The Role of Direct and Indirect Taxes in the Federal Revenue System; A Conference Report of the National Bureau of Economic Research and the Brookings Institution

Princeton, New Jersey: Princeton University Press, 1964. Presumed First Edition, First printing. Hardcover. Very good/Very good. xii, 321, [1] pages. DJ has slight wear and soiling. Footnotes. Includes Preface, Introduction: The Issues; Taxation, Resource Allocation, and Welfare; Allocation Aspects, Domestic and International; Equity, Administration and Compliance, and Intergovernmental Fiscal Aspects; Comparison of European and United States Tax Structures and Growth Implications; Summary of Conference Discussion; Conference Participants; and Index. The papers in this volume were presented at a conference held in October, 1963 to examine what the economic impact of a shift in federal taxation toward greater use of indirect taxes would be with respect to the rate of saving and investment, personal effort, the balance of payments, and the efficiency of resource use. A major focus therefore is on the economic growth and balance-of-payments aspects which have been most emphasized in recent proposals for substitution of a sales tax or a value-added tax for part of the existing income tax. THE question of the optimum relative role of direct and indirect taxes in the federal tax structure has been a perennial one for forty years. The last year has seen revival of interest in the question, prompted in large measure by the emphasis given by the European Common Market countries to harmonization of their tax structures, by concern over United States exports, and by a continuing lag in investment spending in the country, with consequent failure of economic growth to attain the rate regarded as desirable. It is the purpose of this introductory paper to outline briefly the history of the controversy, and to state the issues as they stand at the present time. Some Concepts: To lessen confusion and the need for detailed discussion of concepts in the papers to follow, and to lessen analysis of questions which are incidental to the main issues of the conference, a statement of the meaning to be given to certain terms and of assumptions on several key issues for purposes of the conference will be given in this section. Little is to be gained by seeking to establish definitions of direct and indirect taxes. Instead, we shall simply interpret the term "direct tax" as referring to personal and corporate income taxes and death taxes, and "indirect tax" as referring to levies upon the production or sale of commodities. The question of the classification of payroll taxes is not of major importance for the conference as a whole, and will be raised only in the Eckstein paper. The same is true of property taxation. There are two principal categories of indirect taxes: excises, imposed upon the production or sale of particular commodities or related groups of commodities; and sales taxes, imposed upon the sale of all commodities except those specifically exempted. Since broadening of the base of the federal excise tax structure is not under serious consideration, the prime issue of concern is whether the federal government should introduce a sales tax to replace a portion of the revenue now gained from personal and corporate income taxes. There are four major possible forms of sales tax worthy of serious consideration: those imposed, respectively, upon the manufacturing level, upon the last wholesale transaction through which a commodity passes, upon the retail sale, and upon value added, either at the manufacturing level or at all stages in production and distribution. In turn, the value-added tax may take the income or
consumption form, as discussed in the Eldridge paper. It will be assumed that excises and sales taxes are borne primarily in relation to consumption expenditures through increases in the prices of consumption goods relative to factor incomes. The validity of this
assumption has been subject to question over recent years,' but in the context of the present issue, which relates to the alternative choice of income and commodity taxes to finance a given level of government activities, the assumption would appear to be the most suitable one. It is recognized, of course, that there are exceptions to the rule of shifting, a portion of the tax undoubtedly resting on the owners of specialized resources, and upon the recipients of excess profits. The issue of shifting is considered to some extent in the Musgrave-Richman and Eldridge papers.