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Permanent War Economy

T.N. Vance

The Permanent War Economy

VI – Taxation and the Class Struggle
[Section B]

THAT TAXES HAVE BECOME a major arena of the class struggle can be seen from the sharply divergent position of the various classes with respect to proposals for increased taxation and the bitterness that conflicts over taxation have engendered. With taxes taking a steadily increasing proportion of current output in order to finance the war machine and its inevitable bureaucratic apparatus, it is only natural that this should be the case. The impact of taxation in general has become so great that all classes and all income levels feel “hurt in the pocket-book,” which is popularly believed to be the severest hurt of all. At any rate, it is a fact that today no major business transaction is consummated or policy adopted without careful examination of the impact on the tax position of the corporation or stockholder involved.

There has likewise been a noticeable trend toward crystallization of opposing and conflicting class positions with respect to taxation policy. Although an element of fluidity in class positions and attitudes toward various proposals to increase tax revenues still prevails, we can distinguish sharply among the positions of the more class conscious strata, especially the industrial bourgeoisie as represented by the NAM, organized labor, particularly its left wing as represented by Reuther, and class-conscious socialists. The most fully developed and highly articulated class position is that of the NAM for a uniform manufacturers’ excise tax. The NAM position was adopted in 1949 and is presented in its post-Korean form in a basic study entitled A Program to Combat Inflation by Paying-As-We-Go, approved by the NAM’s Board of Directors on February 21, 1951 and published as Economic Policy Division Series No. 38. Its chief features are put forth in a popular catechism of 34 questions and answers on A Manufacturers’ Uniform Excise Versus A Retail Sales Tax, appearing as a special report of NAM News, May 5, 1951.

We need not be concerned with the internecine quarrel within the bourgeoisie between the advocates of a Federal retail sales tax and the NAM advocacy of a manufacturers’ uniform excise tax. Both are taxes on consumption to be paid by the consumer, i.e., those least able to afford higher taxes. Both are designed to shift the major burden of taxation to the workers and lower middle classes. Advocates of both positions are prepared to accept either method as offering the best prospect of maintaining the wealth and power of the bourgeoisie and still assuring needed support for the capitalist state. Aside from technical differences, the major dispute is one of perspective. Advocates of the retail sales tax, representing less reactionary segments of the bourgeoisie and their supporters, view such measures as “temporary,” to be repealed after the “emergency” is over”.The NAM, on the other hand, states categorically:

“For the purposes of the long-range future, this uniform tax at a moderate rate should be regarded as the basic federal excise, to be carried through into the period beyond the defense period, or even a third war, as a permanent feature of federal taxation.” (Italics in original.)

The NAM is quite open in its objective. Catechism 5 goes:

“Q. Why has the NAM recommended a uniform excise tax? A. This recommendation is made for two reasons: 1 – TO CORRECT THE DEFECTS OF THE EXISTING FEDERAL EXCISE SYSTEM ... A uniform excise tax across the board on all consumer purchases would introduce equality of tax burden in proportion to purchases of consumer goods. It would put all producers on a par in competing for the consumer dollar ... 2 – TO ESTABLISH A BROAD BASE OF CONSUMPTION TAXATION. The distribution of a part of the total tax load over income as it is spent will make possible the levy of less heavy taxes on income as it is received. Thus the attainment of the dual objective of high-level production and consumption would be less hampered than by extreme concentration of taxes on income as received, a policy that would diminish the incentives to work in order to get income.” (Italics mine – T.N.V.)

If the motivation is not entirely clear, we can cite catechism 13. Because of its touching solicitude for the general welfare, and its conscious and unconscious revelation of NAM philosophy, we reproduce it in full:

“Q. Would a manufacturers’ uniform excise be an unfair burden on the low-income groups?

“A. No. The excise or consumption taxes are one of the tax methods which the Government must use in order to keep the defense program on a pay-as-we-go basis. There must be some tax payment toward this cost by all, regardless of the level of their income. There is not enough income left after present taxes in the middle and higher incomes to pay the bill, even if all of the income after tax were confiscated. The lower incomes must carry a part of the load.

“Available figures show that if food, rent, and various services are excluded, as they would be under the NAM program, the relative burden of excise taxes would rise somewhat as income increases. In other words, the more one has to spend, the more he is likely to spend, and hence the more excise tax he will pay.

“In the financing program which the nation faces there is a choice of evils. If we try to protect too many people against an increase of tax burden, we shall fail to keep on a pay-as-we-go basis. The alternative to this course is inflation, and this would inflict a heavier burden on all consumers than they would have to carry as a tax load. If we try to balance the budget by increasing income taxes, it will not be possible to shelter the small incomes from this tax. Excise taxes will be a means of keeping income tax rates lower than they would otherwise have to be, and thus they become the least of the evils, for the small income groups and for all taxpayers.” (Italics mine – T.N.V.)

It would be difficult to crowd more arrant nonsense and utterly false reasoning in such a short space. The ignorance betrayed on the causes and effects of inflation, not to mention the relationship of taxation to inflation, is equalled by the erroneous statements on the facts of economic life and the evident self-contradictions. In fact, the only correct statement in the entire catechism is that consumer expenditures are related to income. The implication that the lower incomes are relatively untaxed is completely false, as already shown. The statement that even confiscation of income of upper income levels would not raise sufficient revenue to balance the budget is sheer nonsense. As Table VIII demonstrates, in 1948 there was over $20 billion left after Federal income taxes in the $10,000 and over category. In spite of increased taxes (which do not apply to the NAM argument), there is at least that sum available today, and the Federal deficit is never presented, at more than half that figure. There are, in fact, many ways of raising the amount stated as necessary to finance the war program without increasing taxes on incomes under $4,000 by one cent.

The NAM position, taken at face value, becomes the ludicrous one of asserting that higher income taxes are equally bad for rich and poor, and that higher excise taxes, whose burden is admittedly heavier on the mass of the population, will favor rich and poor alike. The sleight of hand by which the majority of the population in the low-income groups is supposed to favor a tax program designed to minimize the tax burden of the upper income groups is matched by the effrontery that attempts to pass off sales taxes as progressive because they are proportional.

In passing, it should be noted that the NAM is not opposed to increasing the yield from the income tax if it be done through reducing the present exemption for dependents from $600 to $500. The important question, however, is at what rate would the uniform excise tax have to be placed in order to achieve the NAM’s objective of a balanced budget. And how much of an increase would this bring in the average price level?

While the NAM carefully avoids such questions in its popular catechism, it provides its own answer in its programmatic statement:

“At current levels of gross national product, a tax base for the uniform manufacturers’ excise tax of $90 billion is estimated. With no allowance for the effect of high rates on the volume of consumption buying, a flat rate of 10 per cent would produce $9 billion, and a flat rate of 20 per cent would produce $18 billion, as compared with $4 billion under the present selective system [not true by more than $4 billion as shown in Table I; even if the figure is intended to refer only to excise taxes other than liquor and tobacco, it would be $4.5 billion in 1950 – T.N.V.]. These rates on the final manufactured price would become equivalent rates of 5–6 per cent, and 10–12 per cent, respectively, in relation to the retail price.” (Italics mine – T.N.V.)

It is clear that maintenance of the war program at NAM-approved levels, would require a uniform excise tax on manufactured commodities other than food of close to 20 per cent. For the working masses, this would raise the cost of living by about 8 per cent. Why direct inflation is any worse than such a tax-legislated inflation is not at all clear. It is clear, however, why the Administration has so far rejected the NAM program as politically unfeasible, and has proceeded to maintain the existing tax structure, by raising income, corporation and excise taxes.
 

ORGANIZED LABOR’S OPPOSITION to the tax gouge was indicated in the previous article by quotations from statements issued by the United Labor Policy Committee. Its position on the Revenue Act of 1951 is adequately indicated by a CIO press release of September 20, 1951, in which

“The CIO charged that the tax bill under Senate consideration will represent a $1.10 weekly cut in take-home pay for four-member families with incomes of $4,000, and called for a series of six improvements ...: (1) remove the $1.3 billion excise tax increases; (2) eliminate tax increases on incomes under $4,000; (3) close the split income loophole; (4) eliminate alternate methods of computing income tax that benefit the wealthy; (5) retain House-passed provisions on excess profits and corporation taxes; (6) levy a withholding tax on dividends and interest.”

The CIO estimated that these amendments would provide a net increase in taxes (above what Congress actually passed) of more than $2 billion. And, of course, by closing certain loopholes and eliminating certain regressive features, the CIO’s proposal would have resulted in a less reactionary tax system. Unfortunately, in the absence of a united and forcefully expressed position on the part of the trade-union movement, the Administration could afford to ignore the attitude of organized labor.

In relation to the future of the tax question, the last paragraph in the CIO statement is most interesting:

“Of all the raids upon the incomes of workers, farmers, professional and fixed-income persons contained in this bill, the $1.3 billion excise (sales) tax gouge is the most outrageous and, when compared to the split income and alternative tax rate loopholes for the well-to-do, the most immoral proposal in the bill. Moreover, these increases and extensions of excise (sales) taxes must be fought and should be defeated because they are preliminary steps in the campaign led by the NAM in fastening a comprehensive Federal sales tax upon the American people as part of a permanent tax policy.”

In the light of the NAM-spearheaded drive to shift a substantial portion of the tax burden from the upper income groups to the lower income groups, and the apparent awareness of the CIO, at any rate, that the fight over sales taxes will become increasingly important as time goes on, the statement of Walter Reuther on taxes of August 8, 1951 (carefully ignored by the press) is of considerable interest. Criticizing the NAM’s proposal, Reuther analyzes the shift in tax burden that would result were the uniform excise tax substituted for income taxes to the extent desired by the NAM:

“As of 1948, the NAM’s proposal would have reduced by $5 billion the tax burden on families with incomes ranging upward from $5,000 and shifted an equivalent burden onto those with income below $5,000. More than $3 billion of the savings in the upper brackets would have been gained at the expense of those with incomes of less than $4,000 a year ...

“In terms of its impact on individual families, the NAM proposal as of 1948 would have been equivalent to a wage cut of $133 a year, $2.56 a week, or 6.4 cents per hour for spending units whose breadwinners earn less than $1,000 a year. For those earning $7,500 or more the NAM seeks an income increase averaging $1,760 a year, $33.85 a week or 84.6 cents an hour, on the basis of the 1948 situation.”

The interesting part of the Reuther statement, however, is not so much the criticism of the NAM proposals, or the existing tax structure, which largely parallels the material presented herein, especially the position of Kreps, but his proposal to adopt a spendings tax as an equitable anti-inflationary device. To quote from the press release summarizing his statement:

“The kind of tax on spending proposed by Reuther was proposed by the Treasury Department in 1942 after extensive study by the department.

“‘As far as we have been able to determine,’ Reuther said, ‘the proposal was never given adequate consideration in Congress.’

“In describing how the tax on spending would work, Reuther said: ‘In essence, the Treasury proposed (in 1942) that spending above specified exemption levels be taxed on a graduated basis. To take a hypothetical example, suppose an exemption of $1,500 per person were allowed. In that case, a family of four would be liable under the spending tax only if its spending exceeded $6,000 a year. For purposes of this example, we can assume tax rates equal to the surtax rates proposed by the Treasury, which were as follows:

“‘Thus, a family of four which spent a total of $7,000 would be liable to a spending tax of 10 per cent on the last $1,000 or $100. A similar family which spent $10,000 would have to pay a tax of $1,000. A four-person family spending $25,000 would pay a spending tax of $10,650.

“‘Such a tax would obviously be a powerful deterrent to nonessential spending. Yet if the exemption level were set high enough, no family would be hampered in the purchase of necessities. Every well-to-do family could maintain a high standard of living – only its standard of luxury would be somewhat curtailed. Proper exemptions would assure that only nonessential spending would be taxed. Exemptions would protect large families, who would suffer worst under a sales tax.’”

While the administrative difficulties in collecting and preventing evasion under a spendings tax would be vastly greater than Reuther is willing to admit, the proposal merits serious consideration, especially if the main emphasis in future tax programs is to be prevention of inflation. Although Reuther indicates that the revenue to be anticipated from a tax on spending along the lines he proposes would be about $10 billion, it is extremely doubtful, given its administrative difficulties, that a spendings tax could be relied on to close the gap in the Federal budget. This is our major objection to the Reuther proposal, for a tax program to be politically effective must point the way toward an end of deficit financing. Nevertheless, if the trade unions show any disposition to espouse the spendings tax, socialists should unhesitatingly give it complete support.
 

THE LIBERAL POSITION with respect to taxes has been indicated by the material cited from Kreps. Fundamentally, as exemplified by the ADA, it operates within the present tax structure, concentrating chiefly on eliminating present tax loopholes that benefit the wealthy. Most emphasis is usually placed on removing the split income provision, although Kreps also wants to “regraduate tariffs down to a maximum of 10 per cent.” The liberals worry about both “not raising taxes so high as to impair incentives to work” and “placing the main burden on those who can afford to pay it.” Their dilemma increasingly reflects a central contradiction of the Permanent War Economy.

The liberal position roughly coincides with that of the Administration, and is quite close to that of the labor bureaucracy. In the popular vernacular, it may be summarized as “Let’s have both guns and butter.” As civilian standards of living are impaired under the pressure of increasing war outlays, the liberals necessarily make concessions to the position of big capital, which may be summarized as “More guns and less butter.”

It is particularly important, however, that all possible forces be united against the bourgeois contention that they do not have the money from which additional taxes could come, even if their incomes were to be confiscated. This palpable falsehood is paraded not only by the NAM, as revealed above, but by every segment of the big bourgeoisie. Their financial and economic writers take particular delight in expatiating on what they mistakenly regard as a basic fallacy in the position of everyone else. Writes Edward H. Collins, chief financial writer of the New York Times, in his column of October 15, 1951:

“The rapidly contracting elbow room left in the upper individual income brackets is illustrated by a segregation of incomes of $10,000 or higher. If all such income were to be taxed at the rate of 100 per cent, according to a recent estimate by Harley Lutz [tax consultant to the NAM – T.N.V.], the yield would amount to only $3.5 billion. And the pending legislation proposes to take one billion of this.”

Lawrence Fertig, economist apologist for the bourgeoisie, repeats the same argument in the New York World-Telegram and Sun of June 11, 1951, by citing statistics from Treasury Secretary Snyder’s report of February 5, 1951: (see box below)

“Look carefully at these figures. Obviously the raising of three to four billion of extra income taxes will have to come mainly from the citizens of moderate incomes because the steeply progressive income tax has already stripped the higher brackets.”

The answer to the canard that there is only $3.5 billion left to be taxed in the over $10,000 income bracket is that the Treasury presents all kinds of tax figures and a certain amount of obvious care must be exercised in using them, as a letter to the editor of the New York Times by George W. Hewitt, published on November 22, 1951, reveals. The Lutz-Collins-Fertig-NAM-etc. conclusion that there is practically no money left to be taxed within the bourgeoisie is based, apparently, on Table 13 of Secretary Snyder’s report, where the data are based on “surtax net income.” The same Treasury report, Table 12, shows that only 7 per cent of “gross income” is in the under-$2,000 class.

The manipulation, to which the Treasury has wittingly or unwittingly contributed, is explained by Mr. Hewitt as follows: “But there are two departures from previous usual custom found in Table 13 that accentuate this segregation of taxable income in the lower-income brackets and away from the higher brackets, which in our opinion may lead to misunderstanding of the conclusions reached. First, married joint returns are considered as two taxpayers, each with half of the combined surtax net income. Second, amounts subject to the 50 per cent alternative rate on long-term capital gains are excluded from income.

“In the great majority of cases it is the husband’s income that determines the family status, the wife ordinarily having little or no income. We commonly think of a family in which the husband has a $22,000 salary, for example, as being in the above-$20,000 class as to gross income and slightly below $20,000 on taxable income classification. But in Table 13 viewpoint we will have two incomes, each of which will be classified as under $10,000. As married people making joint returns are 3.5 to 1 in ratio to single taxpayers, this detail should be held definitely in mind when drawing conclusions as to taxable income totals in certain groups.

“As to exclusion of long-term capital gains from income, we do not see how this can be done logically, when the Government has already set the precedent by including 50 per cent of these gains in adjusted gross income. That much of these sales is surely to be considered as income.

“Few persons have reference to Table 13 in the Treasury report. When conclusions are drawn from this table and presented to us it would be helpful to have notations made of the conditions governing the tabulation. But simpler and clearest would be to present surtax net incomes and tax based on adjusted gross income brackets and taxable returns.

“In this method of presentation it would be found that in gross income classification of over $10,000 the total taxable income of that group is $28.4 billion and tax is $9.9 billion, the difference between income and tax being $18.5 billion. In gross income classification of over $4,000 the total taxable income is $62.4 billion and tax $16.9 billion, the difference between income and tax being $45.5 billion.”

Moreover, without reference to the split income feature and the omission of capital gains income, it is obvious that the income of those in the $10,000 and over surtax bracket is also included in all lower surtax brackets. The claim that bourgeois incomes have been virtually confiscated by high income taxes stands revealed as a miserable deception – one that on the part of the professional apologists of the bourgeoisie is either conscious, or they are guilty of gross incompetence in the handling of economic data.

Such chicanery and stupidity have, however, apparently had some effect, for an editorial in the World-Telegram and Sun of October 11, 1951, reveals that a Gallup poll shows 59 per cent of the population in favor of limiting Federal income taxes to a maximum of 25 per cent of anybody’s income. It is also revealed that a constitutional amendment for such an income tax limitation has already been endorsed by 25 states. If 32 states go on record for such a limit, Congress will have to reckon with a constitutional barrier to higher income taxes. In fact, such a limitation would reduce existing income taxes, and automatically guarantee adoption of the NAM tax program.
 

A CAPITAL LEVY is the only rational approach to the current problem of taxation. That is the socialist answer to the NAM tax program and other proposals to make the working masses bear the main burden of supporting the war economy. A levy on capital is not only just since the war economy has as its primary aim the protection of the wealth and power of the capitalist class, but it is the only method of taxation that can readily and easily raise the huge sums that the bourgeoisie claim are necessary to support the capitalist state.

Historically, socialist parties, particularly in Europe, have traditionally mentioned a capital levy whenever the problem of taxation has become acute, but the literature on the subject is rather sparse. In the United States, a proposal for a graduated capital levy was made by former Senator Elmer A. Benson of Minnesota. The Benson proposal was inserted in the Hearings on the Revenue Act of 1942 by Benjamin C. Marsh, representing the “People’s Lobby.”

“The proposed tax or capital levy would be in effect for 1 year and would be levied on the total value of all property owned by individuals at a graduated rate from 1 to 20 per cent, and the tax would be payable in 18 monthly installments with a 6 per cent discount for payment in advance. Married persons would be given a credit in paying the tax of $500 and single persons a credit of $300.”

The Benson capital levy was a naive proposal, whose rates on personal property would run from 1 per cent on $10,000 and under to 20 per cent on all personal property over $1 million. It would have been difficult to collect and would not have raised any great sum, for the major capitalist wealth is owned by corporations. Moreover, there is little point in attempting to assess personal wealth that is not functioning as capital. It is capital that is responsible for the development of the Permanent War Economy and it is capital that should be taxed to provide the finances that the bourgeoisie consider to be necessary.

To keep the capital levy simple and easy to administer, it should at this time be assessed not on all corporations, but on those with assets in excess of $1 billion. There were 58 such billion-dollar companies at the end of 1950, whose combined assets totalled almost $148 billion. A 10 per cent capital levy on corporations whose assets exceed one billion dollars would therefore raise $15 billion. This would be more than ample to balance the Federal budget, even after rescinding the increases provided under the Revenue Act of 1951.

A survey by Alfred F. Connors, copyright by United Press, was published toward the middle of 1951 on the firms with assets in excess of one billion dollars. The list below was taken from the New York World-Telegram and Sun, and compares these 58 leading corporations’ assets at the end of 1950 with end of 1945.

The 58 largest companies, ranked by their assets at the of 1950, can be grouped as follows:

It will be seen that 35 banks and insurance companies account for $107.7 billion, or almost 73 per cent of the total assets of the leading 58 billion-dollar firms. Thus, if it be objected that a capital levy of 10 per cent on gross assets would create insurmountable difficulties as the banks and insurance companies may not have a 10 per cent equity in their total assets, our proposed capital levy can easily be transferred to a 10 per cent tax on all corporations with net assets in excess of one million dollars.

Such a tax on capital would easily raise more than enough to balance the Federal budget after rescinding the increases contained in the Revenue Act of 1951, for a glance at Table VIII-A of Part III (The New International, May–June 1951) shows that the book net assets of 3,304 leading corporations on January 1, 1950 totalled $101.9 billion. Since that compilation by the National City Bank excluded the banks and insurance companies, there cannot be more than $40 billion of duplication even if there were no difference between net and gross assets. The banks and insurance companies, however, should not escape from a capital levy, as of all privately owned institutions they are the most parasitic and are strong candidates for nationalization even under capitalism.

A 10 per cent capital levy on the net assets of all business firms with net assets over $1 million would therefore yield at least $15 billion. Most corporations could pay such a tax out of surplus and undivided profits. Those that could not could either borrow the money or arrange to turn over an equivalent amount in shares of stock to the government, sufficient to pay their capital levy tax liability.

In other words, contrary to the position of the NAM that taxes must be paid out of current income, there is no reason why taxes cannot be paid out of past income by those who have accumulated capital through exploiting the labor of others. To the extent that the workers and lower middle classes own stock in corporations that would be subject to the capital levy, they will gladly reduce their equity in such means of ownership by 10 per cent.

Of course, the rantings of the bourgeoisie and their paid hirelings against a capital levy can easily be imagined. They will cry “socialism,” as if that were an argument. Actually, a capital levy is possible only under capitalism, although it might well be a step in the direction of socialism. It is doubtful, however, that a 10 per cent levy on capital would seriously impair the functioning of capitalism. They will also “argue” that a capital levy is inflationary, for corporations “would have to increase the prices of their commodities and services sufficiently to recoup the losses of capital arising from the capital levy.” Why this follows would be clear only to those who believe that the rights of property are sacred and at all times to be placed above human rights. In any case, maintenance of price control would prevent a sudden recoupment of the capital that has been taxed away. If anything, a capital levy would be deflationary for capital accumulation is one of the main contributing forces to inflation.
 

IF THE BOURGEOISIE object to a 10 per cent capital levy as too radical, we can offer them as an alternative the proposals of two of their most eminent spokesmen. We refer first to the late President Roosevelt and his proposal that during World War II a ceiling of $25,000 be placed on individual incomes. If such a proposal possessed validity at that time, as it did, it is surely even more germane to a fight for capitalist survival against Stalinism, which is the underlying raison d’être of the Permanent War Economy today.

And, if Roosevelt was too radical for the American capitalists, we give them that arch-capitalist, Bernard M. Baruch, who wrote a 500-page book in 1941 called American Industry in the War, the main theme of which is Take the Profit Out of War. In his testimony on the need for price control, published in the New York Times of September 20, 1941, Baruch amazed his fellow capitalists by stating:

“We have talked for years of taking the profit out of war. Price control is one of the ways to do it. The inflationary process affords an opportunity to many to reap huge rewards, while the average person with a fixed income must tighten his belt ... America, which has refused to take a foot of territory for its own war profit, should show the way so that its citizens shall not profit from war. I cannot emphasize this too strongly. We have talked about it, we have written about it, we have preached about it, we have radioed about it. Veteran organizations and Congress both have adopted resolutions about it – that there shall be no profits from war. Let us now make good that promise ... But I must emphasize that no tax program alone can recapture all excessive profits. Profits must also be controlled at their source, which is rising-runaway prices. We must not have a crop of ‘defense millionaires’ to parallel 1918 ‘war millionaires.’”

Understandably, all that happened was more talk, inequitable controls, and a crop of war millionaires in World War II that far exceeded those produced by World War I. With the Permanent War Economy conducted by the representatives of the big bourgeoisie in their own interests, with the state guaranteeing profits, as we have previously shown, there is no tendency toward any decrease in the number of war-induced millionaires at the present time. We do not question the fact that the problem of incentives and capital accumulation is becoming an ever more difficult one for the bourgeoisie to solve. That is the reason for the NAM drive for a politically unpopular universal sales tax. But the state manages to ease the burden for the patriotic capitalist through five-year amortization of war plants, sizable war contracts and, above all, an economy propped up by huge war outlays.

The bourgeoisie moan and weep crocodile tears because on the average profits after faxes in 1951 are running 10 per cent below 1950. But, as we have shown, profits in 1950 reached an all-time historic high. They will probably never again be equalled. We can sympathize with the millionaire who finds it increasingly difficult to become a billionaire because of high taxes, but the real impact of high taxes under the Permanent War Economy is to make it increasingly difficult for the ranks of the bourgeoisie to be replenished with new entrants from the working and middle classes. That is why the bourgeoisie so tenaciously hang on to the biggest tax loophole of all, the capital gains tax. This is virtually the only device left whereby a newcomer to the bourgeoisie can amass a fortune and legally retain it. So-called capital gains should definitely be classified as income and taxed at 100 per cent of the value of net gains or profits.
 

NATIONALIZATION OF WAR INDUSTRIES must be the chief slogan of socialists in the period of the Permanent War Economy. That is the only effective way to “take the profit out of war.” And the definition of war industry must not be confined to atomic energy and government arsenals that are already nationalized. It must be extended to every industry whose output goes mainly in a period of all-out war to direct war outlays. In general terms, the war industries are usually defined to include metal mining, oil and gas mining, chemical and petroleum refining, metal fabrication, and contract construction. This is the way they are defined by Simon Kuznets in Our Economy in War, published by the National Bureau of Economic Research. While there may be some difficulty in classifying certain plants whose output is mixed as between war and civilian purposes, and easily interchangeable one with the other, a good working guide would be to declare a company part of a war industry, and subject to nationalization, if 50 per cent or more of its output went for war purposes in 1943–1944.

Nationalizing the war industries as thus defined would place the decisive sections of American capital under ownership of the government. It would exclude small industry, whose output for the most part did not go directly toward support of the war. Above all, it would exclude agriculture and retailing. Should questions arise with respect to firms that were not in existence in 1943–1944, or whose output has radically changed since that time, it would not be difficult to develop workable criteria to determine whether such firms ought to be nationalized. All the industries included under the general definition of war industries by nature require large aggregations of capital. If, under present conditions, they require substantial concessions in rapid amortization of capital investment, they should be nationalized. If the industry as a whole is classified as a war industry, new firms in that industry should be considered part of the general class and subject to the same policy as the entire industry.

If the copper, aluminum, steel, oil and gas mining, chemical, petroleum refining, aircraft, rubber, auto, and contract construction industries were to be nationalized, to name only the obvious, the problem of administering the war economy would be greatly simplified. The bulk of production controls would apply to government-owned industry. Control of capital investment and allocation of resources as between war and civilian purposes would not be subject to the pressures of hundreds of competing capitalists, each seeking a greater share of the market and worried lest his competitor obtain a presumed peacetime advantage. Moreover, assuming the same degree of productivity, the profits of these war industries would go to the government as the owner, thereby reducing the problem of taxation from one of major importance to a secondary problem.

Nationalization of war industries completes in its rounded economic effect the process that would be begun by a capital levy, which is by its nature a limited and temporary measure. Neither nationalization of war industries nor a capital levy are thinkable as realistic political slogans without the development of an independent labor party. Economic problems under the Permanent War Economy cannot begin to be solved except through political means. The working class is confronted with a host of tasks before it will be in a position to cope with the problems of living under the Permanent War Economy. All of them depend for solution on the ability of the American workers to achieve that political and organizational maturity that formation of an independent labor party would signify.
 

NATIONALIZATION OF WAR INDUSTRIES and A CAPITAL LEVY are the transitional slogans of the Permanent War Economy that correspond to the needs of the workers and the times. Together with traditional transitional demands that retain validity, such as Workers’ Control of Production, they can point the way toward the socialist emancipation of society. American imperialism has no perspective other than to defeat Stalinist imperialism in bloody conflict, risking in the process the atomization of all society.

The Permanent War Economy has provided capitalism with but a temporary respite, while aggravating every phase of the class struggle. There can be no rational or permanent solution to any of the basic problems that beset mankind so long as capitalism or Stalinism exist. Both require war, war preparations, and the threat of war to maintain their reactionary class rule. If the forces of the Third Camp, upon which the ultimate victory of the socialist revolution depends, appear to be weak and scattered in a world dominated by the clash of two irreconcilable imperialisms, it is well to remember that both the capitalist and Stalinist ruling classes have seen their better days.

Neither offers mankind any hope of progress toward universal freedom and a high standard of living. Aside from the stimulation of war, both serve as an actual brake upon the development of the forces of production. The historic task of the working class is to put an end to the Permanent War Economy without permitting the bourgeoisie and the Stalinists to unleash World War III.

 
THE END

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