Veto of Second Bill To Reduce Income Taxes.
To the House of Representatives:
I return herewith, without my approval, H.R. 3950, entitled "An Act to reduce individual income tax payments."
The provisions of this bill are identical with those of H.R. I except that this bill would not become effective until January 1, 1948, whereas H.R. 1 would have become effective on July 1, 1947.
I returned H.R. 1 to the House of Representatives on June 16, 1947, without my approval, stating that it represented the wrong kind of tax reduction at the wrong time.
This is still the wrong kind of tax reduction and this is still the wrong time to provide for tax reduction.
The present bill is not consistent with sound fiscal policy. As I have stated to the Congress on previous occasions, while business, employment, and national income continue high, we should maintain tax revenues at levels that will meet current expenditures and also leave a surplus for retirement of the public debt. No other course is consistent with realistic and conservative management of the fiscal affairs of the Government.
Since H.R. 1 was disapproved, there has been no lessening of the need to make substantial payments on the public debt. Maintaining the integrity of this debt is one of the primary obligations of the Government. I repeat that, if we do not reduce the public debt by substantial amounts during a prosperous period such as the present, there is little prospect of material reduction at any time.
I also pointed out in my message on H.R. 1 that necessary Government expenditures are still high. We are meeting tremendous obligations growing out of the war. The national defense establishment still requires large sums. Our responsibilities for international rehabilitation have an important bearing on our efforts to secure lasting peace. The recent refusal of certain nations to join in common endeavors to establish conditions of world stability increases the difficulty of our task and exposes us to greater risk. Until we are better able to estimate the cost of our investment in world peace and collective security, it is unwise to make so large a cut in our Government's future income that our ability to meet our needs would be impaired.
As far as can be determined at present, it is not likely that expenditures in the fiscal year 1948 will be substantially less than I estimated in the January budget message. A careful appraisal of the outlook for both receipts and expenditures indicates that it is not possible, under present conditions, to make a major tax reduction and an adequate payment on the public debt at the same time.
Not only does this bill represent an unsound fiscal policy, but it would also contribute to inflationary pressures which we have made progress in combatting but have. by no means overcome. As stated in the message on H.R. 1, there is no justification for tax reduction so long as price stability at sound levels has not been secured and business, employment, and national income continue at peak levels.
Since the veto of H.R. 1, income payments to individuals have continued to rise, and the general level of business activity is establishing new high records. The total number of civilians gainfully employed has also continued to rise. Total employment in June increased by 1,725,000 over May, and the total number now employed is over 60,000,000-the highest in our history. There is still no convincing evidence that a recession is imminent.
Tax reduction now would delay the readjustments of prices and wages necessary to maintain this high prosperity. It would lead to an even higher level of prices for consumer goods. It would increase the danger of a recession.
For all these reasons, which are more compelling now than they were one month ago, I regard the present bill as unsound and unsafe.
I also regard it as unfair.
In my message of disapproval of June 16, I pointed out that H.R. 1 was inequitable in that it would reduce taxes in the high income brackets to a grossly disproportionate extent as compared with the reduction in the low income brackets. I stated that a good tax reduction bill should give a greater proportion of relief to low income groups.
Since the present bill is identical except as to its effective date, it is, of course, subject to the same criticism.
It is important to remember that, during the war, Federal income taxes were extended to millions of low-income families who had never before paid them, and taxes on moderate incomes were increased by a far greater proportion than those in higher incomes. The amount by which present income taxes exceed those payable under the Revenue Act of 1940 represents a special wartime tax burden.
When the time comes to lessen this wartime tax burden, it is only fair that we should follow a pattern which is the reverse of that under which the burden was imposed. That is to say, this wartime tax burden should be reduced on a basis that is fair to low income groups as well as to high income groups.
The failure of H.R. 3950 to follow this equitable principle is strikingly demonstrated by the following examples:
The bill would remove 21 per cent of this wartime tax burden for a married couple with an income of $2,500.
The bill would remove 64 per cent of this wartime tax burden for a couple with an income of $100,000.
The bill would remove 85 per cent of this wartime tax burden for a couple with an income of $1,000,000.
I am unequivocally committed to the right kind of tax reduction at the right time. The right kind of tax reduction must be based upon a careful consideration of all elements of our tax structure.
A premature and faulty tax reduction bill such as H.R. 3950 would inject into our tax system inequities which would greatly increase the difficulty of making desirable revisions.
A fair and proper revision of our tax structure should result in an equitable distribution of tax reductions. It should be designed, also, to assure a balanced budget, adequate debt retirement, and an adequate reserve for meeting our international commitments and carrying out our foreign policy. It should be designed to provide stability rather than instability in our economy, and should be properly timed for that purpose.
Because H.R. 3950 is at complete variance with the fundamental requirements of a good tax bill, I am compelled to return it without my approval.
HARRY S. TRUMAN
Note: For the President's veto message of June see Item 116.
Harry S Truman, Veto of Second Bill To Reduce Income Taxes. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/232063