Flexible Taxation

Report Outline
Flexibility in the Federal Income Tax
Depreciation and Flexible Taxation
Tax Simplification and Tax Flexibility

Flexibility in the Federal Income Tax

Occurrence of a second business recession in the space of three years has given special prominence to proposals, long debated by economists, to introduce some measure of flexibility into the rate schedules of the federal income tax. The purpose would be to make tax policy effective as an instrument for combating recession or inflation. Flexibility would be attained by making statutory provision for downward or upward rate adjustments, either automatically according to a formula based on standard economic indexes or at the discretion of the President.

Several of President Kennedy's key economic advisers, believing that present monetary and fiscal policies do not lend themselves to checking an economic slump with sufficient dispatch, have urged adoption of the flexible system. Some of the management and labor spokesmen who have been calling for an immediate reduction of taxes take a similar position. They advocate amendment of the internal revenue laws to assure tax relief close to the start of future business recessions—not months later when the slump may have gone too far to yield to a remedy of this kind.

The new administration has made it clear that it will not be hurried into an immediate decision on tax recommendations to Congress. President Kennedy said at a news conference on Feb. 1 that he did not at that time consider the current recession serious enough to justify a tax cut. He added that “We are going to make another judgment on the state of the economy in two to three months and will then decide what action can be usefully taken.”