DURING the depression of the thirties, much was heard about incentive taxation, a term applied to the use of taxation as a system of rewards and penalties especially designed to encourage production and employment. During those necessitous times, inventiveness was at a high level and many original reforms were suggested. The period was characterized by an intensive (and in some cases almost pathological) tax consciousness. This combination produced many proposals seeking to solve the economic problem by ingenious use of the tax mechanism.
There is no disagreement concerning the fact that taxes can have stimulating or depressing effects upon enterprise. The basic purpose of every tax system is to raise sufficient revenue for the expenses of government, but it should contribute to rather than obstruct high levels of employment, production, investment, and consumption. This book is mainly concerned with tax modifications that would make the tax system noninhibitory to desirable economic activity, including consumption. These tax modifications include selection of, or more emphasis upon, tax A as contrasted with tax B. But, beyond this, taxes can be devised and arranged to offer positive encouragement to business undertakings. Such inducement can take many forms, of which the more common are exemptions, refunds, discounts, premiums, and credits. These inducements may be desirable at times, but care must be exercised lest they be at the expense of other equally desirable economic activities, and they should be discontinued as soon as the reasons for their adoption have disappeared. Finally, it is possible occasionally to use taxes as a "whip" to