EIGHT MONTHS AGO, I submitted a sweeping set of proposals to the Congress for the first major tax reform in 15 years, one which would make our tax system more fair.
My proposals were carefully balanced to avoid increasing the pressure on prices that were already rising too fast.
Congress has passed an unbalanced bill that is both good and bad. The tax reforms, on the whole, are good; the effect on the budget and on the cost of living is bad.
When the Congress reduces revenues, and at the same time increases appropriations, it causes budget deficits that lead to higher prices.
In terms of long-overdue tax reform, most of my major reform proposals were adopted. Other proposals were worked out between the Congress and the administration; still others were the handiwork of the Congress alone.
--More than 9 million low-income people who pay taxes will be dropped from the tax rolls. This results primarily from the special low income allowance that I proposed last April as a means of making sure that people at or below the poverty level do not have to pay Federal income taxes.
--A large number of high-income persons who have paid little or no Federal income taxes will now bear a fairer share of the tax burden through enactment of a minimum income tax comparable to the proposal that I submitted to the Congress, which closes the loopholes that permitted much of this tax avoidance. However, the highest rates on wages and other earned income, not otherwise tax-sheltered, will be reduced from 70 percent to 50 percent in 1972.
--The Congress accepted my recommendations to reduce sharply the discrimination against single persons in the tax laws.
--Over 19 million additional people who pay taxes will find their annual task easier because they will find it advantageous to use the simple standard deduction, which is being significantly increased, rather than listing each deduction separately.
--Measures are also included that will guard against over-withholding of income taxes. For example, students who work in the summer and who in the past have had taxes withheld and retained by the Government until refund checks were mailed out the following spring, will no longer be subject to such withholding.
--The application of our low income allowance will permit a student in 1970 to earn $1,725--$825 more than at the present time--without paying Federal taxes or being subject to withholding.
--The 255-page bill represents a sweeping revision of the Internal Revenue Code. Section after section is tightened to prevent the avoidance of taxes that has permitted far too many of our citizens to avoid the taxes that others have had to pay.
--Our continuing efforts to meet the Nation's housing needs will be aided. The tax bill encourages rehabilitation of old housing and investment in residential construction.
--Tax-free foundations were brought under much closer Federal scrutiny although Congress wisely rejected provisions that would have hampered legitimate activities of the voluntary sector. At the same time, we must recognize that congressional consideration of this matter reflected a deep and wholly legitimate concern about the role of foundations in our national life.
Congress also accepted this administration's recommendation to increase social security payments, enabling our older citizens to maintain their standard of living in the face of rising prices. Earlier I proposed that this be accomplished through a "catch-up" increase in payments coupled with automatic increases in the years ahead to meet any future rises in living costs. Congress provided instead for a higher one-time increase with no automatic increases in the years ahead. I believe my position was more responsive to the long-range needs of the elderly, but the overriding consideration is that 25 million recipients of social security benefits have fallen behind financially, which makes my approval of this short-range revision necessary.
Despite the achievement of these worthy goals, the decision to sign the bill was not an easy one.
The bill unduly favors spending at the expense of saving at a time when demands on our savings are heavy. This will restrict the flow of savings to help build housing, to provide credit for small business firms and farmers, and to finance needed State and local government projects. It will make our fight against the rising cost of living more difficult.
The critical moment for this legislation came after the Senate had passed a totally irresponsible bill that would have led to a sharp increase in the cost of living for every family in America. In a letter to the leaders of the Congress, I left no doubt that such a bill would be vetoed.
As a result, when Members of the Congress met to work out the differences between the House and Senate bills, the bill that came out of that conference was over $6 billion less inflationary for the next fiscal year than the bill that had passed the Senate. It still falls almost $3 billion short of my original proposals, but this response to my appeal to budgetary sanity makes it possible for me to sign the bill into law.
I am, however, deeply concerned about the reluctance of the Congress to face up to the adverse impact of its tax and spending decisions. If taxes are to be reduced, there must be corresponding reductions on the expenditure side. This has not been forthcoming from the Congress. On the contrary: In the very session when the Congress reduced revenues by $3 billion, it increased spending by $3 billion more than I recommended.
A deficit in the budget at this time would be irresponsible and intolerable. We cannot reduce taxes and increase spending at a time and in a way that raises prices. That would be robbing Peter to pay Paul. That is why I shall take the action I consider necessary to present a balanced budget for the next fiscal year.
I am also concerned about the constraint this act imposes on Government revenues in future years, limiting our ability to meet tomorrow's pressing needs.
Seldom is any piece of major legislation fully satisfactory to a President. This bill is surely no exception. But I sign it because I believe that, on balance, it is a necessary beginning in the process of making our tax system fair to the taxpayer.