Wirt was interested because the dissension among the oil producers in 1929 had resulted in the elimination of the oil duties from consideration. The independents are largely confined to domestic wells, whereas the larger producers secure a large part of their oil from foreign sources. Hence, when the independents failed to secure the oil duty they wanted in the Hawley-Smoot Tariff, the import excise tax suggested itself to Wirt. The Coal Association was interested. because of the imports of Russian coal at that time. They managed to enlist the aid of Senator Huey Long, as well as the National Association of Lumber Manufacturers, since there were charges of lumber dumping by foreign nations at that time. The rich copper mines in the Belgian Congo were going into production, landing copper on our shores at prices sharply competitive with domestic production. This situation resulted in the interest of Senator Ashurst, and this small group became the nucleus of what Senator Harrison has called the "unholy alliance" of 28 Senators from coal, oil, copper, and lumber States.

Efforts were made at the same time to enact such import excises on vegetable oils and fats, and tropical starches, but they were unsuccessful.

The effect of such excises is exactly the same as that of a tariff, and they were resorted to after being defeated in the tariff bill because they provided a way of getting around the omissions of that bill without reopening the whole tariff schedule to new negotiations and log-rolling.

Reciprocal Trade Agreements.

One of the first acts of the New Deal was to institute a general policy of reciprocal tariff reductions by agreements with foreign countries. The Hawley-Smoot Tariff had brought retaliation from numerous foreign governments, and it soon became apparent that mere reductions on our part would not secure reciprocal action from these foreign nations. Therefore, trade agreements were negotiated between the United States and numerous other countries, reducing our tariffs on given items produced in those countries, in return for their reductions on our exports to them.

Business was hostile to these agreements from the start, and fought their extension bitterly both in 1937 and 1940. The National Association of Manufacturers was heard at length on the subject of extension, as were numerous other representatives of business, as well as many farmer, labor, and consumer representatives. These latter three groups were seriously divided in their opinions. The Farm Bureau has at times favored, while the Grange opposed, extension. Matthew Woll testified for the Wage Earners Protective Conference in opposition to the proposal, while the Brotherhood of Railroad Trainmen supported it. Consumer organizations generally supported it. Business, however, was very generally in opposition, with only minor exceptions. When the agreement power was extended, in 1937 and 1940, there were suggestions of testing it in the courts; but this has never been done.15

The New Deal farm program is generally agreed to have been of less aid to the dairy sections of the country than to the producers of

15 Hearings before the House Committee on Ways and Means, 76th Cong., 3d sess., on H. J. Res. 407, vols. II and III.

As a matter of fact, the general property tax has not been an adequate means of raising revenue, from the viewpoint either of the Government or the taxpayer. It is an unsteady source of revenue, sometimes resulting in foreclosures and tax sales at the precise time when revenue is most needed, and when tax sales further damage an already demoralized market. Mere ownership of property is no indication of the owner's ability to pay taxes, as was all too clearly shown by the experience among farmers in 1930-33, when foreclosures were rife, and there was no money available with which to redeem the tax liens.

Partly because of this failure of the general property tax, and partly because of the increased need for revenue, many States have enacted State income taxes. These have been fought as bitterly as the Federal tax, though frequently with more success, since business has been able to argue that if income taxes are raised too high, they will move out of the State. Usually other factors weigh more heavily in the location of their plants than taxation, but it is undoubtedly true that there is a point beyond which State income taxation cannot go for fear of the consequences of such a threat.

The course of State tax legislation is too complex and too diverse to permit full discussion here, except to point out that in essence the same procedure is used as in Federal legislation, with greater or less success, depending on local factors.

The emergency of wartime is usually the excuse for drastic revisions in the tax structure. As has been pointed out, the Civil War involved a great deal of commodity taxation, which was generally paid by the ultimate consumer.

Taxation in the 1920's.

The strain of the World War, however, was too great to permit resort only to such measures. Borrowing was resorted to on a greatly increased scale, and the income tax was made to yield large sums. It was over the bitter opposition of business, however, that the income tax was passed, and the tax on excess profits was even more bitterly opposed. Both yielded enough revenue to make it vital that they should be continued until the end of the war. In 1920, one of the strong, if ungrammatical, talking points of Harding's campaign was "back to normalcy," and his support from business was open-handed

and enthusiastic.

Immediately after his election he appointed Andrew Mellon as Secretary of the Treasury, where he was responsible for extraordinary tax reductions. A special session of Congress was called in December 1926. For many months prior to this session, the N. A. M. had been active in a movement to obtain a reduction of the income tax rates. On April 7 it issued a call for the appointment of a committee to consider the simplification and clarification of existing tax laws, and the possibility of reducing the rates. This call, which was sent to 15 outstanding producers' organizations in the country, resulted in a meeting at Washington on April 27, presided over by James A. Emery, general counsel for the National Association of Manufacturers.

At that meeting a committee of seven was appointed, representing the manufacturing, mining, lumber, oil, cotton, boot and shoe, and automobile industries of the country, as a working group on tax co

operation. "While the Committee was primarily to assist the newly created Joint Congressional Committee on Internal Revenue Taxation in obtaining the industries' views as to simplifying and clarifying the * tax law, the whole question of another tax reduction was not overlooked."20 The Revenue Act of 1928 reduced the tax rate on corporation incomes from 13 to 122 percent.

*

There was little general complaint at this tax reduction policy, although here and there murmurings were heard that the debt should be retired, and that taxes should be collected in amounts sufficient to provide for such retirement. With the collapse of 1929, however, income dropped off precipitously, and the revenues from income taxes likewise declined. The revenues from such excises as were in force fell along with other revenues, and at the same time the Government was being frantically urged to use its resources to care for the unemployed.

New Deal Tax Policies.

Tax rates were raised slightly before 1933, but the inauguration of the New Deal marks an extraordinary increase in both tax rates and tax collections. The income tax has been far more steeply graduated than before, and the exemption has twice been lowered. At the same time, a long series of excise taxes has been included in the revenue program, in the beginning largely on consumers' luxuries, but more and more shifting to taxes on consumers' necessities.21

At the same time, in an effort to force distribution of earnings, and to stop tax avoidance by stockholders who wished to leave their dividends in the company, the administration established a tax on the undistributed profits of corporations.

Up to 1936, the tax structure affecting corporation earnings had included only a straight corporation income tax. Also, stockholders receiving cash dividends on corporation stock were taxed under the personal income tax laws. This personal income tax was avoided if the corporation retained its profits instead of distributing them, or if it issued stock dividends. Many people of wealth in control of corporations found it advantageous to leave their dividends in the corporation, rather than pay the personal income tax on them.

During the 1920's about 40 percent of all corporate earnings were so reinvested.23

Supporters of the 1936 act hoped that the tax would discourage overinvestment and force this money into the hands of stockholders.

Business vigorously opposed the act and immediately started a campaign for its repeal. It took advantage of the recession in 1937 to urge that the undistributed profits tax hindered the flow of investment funds into new production and enterprise.

The National Association of Manufacturers, the United States Chamber of Commerce, the Investment Bankers Association, the American Bankers Association, the Association of American Railroads, the New York Board of Trade, the Guaranty Trust Co., and various

20 Congressional Record, 67th Cong., 1st sess., June 23, 1926, p. 11831. Article by William P. Helm, Jr., in the Brooklyn Daily Eagle introduced into the Record by Mr. Jacobstein.

See H. Dewey Anderson, Taxation, Recovery, and Defense, Temporary National Economic Committee Monograph No. 20, Washington, 1940, pp. 77-161.

22 Ibid., p. 127.

Hearings before the Senate Finance Committee on revenue revision, 74th Cong., 2d sess., 1936, p. 18.

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other organizations carried on a continuous campaign by means of their various publications, meetings, and the speeches by their members.

Representatives of these various organizations appeared before House and Senate committees considering tax bills. They argued that corporations were being penalized for conducting their affairs in a businesslike way, that corporations, like individuals, should be encouraged to save for a "rainy day." Mr. G. H. Houston, president of the Baldwin Locomotive Works, attacked the levy, saying that the system of private enterprise would be destroyed.24 Winthrop W. Aldrich, chairman of the board of directors of the Chase National Bank, appearing before the Senate Committee on Relief and Unemployment, said that the tax affected the capital market.25

Owen D. Young, of General Electric, and many other industrialists have testified that the tax might be expected to hinder the flow of investment capital.26

In 1938 the undistributed-profits tax was retained in principle, but the rates were greatly reduced. In 1939 it was repealed, and a flat levy of 18 percent was placed on all corporation incomes over $25,000. This rate has since been lifted to 24 percent by the Revenue Acts of 1940.

The business community, however, has not ceased to fear that the undistributed-profits tax may at some time be reestablished. The same is true of the publicity provision for incomes over $20,000 a year. The law providing that incomes of this size should be made public was passed in 1934, and aroused a storm of protest from businessmen. Immediately it began to be nibbled away. First the "pink slip" on which income was reported for publication was eliminated, and finally the law itself was repealed, in 1937. But agitation against such publicity has by no means ceased. A moving picture released in 1940 devotes a scene to two crooks going over the list of published salaries, commenting with surprised approval that the Government is kind enough to furnish them a "sucker list."

The pressure of business for a sales tax instead of an income tax has at times been so strong as to deceive even sincere representatives of the man in the street. In the "lame-duck" session of 1933 the sales tax was sponsored in the House of Representatives, and for a short time, until the general public became aroused, had secured the support of a number of the outstanding liberals in the House. It was later defeated, but only after a hard fight.

Taxation for Defense.

The problem of defense and armament in 1940 has again brought up the question of taxes. There is a widespread opposition to meeting the increased expenditure by borrowing, and yet both business and other groups fight increased tax burdens for themselves.

The conscription of wealth ("universal service") has for many years been a battle cry of the American Legion, along with other pressure groups, and efforts were immediately made to pass an excess profits tax which would deal with the problem of war profiteering, and at the same time provide needed Federal revenues. The net result of

24 New York Times, Jan. 9, 1939.

25 Ibid., Jan. 15, 1939.

26 See hearings before the Temporary National Economic Committee, Part 9, p. 3615

the effort so far has been the passage of the Revenue Acts of 1940, which raised the corporate income tax rate to 24 percent, as stated, lowered the personal income tax exemption, and put on each bracket a flat increase of 10 percent, rather than the graduated increase which the liberals espoused. The excess profits measure was laid aside, promised in January 1941, revived, and laid aside again, but finally a hybrid measure was passed in September 1940.

The study, Taxation, Recovery, and Defense, by Dr. Dewey Anderson, of the Temporary National Economic Committee, shows clearly the change in the composition of our tax structure since 1915. The revenues from all sources dropped off somewhat in the 1920's, and increased with extraordinary rapidity from 1932 onward. The proportion of the revenue made up by consumers' taxes has also increased, indicating that the relative pressure brought by consuming groups is considerably less than that exerted by business. Some of this pressure took the usual form of direct approaches to Congress, in hearing rooms, and in lobbies, but an ever greater amount of it has been in the form of propaganda directed at the ordinary citizen to convince him that direct taxation of business, such as the corporate income tax or taxes on undistributed earnings, hampers business and keeps it from going ahead in its "normal" fashion.

Business has led the attack on these taxes, but has managed by means of skillful propaganda to convince a large part of the population that the Government was strangling business, and persuade those people to communicate their disapproval of the bill to Congress.

This, in its broad outlines, is a picture of the tax struggle in this country. There have been many minor struggles, however, between various interests. An outstanding example is the fight on the oleomargarine tax.

The dairy producers have always been plagued by the luxury status of butter, milk, and cheese in the ordinary diet, and at precisely those depression periods when other deflationary factors work against them, they find that their market dwindles. Small income families are much inclined to shift to oleomargarine, for instance, when the price spread between butter and oleomargarine is wide, and they merely forego the consumption of fresh milk.

One of the chief aims of the dairy lobby, therefore, has been to increase the price of oleomargarine to a point which will make the shift of little financial value to the consumer. This approach has proved only partly successful, and further efforts have been made, both nationally and in some State legislatures, to put a prohibitive tax on the sale of oleomargarine.

Here is an extraordinary example of a real division of immediate interest between farmers and urban workers. In the absence of an adequate solution, which would permit dairy farmers to supply wanted dairy products to city dwellers at a fair price, any compromise drives a wedge between the two groups.

GOVERNMENT EXPENDITURES

Just as vigorously, if not as successfully, as it has argued tax and tariff matters, business has espoused a balanced budget. It has argued that Government should so arrange its budget that current income equals current outgo, "as business does." Obviously, business