THE CABINET: Surplus-Removal

What is the U. S. to do with its treasury surplus of $300,000,000?, This question, obviously a matter for experts, has now become a morsel for politicians. Congress, either by action or inaction, at its winter session will probably decide the problem. Several schemes loom:

1) President Coolidge suggested a fortnight ago (TIME, Nov. 15) that the surplus be used to make a 10% or 12% refund on income and corporation taxes payable in 1926 for incomes of the calendar year 1925. This would mean that 90% of the income taxpayers would receive refunds ranging from 11¢ to $1.69; the richer 10% would, of course, get proportionately larger benefits. The President’s plan, hastily precipitated by the elections, caused some rejoicing in Republican ranks but served chiefly to stimulate criticism and other surplus-removal schemes.

2) The Democratic plan is to use the surplus as a basis for a general downward revision of tax schedules.

3) There is always the pork barrel method of spending the surplus.

4) There is Secretary of the Treasury Mellon’s general policy of using the surplus to help retire the national debt.

5) Then, last week, Secretary Mellon announced a sound, simple plan of his own to meet the present situation. Republican harmony-artists said it was a “new interpretation” of the President’s scheme, but in reality it is both a gentle repudiation of the Coolidge plan and a rebuke to the Democratic zeal for a general tax cut. Mr. Mellon wants the surplus to be credited to income taxes payable in 1927. Said he: “With only a few months’ test of the Revenue Act of 1926, common sense requires that we do not act precipitately. . . . The necessity that we do not commit our Government to an unsound fiscal policy for the future should not prevent the Government treating its taxpayers fairly in any particular year in which Government revenues are overabundant. I believe in debt reduction along the program settled after the War, but I do not believe in the payment of a public debt to the undue burdening of productive industry.

A balance should be maintained between debt reductions and tax reductions which is fair to all interests in our country. We know now we shall have a considerable surplus in the fiscal year 1927 ending next June. The President has suggested a credit on taxes yet to be paid during this fiscal year, and I see no reason why the greater part of the expected surplus for 1927 might not be left in the pockets of the people of the country by a credit upon their income taxes. There is not time to pass legislation to cover the Dec. 15, 1926, income tax payment date, but before March 15, 1927, the Congress might provide for this credit against all income taxes, both individual and corporate, which are due and payable in the first six months of the calendar year 1927. . . .”

The day after the announcement of Secretary Mellon’s proposal, the White House Spokesman issued a plea for non-partisan consideration of tax relief, and said that, after consideration, he was inclined to be in favor of the Mellon plan.