NND Project Number: NND 63316. By: NWD Date: 2011
TOP SECRET
SECURITY INFORMATION
21. Excessive government spending leads to inflationary deficits or to repressive taxation, or to both. Persistent inflation is a barrier to long-term growth because it undermines confidence in the currency, reduces savings, and makes restrictive economic controls necessary. Repressive taxation weakens the incentives for efficiency, effort, and investment on which economic growth depends.
22. In spite of the reimposition of tax rates at approximately the peak levels of World War II, expenditures have risen faster than tax receipts, with a resulting deficit of $9.4 billion in fiscal year 1953. Despite anticipated larger receipts, without the imposition of new taxes, and assuming substantially unchanged world conditions, a deficit of $3.8 billion is estimated for fiscal year 1954.
- 23. a. Under existing law, tax reductions of $5 billion a year will become effective next January. A proposal to impose substitute taxes therefor would be a reversal of policy.
- b. Additional revenue losses of $3 billion a year are due to occur on April 1, 1954. Congress has not acted on the President's recommendation that these reductions be rescinded. Even if the $3 billion reduction is rescinded, or offset by revenue from new sources, large deficits would occur in FY 1955 and FY 1956 at present levels of expenditures.
- c. The economic problem is made more difficult by the need to reform the tax system in the interests of long-term economic growth. Inevitably, many of the changes necessary to reduce the barriers to growth will lead to a loss of revenue in the years immediately following their adoption.
24. Any additional revenue will have to be secured by new taxation on a broad base.
25. The present high level of the Government debt further complicates the financial and economic problems of the country. Substantial additional borrowing could come only from sources which would be inflationary.
