by RICHARD A. MUSGRAVE
Division of Research and Statistics, Board of Governors
Revenue legislation during the next few years offers a unique opportunity for Federal tax reform. Yield requirements will drop sharply in the shift from war to peace and sweeping changes in economic conditions will call for a reorientation of policies. Public interest in tax legislation will be lively and sympathetic, as the change at last will be for less, not more, taxes. In this setting one may hope that haphazard rate cuts will be avoided, and the basic structure of Federal taxation be reconsidered.
This discussion is focused on a few major aspects of Federal tax reform; many details will be omitted. First, we shall consider the basic economic issue, namely how to minimize the deflationary effects of taxation upon private spending. This will be followed by a discussion of flexibility in tax policy. Next, we shall examine the place of the corporation income tax and its coordination with the personal income tax. In a final section the outlines of a revenue program will be presented. Questions of equity in taxation, while most important factors in tax policy, have been discussed widely elsewhere and are here dealt with by inference only.
In the preceding essay we have seen how public expenditure and revenue policies combine in shaping the Federal budget's contribution to income and employment. Now, the level of public expenditures is taken as given and the tax aspects of budget policy are singled out for closer consideration.
Revenue Structure and Size of Deficit. Federal expenditures for the average postwar year are estimated to be in the neighborhood of 28 billion dollars; that is, total receipts of 28 billion will have to be ob-