Date 14 April 1942
Author Roy Blough
Title Evils of the Sales Tax
Description Memo prepared for the President; used at press conference of the same date
Location Box 44; Papers of Roy Blough; Harry S. Truman Presidential Library, Independence, MO.
 
EVILS OF THE SALES TAX

A. The sales tax violates the principle of ability to pay. It falls more heavily on the poor; it is, in fact, a "spare-the-rich" tax. A sales tax taking 10 percent of income at the $500 level would take 6 percent at $2,500 and 3 percent above $10,000. It is bad economics to increase the tax load on people who have all they can do to feed and clothe themselves and their families. A sales tax would reduce their productive efficiency and might require Federal relief for them.

B. A sales tax is not required to withdraw purchasing power.

1. Although about 45 percent of the national income goes to those who do not now pay income tax, the very low incomes are not getting the bulk of the income increases. The $18 billion increase in national income expected for 1942 will go very largely to persons subject to income tax in 1942. (Based on O.P.A. figures.)

2. Lower incomes are already being reached; persons in lower income groups are already paying a bigger share of their incomes in Federal, State and local taxes than are persons just above the income tax exemption level.

3. Lower incomes will be further reached through:

(a) the $2 billion increase in social security taxes,

(b) the $1,300 million proposed excise taxes, and

(c) the voluntary payroll deduction savings program.

4. Low income groups spend more of their money on foods and other relatively plentiful goods and less on durable goods and other scarce goods and compete with war production.

C. The immediate effect of the sales tax would be to increase the cost of living. It would have the same kind of effect on low incomes as inflation.

1. It would stimulate the wage earner's demands for wage increases which by increasing costs would result in higher prices.

2. It would add to farm prices under the parity provisions.