The Birmingham age-herald. [volume] (Birmingham, Ala.) 1902-1950, 1913-11-04
INCOME TAX BILL
AS A STIMULUS TO
DEMAND FOR BONDS
Exemption of Certain Kinds
May Make Them More
Popular
CURRENCY LAWS
EFFECT ON BONDS
Disposition to Withhold Deposit of
Coupons Until Decision Is Made
Regarding the Collection
of Tie Tax
nx HOLLAND.

| by HOLLAND.
New York. November 3.--lSpecial.)
When the income tax bill was under con-
sideration it was suspected by bankers in
this city. especially investing bankers,
| that the disposition was strong on the
part of some members of Congress to
exempt from taxation nothing but incomes
derived from government bonds. The
ablest lawyers, however, in Congress as
well as out of it, were convinced that IL
the law provided for the taxation of in
comes obtained from state, municipal,
county or village bonds 1t would be GER
tain to be declared by the supreme court
at Washington to be unconstitutional so
far the levy of tax upon incomes
from state or municipal bonds was con-
cerned. The state is sovereign, the law
| yers reasoned and so are the political
subdivisions of the state, for they repre-
sent the sovereign authority of the state.
This reasoning undoubtedly explains why
the incomes from all bonds of this charac-
ter are exempted by the provision of the
income tax law.
| AS soon as it was known that exemption
of this kind would be set forth in the law
there were many predictions that the cf-
feet of this exemption would be sooner or
later greatly to stimulate the market in
which state or municipal or like bonds ere
! offered for sale. That market for some
years has been, relatively speaking, de-
| pressed. New York state with its mag
nificent credit and resources, was never
Ia1a Los Win fn .adn a
| temporary expedient in order to market
! large block of state bonds. The state
! in fact took some lessons from those who
! have financed recently the temporary OBJ
/ legations of railroad companies. New
York city has of late found the quotations
for some of its bonds considerably below
par although this is in part explained by
the apprehension that che city has been
mourning an unreasonably heavy debt
Many cities whose credit is unirnpeachable
found difficulty in marketing their bonds
A striking example was furnished recently
by Baltimore's experience in undertaking
to market a comparatively small issue of
bonds. a considerable proportion of these
was sold over the counter, as the saying
| goes
"A new demand
But with the exempation from taxation
which Is to be the privilege of the in
come upon bonds of this character there
will be, investing bankers believe, very
strong temptation to invest in state mu-
nicipal. county and other bonds which
| represent state sovereignty. At first II
| is believed, this disposition will be re-
4 vealed by those who live exclusively upon
| incomes from bonds. or by the executors
4 -.
I can afford to sell bonds bearing interest
at higher rate than per cent say, and
/ reinvest the money thus obtained in bonds
| behind which stands the sovereignty of
! the state even though these securities
carry only 4 per cent or fraction more.
OF course, investments of this kind would
be in some measure Influenced by the
market offered for other securities.
There is no doubt that the recent some
what violent depreciation in the quota
! tons for the bonds of New York city that
bear interest a little In excess of per
cent was due directly to the fact that
| these securities are exempt from the np-
GRAFTON of the income tax law. This dispo-
stion investing bankers believe, will ex-
! tend over the entire country. 1t will prove
| to be an advantage to states and COM
munities which have bonds to offer to the
| public and will serve to stimulate mar
| ket which in recent years has been rather
| dull
The Two Per Cent Governments
| A good many bankers are looking ahead
with curiosity respecting the effect of
the banking and currency law which pre-
sumably will be enacted late this fall
or early this winter upon the per cent
| United States bonds.
| This curiosity is in part traceable to 10
peculiar utilization of these per cent
bonds which the national banks have
made This utilization has made 1t pos
| sible for those who own 9 per cent gov
eminent bonds, particularly those who
are trustees of large estates and who
have made temporary investment of their
funds in these bonds and others who for
motives of absolute safety bought the
| 2 per cents in considerable amount, to
realize an income of as great as 3 per
cent upon these bonds.
] Some years ago inquiry was made of
the comptroller of the currency of that
day so that It might be known whether
that department at washington would OBJ
| ject to borrowing of per cent bonds by
| national banks. If these bonds were bor-
| rowed they could be used for the purpose
of increased currency issues or for secur-
| ing government deposits. The department
/ at Washington did not see any reasons
| for objecting to such borrowing. There
| fore some of the banks of this city took
pains. to learn what estates or what in
dividuals possessed two per cent bonds
! in considerable amounts. Having secured
this information the banks made this
proposition to these owners: IF you will
! lend your per cent bonds to this bank