FISCAL REFORM 187

taxes is a deduction on their Federal tax return. So if they're in the
80 percent Federal income tax bracket, which some of them are, and
their State taxes go up, they're only paying 20 percent of the increase
anyhow because the rest is deductible from their Federal taxes. So the
impact on them is not nearly as bad as they imagine it to be.

People who are knowledgeable, who have no axe to grind in govern-
ment, have agreed that this approach of taxing income, of taxing abil-
ity to pay, is the way to approach the subject. We are not ashamed of
our tax reform; we are proud of it. We don't go around the State
hanging our heads about it like we are taking money out of the pockets
of those who can least afford to pay it, because we know we are putting
money in the pockets of those who can least afford to pay more.

Now business taxation needs to be studied and reformed too, and
this is in progress by the committee that Glenn Beall serves so capably
on. We intend to come in with new ideas of business tax reform which
will eliminate some of the inequities in that area.

Right now we have crazy taxes on business relating to gross profits,
relating to inventory; we have a sales tax on machinery and equipment
that's inhibiting industrial development in areas where we need it
most. I believe that if we rearrange our business tax structure, where
the ability to pay is brought into that, where businesses that are mak-
ing money after taxes are the ones that have to pay more instead of
those that happen to be carrying a large inventory or making a large
gross profit, we will have done something to make uniform the busi-
ness taxation and attract new industry to this State which we all need
if we are going to keep our cost of government down.

The business tax problem should be ready for the next session of the
Legislature. This does not mean a massive new tax increase. One of
the things that I believe is that the business reform should relate itself

to smoothing out the bumps, to making the burden more nearly equal

on the business community, not necessarily to providing a whole mass
of new business credit.

I think in some areas of pollution effort a business should be given
an accelerated write-off of facilities it puts in—not to help it make its
product better or produce more rapidly or in greater quantity, but
simply to help the citizens around it live better lives through the lack
of water pollution or air pollution. I think they should get credits
for that kind of effort certainly, but the entire business tax restructur-
ing does not of necessity involve another big tax increase.