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Mr. BUTTON. Thank you, sir. (Exhibit A is as follows:)

EXHIBIT A

TABLE VIII.-A reduced Federal budget for 1948

[Millions] Class of expenditure :

National defense_
Veterans' services and benefits_-
International finance---
Social welfare, health, and security.
Housing and community facilities..
Education and general research..
Agriculture and agricultural resources_
National resources not primarily agricultural.
Transportation and communication..
Finance, commerce, and industry-
Labor
General government-
Interest on the public debt.
Refunds.--

Amount $10,000

7,000 2, 000 1,500 158

88 750

800 1, 000

112

104 1, 000 5, 000 2, 065

Total expenditures--

31, 577 Note.-Reprinted from A Tax Program for A Solvent America (1947), p. 56, by the Committee on Postwar Tax Policy.

The CHAIRMAN. Dr. Halvorson? Will you give the reporter your full name, address, and occupation ?

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STATEMENT OF LLOYD C. HALVORSON, ECONOMIST, THE NATIONAL

GRANGE, WASHINGTON, D. C. Mr. HALVORSON. I am Lloyd C. Halvorson, economist of the National Grange. Our office is at 744 Jackson Place NW., Washington, D. C.

Because Grange members realize the tremendous significance that the fiscal policies of our Government have to economic stability and economic progress, they have given considerable thought to proposals for tax reduction.

Part of the reason why Grange members have such a great interest in fiscal policies is that they have concluded from their past experiences that general prosperity is vital to agricultural prosperity.

It is very difficult to greatly affect the percentage of the national income that goes to agriculture. This being so, it is clear that we must give considerable thought to policies that can promote economic stability and that permit maintaining a high or an expanding national income.

At this point I want to add that a collapse in farm prices, if not prevented by support floors or otherwise, could precipitate a depression just as easily as unsound fiscal policies.

Farmers are probably the chief victims of economic instability. In periods of depression their prices fall the lowest. Not only do they lose their current income, but in many cases foreclosures take from them what little they have been able to accumulate from a lifetime of hard work.

Sound fiscal policies hold out to farmers the greatest hope of economic stability. Fortunately, fiscal policies to promote economic stability are entirely consistent with our principles of free enterprise. But that is not all. If we do no use fiscal policies to promote economic stability we are threatened with a host of measures providing for direct governmental intervention.

In periods of inflationary danger, even in peacetime, 212 years after the end of the war, we are threatened with such things as price control and rationing: In periods of depression the threat of direct governmental controls is even greater and more insiduous. Unless we promote economic stability by every means possible our whole foundation of free enterprise will be seriously threatened.

Grange members saw during the war how huge budgetary deficits poured an excessive amount of purchasing power into our economy. Prices rose to such a high point that we attempted to hold them in check by price controls.

For 212 years after the war this excessive purchasing power has continually threatened us with further inflation, in spite of the fact that production of goods and services has been at unprecedented levels.

A budgetary surplus just the opposite of a budgetary deficit drains off purchasing power from the economy. If the budgetary surplus is used to retire Government bonds held by commercial banks it serves to contract credit and has the effect of actually extinguishing money, that is, demand deposits.

In view of these facts, Grange members have come to certain conclusions. - They are overwhelmingly, and with strong conviction, opposed to any general income-tax reduction at the present time, and as long as inflation is with us. In other words, we favor the largest possible budgetary surplus to retire Government debt under present tax rates and rigid governmental economy. It is high time, 21/2 years after the war's end, that we settle down to a firm and

stable price level if we are to maintain a stable and prosperous economy for years to come.

It is frequently said that no one is really concerned with inflation. If this philosophy holds sway, there will someday be a rude awakening and a reexamination of the past.

Grange members have another reason of equal importance with that of economic stability, for opposing tax reduction at this time. If we are ever to reduce our national debt, we must do so in periods of prosperity. It is a happy coincidence that fighting inflation by fiscal measures is in perfect harmony with our desire to reduce the national debt.

Unless we reduce our national debt now when we can, our Government may face a dire crisis when and if a depression should come upon us. If doubt should ever arise as to the ability of our Government to meet its obligations, it might mean the downfall of our form of government. Certainly it would mean disasterous inflation or repudiation.

Should a depression come, it is likely that there will be need for deficit financing. The more we reduce the national debt now the stronger the position of our Government regardless of what the future may

hold for us. Even if we should reduce the national debt at a rate of 5 billion dollars every year it would still take more than 50 years to retire it. Judging from past experience, we know that deflation or low prices is our problem about half of the time, and in these years the rate of debt retirement will be greatly reduced as it should be.

Furthermore we know that even in some peacetime years we may add to our national debt, as we did in the 1930's. And while we hope

for the best in our world affairs, we must be prepared for the worst. All this means that we should reduce the national debt as much as we can now while economic conditions are such as not only to permit it, but also are such as to demand it from the standpoint of sound national economic policy.

While Grange members are concerned with the broad economic aspects of taxation, taxes are still taxes and Grange members do not like high taxes. There can be no stronger desire for low taxes than that which comes from our members. They not only dislike high taxes but they also dislike big Government. While we dislike high taxes, we possess enough perspicuity to know that there is a difference between taxes which go to increase governmental expenditures and high taxes which go to reduce our national debt. Taxes to reduce the national debt now are a lessening of an inescapable burden for the future.

It is a reduction in governmental expenditures rather than of taxes which will increase the supply of private goods and services available to our American consumers. A reduction in governmental expenditures would not only release men for employment in private enterprise, which would be reflected in an increase in the national output of goods, but it would also reduce the demand for goods in short supply.

On the other hand, as long as we maintain maximum production and maximum employment, high taxes to be reflected in a large budgetary surplus will not reduce the availability of consumer goods and services.

It is very important for the future of our country that all our citizens recognize these differences between high taxes which go for governmental expenditures and high taxes which go to reduce our national debt.

Many people are inclined to think: "If my taxes were lower, I could buy this, that, or the other thing.” In individual cases this might be true, but if tax reduction, as distinguished from a reduction in governmental expenditure does not increase overall national production, then on the average, consumers would not be better off, because prices would simply rise. Creditors would lose and debtors gain.

More farmers are paying income taxes today than ever before. . After a decade of meager subsistence in the 1930's they are now able to make some financial progress. While our members recognize that farm prices and good crops may not last long, they nevertheless, favor high taxes for debt reduction now. If their philosophy was that of letting others and their children pay the debt, they would favor tax reduction.

Some time in the future when our economy has settled down to a stable basis, we will want and we will need to, reduce taxes and the budgetary surplus. It could be that within this next year our problem will change from inflation to deflation.

However, if we will need to have a price adjustment in lines where prices are too high, and even if prices would generally come down in all lines, it would be a good thing up to the point where production and employment began to fall off. Should this happen, we would favor some tax reduction this year.

We think this is very unlikely, but we favor setting up a modest tax-reduction program to become effective in case employment should fall below 95 percent of the labor force this year.

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At the present time we believe it is unsound procedure to reduce taxes before the total of governmental appropriations are known. We believe that experiences of last year demonstrated that it is impossible in times like these to set a budget ceiling and stick to it.

If taxes were reduced 6.5 billion dollars as some advocate, and if the Congress failed to reduce the President's budget which allows only a 4.7-billion-dollar surplus, we would have a budgetary deficit of 1.7 billion dollars; something which I am sure that even the advocates of tax reduction would not want to see. It must be kept in mind that the President's budget did not provide for any pay increase for Government employees, and there is some indication that there is an increase in the offing:

It would be much wiser, in our opinion, if Congress would first establish the desirable amount of budgetary surplus for next year. This figure would then be added to the total governmental appropriations to automatically determine the tax rates at the end of the year.

We note that some witnesses must have put much emphasis on the necessity of tax reduction, particularly on the higher incomes, to provide venture capital.

One big reason why capital is at times afraid to venture is fear of the future. Fear of depressions and governmental controls appear to be two basic elements. At times, monopolistic elements which prefer a big profit on a small volume to a smaller profit on a large volume, retard expansion.

It is very doubtful that any serious deficiency of funds for capital expansion exists today. Latest figures show that nonfinancial corporations today hold 34.7 billion dollars of liquid assets without including inventory. Unincorporated business holds another 27.2 billion dollars making a total of 61.9 billion. In 1939 the total was only 17.6 billion.

In 1947 new investment in plant equipment and new inventory amounted to over 25 billion dollars. In 1947 corporate profits reached a new high and although dividend payments also reached a new high, corporations retained five-eighths of their profits to plow back into the business. Retained corporate earnings were double those of the war years and four times those of 1929.

The tendency toward borrowing rather than financing through stock issues has probably been called to your attention. This is usually presented as evidence of a shortage of equity capital.

Actually, however, it may only reflect a desire of business to concentrate the profit upon fewer shares. Stockholders are frequently opposed to dilution of the equity. If money can be borrowed for 3.5 percent, and 15 or 25 percent earned on it, borrowing from banks or selling bonds is probably logical.

At this point I would like to point out that a uniform reduction in taxes—which would otherwise go into a budgetary surplus-might not increase savings as much as some may think. If tax rates were reduced from 20 to 10 percent of my income I am no better off if prices rise 10 percent as a result of the increased purchasing power made available, nor would my savings necessarily increase.

If there is great room for capital expansion in our economy, as we hope there is, let us not try to bring it all about at one time.

It is a well-established economic theory that business cycles are caused by an unevenness in the rate of capital formation to promote economic stability. Capital formation should be spread out over many years to come.

It appears to us that the greatest limiting factor to capital expansion today is the availability of men and materials. We are not impressed with wild statements to the effect that reduced tax rates would encourage such an expansion in industry that the additional income would actually increase tax receipts in the light of the fact that business is today more prosperous and making more money than ever before, and those who can get the location, the equipment, the material are already going into business as fast as they can.

We have used our time mostly to speak on the matter of tax reduction. The tax policy of the National Grange also covers other aspects of governmental expenditures and taxation. We hope you gentlemen will read appendix A, containing the full tax program of the National Grange. Also appendix B, which presents the remarks Mr. Goss made on taxation in his masters' annual address to the delegate body of the National Grange last November.

Three points in the Grange tax program need special mention. We believe that the best way to reduce taxes would be to make a uniform point reduction in the tax rate at all income levels. For example, the tax rate at all income levels could be reduced five points.

We believe that as many citizens as practicable should pay direct taxes in order that they be fully aware that governmental appropriations is money out of their pockets. I might add we oppose any increase in exemptions.

Another part of our tax policy calls for equality in Federal income taxation between those States which have community-property laws and those which do not. Permitting splitting of income accomplishes this though it does reduce the tax revenue from the higher income levels. However, this method is probably the only feasible way of achieving equity in this situation.

To discourage corporation farming and absentee owners from acquiring large acreages of farm land for the purpose of deducting losses incurred in farming from income from other sources, we urge that the tax law be so written as to permit deduction of losses on agricultural operations only from income derived from such agricultural operations.

In conclusion, we urge that no reduction in income taxes be made as long as inflation is with us. We agree with the observations of Professor Groves, of Wisconsin, that taxation has been elevated from the position of a mere Government meal ticket to an instrument of grand economic strategy.

(Appendixes A, B, and C follow :)

APPENDIX A

REPORT OF COMMITTEE ON TAXATION

Today the total annual tax bill of the Nation for all levels of government is over $50,000,000,000, or about one-fourth of our national income. This is a per capita cost of government of over $350. In establishing our policies in regard to public finance, it is important that we take note of the increase in the cost of government as indicated below:

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