New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1880-12-24
A hint FOR REFUNDING.

Congress mas 10 ACT upOu tHis Wihtci' IL
public opinion should within that time be
clearly defined and strongly expressed, it may
hive great effect upon the action of Con-
gress. For it is generally conceded that
nothing can be confidently predicted as to the
fate of the Funding bill in its present form,
because there are many members, both of the
Senate and of the House, who are in doubt
what to do or how to vote.
Congress has not begun at the right end, in
this matter. In order to sell bonds bearing
low rate of interest, there should have been
at the outset careful consideration OF the
inducements offered to buyers. Some In
ducement is obviously necessary to secure the
sale of a 8 per cent bond at par, when
British 8 per cent cOnsOls now sell at less
than 90. though virtually perpetual stock,
and therefore handing higher price
than any terminable bond Of the same
rate. Notwithstanding the recent remark
able advance of United States per
cents, during which those bonds have
sold higher than ever before, they
have not yet sold in a single in
stance at such price as to yield as little as
3lo per cent on the money invested. The
selling price of bonds is not so much deter
governments, as by the relative demand for
and supply of capital in the different countries.
Grant that the credit, both of Great Britain
aud of the United States, is absolutely per-
feet and undoubted there must still be
difference in the rate of interest prevailing IN
the two countries. 1t is unreasonable to
take it for granted that in this country,
where capital in vast amounts is constantly
demanded in excess of the supply, for most
promising and profitable enterprises connected
with the development of resources aud the
growth of industries, money can be borrowed
on better terms than in Great Britain, where
industries are cramped and trade restricted
by growing foreign competition, aud where
there is a vast accumulation of unemployed
capital. What inducement has the Govern
ment to offer. then, for the purchase of per
cent short-term bonds at par, when British in
yestors let their money lie idle rather than
purchase British consols at 99f
There is one obvious inducement, which can
be used as powerful lever to insure refund
ing at low rates. 1t is possible to induce the
National banks to take bonds bearing low
rate of interest This cannot be done by any
species of cOmpulsion, because circulation
based on per cents. as has been shown,
Yields but a small profit, and the banks have
power to surrender their circulation at any
time. But it is evident that there must soon
be a reduction in the rate of taxation on prop
erty invested in these banks. They are now
bearing the full burden of taxation imposed
during the war; when they were holding six
per cent bonds. Within very short time
Congress will be compelled to modify the rate
of taxation, or the country will be exposed to
serious disasters by sudden contraction OF
the circulation. Why cannot Congress begin
the inevitable reduction of taxation now, as a
means of securing the swift and certain success
of refunding2
Let it be provided that there shall be no
tax on that part of the circulation OF Ma
tional banks which is based upon 8 per cent
bonds. The banks will then have q direct
inducement to buy the per cent bonds, in
stead of surrendering their circulation. In
addition, since the circulation of National
bank is amply protected by its deposit OF
United States bonds, without any regard to
the amount OF its capital, 1t would be wise
also to provide that the amount OF circula-
ton issued by any bank having 8 per cents
only Oh deposit should be not at all restricted
by the amount OF its capital stock, but only
by the ratio of 500 in bonds deposited for
every 500 of circulation issued. If other
banks wish to keep ON deposit the or 4l2
DER cent bonds which they now own, LET them
do 80. 1t would be enough to provide that
on such part of the circulation of any bank
as may be protected by deposit OF per
cent bonds there should be no taxation.
This provision would evidently offer much
10 10 avly m chaaA
Iow-rate bonds than would be offered by the
reduction of taxation proposed by Secretary
Sherman, Senator Beck, or Representative
Morton. For the abatement Of taxation would
in each case be precisely proportioned to the
amount of new bonds taken for deposit. All
the other plans would abate taxes alike for
banks which take the per cent bonds
and for those which do not. Yet the amount
of tax lost to the Government, by the method
here proposed would be much less than by
either of the other methods mentioned. The
taxes on capital and deposits, which Mr.. Sher-
man and others propose to remove yielded
last year 4,438 1875. But the tax on the en-
tire circulation now outstanding if entirely
abated, would be only SO, 100000 and the
banks would undoubtedly retain some OF the
bonds now owned, and continue to pay taxes
on the circulation based thereon. Instead of
diminishing the taxation $4.40O, 900, the plan
proposed would diminish the taxation less
than SO, 400. 900, and yet would be incom-
parably more effective in promoting a swift
and sure refunding of the pubic debt at the
best rate. 1t is probable that nearly
$500 600. 900 of per cent bonds would
be quickly taken by the banks alone, under the
plan suggested, and this would render certain
the sale of any other bonds or notes offered