Federal Taxes and Defense Financing

December 4, 1940

Report Outline
Plans for new Defense Loans and Taxes
Receipts, Expenditures, and Public Debt
Federal Tax Legislation Under New Deal
Problem of Financing Defense Program
Special Focus

Plans for new Defense Loans and Taxes

Complementing its appropriation of unprecedented sums for expenditure on national defense, Congress in the summer and autumn of 1940 passed two tax bills calculated to yield, when in full effect, approximately $2,000,000,000 of additional revenue annually. Despite this action, Congress will be obliged, in view of the magnitude of defense expenditures already authorized and the prospect of still heavier defense spending in the future, to levy additional taxes at the next session. Since President Roosevelt has made known his firm opposition to imposition of a general manufacturers' sales tax, which it has been estimated could be made to raise $800,000,000 a year, it is assumed the new revenue will have to be obtained for the most part from increases in the rates of existing taxes, supplemented possibly by such comparatively small sums as may be obtained by withholding tax exemption from future issues of government securities.

Following a meeting of the President with congressional framers of revenue legislation, November 29, it was reported that the administration was giving serious consideration to a fiscal program of which the principal features would be: (1) Segregation of rearmament expenditures, exclusive of normal outlays for the Army and Navy, in a separate defense budget; (2) prompt balancing of the regular budget through increased taxes and economies; (3) raising of the debt limit by an amount sufficient to provide for all probabla borrowing necessitated by the defense program; and (4) imposition of special defense taxes to amortize all defense borrowing over a definite number of years. It is suggested that, under this scheme, the first tax bill submitted at the new session would be limited to levies needed to balance the regular budget. Taxes to amortize defense costs would be deferred until the Treasury had had time to review the revenue possibilities of the new excess profits tax, imposed by the Second Revenue Act of 1940, in the light of the returns to be made March 15. 1941.

The principle of restricting new federal borrowing, under an expanded debt limit, to the specific purpose of financing defense expenditures, and of earmarking the proceeds of special defense taxes for retirement of the additional loans, was recognized in the First Revenue Act of 1940. Its application to the whole defense program now getting under way would tend to place its financing on an orderly basis. In addition, restriction of additional borrowing authority to defense would have the effect of compelling a balancing of ordinary receipts and expenditures, since the government's power to borrow for general expenditures has already been virtually exhausted.

ISSUE TRACKER for Related Reports
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Nov. 21, 1953  Revision of Excise Taxes
Mar. 19, 1953  Federal-State Tax Relations
Oct. 01, 1952  European Taxes and Tax Evasion
Nov. 03, 1950  Excess Profits Tax
Feb. 01, 1950  Tax Loopholes
Jun. 04, 1949  Excise Taxes
Oct. 27, 1948  Postwar Sales Taxes
Aug. 29, 1947  Taxation of Family Income
Apr. 09, 1947  Income Tax Relief
Jan. 11, 1946  Taxation of Cooperatives
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May 08, 1944  Postwar Taxes
Sep. 20, 1943  Sales Taxes
Dec. 05, 1941  New Taxes for Defense
Apr. 05, 1941  Taxation for National Defense
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Jan. 11, 1941  Exemptions from Taxation
Dec. 04, 1940  Federal Taxes and Defense Financing
Feb. 01, 1940  Sharing of Tax Revenues
Feb. 02, 1939  Turnover Taxes in the States
Nov. 05, 1937  Broadening of the Income-Tax Base
Jun. 17, 1937  Exemptions from Income Taxation
Apr. 05, 1937  Coordination of Federal and State Tax Systems
Dec. 19, 1936  Revision of Federal Tax on Capital Gains
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Mar. 19, 1936  Taxation of Undistributed Corporate Profits
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Oct. 21, 1935  Tax Delinquency in the United States
May 21, 1935  Comparative Tax Burdens in America and Britain
Feb. 01, 1935  Federal Taxation of Corporations
Nov. 27, 1934  Elimination of Conflicts in Taxation
Jul. 25, 1933  Taxation of Excess Profits
Jan. 25, 1933  Tax Burdens and Tax-Free Securities
Nov. 23, 1932  The Beer Tax and the Sales Tax
Dec. 19, 1931  Sales Taxes: Federal, State, and Foreign
Sep. 18, 1931  Death Taxes and the Concentration of Wealth
Mar. 18, 1931  Federal Taxation of Large Incomes
Jan. 10, 1931  Taxation of Capital Gains
Nov. 09, 1929  Federal Tax Reduction-1930
Aug. 08, 1927  Federal Tax Reduction—1928
Sep. 27, 1926  Tax Reduction and the Public Debt
Jan. 16, 1926  Taxation of Estates and Inheritances
Nov. 07, 1925  Federal Taxation of Small Incomes
Nov. 28, 1924  Social, Fiscal and Legal Aspects of the Inheritance Tax
Apr. 07, 1924  Causes and Effects of the Tax Return Blockade
Dec. 12, 1923  Tax Exempt Securities
Dec. 10, 1923  Taxation
Defense Budget
Federal Taxes