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Former Budget Director Charles Schultze lists some other unproductive expenditures: the building of giant dams that yield little economic return, even in terms of lower power costs, but harm the environment by flooding areas of great scenic beauty; irrigation projects that subsidize the growing in Western deserts of crops for which the Agriculture Department is trying to cut acreage elsewhere; farm price supports that benefit mostly higher-income farmers; subsidies to general aviation that aggravate airport congestion by encouraging private flying. The nation can no longer afford such extravagances, but they continue because they are promoted by powerful self-interest lobbies that encounter little opposition. They should be opposed by public-interest counterlobbies, which could press competing demands for cash for other programs. That is a cause to which Ralph Nader and his army of followers could profitably turn their attention.
How to Cut. The nation also needs a thorough overhaul of its tax system. The aim should be to make a reformed federal income tax a major revenue raiser for states and cities as well as for the Federal Government, reducing the necessity for endless sharp increases in unfair and ineffective sales and property taxes.
Although the income tax is fair enough in principle—rates rise with ability to pay—the way in which it actually operates is not. Because of elaborate deductions and exemptions, hardly anyone pays the rate that theoretically applies to his salary bracket. The deductions and exemptions excessively favor married couples over single people, homeowners over renters, large families over small, receivers of dividends and stock market profits over people who live by wages alone. Congress narrowed some of the loopholes in 1969, with the result that the number of people who paid no tax whatever on incomes of $200,000 or more declined from 300 in 1969 to 112 in 1970 (before final audit). Simultaneously, though. Congress has piled on new tax breaks. The latest, enacted last year in a bow to Women's Lib, is a child-care deduction for working mothers in families with incomes up to $27,000 a year.
Some tax favors reward actions that once seemed socially desirable, like the bearing of many children and the buying of single-family houses. It is questionable whether such goals should still be encouraged. If so, they should be promoted by direct subsidy. Indirect subsidies handed out through the tax system are extremely expensive and lead to ludicrous distortions. For example, the Federal Government last year in effect paid 70% of the mortgage interest and property taxes on the home of a couple who had a $200,000 annual income, but it paid only 19% of the interest and taxes on the house of a couple who earned $10,000 a year, and nothing at all on the house of a family too poor to pay any income tax.
Joseph Pechman, one of the nation's leading tax