New Taxes for Defense

December 5, 1941

Report Outline
Need of Heavier Taxes to Check Inflation
Defense Costs and Current Defense Taxes
Withholding Taxes and Enforced Savings
Sources of Additional Tax Revenue

Need of Heavier Taxes to Check Inflation

Rapidly mounting defense costs, combined with growing threats of inflation, caused the administration early in November to urge the House Ways and Means Committee to consider prompt enactment of drastic new tax levies, despite the fact that the greatly increased taxes imposed by the Revenue Act of 1941 had not yet gone into full effect. When the committee declined to take immediate action, President Roosevelt wrote to Chairman Doughton (D., N. C), November 8, that he very much feared “that unless we start within two or three months to withdraw through taxes a larger part of the current national income an even greater part may evaporate through inflation.” In the same letter he said:

It seems clear that if we are to prevent a further sharp increase in the cost of living and in the cost of the defense program itself, we must take immediate steps to absorb a large amount of purchasing power through additional taxes, and incidentally to pay cash for a greater part of our defense production …

If these taxes are to restrain inflation, they should bo directed mainly at that part of the national income which is being devoted to the purchase of civilian goods, and should be of a character that will not increase the cost of these goods. Purchasing power so far exceeds actual and potential production of civilian goods that vigorous steps must be taken to reduce purchasing power more nearly to the level of production capacity.

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