Date September 1942 (specific date unknown)
Author unknown
Title Comments on memorandum by W. J. Shultz on economic effects of various Federal taxes
Description Internal staff memo, Division of Tax Research, U.S. Treasury Department
Location ?????
Comments on memorandum by W. J. Shultz on economic effects of various Federal taxes


1. It is not advisable to attempt to carry forward the work on economic effects of taxation along the lines laid out in the memoranda under discussion.

2. It is a mistake to expect a single individual to be capable of making a contribution to our knowledge of the economic effects of several important taxes within the space of three months. It is very questionable whether a significant study of any single tax could be made in that time. There is no point in making a study of the economic effects of a tax unless it is intended to carry knowledge or analysis further than they have been taken by studies which are already in the Library or in the files.

3. Studies of economic effects of taxes should be prepared under the supervision of those who have established reputations in the field. For example, it is difficult to understand how Shultz could be selected to write a study of the Economic Effects of a Federal General Sales Tax with the author of The Theory of Incidence of Sales Taxation already working in the Division. If the latter were subsequently to be asked to write such a study, he would not find it profitable to be prejudiced by the approach of the Shultz memorandum, and would have to go back to the beginning.

4. Even if Shultz had been entrusted with discussion of one tax only, it is apparent that his approach could not result in a product of much consequence to specialists in the field of that tax, or for those interested in the broader question of incidence and economic effects in general. So far as can be learned, the avowed object of the author of these memoranda was (1) to provide summaries of analyses generally accepted by a few public finance textbook writers, and (2) to bring together quotations from these and a limited number of other commentators. The usefulness for this Division of such memoranda was to lie in their availability for quick reference for answering questions from Congressmen, letter writers, and others.

5. In terms of bulk, very nearly half of the total output consists of appendices devoted mainly to selected quotations from "authorities". One finds it difficult to conceive of anything such less useful. By quoting a long list of opinions the author produces a bias in the mind of the reader through mere bulk. And materials have apparently been deliberately omitted which support a point of view different from the adopted by the author of the memoranda.

A single example is sufficient (though indeed it is the most flagrant) to indicate the bad effects of this method. In the memorandum on the Corporation Income Tax most of the supporting quotations are obviously themselves merely copper plates of a point of view with respect to incidence commonly held a decade or more ago. Furthermore, a very misleading impression is made by quotations from books published in recent years which impliedly represent the most advanced state of opinion. Yet it appears that with the exception of a quotation from the TNEC Monograph #12, the only quotations from works in the field of public finance appearing later than 1931 are the textbooks by Buchler (1940), Lutz (1936), Shirras (1936), and Shultz (1942).

To cite nothing but elementary textbooks as representative of the progress in ten years of the study of taxation is nothing short of fantastic. In effect the conclusions of the Colwyn Report (1927) are taken as indicative of the opinion of all economists. No reference whatever is made to Black (The Incidence of the Income Tax, published in 1939), who attacks some of the most important assumptions of the Colwyn Report.

6. The several analyses are not unusable as brief textbooks presentations of the issued involved. For anything beyond that they suffer from the defect that the analysis often stops where, if a contribution were to be made, it ought to have started. The method adopted by the author is to accept certain assumptions usually not seriously questioned in cursory treatments, and to proceed to conclusions which perforce are as unqualified as the assumptions. The task of re-examining the assumptions remains to be performed.

Treasury Department
Division of Tax Research

October 30, 1942