They Are Higher Here

The most notable feature of the new tax bill that President Kennedy signed into law last week was a provision that permits corporations to deduct from their taxes 7% of their investment in new plant and equipment. This "modernization credit" was designed to encourage capital spending and thus spur the nation's lagging rate of economic growth. But in its October newsletter, Manhattan's First National City Bank forcefully argues that a far more sweeping tax reform will be required to get the U.S. economy really moving again.

U.S. economic growth is sluggish, argues the First National City, largely because the U.S. tax system perversely "favors consumption and penalizes production." In no other major industrial nation are taxes that tend to discourage the incentive to produce so high and those that tend to discourage personal spending so low. Between federal and local levies, First National City's economists figure, the U.S. raises 78% of its revenues by means of taxes on income and capital, and only 22% through sales taxes and other taxes on spending. By contrast, Japan draws 33% of its revenue from sales taxes, Britain 36%, Australia 41.5%, Italy 48% and France 50%.

Even the Socialist-minded governments of Scandinavia, which long clung to the belief that sales taxes put an unfair burden on ordinary wage earners, are changing their ways.

Early this year Sweden simultaneously cut its income tax and increased its national sales tax from 4.2% to 6.4%. Denmark has a similar reform in the works. Even the Russians, notes the First National City dourly, recognize the adverse effect of income taxes on incentive, and proclaim their ultimate intention to abolish income taxes entirely.

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