In connection with the formulation of the comprehensive anti-inflation tax program outlined by the Secretary, we have given careful consideration to all possible alternative tax measures. One alternative that deserves special mention because of the widespread attention it has received is the general sales tax.

In our view, the spendings tax is distinctly preferable to a general sales tax for the following reasons:

1. The spendings tax can completely exempt individuals with a low standard of living. The sales tax cannot provide such an exemption, except in an indirect, partial and unsatisfactory fashion by exempting whole classes of goods, such as food. A sales tax will exempt alike, or tax alike, the liberal purchases of a commodity by the needy. The exemption of individuals with very low standards of living is important in the interests not only of fairness but also of the war effort. We can ill afford to impose taxes that would so reduce the standard of living of many individuals as to impair their productive efficiency.

2. The proposed spendings tax is imposed at rates graduated according to the amount an individual spends. For this reason it can be truly effective in curtailing consumption at all income levels. A sales tax cannot be graduated, except very crudely in terms of classes of commodities. It is therefore impossible to impose a sales tax at sufficiently high rates to discourage luxury spending without at the same time imposing an intolerable burden on the great masses of the people. In short, a spendings tax can be more selective in its impact on consumption than a sales tax.

3. A sales tax, even if levied at the retail level, would in practice have to be paid by business firms on some types of purchases. It would therefore enter into costs of production with resulting pressure against price ceilings. In addition, it would be difficult to impose a sales tax without affecting party prices of farm products. A spendings tax would have neither of these effects, since it is collected directly from individuals.

4. The spendings tax proposed will reach as large an amount of consumer spendings as a retail sales tax without exemptions, and a considerably larger amount than a retail sales tax with food exempt. It will do so despite the fact that the spendings tax exempts completely individuals with low standards of living. The reason for this difference between the two taxes is that a spendings tax can include services purchased by consumers while it is administratively extremely difficult to include such services in a retail sales tax. Out of total consumer spendings of $75 billion, the spendings tax will reach over $50 billion. A retail sales tax on all tangible commodities will reach about the same amount; a retail sales tax with food exempt will reach only about $32 billion.

5. Despite the popular belief to the contrary, the retail sales tax is not an easy tax to administer. On a Federal level, it is an entirely new addition to the tax structure, involving the creation of new administrative machinery. The spendings tax will admittedly involve administrative difficulties of its own. But these are no greater than those that would arise under the sales tax and the spendings tax has the great advantage that it can be integrated with the fully developed administration of the individual income tax.