Omaha daily bee., 1910-04-03
Features of the Income Tax.

On the scope OF the pending income
tax amendment and the effect of an
income tax, should one be imposed,
no one is better qualified to speak
than Prof. e. R. A. Seligman of CO.
lumbla university, who is recognized
as the foremost authority in this coun-
try on the subject of finance and taxa
tion. Fortunately, we are soon to
have the views of Prof. Seligman TAX
ing issue with the position Of Gov
ernor Hughes of New York in an arti-
Gle contributed to the Political Sci
ence Quarterly, already available in
advance sheets. Prof. Seligman COM
bats Governor Hughes objection to
the proposed amendment, which, he
says, he would otherwise favor, that
It would impair the credit of the state
and local governments by exposing to
federal taxation incomes derived from
money invested in their securities. In
the judgment of Prot. Seligman, Gov
ernor Hughes opinion is erroneous in
three respects: t..rf
~ His Interpretation Of the legal force
Of the amendment is incorrect.
(2) Even were his legal Interpretation cor
rect, he fails to take account of economic
facts which would prevent the consequences
which he fears
90 Even were his views correct, that the
constitutional amendment would operate
to change the law in the direction indicated
be so changed.
Under the frat heading a series Of
supreme court decisions are quoted
to prove that state and municipal
bonds would henceforth, as before,
be exempt from federal taxation by
reason OF the essential character of
the implied restrictions in the consti-
tuition, which would not be altered
one whit by the amendment. On this,
however, the citations do not appear
to be conclusive, and in all probability
it will take another supreme court
decision to construe the words, from
whatever source derived" and tell us
definitely whether this permits of Q
favored tax-fTee class.
Under the second heading Prof.
Seligman emphasizes the point already
made by The Bee, that the income tax
would not materially affect the credit
of the states to borrow money whether
1t included or excluded incomes from
investments in state bonds, because
the tax would be capitalized insofar
as holders of existing bonds are con-
cerned, and on future purchases of
new issues the interest rate would be
computed simply to make the invest
ment yield relatively the same return,
allowing for risk, that would come
from investments in property to the
same amount. We have now exam
pies in many states of taxable and
tax-exempt securities, so far as the
exercise of state taxing power goes,
and the municipalities whose bonds
are taxable have not had their credit
destroyed, as compared with those
whose bonds are legally exempt from
taxation nor appreciably Influenced
except sc far as the large or small
area OF tax exemption tends TO stimu.
late the demand for tax-exempt securi
ties.
Under the third heading the conclu'
sion is reached that II we are TO have
an income tax at ALL II ought TO apply
to incomes from all sources, and thai
there is no good reason why the
agencies of the state and local govern
ment should be exempt from general
taxation, designed tc fall on all alike
In this connection It is brought out
that the same rule Of legal interpreta'
ton which would exempt the incomes
from state and municipal bonds from
federal taxation would likewise ex
empt the incomes drawn as salaries
by state and municipal ofacers and an
exemption Of these salaried oficerI
from the income tax. which all Other
salaried persons would have to pay
would in effect raise the salaries o.
every such ofioeholder to the extsnt