Sales Taxes: Federal, State, and Foreign

Report Outline
Administration Proposal of New Taxes to Meet Deficit
General Sales Taxes in Theory and Practice
Use of Sales Taxes by the Federal Government
Use of Sales Taxes by the State Governments
General Sales Taxes in Foreign Countries
Special Focus

Administration Proposal of New Taxes to Meet Deficit

New or increased sales taxes on automobiles, radios, telephone and telegraph messages, theater tickets, and cigarettes, together with several other miscellaneous levies of the same nature, were recommended by the Treasury Department, December 9, 1931, as part of a program to provide the government with enough additional revenue to balance the federal budget by the end of the fiscal year 1934. The Democrats, who have an outright majority in the House of Representatives and enough members in the Senate to control that body in combination with the Progressives, failed to express full agreement with the new Mellon plan. Their policy committees in Senate and House took the question under advisement and will endeavor to formulate a program upon which the Democratic members of Congress can present a united front. Hearings before the House Ways and Means Committee on the emergency revenue bill are expected to begin when Congress reconvenes after the Christmas recess.

Judging from Democratic criticism of the Treasury proposals, members of that party are likely to demand that the major part of the burden of new taxation be placed upon the wealthy. To this end, they may recommend heavier levies on large incomes and estates than those proposed by Mellon, insist upon enactment of a gift tax to check estate tax evasion, oppose lowering of the personal exemptions of the income tax, and favor restriction of new sales taxation to a narrower range than that suggested by the administration. Such a program would probably produce less revenue than the Mellon plan, but the Democrats are inclined to favor liberal borrowing in the existing emergency, as well as relaxation of the provisions of law requiring specified payments into the sinking fund.

Position of Treasury on a General Sales Tax

Senator Reed (R., Pa.) last September proposed a permanent general sales tax on all articles and commodities other than the prime necessities. He asserted that approximately half the annual federal revenues could be raised by such a tax without inflicting hardship upon any element of the population. Support for the principle was indicated by several members of the Senate, but the opinion was also expressed that congressional approval for a general sales tax could not be won at this time. It was recalled that the Senate in 1921 rejected several general sales tax proposals sponsored by Senator Smoot (R., Utah), now chairman of the Senate Finance Committee. Votes for the Smoot bills came entirely from Republican senators. The Democrats were solidly opposed. Then, as now, they, with the Progressives, condemned the general sales tax as laying an unjust burden upon the poorer classes while relieving the wealthy of taxes they were well able to pay.