: 

Navy Department ' $584,055,344.18 

Naval Academy... 2,016,343.31 

Total Navy 586,071,687.49 

Marine Corps. ,. 27,266,914. 19 

Veterans' benefits: Veterans' Administration: 

Army and navy pensions $416,720,060.32 

Military and naval insurance 39,000,520.74 

Veterans' Administration, other 89,478,223.71 

Total veterans 545.259,404.77 

Total national defense 1,628,313, 146.96 

• Exclusive of items elsewhere classified. 

Source: Computed from The Budget of the United States Government for the Fiscal Year ending June 
30, 194), statement No. 2, pp; A21 to A85. 

Table 5. — Regulation of the economy — Expenditures, 1939 

Agricultural regulation and tenancy: 

Agricultural Marketing Seivice ' $.3,865,268.65 

Agricultural Adjustment Administration '._ 308,547,549.46 

Farm Tenant Act: Land utilization and retirement of submarginal 
lands... 4,666,746.26 

Total farm regulation, etc $317,079,564.27 

Loans to farmers: 

Farm Tenant Act, loans $20,598,014.77 

Rural Electrification Administration, loans to private corporations, 

emergency expenditures.. 609,982.95 

Rural Electrification Administration, loans and purchase of property . 35, 318, 238. 50 

Commodity Credit Corporation 108,030.89 

Farm Credit Administration ' > 3,737,959.81 

• Exclusive of items elsewhere classified. ' Excess of credits,, deduct. 



331 



CONCEJNTTRATION OF ECONOMIC POWER 

Table 5. — Regulation of the economy — Expenditures, 1939 — Continued 

Loans to farmers— Continued. 
Treasury Department: 

Payments to Federal Farm Mortgage Corporation, reduction of 

interest rate on mortpapes.. $7,818,547.62 

Payments to Federal land banks, reduction in Interest rate on 

mortjrapes _ 30,639,785.96 

Subscriptions to paid-in surplus, Federal land banks 11,590,935.22 

Subscriptions to capital stock, Federal land banks 150,800.00 

Total loans to farmers — _ $103,096,376.10 

Regulation of indu.stry. f n^iricp and exchanges: 

Securities and Excha' ce Commlssinn ' $4,718,293.04 

Department of AprifuTtnre: Enforcement, Commodity Exchange Act. 619,754.68 

Civil Aeronautics Authority Administration 1,893,332 00 

Economic regulation.. 250,276.00 

Safety repu'atinn . 1,341,698.00 

Federal Comn-unications Commission ' ^ 1,751,273.34 

Federal Trade Commission • 2,137,577.03 

Interstate Commerce Commission ' 8, 243, 540. 51 

Department of Agriculture: Food and Drug Administration 2, 235, 20'i. 47 

Department of Commerce: Patent Office ' 3,765,399.03 

Departirent of t»^e Interior: Bituminous Coal Commission... 3,210.403.87 

Department of Justice: Enforcement of antitrust and kindred laws 774, 329. 59 

Treasury Department: 

Railroad Administration 29,383.46 

Federal Alcohol Administration 444,*.'>5.65 

Bureau of Narcotics ..— 1,241.742.49 

Federal Power Commission: Salaries and expenses 1,817,468.21 

Total regulation of industry, etc... 34,474,231.26 

Loans to industry and finance: 

Federal Hon^e Loan Bpnk Board $1, 116, 697. 71 

Federal Housing Administration: 

Administrative expenses. 4(390,535.44 

Losses on renovations and modernization loans 4,760,332.00 

Treasury Department: 

Subscription to preferred shares Federal Savings and Loan Associ- 
ation, emergency expenditures 7.89 

War Finance Corporation, expenses „ 3,665.38 

Total loans to Industry, etc 10,261,238.42 

Other subsidy: 

Civil Aeronautics Authority; Technical development $418,007.00 

National Advisorv Committee for Aeronautics • 2,209,081.36 

Protecting interests of United States in matters affecting oil lands In 
former naval reserves 25,412.90 

Total other subsidy 2,652,501.26 

Regulation of labor contracts: 

Maritime Labor Board .$81,624.02 

National Tabor Relations Board > 2,761,572.28 

National Mediation Board' 347,954.17 

Department of T/abor: 

Division of Public Contracts 300,311.41 

Children's Bureau— salaries and expenses, child-labor provisions. 

Fair Labor Standards Act 34,252.84 

Wage and Hour Division 1,044,165.71 

Total, labor contracts 4,569,880.43 

Federal ownership and operation: 

Posstal deficiency ^- $39,568,641.36 

Prison Industries Reorganizing Administration T.. 5,701.76 

Department of Interior: General Land Office 5,159,260.38 

Total Federal ownership 44,733,603.50 

Trade, merchant marine. Coast Guard; 

Indenendent establishments: 

Tariff Commission. $908,388.43 

U. S. Maritime Commission 43,567,188.81 

Export-Import Bank of Washington 3,295.88 

Department of Agriculture: Foreign Agriculture Relations 282, 231. 56 

Department of Commerce: 

Bureau of Marine Inspection and Navigation 2,636,429.08 

Coa.st and Geodetic Survey 3,165,053.12 

Department of State: Office of Secretary: Promotion of foreign trade.. 42, 705. 26 

Treasury Department: Coast Guard 4^1, 676, .562. 01 

Total trade, etc.. 96,281,864.16 

Total regulation Of the economy 612,149,249.30 

' Exclasive of items elsewhere classified. 

Source: Computed from the Budget of the United States Government for the' fiscal year ending Juno 
30, 1941, statement No. 2, pp. A21 to A85. 



332 CONCENTRATION OF ECONOMIC POWER 

Table 6. — General Government — Expenditures, 1939 

Legislative: 

Senate . - - -- $3,704,611.82 

House of Representatives . 8,614,783.06 

Miscellaneous i ----- -- -- 4,000.00 

Totallegislative.- - - $12,323,394.88 

Executive: 

Salary of President and Vice President . $90,000.00 

White House office '-.-- --- 194,508.25 

Bureau of the Budget •-_ 357,514.01 

Civil Service Commission: Salaries and expenses . 3,070,846.38 

Emplove;s Compensation Commission' 13,429,817.20 

General Accounting Office' -- 9,530,983.84 

Department of Aericulture: Office of the Secretary, salaries. 571,684.32 

Depa-trrent of Commerce: Secretary's office ' __. 1,055,676.28 

Department of the Tnteriot: office of Secretary, salaries .._- 480,874.56 

Department of Justice: office of Attorney General, salaries 63,084.97 

Navv Department: 

Office of Secretiry, salaries. __ .._ 195,529.39 

Office of Secretary, miscellaneous expenses... .. 1, 25.5, 6aS. 57 

Departnaent of State: office of Secretary, salaries all departments. .\ . - 2, 263, 434. 17 
Treasury Departrrent- 

Office of the Secretary' ...-■-.. 1,389,352.68 

Office of the Chief Clerk 404,701.19 

Office of Commissioner of Accounts and Deposits. 13,059,679.28 

Office of Treasurer of United States 2.2.%, 728.03 

Office of Comptroller of the Currency 247,881.69 

Bureau of Engraving and Printing 9, 731, 160. 01 

Secret Service Division 1,292,794.65 

Bureau of the Mint.... 2,421,010. 16 

Procurement Division.. 5, 761,957.85 

War Department: Office of the Secretary, salaries 279,676.30 

Department of Labor: Office of the Secretary ' 1,674,115.97 

United States employee retirement funds: 
Civil Service Commission: 

Civil service retirement and disability. 74,244,000.00 

Canal Zone retirement and disability. 500, 000. 00 

Alaska Railroad retirement and disability ^ 175,000.00 

Total executive '. 14.5, 987,'619. 75 

Scientific and social research: 

National Resources Planning Board $722,088. 69 

Census of partial employment, etc ... 103,091.48 

National power survey 30,796.21 

Weather Bureau 4,923,478.11 

Bureau of Agricultural Economics '... 861,334.65 

Ag ricultural Marketing Service: 

Crops and Livestock Estimates 642,930.08 

Market News Service 1,105,541.60 

Bureau of Home Economics 946, 129. 12 

Bureau of Foreign and Domestic Commerce 3,094,522. 31 

Bureau of the Census ' 2,036,408.22 

National Bureau of Standards... 2,059, 169.05 

Geological Survey ' 4,388, 146.69 

Consumers Council Division 204,795.98 

Bureau of Mines . 2,955,416.93 

Bureau of Biological Survey 4,913,741.04 

Bureau of Labor Statistics 1,787,366.40 

Treasury Department: Division of Research and Statistics 169,444.53 

Office of Government Reports '.. 768,956.51 

Departmetit of Agriculture: 

Office of Experiment Stations 6,763,965. 15 

Special research fund 1,368, 6'il. 36 

Extension Service 18,690,434.21 

Bureau of -Animal Industry 16,329,927. 15 

Bu^reau of Dairy Industry 679,503.06 

Bureau of Plant Industry 6,313,432. 62 

Bureau of Agricultural Chemistry and Engineering 1,281,859.00 

Bureau of Entomology and Plant Quarantine' 16,553,462.69 

Mediterranean Fruit Fly Board... 7,684.81 

Beltsville Research Center 294,670.07 

Department of the Interior: 

Government in the Territories: 

Agricultural experiment stations and vocational schools 37, 750. 00 

Total, research 99.034,707. 72 

Libraries, printing, information: 

Library of Congress.. : $2,946. 137.92 

Government Printing Office 3,376,348. 12 

Printing and binding: 

U. S. Supreme Court 22,508. 13 

United States courts.. 32,499.00 

White House office 2,256.74 

Bureau of the Budget : 39, 145.91 

Office of Government Reports 35,931.00 

Board of Tax Appeals. 31,449.06 

Civil Service Commission 106,648.21 

' Exclusive of items elsewhere classified.- 



CONCENTRATION OF ECONOMIC POWER 333 

Table 6. — General Government — Expenditures, 1939 — Continued 

Libraries, printing, information— Continued. 

Printing and binding— Continued. 

Employees' Compensation Commission $7,615.61 

Federal Communications Commission 25,396.96 

Federal Power Commission 33,560.63 

Federal Trade Commission.. 46,532.56 

General Accounting OfRce 76, 218. 86 

Interstate Commerce Commission. 175,313.95 

National Advisory Committee Aeronautics 19,692. 23 

National Labor Relations Board 111,050.08 

National Mediation Board 2,266. ."ifi 

National Railroad Adjustment Board 56,344. 29 

Railroad Retirement Board 60,654. 43 

Securities and Exchange Commis.sion.. 55, 654. 08 

Tariff Commission 19, 558.82 

Veterans' Administration 121, 279. 07 

Rural Electrification Administration 61,927. 19 

Department of Commerce: 

Secretary's office. v 406,008.00 

Patent. Oflfice . 948,347.03 

Department of the Interior 259,043.87 

Geological Survey 330,085 89 

Department of Justice 342, 120. 10 

Department of Labor 249,207.92 

Navy Department.. 506, 710. 92 

Department of State , 185,324. 71 

Treasury Department, Division of Printing 1,692,853.62 

War Department 469,825. 63 

Department of Agriculture 879,295.86 

Library: 

Surgeon General's Office... 20,616.49 

Office of Education 33,069.37 

Department of Agriculture.. 105, 974. 80 

Department of the Interior . 602. 68 

National Archives 806,687.49 

Department of Agriculture, Office of Information • 394, 603. 23 

Total libraries, printing, etc ..: $15,086,366.02 

Cost of tax collection: 

Board of Tax Appeals'.. $503,832.10 

Department of Tustice, office of Attprney General: Tax Division 644, 005. 11 

Department of Treasury: 

Bureau of Customs: Collecting revenue from customs 20,527,209.23 

Bureau of Internal Revenue: 

Collecting revenue. 58,529,034.96 

Additional income tax on railroads in Alaska 19, 700.00 

Total tax collection 80, 123,781.48 

Judicial, law enforcement, crime prevention: 
U. S. Supreme Court: 

Salaries $410,489.29 

Miscellaneous expenses 27, 070. 85 

Total, Federal courts, exclusive of Supreme Court ' 8, 875, 845. 61 

Department of Agriculture, office of Solicitor 219. 444. 43 

Department of the Interior, office of Solicitor 273,630. 85 

Geological Survey, enforcement of Mineral Leasing Act 315,910.51 

Geological Survey, enforcement of Mineral Leasing Act, emer- 
gency expenditures - 92, 069. 36 

Treasury Department, office of General Counsel 129,030.90 

War Department, office o^Advocate General 105,925. 30 

Department of Justice: 

Office of Attorney General: 

Office of Solicitor General - 53,799.53 

Office of Assistant Solicitor General 47,661. 70 

Office of Assistant to Attorney General 53,244.27 

Administrative Division :... 589. 673. 41 

Criminal Division 149,367.42 

Traveling expenses 822,451. 32 

Contingent expenses 174,945. 35 

Federal Bureau of Investigation 6,479,418.81 

Bureau of Prisons- .- 242,181.76 

Protecting United Slates in customs matters 127, 174.94 

Other' ...:...- 9,378,661.62 

Penal and correctional institutions' 11,084,262.74 

Miscellaneous 320, 247. 31 

Total, judiciary, etc.. . 39,972,607.28 

Diplomacy, Territorial government and immigratwn: 
Department of the Interior: 
Office of the Secretary: 

Bureau of Insular AfTairs . $62,340.98 

Division of Territories and Island Possessions 304,461. 59 

U. S. High Commission to Philippine Islands ' 154,836.00 

Government in the Territories '. 16,926,634.28 

> Exclusive of items elsewhere classified. 



334 



CONCENTRATION OP B<X)NiOMIC POWER 



Table 6. — General Government — Expenditures, 1939 — Continued 

Diplomacy, Territorial government and immigration— Continued. 

Department of Labor: Immigration and Naturalization Service. $9, 776, 856. 14 

Department of State: 

OfiBce of the Secretary: 

Contingent expenses - Ill,797.i64 

Passport agencies 54,706.^56 

Collecting and editing territorial papers. 26.067. 50 

Foreign intercourse.. 14,389.205.08 

Miscellaneous 164.422.58 

War Department: Panama Canal 9.801,887.72 

Total diplomacy, etc. .Tm7m7m~r $51,773,216.97 

Miscellaneous : 

Civil Aeronautics Authority: Foreign service pay adjustment $104 47 

Civil Service Commission: Certified claims 52.44 

Mineral Act of Oct. 5, 1918: Claims and judgments 146, 187. 55 

Temporary National Economic Committee 604.653.88 

Federal Security Agency: Claims and judgments 1, 7.52. 49 

Public Buildings Administration; Claims and judgments 1, 162. 29 

Other independent offices, unclassified 4.285.20 

Department of Agriculture, miscellaneous expenses . 166,271.83 

Department of Agriculture, unclassified: 

Foreign service pay adjustnffent 22. 208. 99 

Claims for damages 12,142.48 

Judgment and claims i , ■. 110, 98.3. 73 

Private relief acts ^ i 367.546.80 

Rural Electrification Administration* 2,192,644.90 

Farm Credit Administration: 

Supervision of Federal credit unions $33, 034. 54 

Department of Commerce: 

Accident prevention conference 12,608.73 

Miscellaneous 17,198.94 

Department of the Interior: 

Division of Investigations 423, 812. 13 

Division of Investigations, emergency expenditures... 171. 59 

Contingent expenses 173, 292. 64 

Settlement of land claims. 4,332.92 

Pavment to States from receipts under Orazing Act 427, 582. 13 

Commission of Fine Arts 9,925.60 

Miscellaneous 156,721.60 

Department of Labor: Miscellaneous 44,771.40 

Treasury Department: Miscellaneous .- 270,713.43 

War Department: 

Corps of Engineers: 

Claims for damages 2,098.22 

Special deposit accounts 13,205.45 

Miscellaneous _ 209 744.94 

District of Columbia— reder'aj'contribution'-^ll. -I I.-.I".!"" 5, OOo! Om. 00 

Smithsonian Institution 1,274,850.99 

Army Medical Museum 9, 569. 12 

Tax refunds: 

Bureau of Internal Revenue 39,157,356.66 

Processing tax refund 12,004,543.01 

Bureau of Customs 16,678,803.38 

Total miscellaneous 79,454,334.10 

Total general Government.. 1, 873, 819, 101. 41 

Total Federal expeilditures: Qeneral and special accounts 8, 759, 532, 703. 84 

• Exclusive of •'.ems elsewhere classified. 

Source: Computed from the Budeel of the United States Government for the fiscal year ending June 30 
1941, statement No. 2, pp. A21 to A85. 

Table 7. — Comparison of total Federal employees in executive' branch December 

1932 and December 1937 



Department or office 




Percentage 

increase, 

1937 over 

1932 



White House 

BXECDTIVE DKPAETMENT8 

State 

Treasury 

War : 

Justice - 

Post Office ».: 

Navy :.. 

Interior 

Agriculture 

Commerce 

Labor 

See footnotes at end of table. 



4,686 
62, 043 
49, 101 

8,987 
245, 714 
46, 930 
14,483 
26, 371 
17, 816 

5,494 



45 



6.179 
68,091 
89, 055 

8, 274 
284,316 
67, 357 
41,553 
80, 125 
17,600 

9,139 



10.5 
30.8 
81.4 
-7.9 
15.7 
43.5 
186.9 
203.8 
-1.2 
66.3 



CONCENTRATION OF ECONOMIC POWER 



335 



Table 7. — Comparison of total Federal employees in executive branch December 
1932 and December 1937 — Continued 



Department or office 



Totals 



1837 



Percentage 

increase, 

1937 over 

1932 



INDEPENDENT OFFICES 

Alley Dwelling Authority 

American Battle Monuments Commission 

Board of Governors, Federal Reserve Banks ' 

Board of Tax Appeals 

Unemployment Census 

Central Statistical Board 

Civil Service Commission. , 

Civilian Conservation Corps.— 

Commodity Credit Corporation... 

Electric Home and Farm Authority 

Enjployees Compensation Commission. 

Export-Import Bank 

Farm Credit Administration 

Federal Communications Commission (formerly Federal Radio 

Commission).. 

Federal Deposit Insurance Corporation 

Federal Emergency Administration of Public Works ,. 

Federal Home Loan Bank Board 

Federal Housing Administration 

Federal Power Commission 

Federal Savings and Loan Insurance Corporation .^ 

Federal Trade Commission 

General Accounting Office 

Golden Gate International Exposition Commission... 

Government Printing Office , 

Great Lakes Exposition Commission _ 

Greater Texas and Pan-Amerlean Exposition Commission 

Home Owners' Loan Corporation 

Interstate Commerce Commission 

Maritime Commission ' 

National Advisorj' Committee for Aeronautics _ 

National Archives ^ . . . 1 

National Capital Park apd Planning Commission 

National Emergency Council 

National Labor Relations Board.. 

National Mediation Board ---. 

National Resources Committee.. 

New York World's Fair Commission ..- 

Panama Canal .■ . - 

Paris International Exposition Commission 

Prison Industries Reorganization Administration 

Railroad Administration .■.- 

Railroad Retirement Board 

Reconstruction Finance Corporation 

Rural Electrification Administration.: 

Securities and Exchange Commission., 

Smithsonian Institution --- 

Social Security Board 

Tariff Commission 

Tennessee Valley Authority 

Veterans' Administration _ 

Works Progress A dministration 

Bureau of Elfieiency -^- 

Alien Property Custodian , 

Fi'deral Board of Vocational Education - 

Public Buildings and Parks, National Capital (transferred to Interior 

Department in 1936) 

Commission of Fine .\rts 

War Finance Corporation -.- 

Board of Mediation 

Federal Farm Board... 

Geographic Board 

International Joint Commission 

International Boundary Commission, Canada... 

International Boundary Commission, Mexico- 

Inter- American High (Commission. 

Century of Progress 



35 



623 



257 



472 
1,974 



4,758 



2,311 
666 
309 



9,888 



1,948 



307 



34,111 



43 
118 
82 

3,069 
3 
2 
24 
233 
3 
6 
5' 
29 
5 



98 
411 
125 

75 


180.0 

97.6 

-13.8 


39 




1,075 
61 


72.6 


81 




84 




439 
12 


149.4 


3,573 




602 
853 


134.2 


4,491 




319 

2,745 


262.6 


420 
49 


663.6 


557 

6,055 

11 


18.0 
166.1 


6,616 
8 


18.0 


16 




14, 827 




2,327 

1,058 

461 

304 


.7 
58.9 
49.2 


25 




258 




695 




69 




276 




11 




10,651 
17 


7.7 


24 




1 
1.506 


-88.9 


2,633 
455 


36. 2 


1.094 




468 
7. 516 


-14.1 


302 
13, 059 


-1.8 


36,067 
22, 736 


2.8 



' 19S2 figure includes 1 1 ,409 substitute clerks, first and second-class offices; 12,610 substitute city and village 
doliverv carriers; 2,1SI substitute railwav postal clerks; 784 substitute motor-vehicle employees, and 876 
substitute watchmen, laborers, etc. Does not include 13,200 clerks at third-class offices; 22,510 contract 
employees, 32,732 clerks at fourth-class offices who are employed and paid by the pcstmSirter, nor 21,988 
mail messengers. 1937 figure excludes 1,069 temporary employees in the District of Columbia, and 76,232 
outside the District. 

' In 1932 not subject to Civil Service Act. 

» Formerly the U. S. Shipping Board. 

Source: Figures from Civil Service Commission reports. 

261085— 40— No. 20 23 



336 CONCENTRATION OF ECONOMIC POWEE 

Chabt 1 

REVENUE AND EXPENDITURES 

UNITED -STATES GOVERNMENT 
FISCAL YEAR ENDING 1938 



TOTAL REVENUE 

$7,626,000,000." 




Non-Tax Net 
Revenue Borrowings 



TAX REVENUE 
Customs 

Individual Income 
Estate, Inheritance, 8 Gift 
Corporate Income 8 Privilege 
Payrolls 

Motor Fuel 6 Vehicle 
Liquor 8 Tobacco 
Sales 6 Other Excises 
Other Tax Revenue 

NON-TAX REVENUE 

NET BORROWINGS 



DOLLARS (HUNDRED MILLIONS) 

10 15 20 



25 



EXPENDITURES 













$7,626,000,000^ 












-% 


f ■■ ■ ■ ■■ 






i 


1 




IH^niffi^H 




1 




i 




1 



T 

Federal 
Expenditure 



-y 



State Local 
Grants Gronts 



DOLLARS (HUNDRED MILLIONS) 

10 15 20 



Relief, Welfare, 8 Sociol Security 

National Defense 

Agriculture 8 Natural Resources 

Interest 

Net Additions to Sociol Security 

Police 6 Other Protection 

Health a HosDitols 

Educotion 

Highways a Str«ets 

All Other 




SOMCe. U S TrM.ury Ot»t, FEDERAL S ESTIMATED STATE S LOCAL REVENUES & eXPENOITURES FOR SENEML 
eOVERNMENT, Fitcol Ytor, 1936 



CONCENTRATION OF ECONOMIC POWER 



337 



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338 



CONCENTRATION OF ECONOMIC POWER 





CONCENTRATION OF ECONOMIC POWER 



339 



H 
UJ 



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LJ 

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H Z 

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340 



CONCENTRATION OF ECONOMIC POWEB 



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LiJ 

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LxJ 

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CONCENTRATION OF ECONOMIC POWEP 



341 





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^ I I 



^ u </> 



342 



CONCENTRATION OF ECONOMIC POWER 



IaJ 

Z 
UJ 

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lO 

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^S 

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q: 

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£ 2 < 



APPENDIX C 

SUPPLEMENTARY DATA ON GOVERNMENT REVENUES 

Table 1. — Individual income tax returns,^ net income, and tax paid, 1929 



Net income class 



Under $1.000 

$i,OCO to $2,000 

$2,000 to $3,000 

$3,000 to $4,000 

$4,000 to $S.OO0 

$5,000 to $6,000 

$6,000 to $7,000 

$7,000 to 3«,000 

$8,000 to $9,000..--.. 

$9,000 to $10,000 

$10,000 to $11,000.... 
$11,000 to $12,000--_. 

$12,0OO to $13,000 

$l3,000t6$14,000 ... 

$14,000 to $15.000 

$15,000 to .$20,000-... 
.$20,000 to $25,000... - 
.$25,000 to $30,000... 

$:iO,00<) to $40,000 

.$40,000 to $.50,000.... 
.$,tO,OC»0 to $60,000.... 
$60,000 to $70,000.... 
$70,000 to $80,000 ... 

$80,000 to $90,000 

.$90,000 to $100,000.-- 
$100,000 to $200,000. _ 
$200,000 to .$300,000.. 
.$.300,(K30 to $400,000-. 
.$400,000 to $.500,000-. 
$500,000 and over.. - 

Total 



Returns i 



Number 



479, 

439, 

231, 

318, 

217, 

147, 

105, 

76, 

60, 

47, 

38, 

31, 

26, 

21, 

70, 

37, 

23, 

26, 

14, 

8, 

5, 

4. 

3, 

2. 

9, 

2, 

1, 

1, 



539 

103 

831 

942 

003 

378 

101 

809 

247 

064 

239 

114 

060 

114 

216 

176 

.535 

081 

363 

245 I 

640 I 

86o ! 

159 I 

032 I 

376 

205 

481 

023 

618 

489 



Per 
cent age 



2, 458, 049 



0.4 

19.5 

17.9 

9.4 

12.9 

8,8 

6.0 

4.3 

3.1 

2.4 

1.9 

1.6 

13 

1.1 

.9 

2.9 

1.5 

.9 

1.1 

.6 

.4 

.2 

.2 

.1 

.1 

.4 

.1 

.1 



Net income 
reported 



$4, 
834, 

1,043, 
825, 

1,426, 

1, 187, 
949, 
790, 
046, 
570, 
495, 
437, 
387, 
3-52, 
307, 

1, 208, 
836. 
630. 
908, 
635, 
473, 
379, 
310, 
257, 
225, 

1, 2.57, 
600, 
352, 
275, 

1,881, 



852,2'19 
600. 3.52 
177, 783 
861, 356 
225, 289 
956, 605 
328,841 
931,7% 
055. 897 
182, 534 

096, 294 
892, 172 
588,000 
134, 540 
441,145 
669,860 
411,304 
827, 827 
644, 285 
086, 014 
282, 923 
687, 785 
912, 627 
005,545- 
527. 120 

097. 287 
848, 528 
233, 963 
994, 926 
976, 536 



IQO.O ! 20,493,491,443 



Per- 
centage 



4.1 
.5.1 
4.0 
7.0 
5.8 
4.6 
3.9 
3.2 
2.8 
2.4 
2.1 
1.9 
1.7 
1.5 
5.9 
4.1 
3.1 
4.4 
3.1 
2.3 
1.9 
1.6 
1.3 
1.1 
6.1 
2.9 
1.7 
1.4 
9.2 



100.0 



Tax assessed 



$17,308 
653, 418 
1,403,901 
1.044,716 
1,367,918 
1.565,267 
1,753,936 
1. 867, 178 
2,026,730 
2, 337, 488 

2. .566. 311 
2, 992, 768 
3.251,704 

3, 504, 520 
3, 603, 092 

20, 958, 558 
23,016,064 
24. 032, 975 
46, 965, 282 
42, 905, 940 
39, 296, 170 
3."., 269, 856 
31,871,455 
2S, 115, 170 
26, 260, 873 

168, 234, 907 
90, 546, 064 
,'^4. 284, 830 
43, 0,50, 832 

297, 272, 916 



1,001,938,147 



Per- 



(«) 

0.1 

.1 

,1 

.1 

.2 

.2 

.2 

.2 

.2 

.3 

.3 

.3 

.4 

.4 

2.1 

2.3 

2.4 

4.7 

4.3 

3.9 

3.5 

3.2 

2.8 

2.6 

16.8 

9.0 

5.4 

4.3 

29.7 



100.0 



• Excludes no'ntaxaWc returns. 
' T.ess than 0.1 percont. 

Source: Adapted from U. S. Treasury Department, Statistics of Income for li>29. 



343 



344 CONCENTRATION OF ECONOMIC POWER 

Table 2. — Individual income tax returns,^ net income, and tax paid, 1930 



Net income class 



Under$l,000 

$1,000 to $2,000 

$2,000 to $3,noo 

$3,000 to $4,000 

$4,000 to $5,000 

$5,000 to $6,000-... ■. 

$6,000 to $7,000 

$7,000 to $8,000 

$8,000 to $9.000 

$9,000 to $10,000-.-. 
$10,000 to $11,000... 
$11,000 to $12,000--. 
$12,000 to $13.000-. - 
$13,000 to $14,000-.. 
$14,000 to $15,000... 
$15,000 to $20,000... 
$20,000 to $25,000... 
$25,000 to $30,000... 
$30,000 to $40.000... 
$40,000 to $50.000 -. - 
$50,000 to $60,000.-. 
$60,000 to .$70,000--. 
$70,000 to $80.000..^ 
$80,000 to $90,000--. 
$90,000 to $100,000-. 
$100,000 to $200,000. 
$200,000 to $300,000. 
.$300,000 to $400,000- 
$400,000 to $500,000- 
$500,000 and over... 



Total... 



Returns 



Number 



7,976 

442, 834 

.S65, 777 

201,877 

267, 93,5 

184, 975 

119,118 

83,280 

.58,901 

45, 518 

36.904 

28,762 

22,993 

19,069 

15,897 

50,111 

26, 026 

15,311 

16, 881 

8,<>53 

5,294 

3,305 

2,294 

1,580 

1, 172 

4,281 

901 

391 

161 

468 



Per- 
centage 



0.4 

21.7 

18.0 

9.9 

13.2 

9.1 

5.9 

4.1 

2.9 

2.2 

1.8 

1.4 

1.1 

.9 

.8 

2.5 

1.3 



.4 
.3 
.2 
.1 
.1 
.1 
.2 

(?) 

(*) 



Net income 
reported 



Per- 
centage 



$4, 
767, 
869, 
720, 
1,200, 
1,009, 
769, 
622, 
498, 
431, 
376, 
330, 
280, 
257, 
2.30, 
862, 
579, 
418, 
580, 
384, 
289, 
213, 
171, 
133, 
110, 
574, 
218, 
135, 
71, 
571, 



443, 024 
759, 194 
476, 754 
762, 359 
346, 728 
813,667 
885, 460 
036, 943 
998,486 
736, *74 
201,241 
282,905 
973, 412 
269, 370 
371.407 
046, 184 
605, 728 
382, 902 
720, 892 
515, 663 
228,566 
558, 059 
480,407 
946. 863 
825, 860 
926,511 
260,092 
199, 957 
931, 165 
598, 032 



2,037,645 I 100.0 I 13,692,584,305 



(») 
5.6 
6.4 
.5.3 
8.8 
7.4 
5.6 
4.5 
3.6 
3.2 
2.8 
2.4 
2.1 
1.9 
1.7 
6.3 
4.2 
3.1 
4.2 
2.8 
2.1 
1.6 
1.3 
1.0 

.8 
4.2 
1.6 
1.0 

.5 
4.2 



100.0 



Tax assessed 



Per- 
centage 



$37, 282 
1, 269. 089 
3, 309, 537 

2, 346, 256 
3, 006. 094 

3, 599, 599 
3, 629, 234 
3,517,097 
3, 331, 568 
3, 370, 093 
3, 157, 996 
3, 280, 856 
3, 284, 139 
3, 2.50, 792 
3,301,987 

16,517,341 

16. 767, 466 
16, 337, 084 
30, 199, 576 
26. 171. 662 
22, 930, 144 
19, 523, 639 

17, 339, 391 
14, 800, 538 
12, 785, 698 
77,739,116 
33, 471, 503 
21, 583, 956 
11, 468, 937 
95, 386, 439 



476, 714. 808 



W 



0.3 
.7 
.5 
.6 



3 

3 

3.4 

6.3 

5.5 

4.8 

4.1 

3.6 

3.1 

2.7 

16.3 
7.0 
4.5 
2.4 

20.0 



100.0 



> Excludes nontaxable returns. 
' Less than 0.1 percent. 

Source: Adapted from U. 8. Treasury Department, Statistics of Income for 1930. 

Table 3. — Individual income tax returns,^ net income, and tax paid, 1931 



Net income class 



Beturns 



Per- 

Numb«r cent- 
age 



Net income 
reported 



Per- 
cent- 
age 



Tax assessed 



Per- 
cent- 
age 



Under $1,000 

$1,000 to $2,000 

$2,000 ta $3,000 

$3,000 to $4,000 

$4,000 to $5,000 

$5,000 to .$6,000 

$6,000 to $7,000 

$7,000 to .$8,000 

$8,000 to $9,000 

$9,000 to $10,000.-.. 
$10,000 to $11,000--. 
$11,000 to $12,000. - 
$12,000to$13,000 -- 
$13,000to$14,000..- 
$14,000 to$15,000... 
$15,000 to $20,000 .. 
$20,000 to $25,000-.. 
$25,000 to $30.000... 
$30,000 to $40,000... 
$40,000 to $50,000... 
$50,000 to $60,000... 
$60,000 to $70,000. . . 
$70,000 to .$80,000.-- 
$80,000 to $90,000 - . 
$90,000 to $100,000 . 
$100,000 to $200,000. 
$200,000 to .$300,000. 
$300,000 to $400,000. 
$400,000 to $500,000. 
$500,000 and over.. 



6,830 

362, 796 

277, 212 

151, 496 

200, 241 

141,011 

89, 188 

60, 484 

41, 799 

31,413 

25, 963 

20, 457 

16, 335 

13, 192 

11,009 

33, 910 

16,888 

9,342 

9,972 

4,994 

3,043 

1,896 

1,337 

825 

729 

2,250 

440 

177 

91 

226 



0.5 

23.1 

18.2 

9.9 

13.1 

9.2 

5.9 

4.0 

2.7 

2.1 

1.7 

1.3 

1.1 

.9 

.7 

2.2 

1.1 

.6 

.7 

.3 

.2 

.1 

.1 

.1 

.1 

.2 

Q) 

(>) 

(?) 

(») 



$3, 719, 683 
610, 653, 586 
659, 006, 122 
542, 500, 284 
896, 585, 673 
770, 125, 206 
576, 180, 891 
451, 595, 509 
354, 166, 180 
297, 852, 666 
272, 021, 712 
234, 886, 345 
203, 833, 206 
177, 861, 168 
159,471,711 
582, 619, 907 
376, 026, 487 
255, 097, 495 
342, 888, 983 
222, 661, 494 
166, .336, 163 
122, 675, 478 
100,012,821 
69, 953, 997 
69, 070, 680 
302, 276, 334 
106, 380, 953 
61, 510, 088 
40, 676, 198 
268, 370, 573 



6.6 
7.1 
5.8 
9.6 
8.3 
6.2 
4.9 
3.8 
3.2 
2.9 
2.5 
2.2 
1.9 
1.7 
6.3 
4.0 
2.7 
3.7 
2.4 
1.8 
1.3 
1.1 
.8 
.7 
3.3 
1.1 
.7 
.4 
2.9 



$23, 
943, 

2, 466, 
1,647, 
2,184, 
2,653, 
2,664, 
2,501, 
2,305, 
2,283, 
2, 154, 
2,209, 
2, 189, 
2,139, 
2, 151, 
10,583, 
10, 468, 
9,680, 
16, 621. 

13, 793, 
11,916, 

9,923, 
8, 787, 
6, 854, 
7,298, 
36, 975, 

14, 952, 
8, 80S, 
6,604, 

42,34?, 



.4 
1.0 

.7 

.9 
1.1 
1.1 
1.02 



.9 
4.3 
4.3 
3.9 
6.8 
6.6 
4.8 
4.0 
3.6 
2.8 
3.0 

15.0 
6.1 
3.6 
2.7 

17.2 



Total.. 1,52.5,546 



100.0 I 9, 297, 017. 593 I 100.0 



246,127,177 100.0 



' Excludes nontaxable returns. 
' Less than 0. 1 percent. 

Source: Adapted from U. 8. Treasury Department, Statistics of Income for 1931. 



CONCENTRATION OP ECONOMIC POWER 345 

Table 4. — Individual income tax returns,^ net income, and tax paid, 19S2 



Net income class 



Under $1,000 

$1,000 to $2,000 

$2,000 to $3,000 

$3,000 to $4,000 

$4,000 to $6,000 

$5,000 to $6,000 

$^eeetofT;60o 

$7,000 to $8,000 

$ei«ee to $ff,ooo 

$»,ooetft4io,oeD.... 
$10,000 to $u,ooo... 

$11,000 to $12,000-.. 
$12,000 to $13,000... 
$13,000 to $14,000... 
$14,000 to $15,000.. - 
$15,000 to $20,000... 
$20,000 to $26,000... 
$26,000 to $30,000... 
$30,000 to $40,000... 
$40,000 to $50,000... 
$60,000 to $60,000.. . 
$60,000 to $70,000... 
$70,000 to $80,000... 
$80,000 to $90.000... 
$90,000 to $100,000.. 
$100,000 to $200,000. 
$200,000 to $300,000. 
$300,000 to $400,000. 
$400,000 to $500,000. 
$500,000 and over... 



Total 1,936,095 



Returns 



Number 



8,700 

792, 899 

313,812 

311,026 

164,608 

91, 162 

60,6i2 

39,809 

27,401 

aD,e38 

16,156 

11,653 

9,109 

7,562 

6,014 

19, 169 

10,547 

6,666 

7,-769 

4,066 

2,393 

1,474 

938 

660 

437 

1,361 

239 

99 

41 

106 



PeF- 
centage 



0.5 

41.0 

16.2 

16. 1 

8.5 

4.7 

3.1 

2.1 

1.4 

1.1 

.8 

.6 

.5 

.4 

.3 

1.0 

.5 

.3 

.4 

.2 

.1 

.1 

.1 

(«) 

(') 

1 
(«) 
(') 
(•) 
(») 



100.0 



Net income 
reported 



Per- 
centage 



$4, 

1,127, 

796, 

1,077, 

731, 

497, 

391, 

297, 

232, 

195, 

158, 

133, 

113, 

101, 

87, 

329. 

235, 

181, 

267, 

180, 

130, 

95, 

70, 

56, 

41, 

180, 

57, 

34, 

18, 

93, 



679, 694 
454, 692 
874, 014 
163, 215 
945, 668 
i)98,282 
748, 038 
169, 478 
105; 243 
720: «90 
862, 196 
929, 124 
691, 554 
996.941 
093, 749 
612, 194 
312, 187 
778, 274 
211,998 
848,316 
312, 964 
299,127 
077, 703 
066,829 
449, 410 
811,831 
091,955 
263, 351 
205. 362 
113, 787 



7.919.687,866 



0.1 

14.2 

10.1 

13.6 

9.2 

6.3 

6.0 

3.8 

2.9 

2.5 

2.0 

1.7 

1.4 

1.3 

1.1 

4.2 

3.0 

2.3 

3.4 

2.3 

1.7 

1.2 

.9 

.7 

.6 

2.3 

.7 

.4 

.2 

1.2 



100.0 



Tax assessed 



$102, 827 
12,264.359 
9, 822, 223 
10, 690, 784 
10, 203, 731 
8, 771,' 801 
7,698,111 
6,911,337 
6,333,228 
A WO, 422 
5, 339, 721 
4, 908, 191 
4,422,366 
4, 259, 473 
3. 868. 916 
14, 897, 433 
12,4«3,91fi 
10,603,998 
17, 999, 047 
14, 862, 849 
12, 148, 179 
10, 820. 624 
9, 181. 121 
8, 539, 407 
6. 460, 683 
40. 528, 628 
15. 862, 351 
11,960,110 
6,604,038 
35, 492. 526 



Per- 
centage 



329,962,311 



3.7 
3.0 
3.2 
3.2 
2.7 
2.3 
2.1 
1.9 
1.8 
1.8 
1.-5 
1.3 
1,3 
1.2 
4.5 
3.8 
3.2 
6..* 
4.fi 
.3.7 
8.3 
2.8 
2.6 
2.0 

12.2 
4.8 
3.6 
2.0 

10.8 



100.0 



• Excludes nontaxable returns. 
» Less than 0.1 percent. 

Source: Adapted from U. 8. Treasury Department, Statistics of Income for 1932. 
Table 5. — Individiial income tax returns,^ net income, and tax paid, 19S3 



Returns 



Net income class 



Under $1,000- 

$1,000 to $2,000 

$2,000 to $3,000 

$3,000 to $4,000 

$4,000 to S-I.OOO - 

$5,000 to 55,000 

$6,000 to $7,000 

^7,00OtoH000 

$8,000 to $9.000 

$9,000 to $10.000 

$io,aaoto$ii,oeo 

$11,000 to $12,000 

$12,000 to $13,000 

$13;e00 to .$14,000 

$14,000 to $15,000 

$15,000 to $•30.000 

$20,000 to $26,000. 

$25,000 to $30,000 

$30,000 to $40,000 

$40,000 to $50,000 

$50,000 to $60,000 

$60,000 to $70,000- 

$70,000 to $80,000 

$80,000 to $90,000 

$90,000 to $100,000 

$100,000 to $200,000.... 

$200,000 to $300,000 

$300,000 to $400,000. 

$400,000 to $500,000. 

$600,000 and over 



Total 



Number 



9,167 

737, 651 

205, 801 

267,760 

142,860 

86, 417 

65, 602 

36.05 

25,334 

19, 155 

14. &S2 

11,091 

8,661 

7,199 

6,000 

18. 281 

10, 329 

6,663 

7,694 

4,166 

2,434 

1,551 

917 

662 

467 

1,490 

289 

86 

55 

131 



1. 747. 740 



Per- 
ce ntaee 



0.5 

42.2 

15.2 

15.3 

8..2 

4.9 

3.2 

2.1 

1,5 

1.1 

.8 

.6 

.5 

.4 

.3 

1.1 

.6 

.4 

1.3 

.2 

.1 

.1 

.1 

(') 

(') 

.1 
(?) 
(') 
(') 
(') 



Net income 
reported 



1,020, 

678, 

926, 

634, 

466, 

359, 

275, 

214, 

181, 

147, 

127, 

108, 

97, 

86, 

314. 

230, 

182. 

262. 

185, 

132. 

100, 

68, 

65, 

44, 

198, 

69, 

30. 

24. 

143. 



909,341 
512, 121 
879, 105 
385, 336 
811, 568 
545, 892 
438,117 
1^. 577 
704, 486 
705, 488 
564, 774 
355, 343 
116,073 
090,472 
898, 377 
864,071 
1%, 680 
207, 780 
358, 726 
438, 623 
772, 640 
343,290 
446,005 
295, 324 
191,960 
918,024 
455, 698 
099, 524 
471.169 
557, 769 



100.0 I 7,372,660.352 



Per- 
centage 



0.1 

13.8 

9.2 

12.6 

8.6 

6.3 

4.9 

3.7 

2.9 

2.5 

2.0 

1.7 

1.6 

1.3 

1.2 

4.3 

3.1 

2.5 

3.6 

2.5 

1.8 

1.4 

.9 

.8 

.6 

2.7 

.9 

.4 

.3 

2.0 



100.0 



Tax assessed 



$97, 165 
10, 344, 707 
7, 709, 920 
9, 421, 818 
8, 976, 493 
8.449,038 
7, 389, 587 
6,'8S1,807 
6, 330, 372 
6, 056, 543 
6,«)6,920 
6, 121, 157 
4,693,116 
4, 438, 710 
4, 225, 474 
16, 633, 106 
14, 458, 054 
12,603,898 
21,636.528 
18,214,6.50 
15, 198. 790 
13, 165, 687 
10, 526, 967 
9. 753, 636 
8, 846. 153 
49, 723, 838 
21,067,348 
9, 642, 709 
8, 267, 419 
48, 979. 864 



374. 120. 469 



Per- 
centage 



2.8 
2.1 
2.5 
2.4 
2.3 
2.0 
1.8 
1.7 
1.6 
1.4 
1.4 
1.3 
1.2 
1.1 
4.5 
3.9 
3.4 
5.8 
4.9 
4.1 
3.5 
2.8 
2.6 
2.6 
13.3 
5.6 
2.6 
2.2 
13.1 



100.0 



> Excludes n'^nta^able returns. 
' Less than 0.1 percent. 

Source: Adapted from U. S. Treasury Department, Statistics of Income for 1933. 



346 OONCENTRATION OF ECONOMIC POWER 

Table 6. — Individual income tax rehirns,^ net income, and tax paid, 1934 



Net income class 



Under $1,000 . 

$1,000 to $2,000 

$2,000 to $3,000 

$3,000 to $4,000. 

$4,000 to $5,000 

$5,000 to $6,000 

$6,000 to $7,000 

$7,000 to $8.000 

$8,000 to $9,000 

$9,000 to $10,000 

$10,000 to $1 1,000 -.. . 
$1 1,000 to $12,000 ... 
$12,000 to $13,000.... 
S13,0I)0 to $14,000 ... 
$14,000 to $15,000... 
$15,000 to $20,000.... 
$20,000 to $25,000.... 
$25,000 to $30,000.... 

$30,000 to $40,000 

$40,000 to $.50,000.... 
$50,000 to $60,000 ... 
$(.0,000 to $70,000.... 

$70,0(tO to $80,000 

.^80,000 to $90,000... 
yOO.OOO to $100,000... 
S100,000 to $200,000.. 
$200,000 to $300,000.. 
$300,000 to $400,000.. 
S400.000 to $500,000 . 
$500,000 and over... 



Returns 



Number 



10, 059 

681.628 

225, 767 

2G6, 149 

196, 396 

107, 136 

72, 405 

47, 342 

32,617 

24,598 

18,650 

14, 733 

11,884 

9,768 

8,333 

25,968 

13,55ft 

7,971 

8,634 

4,426 

2,480 

1,527 

934 

689 

463 

1,346 

.326 

77 

39 

119 



Per- 
centage 



0.6 

38.0 

12.6 

14.8 

10.9 

6.0 

4.0 

2.6 

1.8 

1.4 

1.0 

.8 

.7 

.5 

.6 

1.5 

.8 

.4 

.5 

.3 

.1 

.1 

. 1 

.1 

m 
m 
m 
m 



Total I 1,795,920 



Net Income 
reported 



1,009, 

657, 

931, 

875, 

685, 

468, 

353, 

276, 

233, 

195, 

169, 

148, 

131, 

120, 

446, 

301, 

217, 

293, 

197, 

135, 

98, 

69, 

58, 

43, 

180, 

78, 

26, 

17, 

117, 



458, 724 
900,021 
720, 251 
179,181 
039, 489 
115,977 
140, 846 
497,664 
395,908 
237,289 
364,429 
121.543 
327, 048 
717, 320 
728, 528 
546, 040 
786, 841 
590,074 
351, 850 
588,193 
138,528 
806, 341 
828, 785 
420,947 
781,504 
086, 534 
617, 274 
425, 109 
407, 233 
238,820 



Per- 
centage 



Tax asst»6sed 



0.1 
12.1 
6.7 
11.2 
10.5 I 
7.0 
5.6 
4.2 
3.3 
2.8 
2.3 
2.0 
1.8 
1.6 
1.5 
5.4 
3.6 
2.6 
3.6 
2.4 
1.6 
1.2 

.8 

.7 

. 5 
2.2 

.9 

.3 

.2 I 
1.4 



$111,075 
8, 659, 129 

7, 566, 786 

8, 270. 197 
10, 078, 416 

9, 539, 362 
8, 605, 543 

7. 947, 122 
8, 045, 990 

8, 948, 123 

7, 255, 493 
0. 959, 421 
6,654,511 
6, 347, 649 
6, 207, 137 

27, 066, 834 
23, 468, 704 
20, 986, 275 
34, 920, 228 
29, 000, 197 
23, 286, 231 
19, 526, 559 
15, 656, 449 
14, 489, 260 
11,833,499 
62, 269, 481 
33, 891, 044 
12, .331, 034 

8, 522, 792 
62, 955. 247 



Per- 
centage 



8, 343, 568, 29r i 100.0 



511, 399, 778 



' Excludes nontaxable returns. 
' Loss thau 0. 1 percent. 

Source: Adapted from U. S. Treasury Department, Statistics of Income for 1934, pt. I. 



1.7 
1.5 
1.6 
2.0 
1.0 
1.7 
1.6 
1.7 
1.8 
1.4 
1.4 
1.3 
1.2 
1.2 
5.3 
4.6 
4.1 
6.8 
5.7 
4.6 
3.8 
3.1 
2.8 
2.3 

12.2 
6.6 
2.4 
1.7 

12.3 



100.0 



Table 7 .— Individual income-tax returns,^ net income, and lax paid, 1935 



Net income clas.s 



lender $1.000 

$1,000 to $2,000- 

.$2,000 to $3,000 

$;5,C00 to $4.000 

Sl.fXK) to $5,000 

i"5,(M)0 to $6,000 .... 

$6,000 to .$7,000 

s7,000 to $8,000 

.*8,000 to $9,a)0 

$9,000 to $10,000.... 
$10,000 to $11,000 .. 
$11,000 to $12.000... 
S12,OU0 to $13,000... 
$'.3,000 to $14.000... 
$14,000 to $15.000... 
$i 5,000 to$20,0(M)_.. 
$20,000 to $25,000... 
$25,000 to $30,000 . . 
.$30,0(X) to $40,000 ._ 
$40,000 to $50,000... 
$50,000 to $60,000... 
$60,000 to $70,000 .. 
$70,00f) to$F.O,000 -. 
.$80,(K(0 to $90,000... 
$90,000 to $100,000.. 
$100,000 to $200,000. 
.$200,000 to $300,000. 
$300,000 to $400,000. 
$100,000 to $500,000. 
$500,000 »nd over.. 



Retui'ns 



N umber 



10,684 

782,266 

282,828 

320,148 

221, 819 

126, 672 

ft4,fil8 

55,249 

38,546 

28, 787 

22,320 

17, 574 

13, 995 

11,811 

9,797 

31, 477 

16,590 

9,763 

10.690 

5. 576 

3,256 

1.948 

1,319 

923 

. 687 

1.918 

373 

132 

74 

150 



Total... I 2, 110,890 



Per- 
centage 



0.5 

37.1 

13.6 

16.2 

10.5 

6.0 

4.0 

2.6 

1.8 

1.4 

I. 1 

.8 

7 

.8 

.5 

1.5 

.8 

.5 

.5 

3 

.2 

.1 

.1 

(») 

(') 

.1 
(») 

s 



100.0 



Net incoiae 



Pcr- 



reportfil centagc 



Tax asses.-ed 



$5,801,301 
1, 165, 429, 819 
698, 266, 187 
1,119,03.5,485 
988,041,750 
686, 689, 069 
546,93;, J'.K) 
412,520,999 

326. 653. 405 
272, 841, 665 
233. 830. 850 
201, 744, 979 
174, C54, 985 
159, 202, 389 
141, 941. 600 
641,397,650 
369, 499. 032 
266, 6S4, .544 
367, 580, 930 
248, 043, 638 
177, 063, 517 
125. 891, 921 

98, 453, 227 
78.050,598 
55, 712, 9e0 
266, 432, 589 
89, 857, 625 
45, 103, 350 
32, 803, 995 

147. 441. 406 



0.1 
11.6 

7.0 
11.2 ! 

9.9 

6.8 I 

5.5 j 
4.1 • 
3.3 ] 
2.7 I 
2.3 1 
2.0 I 
1.7 
1.6 
1.4 
.5.4 
3.7 
2.7 
3.7 I 

2.6 ! 
1.8 
1.3 
1.0 

.8 
-.6 
2.6 

.9 

.5 

.3 

1,0 



10,034,105,975 I 100.0 



$124, 619 

10, 058, 471 

9, 310, 839 

9, 505, G03 

11,2-32,276 

10, 740, 592 

10, 043, 721 

9, 507, 834 

9, 296, 744 

9,139,366 

9, 785, 190 

8, 431, 734 

7, 938, 471 

7, 793, 938 

7, 446, 010 

33, 229, 759 

29, 130. 046 

26, 938, 816 

44,235,716 

36, 49.5, 908 

30, 822, 727 

26. 074. 966 
22, 110. 409 
19, 427, 062 
15, 380, 772 
89,154,456 
39, 016. 787 

21. 191. 967 
16,043,008 
79, 822, 537 



657. 439, 343 



Per- 
centage 



(2) 
1.5 
1.4 
1.5 
1.7 
1.6 
1.5 
1.5 
1.4 
1.4 
1.5 
1.3 
1.2 
1.2 
1.1 
5.1 
4.4 
4.0 
6.7 
5.6 
4.7 
3.8 
3.4 
3.0 
2.3 

13.6 
6.9 
3.2 
2.4 

12.1 



100.0 



' Excludes nontaxable returns. 
' Less than 0.1 percent. 

SooToe: Adapted from U. S. Treasury Department, Statistics of Income for 1036, pt. I. 



CONCENTRATION OF EXX^NOMIO POWER 



347 



Table 8. — Individual income-tax returns,^ net income, and tax paid, 19S6 



Ileturns 



N'et income rln.v^ 



Vui'ilier 



Under $1,000 

$1,000 tc $2,000 

$2,(KH) to $3,000 

$3,000 to $4,000 

.$4,000 to $.'>,000 _ . . _ 

$.5,0<X) Id *6,(HI0 

.$6,000 to $7,000 

$7,0W to $S.000.. 

$8,000 to $9.000 

SO.OC'O to $10,000 

$10,000 to ,$11,000 

Sll.ltOO to$I2,000 

$12.0(H) t()$13,(;iXl 

$13,000 to $14,000... 

$14,000 to $15,0*X) 

$15,000 (o .$20,000 ... 
$20,000 to .$2.'')000-... 
.$25,000 to $30,000-.-. 

$.30,000 fn .$40,000 

.$40,000 to .$.'^0,000 

ISO-OOiJ t(/ $00,000 ... 

$60,000 10 $70.000 

$70,000 lo$80.0(K)--.. 

S80,(X)0 lo :f9U,000 

$90,000 to $100,000. . 
SlOO.OtM) to $200,000-- 
$200,000 to $300,000 . 
$300,000 to $l(IO,OOf>-. 
$400,000 to $.500,000 . 
iwi.OtiO and over. . . 



19,329 

1.0.')O,.505 

396, 634 

437, 66fi 

280,712 

160, 221 

110.009 

73,174 

51, 708 

39, 025 

30, 4.54 

24,309 

20, 10! 

16,462 

14, 106 

45, 978 

25, 089 

14,996 

17,140 

9,001 

.'). 364 

3, 400 

2, 174 

1, .539 

1,137 

3,515 

035 

219 

111 

239 



Totnl I 2.861,108 



Pur- 

ceiitairo 



0.7 

36.7 

13.9 

15.3 

9.8 

5.8 

3.8 

26 

1.8 

14 

1.1 

.9 

.7 

6 

.5 

1.6 

.9 

.5 

.6 

.3 

.2 

.1 

1 

. 1 

(?) 

.1 

(') 

(') 

(») 

_(»)_ 

100.0 




14, 218, 853. .^50 



1 Exdudes nontaxable return.s. 
• Less than 0. 1 percent. 

Source: Adaj.ted from U. S. Treasury Departraeiit, Stat' tic? of Income for ;93P, [it. 1. 



Table 9. — Corporate net income, tax- paid, and amount reinaining after tax, 1929 i 

(hy net income classes) 





Returns Net incomH 


Ta-x 


Income remainin? 
after 1 ax 


Net income classes 


Num- 
ber 


Prr- ' 

<-^f i •A.n.o,...t 

total i 


r>-.r- 1 Per- 
-t| An.ount i -f 
total 1 ; total 


Amount 


Percent 
of net 
income 


TTnrier $1,000 


1 ! 
69, 456 ; 25.8 $29,280,602 
41,292: 15.3! 61,040,738 
37,675i 14,0 94,817,771 
19,458' 7.2i 66,919,938 
ll,795i 4.4| 52,715,622 


2 

.5 

.8 

.6 

.5 

IS 

1.4 

1.3 

1.3 

3.8 

6.0 

7.9 

0.8 

8.0 

18.2 

41.9 


1 
$8,258: .(») 


$29, 272, 344 
61,028,687 
94, 789, 900 
66,048,813 
51, 046, 7,55 


99. W7 


$1,000 to $2,000 


12,061 

27,871 

871.125 

1,668,807 

11.610,751 

12,097,585 

12, 0.59,-108 

13.233,873 

44. 889, 497 

«0. 947. 504 

98. 151, 122 

86. 584. 561 

100. 591, 491 

227. 989, 693 

.523, 686, 475 


(') 

0.1 

.1 

A.O 
1.0 

1:? 

3.8 
5.1 
8.2 
7.2 
8.4 
19.1 
43.9 


99.98 


$2,000 to .$3,000 

$3,000 to $4,000 _ -- 

$4,000 to $5,000 


99.97 
98.70 
9ti. 83 


$5,000 to $10,000 


29,6271 11.0' 209,763.890 


198, 147, 1391 94. 40 


$10,000 to $15,000 .- 

$15,000 to $20,000 -.- 

$20,000 to $25,000 

$25,000 to $50,000 

$50,000 to $100,000 

$100,000 to $250,000 

$2.50,000 to .$500,000 

$500 ,000 to $1 ,000 ,000 

$1,000,000 to $5.000,000 . . - 
$5,000,000 and over 


13,399' 5.0' 164,277.385 
8,4241 3.1, 14.5,907.739 
6,64ll 2.5; 149,630,071 

12.397| 4.6' 141,614,858 
8, 3161 3.1 582,967.689 
5,974; 2.2' 923,943,997 
2,2831 .8: 796,186,327 
1.3441 .5; 932.109,935 
l,049l .412.116:780,261 
300 ; .Ij 4,885,929,179 


152,179,800 92. 64 
133,848,681 91.74 
136,390,198! 91.16 
396,725,3611 89.84 
522,020, 185i 89.55 
82,5, 792. 875 89. 38 
710,601,706 89.25 
831, 518, 444 89. 21 
1,888,790,5681 89.23 
4,-362,242,704 89.28 


Total .- 


269, 430| 100. 1 1. 653, 886, 002 


100.0 


1,193,436,832 


100.0 


10.460,450, 170 1 89.76 



' Excludes returns of corporations showing deficits. 
• Less than 0.1 percent. 

Source: Adapted from U. S. Treasury Departmet't, Statistics of Income for 1629, p. 23. 



348 



CONCENTRATION OF ECONOMIC POWER 



Table 10. — Corporate net income, tax paid, and amount remainiT^g after tax, 1930^ 
{by net iricome classes) 





Returns 


Nfttificome 


Tax 


Incomejemainiog 
after tas 


Net income classes 


Num- 
ber 


Per- 
cent 
of 
total 


Amount 


Per- 

QBDt 

of 
total 


Amount 


Per- 
cent 
of 
tdtal 


.Amount 


Percent 
of net 
income 


Tnder $1,000 


71,322 

37.881 

32.798 

14.732 

8.367 

19,760 

8,955 

5,392 

3.992 

7.372 

4.905 

3.260 

1.259 

689 

576 

160 


32.2 

17.1 

14.8 

6.7 

3.8 

8.8 

4.1 

2.4 

1.8 

13 

2.2 

1.5 

.6 

.3 

.3 

.1 


$29, 630, 512 
55. 738, 241 
82.605.299 
60,568,680 
37. 487. 774 
139.686.963 
109.550,914 
93,270.897 
89,664.085 
26^844,152 
341.577.550 
499.64«.006 
438,512,275 
481.83&374 
1,177.947.991 
2, 538, 241. 197 


a5 

.9 
1.3 
.8 
.6 
Z2 
1.7 
1.5 
1.4 
4.1 
5.3 
7. 7 
6.8 
7.5 
18.3 
39.4 


$7,348 

11.082 

17.473 

688,008 

1,288.790 


6.1 


$29,623,164 


00 OR 


$l,Oai to $2.CXX) 


55, 727, 159! 99. 96 


$2,000 to $3.000 


82. 587. 8261 90. 9S 


$3,0lX) to Si.OOO 


49. 880. 672i (« Bl 


$4.00(1 to S,\aX) 


. 2I 36! iss! 9S4l Ofi .Sfi 


$5 OCKi to $U).iX'IO .. 


8,457,0501 1.2i 131.229.9131 0.105 


$10.tXlO to $l.'i,0o6 


8,894.387 
8. 395. 741 
8, 644. 691 
29. 260, 764 
38, 924. 314 
57, 554, 289 
51,140.976 
56. 126. 693 
139. 140, 954 
303, 151. 340 


1.3! 100.656.527 91 88 


$15.1KX1 to JJO.OOO 


1.2' 84.874.956 91.00 


$20.tXX1 to $25.000 


1.2 81.019,394; 90.36 


$25.0(X» to $50,000 


4.1 233.583. 38Sl 88.87 


$50.tXHi to $UX1.000 

$UX1,000 to $l'.V.0tX1 

$250,0(X1 to $.VXl.lXX1 

$50t1.0tX1 to $ 1 .000,tXX1 .... 
$1,000,000 to $.'>.0tXUXX1. - . 
$5.000.axi and over 


5. 5 302. 6.T3. 236! 88. 60 
8.1 442. 093.7171 88.48 
7. li 3S7.371.299| 88.34 
7.9; 425.711.681 88.35 
19.5' 1.038.807.0371 88.19 
42. 6| 2,235,089,8571 88.06 


TotAl 


221.420 


loao 


6, 428, 812, 710 


100.0 


711, 703,90o'| 100.0 5, 717, 108, 81o! 88.93 









' Excludes returns of corporations showing deficits. 

Source: Adapted from U. S. Treasury Department, Statistics^ of Income for 1930, p. 25. 

Table 11. — Corporate net income, tax paid, atid amount remaining after tax, 19S1 ' 

{by net-income classes) 





Retiums 


Net income 


rpoY Income remaining 
^ ^ after tax 


Net-income classes 


Num- 
ber 


Per- 

ceJit 

of 

total 


Amount 


Pw- 

oent 

of 

total 


Amount 


Per- 

«f Amoimt 

total 


Percent 
of net 
income 


Under $1.000 - 


70. 168 

31.702 

24. 312 

9.703 

5.481 

12.813 

5,321 

3,301 

2,440 

4.450 

2,755 

1.941 

729 

373 

321 

88 


39.9 

18.0 

13.8 

5.5 

3.1 

7.3 

3,0 

1.9 

1.4 

2.5 

1.6 

1.1 

.4 

2 

^2 

.1 


$27,836,104 
46.328.242 
60,781.731 
33, 282. 497 
24.518.853 
90,197,872 
65,292,089 
67,08a 219 
54,847,179 
157, 445, 419 
192. 197. 760 
296.252.023 
252, 021. 220 
265, 231. 610 
647.196.669 
1.412,858.287 


as 


$106,753 


(>) $27, 729, 346 

(>) 46, 139, 251 

(«1 ea 602, 958 

a 1 32, 739. 503 

.2 23,654,879 

1.4 84,764.801 

1.3 60.131,368 

1.3 52, 06a 711 


99.6 


$1,000 to $2.000 


1. 3 188, 991 
1. 7 178. 773 
.9 542.994 


99 6 


$2,000 t« $3.000 


99.7 


$3.IXX1 to $4.IX10 


%.4 


$4.lX)0 to $5.lXX> ^ 

$5.0lX> to $10,000 


. 7 
2.5 
1.8 
1.6 
1.4 
4.3 
5.2 
8.0 
6.7 
7 '"> 
\7.l 
38.4 


863.974 
5, 433, on 
5, 16a 721 
5.019.508 
5. 165. 397 
16. 999. 632 
21. 47a 123 
33. 297. 7.'>4 
29. 059. 616 
30.206. US 
75. S21. 494 
169. 47S. 779 


96.5 
94.0 


$io.O(xno S15.000 

$15.(XX1 to S^XI.CK) 


92.1 
91.2 


$20,000 to $25.l.«) 

$25.lXX> to $50,000 


1.3 49,681,7821 90.6 
4.3 140,415,7871 89.2 


$50,tXX"i to $UXt,000 - 

$100.01X1 to $-:50.ooo 

$2W.000 to ,«.W.00ii 

$5(X\000 to $1.IXXMXX1 .... 

$i.otxi.ax) to $5,000,000 

$5,000,000 and oror 


5.4 170,727.637; 88.6 
8.3 362.9,M,269| 88.8 
7.3 222.961.6041 88.5 

7.5 235.025.4921 88.6 
19. Ol 571.375.175: 88.3 
42.5 1.243.379.508 88. 

1 


Total 


17.5,898 


loao 


3.683,367,774 100. oj 398,993,703 100. Oj 3,284,374.071 89.2 

1 1 



> Excludes returns of corporations showing deficits. 
• Less than 0.1 percent. 

Source: Adapted from U. S. Treasury Departniont, Statistics of Income, 1931, p. 24. 



OONOENTRATION OF KOONOMIC POWER 



349 



Table 12. — Corporate net income, tax paid, and amount remaining after tax,19SS^ 

(by net income classes) 





Rfeturns 


Net income 


Tax 


Income remaining 
after tax 


Net income classes 


Num- 
bor 


Per- 
cent 
of 
total 


Amount 


Per- 
cent 
of 
total 


Amount 


Per- 
cent 
of 
total 


Amount 


Percent 
of net 
income 


Under $1,000 


42, 070 

10,403 

6,734 

3, 321 

2.499 

6, 259 

2,962 

1,796 

1,172 

2,700 

1,623 

1,159 

429 

235 

225 

59 


50. 9 

12.6 

6.9 

4.0 

3.0 

7.6 

3.6 

2.2 

1.4 

3.2 

2.0 

1.4 

.5 

.3 

.3 

.1 


$13,121,089 

14,912,477 

14,080,598 

11,506..S77 

11. 196, 103 

44, ,504, 963 

36,271,214 

31,157,758 

26,212.733 

94, 912, 533 

113,642,596 

176, 675, .539 

150,686,617 

165,567,152 

464, 892, 154 

783, 774, 716 


0.6 

.7 

.7 

.5 

.5 

2.1 

1.7 

1.5 

1.2 

4.4 

6.3 

8.2 

7.0 

7.7 

21.6 

36.4 


$1,366,431 

1,549,086 

1, .507, 754 

1,2,58,311 

1,254,847 

6,137,291 

4,307,790 

3, 805, 869 

3, 230, 134 

11,906,077 

14, 554, 568 

2.3,719,038 

20, 198, 428 

21,969,601 

62,455,111 

107,814,119 


0.5 

.5 

.5 

.4 

.4 

1.8 

1.5 

1.3 

1.1 

4.1 

6.1 

8.3 

7.1 

7.7 

21.8 

37.7 


$11,754,658 
13, 363, 391 
12,672,844 
10, 247, 266 
9,941,256 
39, 367, 672 
31,963,424 
27,351,889 
22, 982, 699 
83, 006, 456 
99, 088, 028 
152, 956, .501 
130,487,189 
143, 697, 651 
402, 437, 043 
675, 960, 597 


89.6 


$1,000 to $2,000 .- . - 


89.6 


$2,000 to $3,000 


89.3 


$3,000to $4,000 

$4,000 to $5,000. 

$5,000 to $10,000 


89.1 
88.8 
88.5 


$10,000 to $15,000 . 


88.1 


$15,000 to $20,000 


87.8 


$20,000 to $25,000. 

$25,000 to $50,000 

$50,000 to $100,000 

$100,000 to $250,000 

$260,000 to $500,000 

$500,000 to $1,000,000 

$1 ,000,000 to $5,000,000 . . . 
$5,000,000 and over 


87.7 
87.5 
87.2 
86.6 
86.6 
86.7 
86.6 
86.4 


Total 


82,646 


100.0 


2,15.3,112,819 


100.0 


286,034,355 1100.0 


1,867,078,464 


86.7 















• Excludes returns of corporations showing deficits. 

Source: Adapted from U. S. Treasiii'y Department, Statistics of Income for 1932, p. 26. 



Table 13. 



-Corporate net income, taxes paid, and amount remaining after tax,^ 
193S (by net income classes) 

(Dollar figures in thousands) 





Returns 


Net Income 


Total tax » 


Income remaining 
after tax 


Net income classes 


Num- 
ber 


Per- 
cent 
of 
total 


Amount 


Per- 
cent 
of 
total 


Amount 


Per- 
cent 
of 
total 


Amount 


Percent 
of net 
income 


Under$l,000 


52, 278 

13,558 

7,481 

4,783 

3,404 

9,143 

4,324 

2, 634 

1,&3G 

4, 245 

2, 638 

1,9,58 

732 

385 

318 

69 


47.6 
12.4 
6.8 
4.4 
3.1 
8.3 
3.9 
2.4 
1.7 
3.8 
2.4 
1.8 

'.'i 
.3 
.1 


$16, 350 

19, 569 

18, 359 

16, 574 

15,239 

65, 189 

52, 927 

45, 669 

41, 121 

149, 696 

184, 378 

302, 402 

254, 594 

263, 853 

636, 480 

903, 781 


0.6 

.7 

.6 

.6 

.6 

2.2 

1.8 

1.5 

1.4 

5.0 

6.2 

10.1 

8.5 

8.8 

21.3 

30.3 


$2,305 

2,737 

2,601 

2,332 

2,148 

9,216 

7,519 

6,471 

6,827 

21, 240 

26, 135 

42, 994 

36, 0G4 

37, 324 

89,990 

128, 166 


0.5 

.7 

.6 

.6 

.6 

2.2 

1.7 

1.6 

1.4 

,5.0 

6.2 

10.2 

8.5 

8.8 

21.3 

3^.3 


$14, 046 

16,822 

15, 758 

14,242 

13, 091 

55, 973 

45, 408 

39, 098 

35, 294 

128, 356 

168, 243 

259, 408 

218, 630 

226, 529 

646, 490 

776,616 


85.9 


$1,000 to .$2,000 


86 
85 
8o 
86 
85 
85 
85 
85 
85 
85 
85 
86 
85 
86 
85 





$2,000 to $3,000 - -. 


R 


$3,000 to $4,000 


9 


$4,000 to $5,000 


9 


$5,000 to $10,000 


9 


$10,000 to $15,000 

$16,000 to $20,000 

.$20,000 to $25,000 


8 
8 
8 


$25,000 to $.50,000 

$50,000 to $100,000 

$100,000 to $2,50,000 

$250,'K)0 to $500,000 

$500,000 to $1,000.000 

$1 ,000,000 to $5,000,000 . . . 
$5,000,000 and over 


8 
8 
8 
8 
9 
9 
8 


Total :........ 


109,786 1 100.0 


2,985,971 ! 100.0 

1 


423, 069 


100.0 


2,562.902 1 85.8 




1 


1 



1 Excludes retura' of corporations showing deficits. 
' Includes excess-profits tax (effective June 30, 1933), 

Source: Adapted from U. S. Treasury Department, Statistics of Income lor 19J3, p. 26; 



350 



CONCENTRATION OF TX30N0MIC POWER 



Table 14. — Corporate net income, tax paid, and amount remaining after tax, 1934 ' 

{by net-income classes) 

[Dollar figures in thousands] 



Net income classes 



Under $1.000 

$1,000 to $2,000 - 

$2,000 to $3,000.. - ._. 

$3,000 to $4,000 -- 

$4,000 to $5.000 

$5,000 to $10,000 - 

$10,000 to $15,000, 

$15,000 to $20,000 

$20,000 to $25,000 -. 

$25,000 to $50,000.... 

$50,000 to $100,000, - 

$100,000 to $250,000 , 

$250,000 to $500,000 -.- 

$500,000 to $1,000,000.- 

$1,000,000 to $5,000,000 

$5,000,0(X) and over 

Excess-prolits tax ou retiirns showing no net 
income - 



Total. 



Returns 



Niunber 



63.212 
17,836 
10, 245 
6,752 
4,986 
13, 191 
6,553 
3,907 
2,697 
6, 425 
4,080 
2,946 
1,092 
599 
483 
97 



145, 101 



Percent 
of total 



43.6 

12.3 

7.1 

4.7 

3.4 

9.1 

4.5 

2.7 

1.8 

4.4 

2.8 

2.0 

. .8 

.4 

.3 

.1 



Net income . 



Amount 



100.0 



$20, 568 

25,680 

25, 224 

23,469 

22,293 

93, 873 

80, 315 

67, 669 

60,512 

226, 765 

286,729 

457. 010 

379, 419 

424, 504 

943, 413 

1, 137, 754 



4, 275, 197 



Percent 
of total 



.6 

.6 

.5 

2.2 

1.9 

1.6 

1.4 

5.3 

6.6 

10.7 



22.1 
26.6 



Income tax 



Amount 



$2,826 

3,626 

3,464 

3,224 

3,062 

12, 893 

11, 022 

9,286 

8,313 

31,154 

39, 374 

62, 844 

52, 163 

58, 396 

130, 028 

156,800 



588. 375 



Percent 
of total 



0.5 

.6 

.6 

.5 

.5 

2.2 

1.9 

1.6 

1.4 

5.3 

6.7 

10.7 



22.1 



100.0 



Not income c]33.ses 



Excess profits 
tax 



Amount 



Percent 
of total 



Total tax 



Net income re- 
maining after tax 



Amount 



Percent' 
of total 



Amount 



Percent 
of net 
income 



Under $1,000 ...- 

$1,000 to $2.000 -- 

.$2,000 to $3,000 

$3,000 to .$4,000... -^ 

.$4,000 to $5,000-... - 

$5,000 to $10,000- -......'...- 

$10,000 to $15,000 

$15,000 to .$20,000 

$20,000 to .$25,000 

.$25,000 to $.50,000 

.$50,000 to $100,000 

$100,000 to .$250,000 

$250,000 to $500,000 _ 

$.500,000 to $1,000,000 . 

$I,000,(X)0 to .$5,000.000 

.$5,000,000 and over 

Excess-profits t*ix on returns showing no net 
income.. 



Total. 



$44 

64 

86 

85 

88 

372 

338 

274 

221 

845 

1, 025 

1,321 

814 

669 

S53 

537 

38 

7,674 



0.6 

.8 

1.1 

1.1 

1.2 

4.8 

4.4 

3.6 

2.9 

11.0 

13.4 

J7. 2 

10.6 

8.7 

11.1 

7.0 

.5 



$2. 870 

3, 590 

3, 550 

3,309 

3. 1.50 

13, 265 

11,360 

9,560 

8,534 

31, 999 

40, 399 

64. 165 

52. 977 

59. 0fi5 

130,881 

157, 337 

38 



0.5 

.6 

.6 

.6 

.5 

2.2 

1.9 

1.6 

1.4 

5.4 

6.8 

10.8 

8.8 

9.9 

21.9 

26.4 



$17, 698 

22, 090 

21,674 

20,160 

19, 143 

80,608 

68.955 

58.109 

51, 978 

194, 76G 

246, 330 

392, 845 

326. 442 

365, 4.39 

812, 532 

980, 418 

-38 



86.0 
86.0 
8,5.9 
85.9 
85.9 
85.9 
85.9 
85.9 
85.9 
85.9 
85.9 
86.0 
86.0 
86.1 
86.1 
86.2 



100.0 596,049 100. 3, 679, 186 



' Excludes returns of i.'orporation.'' showing deficits. 

Source: .^dnpted from U. S. Treasury Department, Stati.stics of Income for )034. pt. 2, p. 8. 



CONCIijNTRATION OF ECONOMIC POWER 



351 



Table 16. — Corporate net income, tax paid, and arnount remaining after tax, 1936^ 

(by net income classes) 

[Dollar figures in thousands] 



Not income classes 



Under $1,000 

$1,000 to $2,000 

$2,000 to $3,000. 

$3,000 to $4,000... 

$4,000 to $5,000.. '..... 

$5,000 to $10,000- :: 

$10,000 to $15,000 

$15,000 to $20,000 ..... 

$20,000 to $25,000.... 

$25,000 to $50,000_ 

$50,000 to $100,000 

$100,000 to $250,000 

$250,000 to $500,000 

$500,000 to $1,000,000 '. 

$1,000,000 to $5,000,000 

$5,000,000 and over.... 

Excess-profits tax on returns with no net income 

Total - 



Returns 



Number 



68, 392 
19,971 
11,905 
7,820 
5,715 
16,014 
7,818 
4,653 
3,280 
7,547 
4,840 
3,445 
1,335 
6% 
697 
113 



164, 231 



Percent 
of total 



41.7 
12.2 
7.3 
4.8 
3.5 
9.8 
4.7 
2.8 
2.0 
4.6 
3.9 
2.1 



100.0 



Net income 



Amount 



.$22, 692 

28,820 

29,517 

27,097 

25, 552 

114,074 

95, 733 

SO, 779 

73,201 

266,200 

339, 824 

532, 638 

464, 391 

485, 093 

1, 166. 034 

1, 413, 077 



Percent 
of total 



0.4 

.6 

.6 

.5 

.5 

2.2 

1.9 

1.6 

1.4 

5.2 

6.5' 

10.3 

9.0 

9.4 

22.5 

27.4 



100.0 



Income tax 



Amount 



Percent 
of total 



$3, 1 19 

3,960 

4,057 

3,722 , 

3,512 

15, 668 

13, 159 

11,100 

10, 049 

36, 581 

46, 703 

73,240 

63,858 

66, 712 

160. 418 

194,298 



710, 156 



0.4 

.6 

.6 

.6 

. 5 

2.2 

1.9 

1.6 

l.*4 

5.2 

6.6 

10.3 

9.0 

9.4 

22.6 

27.3 



100.0 



Net income classes 



Under $1,000.... 

$1,000 to $2,000 

$2,000 to $3,000 

$3,000 to .$4,000. 

$4,000 to $5,000 

$5,000 to $10,000 

$10,000 to $15,000- : ... 

$15,000 to $20,000. 

.$20,000 to $25,000. 

$25,000 to $50,000. 

$50,000 to $100,000. 

$100,000 to .$250,000.. 

$250,000 to .$500,000... 

.$500,0(X)tO $1,000,000 

$1,000,000 to .$5,000,000 . 

$5,000,000 and over .._ .... 

Excess-profits tax on returns with no net income. 

Total 



Excess profits ta.x 



Amount 



$66 

112 

125 

136 

135 

655 

574 

511 

414 

1,654 

2,053 

3,243 

2,468 

2,092 

3,600 

7,110 

20 



Percent 
of toial 



0.3 

. 5 

.6 

.5 

.5 

2.6 

2.3 

2.1 

1.7 

6.6 

8.2 

13.0 

9.9 

8.4 

14.4 

28.4 

.1 



Total tax 



Amount 



$3, 185 

4,072 

4,182 

3, 858 

3,647 

16, 323 

13, 733 

11,611 

10,463 

38, 235 

48, 756 

76, 483 

66, 326 

68, 804 

164.018 

201, 408 

20 



Percent 
of total 



0.4 

.6 

.6 

.5 

.5 

2.2 

1.9 

1.6 

1.4 

5.2 

6.6 

10.4 

9.0 

9.4 

22.3 

27.4 



24,909 



100.0 I 735,125 100.0 



Net income re- 
maining after tax 



Amount 



$19, J507 

24, 748 

25, 335 

23. 239 

21,905 

97, 751 

82,000 

69, 168 

62,738 

227,965 

291,0118 

456, 155 

398, 065 

416,289 

1, 002, 016 

1, 211, 669 

-20 



Percent 
of net 
income 



4, 429, 598 



86.0 
85.9 
85.8 
85.8 
85.7 
85.7 
85.7 
85.6 
85.7 
86.6 
85.7 
85.6 
85.7 
85.8 
85.9 
85.7 



86.8 



' Excludes returas of corporation? showing deficits. 

Source: Adapted from U. S. Treasury Department. Statistics of Income for 193.5, pt. 2, p. 7. 



iXiloea — 40 — No. 20- 



352 



CONCENTRATION OF ECONOMIC POWER 



Table 16. — Corporate net income, tax paid, and amount remaining after tax, 19S6^ 

{by net income classes) 

[Dollar figures in lliousands] 



Net income classes 



Under $1,000 

$1,000 to $2,000. 

$2,000 to $3,000 

$3,000 to $4,000. 

$4,000 to $5,000. 

$5,000 to $10.000. 

$10,000 to $15,000 

$15,000 to $20,000.. 

$20,000 to $25,000 -. 

$25,000 to $50,000.. 

$50,000 to $100,000. 

$100,000 to $250,000 

$250,000 to $500,000 

$500,000 to $1,000,000... 
$1,000,000 to $5,000,000. 
$5,000,000 and over 



Returns 



Number 



74,728 
24,526 
14, 767 
10, 320 
7,864 
21, 438 
10, 939 
6,302 
4,447 
10, 959 
7,046 
5,233 
2,107 
1,197 
1,058 
230 



Total 



203,161 



Net income 



Amount 



.$26, 107 

35, 946 

36,666 

36,164 

35, 554 

153, 967 

135, 344 

110, 144 

100, 175 

388, 413 

498, 682 

813,120 

738, 865 

835, 894 

2, 145, 833 

3, 387. 367 



100. 9, 478, 241 



Per- 
cent 
of total 



0.3 

.4 

.4 

.4 

.4 

1.6 

1.4 

1.2 

1.1 

4.1 

5.2 

8.6 

7.8 

8.8 

22.6 

35.7 



100.0 



Normal tax 



Amount 



Per- 
cent 
of total 



$2,094 

2,878 

3,110 

3,238 

3,281 I 

14,859 

13,416 

11,175 

10,424 

42,031 ! 

57,409 

97, OKI 

88,131 

99,622 

241, 184 

334,888 



0.2 

.3 

.3 

.3 

.3 

1.4 

1.3 

1.1 

1.0 

4.1 

5.6 

9.5 

8.6 

9.7 

23.6 

32.7 



Undistributed 
profits tax 



Amount 



$1,227 

1,393 

1,199 

1,067 

972 

3,927 

3,420 

2,708 

2, 443 

9, ,366 

12, 173 

19,422 

15, 591 

15,882 

29, 112 

25, 071 



1,024,793 100.0 144,972 



Per- 
cent 
oftotal 



0.9 

1.0 

.8 

.7 

.7 

2.7 

2.4 

1.9 

1.7 

6.4 

8.4 

13.4 

10.7 

10.9 

20.1 

17.3 



100.0 



Net income classes 



Under $1,000 

$1,000 to $2,000 

$2,000 to $3,000 

$3,000 to $4,000 

$4,000 to $5,000 

$5,000 to $10,000. 

$10,000 to $15,000 

$15,000 to $20,000. 

$20,000 to $25.000 

$25,000 to $50,000 

$50,000 to $100,000 

$100,000 to $250,000 

$250,000 to $500,000 

$500,000 to $1,000.000... 
$1,000,OPQ to $5,000,000. 
$5,000,000 and over 



Excess profits 
tax 



Amount. 



$162 

247 

261 

276 

296 

1,285 

1,053 

814 

690 

2,290 

2,584 

3,153 

1,942 

2.208 

3,100 

1,243 



Total. 



21, 010 



100. 



Total tax 



$3,483 

4, 518 

4,570 

4,581 

4,549 

20, 071 

17, 889 

14, 697 

13, 557 

53,687 

72, 166 

119,628 

105,664 

117,712 

273, 402 

361, 202 



1,191,376 



Per- 
cent 
of total 



0.3 

.4 

.4 

.4 

,4 

1.7 

1.5 

1.2 

1.1 

4.5 

0.1 

10.0 



23.0 
30.3 



Net income re- 
maiaing after tax 



Amount 



$22, 624 

31,428 

32,096 

31,583 

31,005 

133, 896 

117,455 

95, 447 

86, 618 

334. 726 

426, 516 

693, 492 

633, 201 

718, 182 

1,872,431 

3, 026, 165 



8, 286, 865 



Per- 
cent 
of total 



86.7 
87.4 
87.6 
87.3 
87.2 
87.0 
86.8 
86.7 
86.5 
86.2 
85.6 
85.3 
85.7 
85.9 
87.3 
89.3 



87.4 



' Excludes returns of corporations showing defi- .t3. 

Source: Adapted from U. S. Treasury Department, Statistics of Income 1936 for pt. 2, p. 11. 



OONCENTRATION OF BOONOMIC POWER 



353 



Table 17. — Individual net income, tax paid, and amount remaining with taxpayers, 

1929-S6 

[Dollar figures in thousands] 



Year Net income class 



Number Per- 
of re- I cent of 
turns ' total 



Net in- 
come 



Per- 
cent of 
total 



Tax as- 
sessed 



Per- 
cent 
of 
total 



Amount 

remnining 

Witt tax 

payers 



Under $5,000 

$5,000 to $10,000.--. 
$10,000 to $15,000.. - 
$15,000 to $50,000--. 
$50,000 to $100,000.. 
$100,000 to $500,000. 
$500,1)00 and over.- - 



1,477,418 
606, 599 
163,743 
171, 400 
24, 073 
13, 027 
1,489 



Total. 



2, 458, 049 



Under $5,000 

Percent increase. 
$5,000 to $10,000 

Percent increase. 
$10,000 to $15,000 

Percent increase. 
$15,000 to $50,000 

Percent increase . 
$50,000 to $100,000.... 

Percent increase. 
$100,000 to $500,000. . . 

Percent increase . 
$500,000 and over 

Percent in crease . 



Total..- 

Percent increase. 



1,286,399 

-12.9 

491, 792 

-18.9 

122, 625 

-25.1 

116,982 

-31.8 

1.3, 645 

-43.3 

5,734 

-56.0 

468 

-68.6 



2,037,645 
-17.11 



Under $5,000 

Percent increase - 
$5,000 to $10,000 

Percent Increase . 
$10,000 to $15,000 

Percent increase . 
$15,000 to $50,000 

Percent increase. 
$50,000 to $100,000-.-. 

Percent increase . 
$100,000 to $500,000--. 

Percent increase . 
$500,000 and over 

Percent increase - 



Total 

Pereent increase.. 



988, 575 

-23.2 

363, 895 

-26.0 

86,966 

-29.1 

75,106 

-35.8 

7,830 

-42.6 

2,958 

-48.4 

226 

-51. 7 



1, 525, 546 
-25.1 



Under $5,000 

Percent increase 

$5,000 to $10,000.- 

Percent increase 

$10,000 to $15,000 

Percent increase 

$15,000 to $50,000-. 

P^cent increase 

$50,000 to $100,000 

Percent increase 

$100,000 to $500,000 

Percent increase 

$500,000 and over.. 

Percent increase .... 



Total 

Petcent increase 



591, 045 

60.9 

239, 622 

-34.2 

49, 494 

-43.1 

48,196 

-35.8 

5,902 

-24.6 

1,730 

-41.5 

106 

-53.1 



1, 936, 095 
26.9 



Under $5,000 

Percent increa"* 

$5,000 to $10,000 

Percent increase 

$10,000 to $15,000 

Percent increase 

$15,000 to $50,000 

Percent increase 

$50,000 to $100,000 

Percent increase 



1, 423, 239 

-10.6 

222, 363 

-7.2 

47, 033 

-5.0 

47, 033 

-2.4 

6,021 

2.0 



60.1 

24.6 

6.7 

7.0 

1.0 

.5 

.1 



134,717 
144, 456 
980, 152 
219, 539 
646, 476 
486, 175 
881,977 



20.2 
20.2 

9.7 
20.6 

8.0 
12.1 



$4, 387 
9,551 

15,918 
157, 879 
160,814 
356, 117 
297, 273 



0.4 
1.0 
1.6 
15.8 
16.0 
35.5 
29.7 



$4, 130, 330 
4, 134, 905 
1,964,234 
4, 061, 660 

1, 485. 662 

2, 130, 058 
1, 584, 704 



100.0 



20, 493, 492 



100.0 



1,001,939 



63.1 



24.1 

"e.o' 

"'5." 8' 



$3, 502, 788 
13 g 

.$3, 332, 471 

-19.6 

$1, 481, 098 

-25.2 

$2, 825, 271 

-33.1 

$919, 040 

-44.2 

$1, 000, 318 

69.8 

$671, 598 

-69.6 



24.3 


10.8 


"20.0" 


"'h'.Y 


------ 



4.2 



127.2 

$17, 448 

82.7 

$16, 276 

2.2 

$105, 993 

-32.9 

$87, 379 

-45.7 

$144, 264 

-59.5 

$95,386 

-67.9 



100.0 



$13,692,584 
-33.2 



100.0 



$476, 714 
-52.4 



64.8 
23." 9" 



5.7 

l.'g" 

"".'5 

..... 



$2, 712, 465 

-23.9 

$2, 449, 920 

-26.5 

$1, 048, 074 

-29.2 

$1, 779, 294 

-37.0 

$528, 049 

-42.6 

$510, 844 

-48.9 

$268, 371 

-53.1 



29.1 
"26." 4 



11.3 

"i9."i' 

"6^7' 
"5." 5' 
"2.' 9 



$7,265 

-27.1 
$12, 407 

-28.9 
$10, 845 

-33.4 
$61, 148 

-42.3 
$44, 780 

-48.8 
$67, 340 

-5.3.3 
$42, 343 

-55.6 



100.0 



9, 297, 017 
-32.1 



100.0 



$246, 128 
-48.4 



82.2 
12.3' 



2:6 

'2."5' 

'".'§" 
..... 



.$3, 738, 117 

37.8 

$1, 614, 742 

-34.1 

$595, 574 

-43. 2 

$1, 194, 463 

-32.9 

$393, 206 

-25.5 

$290, 372 

-43.2 

$93,114 

-65.3 



47.2 
"26.1 



7.5 
15.' i 
"5.0" 
'3.' 7 
"1.2" 



.$43, 074 

492.9 

$35, 615 

187.1 

$22, 789 

110.1 

$70, 907 

16.0 

$47,150 

5.3 

$74, 935 

11.3 

.$35, 493 

-16.2 



$7, 919, 588 
-14.8 



100.0 



$329,963 
34.1 



81.4 
'12." 7' 



2.7 
2.7' 
".'4' 



$3, 265, 497 

-12.7 

$1, 497, 521 

-7.3 

$567, 025 

-4.8 

$1,175,066 

-1.6 

.$401, 049 

2.0 



44.2 
2")."3" 



7.8 
15.9' 
'5.' 5' 



$36, 549 

-16.2 

335,077 

-1.6 

$23, 885 

4.8 

$83,446 

17.7 

$57, 491 

21.9 



100.0 



19, 491, 563 



2.1 

'3.4' 
22.2 



18.3 
30.3 
26.6 



$3, 552, 820 

-14.0 

.$3, 315, 023 

-19.8 

•$1,464,822 

-25.4 

$2, 719, 278 

-33.1 

$831, 661 

-44.0 

$856,054 

-59.8 

$476,212 

-70.0 



100.0 



$13,215,870 
-32.2 



3.0 
"5.0 

"aa 

24.'8 
18." 2' 
27.4" 
17.2" 



$2, 706, 200 

-23.9 

$2, 437, 513 

-26.6 

$1, 037, 229 

-29.2 

$1, 718, 146 

-36.8 

$483,269 

-41.9 

$443,504 

-48.2 

$226, 028 

-52..6 



100.0 



$9, 050, 889 
-31.5 



13.1 

io.'s 

'6.9" 
2i.'6' 
14.' 3" 
22.' 6' 

io.'s' 



$3, 695, 043 

36.6 

$1, 579, 127 

-35.2 

$572, 785 

-44.8 

$1, 123, 556 

-34.6 

$346, 056 

-28.4 

$215, 437 

-51.4 

$57, 021 

-74.6 



100.0 



$7, 689, 625 
- -16.2 



9.4 
'6." 4' 
22." 2" 
16." 4" 



$3, 228, 948 

-12.6 

$1, 462, 444 

-7.4 

$543. 140 

-6.2 

$1,091,620 

-2.9 

$343, 668 

-0.7 



Excludes nontaxable returns. 



354 



OONCENTRATION QF ECONOMIC POWER 



Table 17. — Individual net income, tax paid, and amount remaining with iarpayers, 

1 5.?9-S&— Continued 



i 

Year, Net income class 


Number 
of re- 
turns 


Per- 
cent of 
total 


»-;?■ b'. 


Tax ps- 
ses.scd 


Per- 1 Amount 
cent 1 remainiup 
of j witli tax- 
total 1 payers^ 


Per- 
cent 
of net 
in- 
come 


1933 


$100,000 to $.500,000- 

Percent increase 

$500,000 and over. _ . 

Percent increase 

Total - 


1,920 

11.0 

131 

23.6 


0.1 


$.322, 944 4. 4 
11.2 -- 

$143, 558 1. 9 
54.2 -- 


$88. 691 
18.4 

$48, 980 
38.0 


23.7 

13." i' 


$234, 263 

8.7 

$94, 578 

04.1 


72.6 
66.9 




1, 747, 740 
-9.7 


100.0 


$7, 372, 600 
-6.9 


100.0 


$374, 119 
13.4 


100.0 


$6. 998, 641 
-7.8 


94 9 




Percent increase 

Under $5,000 




1934 


1, 379. 999 

-3.0 

284.098 

.27.8 

63. 368 

34.7 

60, 455 

28.5 

6,093 

1.2 

1,788. 

- fi. 9 

119 

-9.2 


76.9 

"is.'s' 

'"3.5' 

""'3.4' 
-3- 

--- 


$3, 379, 298 

3.5 

?1. 916, 388 

28.0 

$765, 259 

35.0 

$1, 456. 863 

24.0 

.$405, 976 

1.2 

$302, 536 

-6.3 

$117, 239 

-18.3 


40.5 
"'22.9" 
"'9.'2" 
"lY.l' 
" 4'9" 
"3.6' 


$34, 686 

-.5.1 

$4.3,086 

22.8 

$33, 424 

39.9 

$13.5, 442 

62.3 

$84, 791 

47.5 

$117,014 

31.9 

$62,9.55 

28.5. 


6.8 

'8.4" 

6.5" 

'20^6" 

"ie.'e" 
22." e' 
1.2." 3" 


$3, 344, 012 

3.6 

$1, 873. 302 

28.1 

$731, 835 

34.7 

$1, 321, 421 

21.1 

. $321, 185 

-fi.5 

$185, 522 

-20.-8 

$54, 2S4 

-42.6 


09.0 




Percent increase 

$5,000 to $10,000 


'97 8 




Percent increase 

$10,000 to $15,000 

Percent increase 

$15,000 to $50 ,000-- 

Percent increase 

$50,000 to $100,000- 

Percent increase 

$100,000 to $500,000 

Percent increase 

$500,000 and over. 

Percent increase 

Total 


'95.6 
'96."7 
"79.1 
"ll'.l 
"46." 3 




1, 795, 920 
2.8 


100.0 


58, 343, 659 
13.2 


100.0 


$511, 398 
■30. 7 


100.0 


$7, 832, 161 
11.9 


93 9 




Percent increase 

Under $5,000 




1935 


1, 617, 745 

■ 30.1 

332, 872 

17.2 

75, 497 

19.1 

74, 096 

22.6 

8.033 

31.8 

2,497 

39.7 

150 

26.1 


76.6 

15.' 8' 

"'3.6" 

-- 


SSj-Sfe, 678 

17.7 

$2, 245, 537 

17.2 

$911, 375 

19.1 

$1, 793. 206 

23.1 

$535,772. 

32.0 

$424, 198 

40.2 

$147,441 

25.8 


39.6 
' '22.4' 
'"'9.'i" 
"l7.'9' 

"5"3" 


.$40, 232 

16.0 

$48, 728 

13.1 

$41, 394 

23.8 

$169,030 

24.8 

$112,816 

33.1 

$165. 416 

41.4 

$79, 823 

26.8 


6.1 

.7.4 
6.^3 
'2.5.'7 
i7.2" 
'25.2 

'i2.'i 


$3, 936, 346 

17.7 

$2, 196, 809 

17.3 

$869. 981 

18 9 

$1. 624, 176 

22.9 

$422, 956 

31.7 

$258, 782 

39.6 

$67, 618 

24.6 


99.0 




Percent increase 

$6,000 to $10,000--- 


97 8 




Percent increase 

$10,000 to $15,000--- 

Percent increase 

$15,000 to $50,000- 

Percent increase 

$50,000 to $100,000 

Percent increase 

$100,000 to $500,000 

Percent increase 

$500,000 and over 

Percent increase 

Total 


"'95.' 5 
90.' 6 
'78."-9 
'61.6 

'"45.9 




2,110,890 
17.5 


100.0 



$10,034,107 
20.3 


100.0 


$657. 439 
28.6 


100.0 


$9, 376, 668 
19.7 


93 4 




Percent in- 
crease 

Under $5,000 

Percent increase 

$.5,000 to $10,000 




1936 


2, 184. 846 

35.1 

440. 137 

32.2 

105, 682 

39.8 

112,204 

51.4 

13.620 

69.6 

4,480 

79.4 

239 

69.3 


76.4 

16,3 

"" "3.'7' 

"3.9' 

.5 
... 


$5, 328. 216 

34.0 

.$2, 973, 800 

32.4 

$1,277,526 

40.2 

$2, 751, 6,59 

53.4 

$913, 518 

70.5 

$743, 731 

75.3 

$230, 403 

56.3 


37.5 

20.9' 

"'9.6" 

""'i9'4' 

- 6"4" 

""' 5;2' 

'" i.6" 


$60,560 

50.5 

$79. 369 

62.9 

$67. 755 

63.7 

$299, 197 

77.0 

$216, 045 

91.5 

^35, 007 

102 5 

$166,083 

95.5 


5.0 
"6.5" 

'5.6' 

24.' e" 

"i7.'8' 
27.6' 
"12.9 


$5, 267, 666 

33.8 

$2. 894. 431 

31 8 

$1, 209, 771 

39 1 

$2, 452, 462 

51.0 

$697, 473 

64.9 

$408, 724 

57.9 

$74, 320 

9.9 


98.9 
97 3 




Percent increase 

$10,000 to $15,000 

Percent increase 

■ $15,000 to $50,000 

Percent increase 

$50,000 to $100,000 

Percent increase 

$100,000 to .$500,000 

Percent increase 

$500,000 and over 

Percent increase 

Total - 


'94. 7 
"89.'i 

"76.4 
" oS.'o 
"'32.3 




2,861,108 
35.5 


100.0 


$14 218 853 1 100 l$l, 214,016 


inn n 


$13 OOi 837 


01 .1 




Percent in- 
crease 


1 
41.7 ! S4.7 - 


38.7 i 



Source: Adapted from U.S. Treasury Department, Statistics of Income for 1929, and annual i.ssues throupli 
1936. 



CONCEXTKATION OF HCOxVOMIC POWER 
Chart 1 

INCOME TAX RETURNS. NET INCOME. 
AND TAX ASSESSED 

UNITED STATES. 1929 -IS36 



355 



MILLIONS 
3 .- - 



MUMBER OF RETURNS 



• "■^: 




1939 1330 1931 1932 1933 1934 1935 1936 



DOLLARS 

(SlLL'ONSl 
25 :.-^ - 



AMOUNT OF NET INCOME 



,oN— C^ 



■ - I 

j 



DOLLARS 

•'3 ■- .'O.NSl 

'-.-3:25 




f929 1930 1931 1932 1933 1934 vjib ia36 



DOLLARS 

ifl.LLioNs: 
1.5 - 



AMOUNT OF TAX ASSESSED 



DOLLARS 

(Bv.iONS) 



) U--A;r- 




935 1936 



SOURCE Un,i«<( Slons Tfeoiu'y D«p<i'ln>«it, STATISTICS OF INCOME, 1929-1936 



INDEX 



Pag* 

ADULTERATED BUTTER TAX REVENUE 169 

ADVISORY COMMITTEE ON EDUCATION: 

Function of 224 

Staff study No. 4. Federal aid and the tax problem (1939) ; cited (n.) . 70, 84 
AGRICULTURAL ADJUSTMENT ADMINISTRATION. Division 
of Program Planning. Agricultural Relations Section; data supplied by; 

cited (n.) . 216-219 

AGRICULTURAL ADJUSTMENT TAXES REVENUE. 1933-36. 

Amount and percQpt; commeni/, table 52 and chart 32 155-157 

ALVORD, ELLSWORTH C. Statement during hearings before House 

Ways and Means Committee on revenue revision (1939) 201, 203 

ANDERSON, H. DEWEY: 

Our CalifoTnia State taxes, faets and problems (1937); cited (n.) 47, 

77,78,79,97,112,259,318,324 
Taxation and recovery. T. N. E. C. Monograph No. 20. 
ANDERSON, H. DEWEY and DAVIDSON, PERCY E. Occupational 

trends (1940); cited (n.) 8,291-294,319,321 

ASHBY, LYLE W. Efforts of States to support education (1936); cited 

(n.) 225 

AUTOMOBILE TIRES, TUBES, GASOLINE, AND OIL TAX REV- 
ENUE. 1932-38. Amount, percent of total and percentage change, 

bj"^ item; comment, table 50 and chart 30 " 150-154 

AUTOMOBILES, PARTS AND ACCESSORIES TAX REVENUE. 
1932-38. Amount, percent of total and percentage change, by item; 

comment, table 49 and chart 29 148-149 

BARUCH, BERNARD M.: 

Hearings before War Policies Commission (1932); cited (n.) .-. 39, 60 

Mentioned 39 

Statement during hearings before the War Policies Commission, cost of 

World War I; extract 242 

BITUMINOUS COAL ACT TAX REVENUE. 1935-38. Amount and 

percent; comment, table 52 and chart 32 154—157 

BLAIR, JOHN M. Seeds of destruction (1938); cited 22 

BLOUGH, ROY. Statement during hearings before Special Committee 

on Taxation of Government Securities and Salaries (1939); cited (n.) — 197 
BRITISH ASSOCIATION FOR ADVANCEMENT OF SCIENCE. 
Economic and Statistics Section. Research Committee. Britain in 

depression (1935) ; cited (n.) 36 

BROOKINGS INSTITUTION STUDIES: 

America's capacity to consume (1934) ; cited (n.) 17, 32, 314 

America's capacity to produce (1934) ; cited (n.) 32 

Capital expansion, employment and economic stability (1940); cited 

(n.) and comment 165, 168,206,212,220 

Formation of capital (1935) ; cited (n.) 18 

Place of, in literature of economic structure of the United States 24 

BUDGET BUREAU: 

Fiscal Division, research functions in a centralized tax-policy pro- 
gram 257—258 

Function of as a clearing house for tax policy 257 

BLT)GET OF THE UNITED STATES: 

Balanced budget struggle of 1930-40 229 

Fallacy of unbalanced budget theories , 230 

President's budget messages: 

1932. 1933-34 Budget (Hoover); extracts 229 

1940. 1941 Budget (Roosevelt); cited (n.) and extract . 45,63 

References. See References to literature, item 12. 

857 



358 INDEX 

BUDGET SYSTEMS: Page 

Cyclical budget of Scandiuavian countries, operation of 230, 233 

Private business operates on cyclical budget plan 230-231 

BUDGET SYSTEMS, UNITED 'STATES (FEDERAL): 

Cyclical budgeting, proponents' and opponents' arguments 233 

Scientific budget construction in United States, planlessness and back- 
wardness of - 232-233 

BUDGET SYSTEMS, UNITED STATES (STATE): 

State fiscal policies and tax systems, limitations of 232 

BUILDING AND LOAN ASSOCIATIONS. Tax exemption removal 

recommended 264 

BUSINESS CONCERNS. See Enterprises. 

BUTLER, NICHOLAS MURRAY. Rate structure speech (1938); 

comment 181 

CALIFORNIA. Functions created by State laws since 1850, number of 

services and percent; comment and table 17 47 

CAPITAL FORMATION: 

1923-38. Comparison of national income, total tax collections, and 

total business gross capital formation; comment and chart 34 1(5.5-171 

CAPITAL FUNDS: 

References. See References to literature, items 8, 9, 10. 

Self-capitalization in business 20 

1923-38. Bank deposits and capital funds (amount and percent change) 
and their use for investments, loans, and surplus (amount and per- 
centage change) ; comment and table 13 18-21 

CAPITAL-STOCK TAX: 

1933-38. Amount and percent of corporate income tax; table 40 and 

comment ... 122, 129 

1933-38. Amount and percent of total jirogressive taxes; table 30, 

chart 14, and comment 94, 96, 129 

CARRIERS' TAXING ACT REVENUE. 1936-38. Amount and per- 
cent; comment table, 52 and chart 32 155-157 

CHAMBER OF COMMERCE OF THE UNITED STATES. Program 

for tax reform < 1 939) 20 1 

CHASE, STUART. Capital not wanted (1940) ; cited (n.) . _ . 20 

CHERNE, LEO M. Adjusting your business to war (1939) : cited (n.)_ 239, 240 
CHICAGO ROUND TABLE. Public Policy Pamphlet. Balancing the 

budget (1937); cited (n.) and comment 233 

COCONUT-OIL TAX REVENUE. 1934-38. Amount and percent; 

comment and table 47 141, 143 

COLM, GERHARD. Basis of Federal fiscal policy, taxes (1939); sum- 
mary and cited (n.) 28-29.230 

Ideal tax system (1939) ; summary 28-29 

Incentive tax proposal 267 

Mentioned 33, 246 

Theory of public expenditures (1936) ; cited (n.) 43, 45 

COLM, GERHARD and TAR ASOV, HELEN. Who pays the taxes? 

(1940)- cited and comment . 90, 172,221 

COMMITTEE ON COST OF MEDICAL CARE. Report (1933)"; cited 

(n.) 69 

CONGRESS OF INDUSTRIAL ORGANIZATIONS. Economic Out- 
look, June 1940, war preparedness expenditures and jobs for workers; 

cited (n.) . __ . .._ . 252 

CONSERVATION OF NATURAL RESOURCES. Federal program. 226, 228 
CONSUMER ECONOMY: 

References. See References to Literature, item 43. 
1935-36. Aggregate outlay of American consumers for consumption, 
gifts and personal taxes, and savings by income level; comment and 

table 19 307-308 

1935-36. Average outlay of single individuals for consumption, gifts 
and personal taxes, and savings, by income level; comment, table 20 

and chart 16 310-312 

1 935-36. Incomes (number of purchasing units) and savings of families 

and fingle individuals by income levels; comment and chart 15-- 308-310 
1935-36. Share of each tenth of nation's consumer units in aggregate 
outlay: aggregate income, dollar amount and percent; aggregate 
outlay, dollar amount, and percent for consumption, gifts, personal 
taxes and savings; comment and table 12 17 



INDEX 359 

CONSUMER INCOME: Page 
EflFect of American tax system on various income classes, 1939; com- 
ment, table 55 and chart 38 172-175 

Effect of regressive revenue system 220-223 

Proportion of income, savings, consumption expenditures and taxes 
borne by the several income classes, 1939; comment, table. 56 and 

chart 37 172, 175-176 

Uneven distribution root of many problems in a dislocated economy.-. 16 

1935-36. Distribution of families and single individuals (number, 
percent at each level, cumulative percent) and of aggregate income 
(amount, percent at each level, cumulative percent) ; comment, 

table 16 303-304 

CONSUMER-LUXURY TAXES REVENUE. 1930-38. Amount, per- 
cent and percent change, by goods; comment and table 48 145-154 

CONSUMER-NECESSITIES TAXES REVENUE. 1930-38. Amount 
of revenue, percent of total and percent change; matches, toilet prepara- 
tions, telephone, telegraph, radio and cable, oleomargarine, sugar, 
coconut oils, electric power, mechanical refrigeration; comment, table 47 

and chart 28 140-145 

CONSUMPTION: 

Consumption patterns of families and of individuals living alone: 

expenditures, income, and savings 307-313 

References. See References to literature, item 6. 
CORPORATION COSTS. 1937. Selected costs (taxes other than Fed- 
eral income, depreciation and depletion, maintenance and repairs, gross 

taxes) , each as percent of sales by industrv ; table 61 207 

CORPORATION DIVIDEND PAYMENTS: 

Individual stockholders, number and percent, dividends received, 
amount and percent, average dividend payments, by income 

classes, 1927; comment and table 8 12 

References to literature. See References to literature, item 29. 
1929, 1936. Distribution of dividends hy net income classes, before 
and after pavment of Federal income tax, amount and percent; com- 
ment and table 29 . 325 

1931-32. Number, size, and character of corporations: number, per- 
centage, cash dividends in dollars and percent, hv total assets; comment 

and table 28 '_ 324 

CORPORATION EARNINGS: 

1925-29. Corporation earnings during prosperity, dollar figures; 

comment and tables 4-5 9-10 

1930-34. Corporation earnings during depression, dollar figures; 

comment and tables 6-7 11-12 

CORPORATION INCOME TAX: 

Changes in the corporate income tax, recommendations 263-268 

Effect of impact of tax 214-215 

Excess-profits ta,x. See Excess-profits tax. 
References. See References to literature, items 27, 47. 
Undistributed-profits tax. See Undistributed-profits tax. 
1923-37. Taxes (Federal, State, and local) and income data for 
selected corporations in industrv groups: rails, utilities, industrials, 
mining, 1923, 1926, 1929, 1932,^1935, 1937; comment, table 63 and 

chart 43 209-211 

1923-37. Taxes as percent of gross income, selecte4 number of com- 
panies ir. industry groups: rails, utilities (traction, light and power, 
gas, water, telephone), industrials (motors, iron and steel, electrical 
equipment), trade (chain stores), mining, 1923, 1926, 1929, 1932, 

1935, 1937; comment and table 62 208-209 

1929-36. Corporate net income, tax paid, amount remaining after 

tax, by net income classes, amounts and percent; tables 9-16 347-352 

1929-36. Distribution of corporate income tax returns, net incomes 
reported, taxes assessed and percent change; table 41 and charts 22- 

23- . 123-126 

1929-36. Yearly summaries of individual income-tax returns, net 
income, and tax assessed, with percentage change from previous 
year; comment and table 64 214-215 



360 INDEX 

CORPORATION INCOME TAX— Continued. Page 

1930-38. Corporate income, unjust enrichment, excess profits, and 
capital stock tax collections; amount and percent; table 40 and 
comment- _^ 122, 127 

1936. Average corporate net income and income tax paid, by income 
groups; table 42 128 

1937. Number of securities and Exchange Commission registrants, 
provision for taxes (Federal, income, other, total), net taxable 
income, net income ^ter taxes, percent gross taxes to net income 
after taxes, percent income tax to net taxable income gross profits, 
percent gross taxes to gross profits; table 60 and chart 42 203-204 

CORPORATION STOCKHOLDERS. See Stockholders. 
CORPORATIONS. /See aiso Enterprises: United States. 

Concentration.^ 325 

References. See References to Literature, item 56. 
1931-32. Number, size, and character of corporations; number, per- 
centage, ca.sh dividends in dollars and percent, by total assets; 

comment and table 28 324 

CUSTOMS REVENUE. See Tax Revenue, United States. 
DAVIDSON, PERCY E., joint author. See Anderson, H. Dewey. 
DAWSON, HOWARD A. Disparity between educational advantages of 
States, statement during hearings on H. Res. 5962, 75th Congress (1937) ; 

cited (n.) 224 

DEBT; PRIVATE 

1921-39. Interest charges on private long term and Government 

debts, odd years only; comment, table 66 and chart 45 216, 218 

1921-39. Private debt (long tferm, bank loans, and discounts) and 
Government debts, amount, percent of total, percent change, odd 

years onlv; comment, table 65 and chart 44 215-219 

DEBT, PUBLIC. See Public Debt. 

DEFENSE PROGRAM. See also Military ExpendituTes. 

Alternatives, 1-4, facing the United States, 1940 235-236 

Fiscal and tax policy theory in defense economy, summary 38-40 

Program of militarism in time of peace, policy and impact on econ- 
omy 74 

The preparedness program and taxation 235-269 

DIVIDENDS TAX. United States 

1933-36. Operation of tax 110 

ECCLES, MARRINER. Mentioned 247 

ECONOMIC LOSSES. 1929-38. Economic losses sustained in the 
United States: man-years of employment, salaries and wages lost in 
nonagricultural occupations, dividends lost, gross farm income lost, 

national income lost; comment and table , 6 

ECONOMY, NATIONAL. See National Economy. 
EDUCATION 

Federal expenditures for education, fiscal year 1939; amount and pair 

cent; table 25 and comment 66,70 

References. See References to Literature, items 1, 4. 

State support, disparity 224-225 

1910-36. Tax revenues expended for public schools. Federal, State, 
and local, amount and percent of total, 1910, 1920, 1930-36 (alter- 
nate years onlv); comment, table 68 and chart 46 225-226 

ELECTRIC POWER TAX REVENUE. 1932-38. Amount and per- 
cent; comment and table 47 141-142 

EMPLOYMENT 

Available workers. See Labor Force. 

References to literature. See References to Literature, items 3, 22. 
1870-1940. Decennial increase of workers by census categories com- 
pared with that of the total population and the total gainfully 

employed , percentage basis ; comment , table 12 294 

1929-36. Production, employment, and productivity in 54 manu- 
facturing industries, loss or gain in 1936 compared with 1929; 

comment and table 2 8 

1929-38. Average annual employment in durable and nondurable 
goods: Number of employees, percent of all manufacturing employ- 
ment, percent change, 1929, 1933, 1937, 1938; comments and -table 
10 14-15 



INDEX ^Ql 

EMPLOYMENT— Continued. Page 

1929-38. Effect of depression and recovery on employment in specific 
industries, index (1923-25=100); 1929, 1933, 1937, 1938; comment 

and table 11 . 15 

1929-38. Nonagricultural employment lost: man-years and index; 
comment and table 1 7 

1932, 1937. Comparison of total Federal employees in executive 
branch, December 1932 and December 1937; percent change; 
table 7 334r-335 

1932-37. Federal employees in executive branch, 1932 and 1937, 
number each year, increase 1937 over 1932, number and percent; 
comment and table 24 64 

1935. Political jurisdiction of United States: Federal, States, munici- 
palities, counties, school districts, other; number and percent 
employees in each jurisdiction ; comment and table 16 46-47 

1936-39. Number employed (absolute and relative) on W. P. A. 
projects, January and June each year; comment, table 9 and 

chart 1 . . 13-14 

ENTERPRISES. See also Corporations. 

Comparison between smallest and largest busmess groups, as .per- 
centages of total number and total volume of business; classified 
by value (12 activity groups, various dates), by wage earners (2 
activity groups, 1929), by physical units (2 activity groups, 1935); 
comment, chart 18 and table 27 321-323 

References. See References to Literature, items 42, 56, 59, 60. 

Role of corp>orate enterprise, forms of ownership; independent pro- 
prietorships, partnerships, corporations 318-326 

1900-1938. Indexes of United States business population (1929= 100) ; 

1900, 1910, 1920^38; comment and table 23 318 

1900-1938. United States business population: total enterprises, new 
and discontinued enterprises, number and percent change in each 
case, net gain or loss, 1900, 1910, 1920-38: comment and table 23. 317 

1933. Sample of all manufacturing industries comprising 84 of 308 
industries: number of concerns, average number of wage earners, 
6 largest concerns, percentage of all and percentage of wage earners, 

by industry; comment and table 26 319-321, 323-324 

1935. N-umber of enterprises, percent of nonagricultural total, per- 
cent of total; workers, average number for year, percent of non- 
agricultural, percent olF total, average per enterprise, by activities 

of enterprises; comment and table 22 315-316 

1937. Proportion of national income produced and volume of business 
done by corporations and other forms of enterprise, by industries; 

comment and table 25 319 

EPSTEIN, ABRAHAM: Social security— where are we now? (1940); 

cited (n.) . 221 

ESTATES TAX: 

Effect of Federal estates tax and California inheritance tax; com- 
ment, table 37 and chart 17 111-113 

Rate schedule and tax paid, comment and table 110-111 

1930-37. Estates taxes in the United States, 1930 contrasted with 
1937; percent of returns, percent of value of estates, percent of 

taxes; comment and chart 19 112, 117 

1930-37. Federal estate tax returns, gross estates and net taxes, by 

size of net estates; comment, table 38 and chart 18 112-115, 118 

1930-37. Net Federal estate taxes as percent of gross estates, by size 

of net estates ; comment, table 39 and charts 20, 21 1 18-121 

EXCESS PROFITS TAX: 

Passage of appropriate legislation recommended; comment on legis- 
lation of 1940 265 

1933-38. Amount and percent of corporate income tax; table 40 and 

■ comment 122, 128 

1933-38. Amount and percent of total progressive tax; table 30, chart 

14, and comment 94,96, 128 

1934-36. Amount and percent, by net income classes; tables 14-16-. 350 
EXPENDITURES: CONSUMER. ,See Consumer Economy. 



362 INDEX 

EXPENDITURES: FEDERAL: Page 

Prospects for the immediate future 74 

Purposes of Government expenditures 43-45 

References. See References to Literature, items 16, 21, 23, 33, 34, 48. 

Tax revenue collections and public expenditures, four proposed alter- 
natives looking to balanced adjustment 223-224 

1915-40. Military functions, interest on debt, loans, and investments, 
all other, total: amount, percent, and percent change; comment, 
table 22, and chart 5 5.S-60 

1931-39. Functional break-down of Federal expenditures: Dollar 
amount, percent total, percent change; comment, table 23, and 
charts 6-7 ' -- 61-63 

1938 revenues, by source, and expenditures, by purpose, dollar 

amounts, char t 1 336- 

1939. Detailed analyses of Budget items: Social welfare, interest and 
debt service, public works, national defense, regulation of the econ- 
omy, general government; tables 1-6 327-334 

1939. Expenditures by function: General government, legislative, 
executive, scientific, and social research; li)>raries, printing, informa- 
tion, judiciary, law enforcement, diplomacy; dollar amounts and 
percent; chart 6 341 

1939. Expenditures by function: National defense (Army, Navy, 
Marine Corj)?, veterans' benefits); dollar amounts and percent: 
chart 4 339 

1939. Expenditures bj- function: Parks, monuments, etc., public 
buildings, highways, airports, bridges and rivers and harbors, con- 
servation, irrigation, etc., public works; dollar amount.s and per- 
cent ; chart 3 _- 338 

1939. Expenditures by function: Regulation of the economy, by type, 

dollar amounts, and percent; chart 5 340 

1939. Expenditures by function: Social security, public health, relief, 
hou.sing, rehabilitation, education, social welfare; dollar amounts 
and percent ; chart 2 337 

1939. Federal Government expenditures by functions, fiscal year, 

amount, and percent; comment, table 25, and chart 8 64-66 

EXPENDITURES: FEDERAL, STATE, AND LOCAL: 

Trends in expenditures of Federal, State, and local Governments 52-57 

1910-36. Tax revenues expended for public schools. Federal, State, 
and local, amount and percent of total, 1910, 1920, 1930-36 (alter- 
nate years only); comment, table 68, and chart 46 225-226 

1923-38. Federal, State, and local, amount and percent change, each 

level, each year; comment, table 20, and chart 3 52-54. 56 

1923-38. Percentage by levels of government; comment, table 21, 

and chart 4 1 52-53, 55, 56 

1937. Total expenditures of various levels of government; local, 
State, and Federal ; comment and table - 46 

1938. Federal and estimated State and local Government expendi- 
tures: From own sources, intergovernmental grants, for own func- 
tions; comment, table 18, and chart 2 , 48-51 

1938. Percentage distribution of exj)enditiu-es: Federal and estimated 

State and local, bv function; comment and table 19 51 

EXPORT TRADE. See Foreign Trade. 

FAIRCHILD, FRED R.: Forest taxation in the United States (1935); 

cited (n.) __ . _ . _ 228 

FAMILY ECONOMY: 

1920-80. Estimated number of private families in the United States, 
decennial numerical and percent change, in 10-vear intervals; com- 
ment, table 9, and chart 6 '_ ._. . 286-288 

1935-36. Annual incomes of nonrelief families bv occupational groups, 

chart 14 .' 306 

1935-36. Average incomes of families in 5 geographic regions; median 
and mean incomes, all families and nonrelief families; comment, 

table 17 and chart 13 . 304-305 

1935-36. Average outlay of American families for consumption, gifts 
and personal taxes, and savings, by income level; connnent, table'21 
and chart 17 310-311,313 



INDEX 363 

FAMILY ECONOMY— Continued. Page 

1935-36. Distribution of families and single individuals (number, per- 
cent at each level, cumulative percent) and of aggregate income 
(amo\int, percent at each level, cumulative percent) ; comment, 

table 16 303-304 

FIREARMS-TAX REVENUE 159-161 

FLEMING, J. MARCUS. Secular unemployment (1939); cited (n.) 30 

FLYNN, JOHN T. Approach to the problems of war finance (1936) ; cited 

(n.) 246 

Plan for defraying the cost of war 245-246 

FOREIGN TRADE. Decline of 21-23 

Customs revenue, 1913-37, dollar amount each year and percent of 

total tax revenue; comment and table 14 21-22 

References. See References to Literature, item 5. 
1909-35. Production of movable goods in the United States, propor- 
tion exported; dollar amount and percent, 1909, 1914, 1919-35 (odd 

years only) ; comment and table 15 23 

FOREST CONSERVATION PROGRAM 226,228 

GAINFUL WORKERS: 

Available. See Labor Force. 
Employed. See Emoloyment. 
GASOLINE TAX REVENUE: FEDERAL. 1932-38. Amount, percent 

of total, percent change: comment, table 50 and chart 30 150-152 

GASOLINE TAX REVENUE: STATE. 1925-37. Tax receipts, average 
tax rate, consumption in United States (gallons), 1925, 1930-37: table 51 

and chart 31 1 52-153 

GEDDES, ANN. Trends in relief expenditures, 1910-35 (1937); cited 

(n.) - 68 

GERMANY: Totalitarian program 38 

GIFT TAX. Rate schedule and comment 121 

GIFT AND ESTATE TAX. Changes recommended 265-266 

GILBERT, RICHARD: Mentioned 247 

Joint author: See Harvard-Tufts Economirts. 

GILL, CORRINGTON. Wasted manpower (1939); cited (n.) 13, 15 

GLOSSARY. 

Adjusted excess-profits tax 128 

Labor force 290 

National income 170 

Progressive taxes 89 

Regressive taxes 89 

GOVERNMENT REGULATION. See Regulation of the Economy. 
GRANTS-IN-AID: 

Construction of low-cost hospitals 70 

1938. Intergovernmental grants by level of government: Federal to 
State, Federal to local, State to local, local to State, by recipient 

activity, dollar amounts and percent ; chart 7 342 

1938. See also Expenditures: United States, this date. 
GREAT BRITAIN. Best example of a capitalistic economy in which 

fiscal policy coincides with economic trends 35-37 

GKOVES, HAROLD M.: 

Against reduction of high surtaxes 182, 262 

Financing government (1939); cited (n.) 102, 

136, 153, 177, 178, 187, 225, 236, 237 

Sianmary of position of on public finance 29-30 

HAIG, ROBERT M. Mentioned (n.) 1 261 

HANE3, JOHN W. Statement during hearings before Special Commit- 
tee on Taxation of Government Securities and Salaries (1939) ; cited (n.) _ 197 

HANSEN, ALVIN. Mentioned . 21,36,247 

HARRISS, C. LOWELL. The tax burden and the national income (1938); 

(n.) and comment 1"^ 

HART, ALBERT G. How the national income is divided (1937); 

cited (Li.) -■- 314 

HARVARD-TUFTS ECONOMISTS. An economic program for Ameri- 
can democracv. By seven Harvard and Tufts economists (1938); 

cited (n.) . 6. 33, 37 . 

HEER, CLARENCE. Federal aid and the tax problem (1939); cited 

(„ ■, - 84,225,226 



364 INDEX 

Page 
HENDERSON, FRED. Economic consequences of power production 

(1931): cited 21 

HTLDEBRAND, GEORGE H., Jr., joint author. See Harvard-Tufts 

Economists. 
HOOVER, HERBERT. Budget message to Congress (1932); extracts, _ 229 

HOUSING. Effect of construction on the national economy 4 

Expenditures for 1939, amount and percent 66 

Government program for low-cost housing and expenditures 70 

HYNNING, CLIFFORD J. Corporate size, Federal taxation of income 

of large, medium-sized, and small corporations, 1931-36 (1940) ; cited (n.). 127 
INCENTIVE TAXATION. See Tax Incentives. 
INCOME. CONSUMER LEVELS: 

Distribution of, effect on national economy 4 

References. See References to Literature, item 44. 

1929, 1936. Per capita income in the United States by States, rank 

and amount, percent change 1936 over 1929; comment and table 5. 278, 281 
1935-36. Annual incomes of nonrelief families by occupational groups, 

chart 14 .--- 306 

1935-36. Average and aggregate incomes of nonrelief families in 6 
types of community: Metropolitan, large cities, middle-sized cities, 
small cities (all urban) , rural nonfarm, farms (all rural) ; comment 

and table 18 304-305 

1935-36. Average incomes of families in 5 geographic regions; median, 
and mean incomes, all families and nonrelief families; comment, 

table 17 and chart 13 - 304-305 

1935-36. Distribution of families and single individuals (number, 
percent at each level, cumulative percent) and of aggregate income 
(amount, percent at each level, cumulative percent); comment, 

table 16 303-304 

1936. Per capita income in the United States, by States; chart 3 280 

INCOME, NATIONAL. See National Income. 
INCOME, STATES: 

1929, 1938. Realized national income by States; rank, amount, percent 

each of total; comment, chart 11 (1938 only) and table 14 298-300 

1929, 1938. Realized private production income, by States; rank, 
amount, percent each of total; comment, table 15 and chart 12 

(1938oiTlv) 300-302 

INCOME TAX, CORPORATE. See Corporation Income Tax. 
INCOME TAX, PERSONAL: 

Changes in personal income taxes, recommendations 262-263 

Comparison of personal income tax paid on basis of rates in force in 

England and the United States, 1940, compiled by Martin Krost.. 262 

General provisions of tax on 1939 incomes; text 99-102 

References. See References to Literature, items 49, 54. 
1929-36. Distribution of income-tax returns, net incomes reported 
and tax assessed, compared with increase or decrease in items; com- 
ment, table 33, charts 15-16 103-107 

1920-36. Individual net income, tax paid, and amount remftining with 
taxpayers; number of returns, percent of total, net income, percent 
of total, tax assessed, percent of total, amount remaining with 
taxpayers, percent of net income, by net-income classes, table 17 

and chart 1 , 353-355 

1929-36. Individual income-tax returns, net income and tax paid, 

amount and percent, by net-income class; tables 1-8 343-347 

1930-38. Amount and percent of total progressive tax revenue table 

30 and comment 94,97 

1930-38. Amount of individual income, dividend, estate, and gift tax 
collections, percent each of total personal net-income tax; comment 

and table 31 97-98 

1936. Average individual net income and income tax paid, by income 

group; amount and percent; comment and table 34 108 

1939-40. Net income tax rate, 1939 and 1940 laws, respectively; 

table 32 ' 99 

INCOME TAX; PERSONAL (California): 

1936. Federal and State income taxes levied and net amount reported 

by income classes; comment and table 35 109 

1936. Proportion of net income taken by Federal and State income 

taxes levied in California; comment and table 36 109-110 



INDEX 365 

Page 
INSURANCE COMPANIES. Tax-exemption removal recommended 264 

INTEREST RATE. Public debt. See Public debt. 

INVENTORIES. Eflfect of status of on national economy 5 

JENSEN, JENS P. Property taxation in the United States (1931); 

cited (n.) . 198 

JOINT COMMITTEE ON TAX EVASION AND AVOIDANCE. 

Hearings (1937); cited (n.) . . _ 185 

KENDRICK, M. SLADE. Taxation issues (1933); cited (n.) 177 

KENNEDY, E. D. Dividends to pay (1939); cited (n.) and extract. 8, 10, 325 
KEYNES, JOHN M.: ' 

General theory of employment, interest, and money (1936); comment 

and excerpts 30-31 

How to pay for the war (1940); cited (n.) 39, 242 

Mentioned 33, 37 

KILPATRICK, WYLIE. Classification and measurement of public ex- 
penditures (1938) ; cited (n.) 43 

KIMMEL, LEWIS H. Recent trends in the cost of Government (1939); 

cited (n.) and summary . 6,26-27 

KREPS, THEODORE J.: 

Dividends, interest, profits, wages, 1923^35 (1935); cited (n.) 324 

Welfare levels in American life (1939); cited (n.) 314 

KROST MARTIN. Comparison of personal income tax paid on basis of 

rates in force in England and the United States, 1940 i 262 

LABOR FORCE: 

Defined 290 

References to literature. See References to Literature, item 22. 

Sex composition 295 

1870, 1940. Increase in population and in gainful employment, 1940 

over 1870, by occupation, percent, comment, table, and chart 9 291, 

293-294 
1870-1940. Decennial increase of workers by census categories com- 
pared with that of the total population and the total gainfully em- 
ployed, percentage basis ; comment, table 12 294 

1870-1940. Number and percentage distribution of all gainful workers 
by occupational categories, in 10-year intervals; comment, table 11 

and chart 8 . 290-292 

1940-80. Estimated labor force, percent change, percent total: New 
entrants, matured working and older working population, in 10-year 

intervals ; comment, table 10 and chart 7 288-290 

LIQUOR TAXES. 1930-38. Federal liquor taxes, amount, percent of 

total, percent change, by product; comment, table 46 and chart 27 137-140 

LUTZ, HARLEY: 

Hearings before Special Committee on Taxation of Government Secu- 
rities and Salaries (1939); cited (n.) 190, 197 

Public finance, ed. 3 (1936); extracts and comment 24-26, 32, 221 

McCOY, JOSEPH S. Sources of prosperity (1930) ; cited (n.) 12 

MAGEE, JAMES D. Federal income and taxation (1940); cited (n.). 182, 262 

MARIJUANA TAX REVENUES..,. 159 

MASSACHUSETTS STATE PLANNING BOARD. Report of com- 
mittee on public works (Parker, 1938); cited (n.) and summary 231-232 

MATCH TAX REVENUE. 1932-38. Amount and percent; conunent 

and table 47 141 144 

MILITARY E'XPENDiTURESy " 'See also De'fense pVograna." " " " 

Average annual Federal expenditures for the 10 years preceding and 
following the major wars of the United States; comment and table 

69 235-236 

References to literature. See References to Literature, items 11, 31. 

Flexible finance plan 247-249 

Flynn plan 245-246 

Keynes plan 242-245 

Preparedness and war tax proposals compared: Congressional 

proposals, Keynes plan, Flynn plan, flexible finance plan 249 



366 INDEX 

MILITARY EXPENDITURES— Continued. Page. 

1915-39. Expenditures for selected years, by class of expenditure: 
National defense, veterans' pensions and benefits, interest on public 
debt, 1915, 1925, 1932-39, amount and percent; comment, table 70 

and chart 47 i.i 237-239 

1915-40. Amount each year, chart 5 59 

1917-21. World War, cost of 239 

1931-39. Amount, percent, and percent increase; table 23 and charts 

6-7, and comment 61-62, 71 

1939. Expenditures for national defense: Army, Navy, Marine Corps, 

veterans' benefits, dollar amounts and percent; chart 4 339 

1939. Federal expenditures, fiscal year: Army, Navy, Marine Corps, 

veterans' benefits; amount and percent each; table 25 and chart 8.. 66-67 

MIXED-FLOUR TAX REVENUE 159 

MORT, PAUL R. Federal support for public education (1936) ; cited (n.) _ 225 
MOULTON, HAROLD G., and others: 

Capital expansion, employment, and economic stability (1940); cit«d 

(n.) ajid comment. _'- 165, 168, 206 

The formation of capital (1935) ; cited (n.) 18 

MYERS, GUSTAVUS. The ending of hereditarv American fortunes 

(1939); cited (n.) .- 181, 186, 187,314 

NARCOTICS TAX REVENUE 159 

NATHAN, ROBERT R. Income in the United States, 1929-37 (1938); 

cited (n.) 170 

NATIONAL ASSOCIATIOxN OF BUILDING OWNERS AND MAN- 
AGERS. Claim relative to overtaxed American cities (1940) ; cited (n.) . . 256 
NATIONAL ASSOCIATION OF MANUFACTURERS. Questionnaire 
to 709 member companies; summary of reasons given for concern about 

future of business profits 213-214 

NATIONAL DEBT. See Public debt. 
NATIONAL DEFENSE. See Defense Program. 

NATIONAL ECONOMY: GERMANY. Totalitarian program 38,239 

NATIONAL ECONOMY: GREAT BRITAIN. Fiscal policy coincides 

Vvith economic trends : Uuemplovment, tax reform, etc 35-37 

NATIONAL ECONOMY: 

Consumption sector. See Consumer Economy. 

Distribution and production in the United States 271-306 

Economic losses. See Economic losses. 

Economic structure of the United States 271-326 

Employment. See Emploj'ment. 

Foreign trade. See Foreign trade. 

Impact of technology. *See Technological change. 

Ma,ss pur-chasing power impact on national economy . 220-223 

Organization of economic activities 315-326 

Problems of — 4 

Production. aScp Production. 

Produc-ion and distribution in the United States 271-306 

Public and private debt, measures of growth of national economy 215 

Regulatory mechanisms. See Regulation of the economy. 
Unemployment. See Unemployment. 

Who owns the United States 314 

NATIONAL INCOME: 

Defined 170 

References. See References to Literature 24, 41. 

1913, 1923-38. Tax collections and national income by level of 

government; comment, chart 35 and table 54 165, 167-171 

1921-39. Interest charges on private long term and Government 

debts, national income paid out, interest charges as percent of 

national income, odd years only; comment, table 66 and chart 45. 216, 218 

1922-38. Realized national income, total and per capita, in current 

dollars and constant dollars of 1926 purchasing power; comment, 

table 13 and chart 10 295-297 

1923-38. Comparison of national income, total tax collections and 

total business gross capital formation; comment and chart 34 — 165-171 
1929-80. Estimate of total income 1929 (actual), 1940-80 in 10-year 

intervals ; comment and table 17 

1937. Proportion of national income produced by corporations and 

other forms of enterprise, by industries; comment and table 25 319 



INDEX 3g'jr 

NATIONAL INDUSTRIAL CONFERENCE BOARD: Page 

Activities of Board 26 

Studies in enterprise and social progress (1939); cited "(n.) __ V.V 5 7 19 

165, 169, 272-286, 295, 299-300', 3"l5", 323,'325 
NATIONAL RESEARCH PROJECT, W. P. A. See Works Progress 

Administration . 
NATIONAL RESOURCES COMMITTEE: 

Consumer expenditures in the United States (1939); cited (n.)__ 17, 19, 203 
Consumer incomes in the United States (1938); cited (n.)--- 16, 303-306, 314 
Place of studies of in literature of economic structure of the United 

States 24 

Population statistics, national data (1937); cited (n.) 283 

Problems of a changing population (1938); cited (n.) 286 

Structure of the American economy (1939); cited (n.) 46- 

NATIONAL TAX ASSOCIATION. Committee on Federal" Taxation 

of Corporations. Final report (1939); cited (n.)_._ _._ _ _. 261 264 
NATURAL RESOURCES: Conservation needs. 226' 228- 
NEW YORK BOARD OF TRADE. Taxation Committee, festim'ony ' 
of chairman before House Ways and Means Committee, 1939; sum- 
mary 215 

NORTON, JOHN K. and MARGARET A. Wealth, children, and educa- 
tion (1938); cited (n.) 70 225 

OLD-AGE INSURANCE. Revision recommended 266 

OLD-AGE INSURANCE TAX: 

1937-38. Amount and percent each year, under title 8, Social Security 

Act; comment, table 52 and chart 32 155-158 

1937-40. Total collections, disbursements, reserve; comment 221-222 

OLEOMARGARINE TAX REVENUE. 1930-38. Amount and per- 
cent; comment and table 47 141 144 

PARKER, WILLIAM S. A plan for stabilizing public expenditures 

(1938); summary _ _ 231 

PARTNERSHIPS. 5ee Enterprises. 

PAUL, RANDOLPH. Mentioned. . 187 

PAUL, RANDOLPH, et al.: 

Law of Federal income taxation (1936); cited (n.) 261 

Selected studies in Federal taxation (1938); cited (n.) 261 

Studies in Federal taxation (1937); cited (n.).. . 261 

PAY-ROLL TAXES: 

Effect of social-security program pay-roll taxes on regressive forms 

of taxation 2?1 

Old-age insurance. See Old-Age Insurance Tax. 

Railroad employers and employees. See Carriers' Taxing Act 

Revenue. 
Reserves of social-security program taxes, economic and financial 

aspects 221-222 

Revision of old-age pension and unemployment insurance recom- 
mended 266 

Unemployment insurance. See Unemployment Insurance Tax Act. 
PAY ROLLS: 

References to literature. See References to Literature, item 38. 

1929-35. Percent fluctuations 9 

PETTENGILL, SAMUEL: Rate structure of estate tax; speech in Con- 
gress, 1934; comment 181 

POPULATION: 

References. See References to Literature, items 45, 46. 
1750-1980. Total number, domestic count (1850-1930), annual net 
immigration (1850-1930), and percent increase; 1750, 1850-1930, 

1 940-80 estimates ; comment table 6 and chart 4 281-285 

1920-80. Estimated number of private families in the United States, 
decennial numerical and percent change, in 10-year intervals; com- 
ment, table 9 and chart 6 __ 286-28& 



261085— 40— No. 20 25 



368 INDEX 

POPULATION— Continued. Page 

1930-80. Age group distribution percentage and numerical basis; 

tables 283, 285 

1930-80. Estimated age distribution, number and percent change in 

age groups in 10-year intervals; comment and table 5 285-286 

J 930-80. Estimated population of United States by age groups, num- 
erical and percentage basis, in 10-year intervals; comment, chart 

5 and table 7 284-285 

1940-80. Estimated national labor force, percent change, percent 
total; new entrants, matured working population, older working 
population, in 10-year intervals; comment, table 10 and chart 7. 288-290 
PREPAREDNESS PROGRAM. See Defense program. 
PRESIDENT OF THE UNITED STATES: 
Budget messages: 

1932. 1933-34 Budget (Hoover); extracts 229 

1940. 1941 Budget (Roosevelt); cited (n.), and extract 45, 53 

PRIVATE DEBT. See Debt; Private. 

PROCESSING TAX REVENUE. See Agricultural adjustment taxes 

revenue. 
PRODUCTION: 

References. See References to literature items 7, 60. 
1899-1938. Production, man-hours, man-hours per unit of production, 
output per man-hour, all manufacturing industries, 1899, 1904, 
1909, 1914, 1919-37 (odd years only), 1938, index (1899-= 100); com- 
ment and table 2 7 

1909-35. Production of movable goods in the United States, propor- 
tion exported; dollar amount and percent, 1909, 1914, 1919-35 

(odd years only) ; comment and table 15 23 

1929-36. Production, employment, and productivity in 54 manufac- 
turing industries, loss or gain in 1936 compared with 1929; com- 
ment and table 2 8 

PROFIT SHARING. References. 6'ee References to literature, item 57. 
PROFITS. References. See References to literature, items 55, 60. 
PROPRIETORSHIPS. See Enterprises. 
PUBLIC DEBT: 

Interest payment and service costs, fiscal year 1939; table 25, chart 8, 

and comment 66-67, 72 

Interest payments, 1931-39, amount and percent each year; comment, 

table 23, and charts 6-7 60-62 

PUBLIC DEBT: FEDERAL, STATE AND LOCAL: 

1921-39. Government debt (Federal, State, and local, total) and 
interest charges, amounts and rate of interest, each year; com- 
ment, and iable 67 219-220 

1921-39. Government debts (Federal, State, and local) and private 
debt (long term, bank loans and discounts), amount, percent of 
total, percent change, odd years only; comment, table 65 and 

chart 44 215-219 

1921-39. Interest charges on private long-term and Government 
debts, national income paid out, interest charges as percent of 
national income, odd years only; comment, table 66, and chart 

45 216,218 

PUBLIC HEALTH: 

Expenditures for 1939, amount and percent 66 

Government services and expenditures 69 

References. See References to literature, item 18. 
PUBLIC WORKS. Federal expenditures: fiscal year 1939; amount and 

• percent; table 25, and comment , 66, 70 

PURCHASING POWER LOSS. Regressive tax and curtailment of 

mass purchasing power 220-223, 230 

RAILROAD RETIREMENT BOARD. Carriers' Taxing Act adminis- 
tered by. See Carriers' Taxing Act revenue. 
REFERENCES TO LITERATURE: 

1. Advisory Committee on Education: Staff study No. 4 (1939); 
cited (n.) 70,84 



INDEX 3gg 

REFERENCES TO LITERATURE— Continued. Pa« 

2. Anderson, H- Dewey: Our California State taxes, facts and 

problems (1937);- cited (n.).._ 47 

^ ^".'?n?m"' ^- Pf^^^y ^""^ Davidson, Percy E.: Occupational "trends 

(1940) ; cited (n.) ■ ^ 291-294 

4. Ashby, L- W.: EflForts of States to support education" (Y936) ; 

CITGG ^.n.J , ^ OOK 

5. Blair, John M. : Seeds of destruction" (1938)7cited 22 
Brookings Institution studies: 

6. America's capacity to consume (1934); cited (n ) 17 32 

7. America's capacity to produce (1934); cited (n.) '32 

8. Capital expansion, employment and economic stability ( 19¥o)" 

cited (n.) and comment _ lAt; i«o on« 

9. Formation of capital (1935) ; cited (n.)] ' ' ' "g 

10. Chase, Stuart : Capital not wanted (1940) ; cited (n.) 20 

11. Cherne, Leo M.: Adjusting your business to war (1939),^ "cited 

(n.) _ ^ ^^ 230 240 

12. Chicago Round Table: Public Policy Pamphlet." " "Balancing" the ' 

budget (1937); cited (n.) and comment 2^^? 

Colm, G.: """ ** 

13./14. Basis of Federal fiscal policy (1939); summary and cited 

(n.) ^ 28—29 230 

15. Ideal tax system (1939); summary, _ . " _." r. .28-29 

, - i^i Theory of public expenditures (193"6) ; cited (n.) 43 45 

1/. Colm, Gerhard and Tarasov, Helen: Who pays the taxes"? (194"o")- 

cited -___ __ _ 90 

18. Committee on Cost of Medical Care":" R"e"p'o"rt"("l 9"3"3")"; "cited "("n.)"" 69 

19. i^pstein, A. : Social security— where are we now? (1940) ; cited (n.) 221 

20. Pleming, J. M.: Secular unemployment (1939); cited (n.) ' 30 

21. Geddes, Ann.: Trends in relief expenditures, 1910-35 (1937)- 

cited (n.) ' go 

22. Gill, C: Wasted manpower (1939); cited (n.) I "I I3 15 

23. Groves, H. M.: Financing government (1939); cited"(n.) 102 

24. Marnss, C. L.: The tax burden and the national income (1938)- 

(n.) and comment lgc> 

25. Harvard-Tufts Economists: Economic program for Americaiv 

democracy (1938); cited (n.) . _ 6 33 37 

26. Heer, C. : Federal aid and the tax problem (1939) ; cited ("n.j " " " " ' '84 

27. Henderson, Fred: Economic consequences of power production 

(1931); cited , 21 

28. Hynning, C. J.: Corporate size, Federal taxation of income of 

large, medium-sized and small corporations, 1931-36 (1940)- 

cited (n.) _ ' j27 

29. Kennedy, E. D.: Dividends to pav (1939) ;"ci"ted"("n.) 8 10 
Keynes, J. M.: " ' 

30. General theory of employment, interest and money (1936); 

comment and excerpts ' 30-31 

31. /32. How to pay for the wQ,r (1940) ; cited (n.) "^"^,_". 30, 242 

33. Kilpatrick, W.: Classification and measurement of public ex- 

penditures (1938); cited (n.) 43 

34. Kimmel, Lewis H.: Recent trends in the cost of government 

(1939) ; cited (n.) and summary 6 26-27 

35. Kreps, Theodore J.: Welfare levels in American life" (1939)-' 

cited (n.) ' 314 

36. Lutz, H. L.: Public finance, ed. 3 (1936); extracts and "com- 

ment _. 24-26 32 

37. McCoy, Joseph S. : Sources of prosperity (1930) ; cited (n.) ' 12 

38. Monthly Labor Review (December 1939), pay roll data; cited 

(n.) g 

39. Moulton, H. G., and others: Capital expansion, employment 

An A/r^"^ economic stability (1940); cited (n.) and comment. 165, 168, 206 
. 40. Myers, Gustavus: The ending of hereditary American fortunes 

(1939) ; cited (n.)__. Igl jgg jgy 

41. Nathan, Robert R.: Income in the Ignited States, 1929^37 (1938) • ' 

cited (n.) ' ^^0 



370 INDEX 

REFERENCES TO LITERATURE— Continued. Page. 

42. National Industrial Conference Board: Studies in enterprise and 

social progress (1939) ; cited (n.) 5, 7. 19 

National Resources Committee: 

43. Consumer expenditures in the United States (1939); cited 

(n.) 17, 19, 307-313 

44. Consumer incomes in the United States (1938); cited 

(n.) 16, 303-306 

45. Population statistics, national data (1937); cited (n.) 283 

46. Problems of a changing population (1938); cited (n.) 286 

47. National Tax Association: Committee on Federal Taxation of 

Corporations, Final report (1939) ; cited (n.) 261 

48. Parker, W. S. : Plan for stabilizing public expenditures (1938); 

summary 231 -232 

Paul, R. E., et al.: 

49. Law of Federal income taxation (1936) ; cited (n.) 261 

50. Selected studies in Federal taxation (1938); cited (n.) 261 

51. Studies in Federal taxation (1937) ; cited (n.) 261 

52. Rogers, James H.: Capitalism in crisis (1938); cited (n.) and 

extract 232,233 

53. Royal Commission on Dominion Provincial Relations: Report 

(1940) ; cited 89 

54. Rudick, Harry L. : Problem of personal income tax avoidance 

(1940); cited (n.) ^ 187 

55. Sargent, Noel: Testimony, 1939, business profits and tax burden; 

summary 213-214 

56. Securities and Exchange Commission: Report on the census of 

American listed corporations (1938-39) ; cited (n.) 203, 207 

57. Senate Finance Committee subcommittee: Survey of experiences 

in profit sharing and possibilities of incentive taxation (1939); 

cited (n.) 267 

58. Special Committee on Taxation, of Government Securities and 

Salaries: Hearings (1939); cited (n.) 189-190, 197-198 

59. Stone, Harlan Fiske: Public control of business (1940); cited (n.). 187 

60. Taitel, M.: Profits, production activities and new investment 

(1940); cited (n.) and extracts 212 

61. United States Treasury Department. Statistics of income, annual 

issues; cited throughout. 

62. Untereiner, Ray E. : The tax racket (1933) ; cited (n.) 44 

- 63. Ways and Means Committee: Hearings on revenue revision (1939) ; 

cited (n.) 201,203,213,215 

64. Withers, William: Financing economic security in the United 

States (1939); cited (n.) 68 

REFRIGERATION TAX REVENUE. 1932-38." Amount and percent; 

comment and table 47 141, 141 

REGULATION OF THE ECONOMY: 

Federal expenditures fiscal year 1939, broken down by categories; 

amount and percent; table 25, chart 8 and comment 66-67, 72 

References. See References to Literature, item 59. 
RELIEF: 

Expenditures for 1933-39, amount and percent; table 23 and charts 

6-7 61-62 

Expenditures for 1939, amount and percent- 66 

Program and cost 68-69 

References to literature. See References to Literature, item 21. 
RESEARCH. Federal expenditures, fiscal year 1939, amount and per- 
cent ; table 25 and comment 66, 73 

REVENUES. Sources of Federal revenues 89-93 

Tax. See Tax revenues. 

1938. Revenues (total, tax, nontax, net borrowings) and expenditures 

(total, by purpose) ; dollar amounts, chart 1 336 

ROGERS, JAMES H. Capitalism in crisis (1938) ; cited (n.) and extract. - 232, 

233 
ROYAL COMMISSION ON DOMINION-PROVINCIAL RELATIONS. 

Report (1940); cited 89 



INDEX 371 

Page 

RUDICK, HARRY L. The problem of personal income tax avoidance 

^ (1940); cited (n.) 187 

SARGENT, NOEL. Testimony before Revenue Revision Subcommittee 
of Ways and Means Committee (1939), business profits and tax burden, 

summarv 213-214 

SECURITIES AND EXCHANGE COMMISSION. Report on the 

census of American listed corporatiojis (1938-39); cited (n.) 203, 207 

SEIDMAN, M. L. Testimony before House Ways and Means Com- 
mittee hearings on revenue revision (1939); summary: idle money, un- 
balanced Federal budget 215 

SELIGMAN, E. R. A. Mentioned - . 177 

SENATE FINANCE COMMITTEE SUBCOMMITTEE. Survey of 
experiences in profit sharing and possibilities of incentive taxation (1939) ; 

cited (n.) and extract 267 

SMALL V. LARGE ENTERPRISES: 

1933. Sample of all manufacturing industries comprising 84 of 308 
industries: Number of concerns, average number of wage earners, 
6 largest concerns percentage of all and percentage of wage earners, 

by industry; comment and table 26 319-321,323-324 

SOCIAL SECURITY PROGRAM: 

Economic and financial aspects of reserves accumulating under Title 8 

and 9 of the Social Security Act 221-222 

References. See References to Literature, item 19. 
SOCIAL SECURITY TAX Revenues. 1936-38. Amount and percent; 

comment, table 52 and chart 32 155-157 

SOCIAL WELFARE. 1939. Expenditures: Amount and percent; social 
security, public health, relief, housing and rehabilitation, education, 

miscellaneous; comment table 25 and chart 8 66-70 

STAMP TAXES: FEDERAL. 1930-38. Amount and percent by 
source: bdnds, stock issues, stock transfers, produce futures, silver 

bullion; comment and table 43 and chart 24 129-131 

STOCKHOLDERS. Individual stockholders, number and percent, divi- 
dends received, amount and percent, average dividend payments, by 

income classes; 1927; comment and table 8 12 

STONE, HARLAN FISKE. Public control of business (1940) ; cited (n.). . 187 
STUART, ARTHUR W., joint author. See Harvard-Tufts Economists. 
STUDENSKI, PAUL. 

Hearing before Special Committee on Taxation of Government Secur- 
ities and Salaries (1939); cited (n.) 189, 197 

Statement durihg hearings before House Ways and Means Committee 
relative to Social Security Act amendments of 1939, on "added 

SUGAR TAX REVENUE." Amount'and'percent 1937-38; comment and 

table 47 141 

SWEEZY, MAXINE YAPLE, joint author. See Harvard-Tufts Econo- 
mists. 
SWEEZY, PAUL M., joint author. See Harvard-Tufts Economists. 
TAITEL, MARTIN. Profits, productive activities and new investment 

(1940); cited (n.) and extracts 212 

TARASOV, HELEN, joint author. See Colm, Gerhard. 

TARSHIS, LORIE, joint author. See Harvard-Tufts Economists. 

TAX EXEMPT REAL PROPERTY. 1923-37. Amount and percent 

change each year; comment and table 59 198-199 

TAX-EXEMPT SECURITIES: 

1926-36. Amounts of certain investments in estate-tax returns: 

comment, table 58 and charts 40, 41 193-196 

1937. Estimated distribution of tax-exempt securities by classes of 
holders; amount and percent; comment, table 57 and charts 38 

and 39- -- 189-192 

TAX EXEMPTIONS 189-199 

References. See References to literature, item 58. 
TAX INCENTIVES: 

O'Mahoney bill, S. 3560, Seventy-sixth Congress 266 

"Papen plan," Germany 266 

Proposals reviewed 266-268 

References". See References to literature, item 57. 



372 



INDEX 



TAX REVENUE, FEDERAL: Page 

Individual income tax. See Income tax: Personal. 

Corporate income tax. See Corporation income tax. 

1913-37. Internal and customs revenue; dollar amount total; internal 
revenue, amount and percent of total; customs revenue, amount 
and percent of total; comment and table 14 22 

1923-38. Comparison of natiorial income, total tax collections and 
total business gross capital formation; comment and chart 34_- 165-171 

1930-38. Prohibitive Federal taxes: adulterated butter, mixed flour, 
narcotics, marijuana, firearms; amount and percent- total and 
percent change each product; comment, table 53 and chart 33- — 158-161 

1930-38. Progressive sources of Federal tax revenue, corporation 
income and profit taxes: corporate incomes, capital stock, excess 
profits, unjust enrichment: calendar vears, amount and percent; 
chart 14 96 

1930-38. Regressive sources of Federal tax revenue, by sources; 
amount and percent; comment, table 44 and chart 25 131-133 

1930-38. Progressive sources of Federal tax revenue: individual 
income, dividend, estate and gift tax collections, calendar years, 
amount and percent; chart 13 95 

1930-38. Progressive sources of Federal tax revenue, by sources, 
calendar years, amount and percent; table 30 and comment 93-94, 97 

1930-38. Total Federal tax revenues, calendar years (progressive 
and regressive), amount and percent; table 29, chart 12 and 
comment 89-93 

1939. ES'ect of American tax system on various income classes; com- 
ment, table 55 and chart 38 172-175 

1939. Federal expenditures fiscal year 1939, tax collection and tax 

law enforcement; amount and percent; table 66 and comment 66, 73 

TAX REVENUE, UNITED STATES (CITIES): 

Devices for adjustment of revenue programs to restricted property- 
tax receipts: New York City, Scranton, Pittsburgh 256 

National Association of Building Owners and Managers, claim relative 

to overtaxed American cities (1940) ; cited (n.) . 256 

TAX REVENUE, UNITED STATES (FEDERAL, STATE, AND 
LOCAL) : 

1912-38. Distribution of total tax collections, by level of Govern- 
ment, fiscal years 1912, 1925, 1928, 1930-38, amount and percent; 
tables 27-28, charts 10-11 and comment 84-88 

1913, 1923-38. Tax collections by level of Government as percent of 
national income; comment, chart 35 and table 54 165, 167-171 

Tax revenue system of the L^nited States, fiscal year 1938, Federal, 
State, and local, by source: customs, property, individual income, 
estate, inheritance and gift, corporate income, pay rolls, motor fuel 
and vehicle, liquor and tobacco, sales and other excises, other 

sources; table 26, chart 9 and comment 80-83 

TAX REVENUE, UNITED STATES (STATES). 1915-37. State 
revenues from general and selective propertv taxes, amount and percent, 
1915, 1919, 1925, 1930, 1932, 1937, by States; comment and table 71,- 253-255 
TAXATION, UNITED STATES: 

"Added value," estimate of tax base for added value taxation; com- 
ment and table 72 260-261 

Administrative techniques, suggested changes in 257-258 

Bases of reform 253-268 

Does the revenue system retard recovery? 200-222 

Four major tests of a good tax system (Heer) 226 

Is the system adequate to meet Government needs, to defrav the cost 

of new services? 223-228 

New tax sources recommendations: gross sales tax, "added value" 

tax 259-261 

Preparedness program and taxation 235-269 

Progressive taxes defined 89 

Public expenditures and revenue collections, four proposed alterna- 
tives looking to balanced adjustment 223-224 

Rate structure and its effect 181-184 

References-' See References to Literature, items 2, 14, 15, 17, 24, 26, 
50, 51, 55, 58, 62, 63. 



INDEX 373 

TAXATION, UNITED STATES— Continued. Page 

Regressive taxes defined 89 

Revenue system described.' 77-80 

Shifting and incidence 177-180 

Specific changes in tax laws, recommendations 261 

Summary of conclusions and recommendations relation to reorganiza- 
tion of the tax system 269-270 

Tax evasion and avoidance 185-188 

TECHNOLOGICAL CHANGE: 

Effect on foreign trade . 21 

Effect on national economy 4, 5, 8 

Period of greatest and most rapid advancement in United States, 
1870-1930; rate of labor force increase; technological unemploy- 
ment theorv 294 

TELEPHONE AND TELEGRAPH MESSAG TAX REVENUE. 
1932-38. 

Amount and percent; comment and table 47 141, 143 

TOBACCO TAXES: 

1913-38. Revenue from Federal tobacco taxes, amount and percent, 

by form of product; chart 26 • 13.5 

1930-38. Amount, percent of total, percent change: cigars, cigarettes, 

snuff, tobacco; comment and table 45 132,134,136 

TOILET PREPARATIONS TAX REVENUE. 1932-38. Amount and 

percent; comment and table 47 141, 143 

TOTALITARIAN PHILOSOPHY VERSUS DEMOCRACY 38,239 

TUFTS ECONOMISTS. See Harvard-Tufts Economists. 
TWENTIETH CENTURY FUND. Facing the tax problem (1937); 

cited (n.), and comment (171) 22, 135, 137, 159, 171, 178, 261 

UNDISTRIBUTED-PROFITS TAX: 

References. See References to literature, item 55. 

1936. Amount and percent, by net income classes; table 16 352 

UNEMPLOYMENT: 

References. See References to literature, item 20. 
1936-39. Estimated number (absolute and relative) of persons unem- 
ployed. January and June, each year; comment, table 9, and 

chart i 13-14 

UNEMPLOYMENT-INSURANCE. Revision of program of Social 

Security Act recommended 266 

UNEMPLOYMENT-INSURANCE TAX REVENUE: 

1936-38. Amount and percent each year, under Social Security Act, 

title 9; comment, table 52, and chart 32 155-158 

1936-39. Total collections, disbursements, and reserve; comment-- 221-222 
UNITED STATES. Political jurisdictions: Federal, States, munici- 
palities, counties, school districts, other; number employees, number 

and percent, 1935; comment, and table 16 46-47 

UNITED STATES FORESTRY SERVICE. A national forest economy 

(1939); cited (n.) - 228 

UNITED STATES HOUSING AUTHORITY: Purposes, powers, and 

functions (1938); cited (n.) 1 70 

UNITED STATES, PRESIDENT. See President of the United States. 
UNJUST-ENRICHMENT TAXES: 

1930-38. Amount and percent of total corporate income tax; table 40, 

and comment 122, 128 

1936-38. Amount and percent of total progressive tax; table 30, 

chart 14, and comment 94, 96, 128 

UNTEREINER, RAY E. The tax racket (1933); cited (n.) 44 

WAR, COST OF. See Military expenditures. 

WAR POLICIES COMMISSION. Hearings (1932); cited (n.) 39,60 

WALKER, GEORGE R. Memorandum; incentive taxation, etc. (1940); 

cited (n.) 267. 

WAYS AND MEANS COMMITTEE. Hearings on revenue revision 

(1939); cited (n.) 201,203,213,215 

WEALTH, UNITED STATES (NATIONAL): 

1922-37. Total and per capita wealth of the United States: current 
dollars and percent, total and per capita, hypothetical 1926 dollar 

total and percent; comment, table 1, and chart 1 272-274 

1929, 1936. Classification by forms of wealth: land, productive assets, 
public utilities, stocks of goods, amount and percent; comment, 
and table 2.. - .- 274-275 



374 INDEX 

Page 
WEALTH, UNITED STATES (PRIVATE): References to literature. 

See References to literature, item 40. 
WEALTH, UNITED STATES (STATES): 

1929, 1936. Per capita wealth of United States by States, rank and 

amount, percent change 1936 over 1929; table 4 277 

1929, 1936. Rank of States in total wealth of United States, amount 
and percent, percent change 1936 over 1929; comment, and table 3. 275-276 

1936. Per capita wealth of the United States by States; chart 2 279 

WILSON, JOHN D., joint author. See Harvard-Tufts Economists. 
WITHERS, WILLIAM. Financing economic security in the United 

States (1939) ; cited (n.) .' 68, 221 

W^ RKS PROGRESS ADMINISTRATION: 

National Research Project (1937-39) ; cited (n.) 8 

Niunber employed on W. P. A. projects, January and June each year, 

1936-39; absolute and relative; comment, table 9, and chart 1 13-14 

WORLD WAR I: 

Cost incurred by the United States, 1917-21, total amount 239 

Ta$ experience of 240 

Outlay facing the United States estimated 239 

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