p Examining the contemporary taxation system in the United States one cannot fail to note that the numerous laws, regulations and addenda in the whole make up an extremely intricate and cumbersome system. Thus in filling out a tax declaration it is necessary to make “upwards of 500 entries . .. and as many as 200 additions, substractions, multiplications and divisions".  [102•1  “Thousands of people,” the Wall Street Journal writes, “...can’t understand the tax forms."  [102•2  Practically only experts in taxation can understand all the fine points of this legislation.

p The inequitable demands made by the government on different taxpayers and the diverse opportunities for evasion are accentuated by the existence of a ramified network of tax loopholes. The increasingly intricate system of relations existing between the Treasury Department and the big 103 taxpayers can nonplus even the most experienced officials of that department.

p It would perhaps be too naive to see in the tax loopholes only a result of machinations by taxpayers or even of some or other pressure groups. The existing system, with its loopholes, is a manifestation of the functioning of the statemonopoly economic mechanism. With the extension of the economic functions of the state and the growth of taxation, the government must make ever wider use of changes in the structure of the taxation system as an important instrument of economic policy. It gives “selective” tax concessions to employers in some sectors of economy or to capitalists who perform definite commercial operations in order to stimulate the flow of capital into some or other sectors and thereby achieve a restructuring of the economy.

p At the same time the government from time to time also offers general tax concessions, recognising in them one of the principal means for stimulating economic activity.

p The system of tax concessions is being steadily widened and is becoming more ramified. The concessions and allowances introduced as temporary measures most often become irreversible.  [103•1 

p Here we encounter another specific feature of the mechanism of creating tax loopholes. While emphasising the role of the objective processes in the development of state-monopoly capitalism, we naturally must not discount the political forces which act as the chief dramatis personae in this process. Different groups of the capitalist class actively attempt to influence the choice of various forms of tax regulation, upholding the privileges most advantageous to themselves. “Not more than one out of every 100 citizens actively . working on a tax bill is trying to represent the general interest,” noted Paul H. Douglas, Chairman of the Joint Economic Committee of Congress who took part in the drafting of many tax bills. “And in the halls outside the hearing rooms the lobbyists are as thick as flies. . . ."  [103•2  In those cases where 104 the government decides to put forward proposals to restrict tax loopholes, big business representatives utilise their influence in Congress to have these bills rejected.  [104•1  The development of the US taxation system in recent decades shows that defenders of tax loopholes, who form a bloc, usually succeed in fully or partly frustrating reforms.

p Consequently, the use of tax concessions as an instrument of economic policy ultimately gives rise to a spreading labyrinth of tax loopholes. But beside general economic functions, the taxation system must perform fiscal functions “properly” linked with the need to finance the growing governmental expenditure. These functions increasingly clash with the network of tax concessions. The internal contradictions between the general economic and fiscal technical functions of the tax system thus come to the foreground.

p The various forms of tax concessions have been examined in detail in a number of special studies.  [104•2  Let us merely point to the financial importance of the tax concessions given to corporations. Data in Table III-6 illustrate the process of the gradual increase of the non-taxable incomes of corporations.

p If we also add the rough estimates of the expenditures of executives of corporations for their own consumption which are entered under different items of costs,  [104•3  it will turn out that the total sum of actual profit exempted from taxation 105 Table III-6 Structure of Tax Concessions Given to Corporations, 1953-1959 fiscal years Form of exemptions and concessions Sums of corporation incomes exempted from taxation (million dollars, in current prices) Accelerated depreciation Depletion allowances Research and development Contributions or gifts Exclusions Preferential rates on capital gains 1953 fiscal year 1959 fiscal year 3,120 2,300 1,100 500 1,300 2,500* 3,550 3,000 1,750 500 1,600 3,500 * Estimates based on data of the 1956 fiscal year. Sources: William F. Hellmuth, “Erosion of Federal Corporation Income Tax Base”, Federal Tax Policy for Economic Growth and Stability, November 9, Washington, 1955, pp. 914-15; Tax Revision Compendium, Vol. 1, Washington, 1959, p. 313. mounts up to one-third of the officially declared taxable profits.

p Many loopholes are also contained in the system of taxation of individual large incomes. Let us refer in this connection to the earlier mentioned privilege of taxing incomes in the form of a preferential rate on capital gains: if these incomes were taxed at the ordinary rate, federal budget revenue in 1955 would increase, according to calculations of Professor Goode, by 10 per cent.  [105•1  The bulk of the benefits from these tax concessions accrues to the receivers of the biggest individual incomes: in families with the annual income of up to $5,000 the capital gain amounts to 2 per cent; in families with an annual income from $50,000 to $100,000, to 18 per cent and in families with an annual income of $1,000,000 and more, to 64 per cent of their total income.  [105•2 

p Moreover, as a result of a number of officially permitted tax deductions, the Treasury Department loses about onefourth of the individual income tax receipts. In the case of families with incomes of $500,000 annually and over, these deductions added up to 21.5 per cent of the gross income in 1960, while in families in the lower income brackets (with an income of up to $3,000 annually) the deductions amounted to only 12.9 per cent of the gross income.  [106•1  Professor Lampman, analysing different forms of tax loopholes, declares that the “income tax is full of rich man’s subsidies".  [106•2 

p The development of various forms of tax concessions is gradually undermining the entire federal tax system, giving rise to the problem of so-called income tax base erosion. The extension of the network of loopholes reduces the efficiency of the entire fiscal mechanism since these processes, in the first place, curtail the basis of taxation, driving ever new breaches in it. Second, they widen the gap between the official and effective rates of taxation, thereby reducing to naught in a number of cases the system of progressive taxation envisaged by law. The federal tax system is especially vulnerable in this sphere because it is based on a higher proportion of personal income taxation (as compared with the financial system of local governments and the national budgets of other capitalist countries).

p At the same time this process of erosion is gradually undermining the very principles of taxation, deepening property inequality and social injustice. The fiscal mechanism existing in the United States today is, less than ever before, based on the principle of equitable taxation of equal incomes. While those who receive modest incomes have to pay their taxes in full, in the 1960s 155 taxpayers with an income of more than $200,000 annually (among them 21 with an annual income of more than $1,000,000) did not pay a single cent in taxes.

Yet the taxation system is closely linked with the general system of the socio-political relations and this connection between them is two-sided. The structure of the existing 107 taxation system always reflects the dominant socio-political pattern of society.  [107•1  At the same time the contradictions and conflicts engendered by such a redistribution of the national income through the channels of the financial system which increases property and social inequality, in turn, actively influences the course of the socio-political movements developing in the country. The steady growth of the tax burden, coupled with the extension of the maze of tax loopholes utilised by Big Business, inevitably increases tensions within the economic and social system of contemporary capitalism.