The Personal Income Tax and the Economy

T HE United States is dedicated to task of operating successfully an economy which we like to characterize as the free enterprise system, or capitalism. During past century or more we have become increasingly concerned with certain major problems that have arisen in connection with this kind of economic system. Among more important of these problems have been: (1) tendencies toward monopoly and undue concentration of economic power, (2) wasteful use of land and other natural resources, (3) discordant relations between management and labor, (4) periodic unemployment or depression, and (5) a distribution of income that is widely regarded as inequitable. In our efforts to cope with these problems, we have introduced a long series of legislative and institutional changes ranging from free public education, antitrust laws, and public utility regulation to social security, labor legislation, and control of atomic energy. Taken together, these institutional innovations have greatly modified capitalistic system. They have profoundly changed character of economic process. They have influenced level of employment, composition of our national product, and distribution of that product among income recipients. Perhaps most revolutionary of these institutional changes has been personal income tax. This is a remarkable device by which it is possible to vary distribution of income in any desired way merely by adjusting schedule of rates and exemptions and modifying definition of income. The revolutionary significance of personal income tax has not been fully appreciated because of circumstances under which it was introduced and developed in this country

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