New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1878-08-24
TAXLNG BONDS.

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TAXING BONDS.
The taxation of United States bonds, like
the abolition of National banks, is demanded
by the very men who would suffer from 1t
most. The prevailing popular notion is that
the bondhOlder gains by the exemption and
would lose a part of gains which are cOnsid-
cred excessive If the bonds should be sub
iected to taxation. The fact is that the whole
country gains, by the low rate of interest at
which 1t is able to borrow money on uDtaxed
bonds, and that all other taxpayers or borrow
ers would be compelled to bear a heavier bur
den if this exemption could be removed.
II must be remembered that such change
in the status of bonds now outstanding would
be mere reputation. The United States has
made contract with creditors here and abroad,
by which 1t is bound neither to tax the bonds
which those creditors have purchased, nor to
permit them to be taxed by local govern
ments. Upon that contract the price paid Tor
the bonds was based. The United States SUI
preme Court has decided the exemption valid,
and that court would he open to creditors for
their defence, if it should be attempted to
violate the contract.
If the bonds were made taxable, the eX-
change of six per cent for four per cent bonds
would instantly cease. Nobody would buy a
taxable four per cent bond; even five per
cent bonds, if taxable, would cease to be sal
able at par. In consequence the Government
would be compelled to pay interest at six per
cent on about $3.50. 900, 900 of bonds now re-
Ceemable, and at five per cent on about $7O3,-
Ia or in 1881 which
can be funded into four per cent bonds as the
law now stands. This would involve n direct
loss to taxpayers of about $16,00O,000 yearly.
Virtually the public creditors now pay the
Government ST., 100000 yearly, through re-
ducton IN the rate of interest on bonds issued
since 1868, for making its bonds nOn-taxable
and maintaining its credit. In like manner
they can be made to pay $l6,OOO,OOO more,
when enough fouI per cent bonds can be sold
to call IN the six and five per cent bonds re-
deemable now or in 1881. The saving OF $l6.-
100000 yearly would become impossible, and
the saving already effected of $1,000
600 yearly would be ultimately lost II
bonds should be made taxable, because the
Government would be obliged TO offer six or
possibly even seven per cent for money to meet
outstanding bonds when they mature.
But would it not gain in revenue3 1t would
probably be found impossible for the United
States to impose any tax on its bonds which
would escape constitutional prohibitions. But
if any such tax could be levied by the General
Government, it would necessarily be proper
toned to taxes on other property, and there
fore small in comparison with the amount
now gained by reduction of interest. Those
who adv Jcate taxation of bonds hope that rev.
enues might thus be obtained for local and
State governments, for they cannot be so lg-
nOrant as to suppose that the United States
would gain anything. Bat it is q notorious
fact that the bonds of railroads. of other cor
porations, of cities and of other WuniciDali-
ties, escape taxation almost wholly. They
cannot be found. Assessors seek in vain;
holders unhesItatingly hide the certificates and
swear they have no such personal property
subject TO taxation. To trace United States
bonds to their owners would be utterly impos-
sible, and if any effort were made to get at
the owners of registered bonds, all holders
would get coupon bonds as speedily as
possible and hide them. Local govern
ments would probably make nothing by
the change; the United States Government
would gain little or nothing; and the people
would eventually have to pay. through in
crease in the rate of interest on bonds, about
$26, 100000 yearly more than they will have
to pay if the funding process continues without
interruption.
But this is not the worst The rate of in
terest on ordinary commercial and business
loans is greatly affected by the rate at which
the Government can borrow. If the United
States pays per cent for money, lenders are
not disposed TO take an inferior security
without a much higher rate. In effect, no
considerable amount of money can ever be
found for commercial or industrial operations
except at rate much higher than that which
can be realized on Government bond. Hence,
to force upward the rate at which Government
borrows is to force upward the rate which
all other borrowers must pay. All factories,
mills and mines, all railways and teleeraphs
and other corporations, all manufacturers and
farmers, would have to pay more interest for
the loans needful IN their operations. if the
value of Government bonds should be so
changed that per cent bonds would bring
only as much as A per cents bring to-day.
The loss would be enormous and it would fall
heavily upon farmers, manufacturers, and all
engaged in industrial enterprises, and upon
their employees The gain would be enormous,
and it would all go to the money-lending
class whom it is the intent TO rob.
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4 TEST or CHARACTER
"Tbe question in regard to the Resumption