Mr. Tugwell's Idea

When handsome, tough-minded Rexford Guy Tugwell was a working member of the first Brain Trust, he made one mistake fatal to a politico. He talked out loud about unfamiliar and unpleasant things. His thesis: that the world and the U. S. were drifting away from laissez-faire, should make haste toward planned economy. So, after the 1936 election, Brain Truster Tugwell resigned from the New Deal.

In exile, Tugwell first took a flyer in the sugar business. His next job was the chairmanship of Fiorello LaGuardia's New York City Planning Commission. In this job, he had time to reflect on two things: 1 ) the fact that his more discreet friend, Adolph A. Berle Jr., whose economics are even less laissez-fairist than his, nevertheless managed to be an eminently respectable Assistant Secretary of State; 2) the long-range problem of integrating municipal spending and taxing with Federal fiscal policy.

Last week, Planner Tugwell was back in the news on two fronts. The first was Washington, where he attended the Savings Bank Journal forum (see p. 81). Picking up a challenge of Guaranty Trust Co. Vice President Robert Garner, who asked, "If the Administration knows how to create employment, why hasn't it done so in the past eight years?", Tugwell replied: "It always has required from $12,000,000,000 to $15,000,000,000 of Government spending a year to do the job, not $2,000,000,000 or $3,000,000,000."

The second front was municipal finance. For years some economists have urged that Governments should reform their accounting, model it on that of corporations by segregating capital expenditure from operating expense. Two years ago. Economist Tugwell worked up the first annual capital budget for New York City ever used by any American Government. Since the most popular achievement of the LaGuardia administration has been spending for overdue public works (roads, tunnels, parks, airports, etc.), a budget that would set these up as assets was right down the Little Flower's alley.

Last week the New York Board of Estimate wrangled over Tugwell's new capital budget. Covering the period 1942-46, the capital program called for $246,843,969 of capital improvements, $219,253,000 to be paid for by borrowing. With items: $17,000,000 for schools, $16,000,000 for subways, $7,000,000 for hospitals, $7,000,000 for a public market on Manhattan's West Side. Absent were some $299,000,000 of various departmental requests; hence the wrangling. For his restraint, Tugwell earned a back-pat from the City Comptroller, short, roly-poly Joseph McGoldrick, Tugwell's ex-colleague on the Columbia faculty. Having taken New York City out of hock to the bankers, and given its bonds a gilt-edged status, McGoldrick wants to keep his credit rating. But Tugwell was thinking about something else.

New York is not the only U. S. city that cruelly overtaxes its real estate. Of all the taxes collected in the U. S. in 1938, some $4,745,000,000, or 32%, were local property taxes. Yet this was not enough to support the cities' own expenditures; unlike the Federal and State Governments, they spend a greater part of the total tax than they collect. In New York City, for example, $1,000,000,000 was spent by all three Governments last year; of this the city's own taxes (mainly real-estate) raised scarcely more than half. The rest was Federal and State contribution. But since real estate is already overtaxed, U. S. cities have no way (except by impossibly high sales taxes) to avoid reliance upon the Federal Government.

Planners like Tugwell have been batting up a novel solution to this problem: abolish local real-estate taxes altogether. Property owners would pay just an income tax, and that to the Federal Government. Even cautious politicos like LaGuardia have been intrigued. Last winter he told the New York Board of Trade he wanted just one big tax collector --the Federal Government. The taxes it collected from each city and State would be allocated back to them on a kind of credit system. Workable or not, this kind of arrangement would do two things: it would stop the tax race between the cities and the Federal Government, and it would put city real estate back in the ranks of viable business. It would also be another long step toward top-heavily centralized government. But Planner Tugwell, as always, was trading in futures.

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