Date 24 January 1942
Author John L. Sullivan
Title untitled
Description Speech text
Location Box 1; General Sales Taxes; Records of the Office of Tax Analysis/Division of Tax Research; General Records of the Department of the Treasury, Record Group 56; National Archives, College Park, MD.


No. 29-92

(The following address by John L. Sullivan, Assistant
Secretary, before the General Federation of Women's
Clubs in Washington, D.C., is scheduled for delivery
at 1 p.m., Eastern Standard Time, Saturday, January

I am honored that you have asked me to speak to you at this most momentous meeting in all the history of the General Federation of Women's Clubs. More than that, I am grateful for the opportunity to discuss with you national problems of great importance.

We at the Treasury have a message which we believe ought to be delivered to every woman in the United States. We hope that as representative women of the nation you will carry this message to your membership in every city and town and village.

America has demonstrated a capacity for self-government unequaled in any age or in any nation. Part and parcel of that ability to govern ourselves, without dictation from super-parties or supermen, is the American tradition that no problem of govern went is the exclusive concern of any officer of government -- but rather that it is the common problem of every citizen.

And so it is eminently proper that you thoughtful, earnest citizens, who have grown up in the free air of our democracy, should thus draw closer to your government in a time of crisis and anxiety, to consult with us who are, in a very real sense, your servants.

This IS a time of crisis. Through no fault of its own, America is AGAIN engaged in a great war to determine whether this nation or any nation dedicated to freedom can endure.

The tragic fate of Austria, Czechoslovakia, Poland, Denmark, and Norway -- of Luxembourg, Holland, Belgium and France -- of Roumania, Bulgaria, Yugoslavia, Albania and Greece -- warns us of the penalty of loving.

But we are not going to lose. We are going to win this war.

We are going to win it with bigger and faster planes than the enemy has, and scores of thousands more of them than they can put into the air.

We are going to win it with stronger, heavier tanks -- with bigger guns -- with more battleships and cruisers and destroyers and submarines.

We are going to win with millions of soldiers and sailors better trained, better fed, better clothed, and better armed than our enemies.

And we are going to win with the bravery and sacrifice and faith of a hundred and thirty million free people laboring as one to "secure the blessing of liberty to ourselves and to our posterity."

It is our job in the Treasury to raise the money to finance this titanic effort. It will require a great deal of money. But no American questions that it is WORTH a very high price and very great sacrifice to preserve our civilization.

Part of the cost of war will be financed by borrowing. That is, by the sale of bonds which must be repaid in years of peace.

But, insofar as is possible, we should pay for this war as we go along. When we do this we help to control the rising course of prices and keep the cost of living within reasonable bounds. You women who are the economists and the purchasing agents of the families of the nation don't need any argument from me to convince you how important THAT is. You've already seen the price of almost everything you buy start upward. You are paying more today -- considerably more -- for the food on your family's table and the clothes on your family's backs than you did a year ago. You have seen the cost of living increase more than 10% in the last year. This is serious, but a far greater increase impends unless we can prevent it. One of our best weapons against this very real war-time danger is to pay for the war as LITTLE as possible on credit, as MUCH as possible with cash.

And that means TAXES.

To pay entirely with borrowed money would be merely to postpone the day of reckoning. Taxes may seem painful; in reality they are relatively painless. For all OTHER methods of paying for the war mean the accumulation of a debt to burden America for decades to come. They mean a heavy and continuing cost in the future, but no smaller hardship now. They mean a haphazard rather than a planned distribution of the burden.

The task before us is unparalleled. War expenditures alone in the coming fiscal year will be $56,000,000,000. That is more than the combined Federal Government expenditures for all purposes in the six years from 1935 through 1940.

Fortunately we have made a start toward meeting this tremendous cost. The Federal Government's receipts will have more than tripled in the space of three years; rising from $5,303,000,000 in fiscal 1940, to an estimated $17,261,000,000 in fiscal 1943 under EXISTING tax laws.

This increase is due partly to increased production and higher national income -- and partly to tax legislation enacted by a courageous Congress during the last two years. But we cannot hope that a national income already at the $100 billion level will continue to rise much farther. Further government income must be primarily from new taxes and higher tax rates.

This will not be easy on any of us, but it can be done. And we all know that this is no time to complain of tax burdens when so many Americans are contributing all their energies and even their lives to the Nation's great task.

The WOMEN of America arrange the family budgets. You spend the family money. You decade what to have and what to do without. You decide how much is to be taken out of each pay envelope or salary check and put away for savings -- and taxes.

So on behalf of your Government, I ask you, as the leaders of the women of America, to cooperate by seeing to it that income taxes are paid promptly And I cannot urge you too strongly to persuade your members everywhere to prepare for FUTURE tax payments BY SYSTEMATICALLY SETTING ASIDE A PART OF THE FAMILY INCOME AS IT COMES IN.

Up to this point I have been speaking primarily of income taxes. In our opinion, they represent sound government financial policy. They are levied against those citizens who can best afford to pay, and the better-to-do men and women pay higher rates and larger taxes than the less fortunate.

But there are other taxes, notably the sales tax, which we at the Treasury are reluctant to see incorporated in our Federal plan of taxation. I should like to take a few minutes to explain to you, and through you to tee women of your communities, WHY the Treasury regards the Sales Tax as a "last resort" measure.

First of all, we arc not convinced that it would be effective in raising a very great amount of revenue. Tax experts have estimated that a 2% tax on the sale of everything except food, clothes, and medicines would bring in only about $500 million. True, that is a great deal of money -- but it is a relatively small fraction of our total additional tax needs -- $7 billion.

We know also that a sales tax would be a difficult and expensive tax to collect, whereas increases in the rates of existing taxes would not require more than a nominal increase in administrative costs. The Federal government already has the machinery set up and in action for collecting the other kinds of taxes. But we have no machinery set up, no men trained for collecting a sales tax. We should have to establish a whole new tax organization different from and in addition to our existing tax organization. That is a big job, the expense of which would eat heavily into the comparatively slim revenue that a moderate sales tax would bring into the Treasury.

We also feel that a sales tax is undesirable because it works a disproportionate hardship on the low-income groups who are least able to stand it -- the people who spend substantially all their income on the very necessities of life. The Treasury believes that, insofar as possible, it is sound policy to guard against disproportionate increases in the tax burden on these low-income groups. There is much evidence that their combined Federal State and local tax load is already out of proportion with that of their economically more fortunate fellows.

Some people who favor the sales tax believe that its oppressive result on the poor can be avoided by exempting food, clothing and medicines. But let me point out that under our war program a preponderant part of our civilian production is going to be in those very essentials. If they are excluded from the tax, there won't be very much left to tax. If they are not excluded, the burden of the tax falls too heavily on those who can least afford to pay it -- the individuals living on $14.50 a week.

As a matter of fact, even if it were feasible to exempt certain necessities, I very much question whether the exemption would prevent price increases in these articles.

For example, take the case of a clothing manufacturer. he would pay a sales tax on the materials he bought and on his machines. These added taxes constitute for him another cost of doing business and naturally, like any businessman, he wants to earn a profit on this additional investment. So he adds those taxes, plus something for profit, onto the sales price of the clothes which he made. And when you or your husband buy those clothes, you pay an increased price for them even if it isn't marked on the ticket as a sales tax.

In varying ways and degrees, the same thing is true of the medicine that you buy at the drug store and the food from the butcher or grocer. The price is higher, even if nominally there's no sales tax added to these exempted articles.

Some sales tax advocates suggest that it be levied on manufacturers or wholesalers instead of retailers. I'll grant that this would simplify the administration of the tax. But it also has its disadvantages. Let's take a carpet, for example. The wholesaler pays the tax when he buys from the manufacturer. Naturally he adds that tax -- plus something for profit ON the tax -- when he sells to the retailer. Then the retailer does exactly the same thing when he sells the carpet to you. What's the result? You pay TWO price increases instead of one -- and each increase is larger than the amount of the tax.

Any type of sales tax will increase the cost of living and make effective price control exceedingly difficult if not in fact impossible. The increased cost in living would cause labor to seek and obtain higher wages. These hitter waged would mean higher prices for the goods you buy -- and thus the spiral would go up and up and up, increasing prices all along the line, causing higher war costs and bigger deficits, and necessitating still more taxes.

Another argument advanced for a sales tax is that it would give all the people an opportunity to contribute directly to the nation's war chest. We believe they now have this opportunity. Today a married couple without dependents earning $29.00 a week pays an income tax. A single person earning $14.50 a week pays an income tax. Surely we do not wish to impose taxes on those earning less than these amounts.

     In 1940 -- 7,000,000 income tax returns were filed.

     In 1941 -- 15,200,000 income tax returns were filed.

     In 1942 -- 22,000,000 income tax returns will be filed.

Surely these figures show that all the people above a subsistence level have already been given the opportunity to contribute to the Federal Government.

From these figures you can judge whether a sales tax is necessary to bring home to our people the necessity and the cost of bringing our enemies to their knees.

I have talked to you at such length about the sales tax because I look upon it as the start of a vicious spiral of rising prices. I know that you, who are leaders of your communities, can warn every household in the country against this threat. And I earnestly hope that you will do so. Speedy and extensive discussion by the women of America will make our country increasingly aware of its dangers.

In conclusion, I want to ask you to think of the United States as your home -- as the very house in which you and your family live their lives. If you lose it, you lose everything.

The taxes you pay now are literally to secure protection and to pay insurance on your own home.

These taxes will soon be increased to all-out proportions. They will impose sacrifices on everyone of us. Yet we welcome them because we are resolved to profit from the examples of those other peoples who taxed themselves too little and too late -- and who loft all.

Let us remember that today taxes serve a vital purpose, the purpose of self preservation, the purpose of preserving the American concept of freedom: Freedom of Speech, Freedom of Worship, Freedom from Want, and Freedom from Fear.

No one knows how long this war will last. But of this much I am sure: Whether it lasts two years or five, those years will see America at its best. Men will fight and die for those principles that have made America worth living in and worth dying for.

The women of America who have glorified our past and prayed her the future will respond to the needs of the day as American women have always answered their country's call.

Our fathers handed down to us from their fathers a mighty nation, strong and united, fearing no enemy, bowing to no master, and yielding to no force.

We are the temporary trustees of this proud inheritance. It is for us to pass it on to our children as we received it -- strong and free. This we shall do.