MONEY: Empty Pockets on a Trillion Dollars a Year

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nations enjoy higher-quality health care, recreational facilities, mass transit and many other services than the U.S. does. Japan is the only major industrial nation where taxes account for a smaller share of G.N.P. (16%) than they do in the U.S., at least partly because Japan's tax system was designed by American occupation authorities after World War II.

In some areas of the U.S., political opposition still keeps taxes low despite inescapable needs. New Hampshire, for example, can afford to keep only four state troopers on duty in the early hours of the morning, and has been unable to pay the telephone and postage bills of its own planning office. Nevertheless, the state has neither an income nor a general sales tax, and the legislature last week defeated for the second time an income tax proposed by Governor Walter Peterson.

Flat Failure. The bias against public spending has led the Federal Government to distribute the gains of economic growth in the form of income tax cuts rather than improved services. Since 1964, federal income taxes have been cut four times, from a range of 20% to 91%, to the present 14% to 50%. If rates, exemptions and deductions had been held steady for the past decade, Washington today would be collecting at least an additional $40 billion a year—more than enough to wipe out the $38.8 billion deficit foreseen in this fiscal year. Alternatively, if a large deficit were considered necessary to stimulate the economy, Washington could now be distributing enough additional aid to states and cities to meet nearly all the social spending needs expected for the 1970s.

The tax cuts have been aimed at shrinking the role of Government in U.S. life. In his January budget message, President Nixon boasted about his

Administration's tax cuts and declared that individuals "can use that money more productively for their own needs than Government can use it for them." This policy has been a flat failure. The role of Government has not declined because total tax collections, while still smaller than in other countries, have risen as a percentage of G.N.P. The reason, of course, has been the fast rise in state, local and Social Security taxes. The main achievement of the federal income tax cuts has been to distort the tax system by restricting the role of a levy that is effective and generally fair, and throwing a greater burden on taxes that are neither.

When the economy grows, the yield of the income tax grows even faster, because taxpayers hand over a rising percentage of their incomes as they move into higher salary brackets. By contrast, local sales tax collections increase only about as fast as the economy does, and the yield from property taxes does not necessarily rise at all even during a boom. Unlike the income tax, these local taxes are also regressive: their burden falls most heavily on those least able to pay.

The property tax in recent months has become the flash point of the taxpayer rebellion. More than half the $36 billion collected by property taxes annually is earmarked specifically to pay local communities' share of education costs. But in many cities, towns and villages, property taxes also raise most of the revenues for the whole range of local government services.

Fiscal Suicide. Theoretically, the property tax burden should be shared equitably, since the rich own more taxable