New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1917-05-07

Yields an interest rate Of per cent,
as against the taxed bonds net yield
Of 3is per cent. will sell for approx
matcly Sl1A3O, j.. G, 81 .O35. The gov
eminent would receive no tax in the
latter case. but would obtain an extra
price OF S1430 on the bond, and this
agio az the assumed rate of interest
Of Gis per cent would yield the govern
ment its % cents a year on each $l00
bond. which would be the amount OF
the tax exemption.
According to this theory the govern
ment loses nothing by exemptinG its
bonds from taxation, but actually gains
the amount represented by the Admin
istration expenses that it would other
wise incur in taking the 30 cents a year
for each 800 bond "out Of one pocket
and putting il into the other" Further
more, its credit under the system OF
'qx-freo bonds seems TO be better, be-
cause the government appears to be
borrowing money at a more favorable
interest rate than it would If its bonds,
like those Of business concerns, were
taxed
While there is much friction in the
manner in which this theory works out
in practice. the essential soundl ess OF
the theory Is generally admitted by sci
Cntihc men, under conditions where the
income tax rate is proportional end ap-
parcntly stable. and where economic
conditions are such that the market Is
apparently anticipating with reason
able accuracy market rates Of interest
that will ne comparatively stable for
the period covered by the life OF the
bond. or at least for considerable
number OF years.
At the present time. however. these
conditions arc not realized. The mar
ket rate OF interest for some years IS
likely TO be unstable and substantially
altered by conditions growing out OF
the war. and altered in degree which
il is entirely impossible to discount &C
curately. Even more uncertain At d
time Ike this arc market estimates as
TO what the income tax rate viii he
curing the next few years
Increase in Income Tax
Blu. more important than these con
siderations is the fact that our Federal
income tax law does not impose pro
portiOnal tax rate c.. single rate
for all incomes but imposes rates that
are niGhly progressive, running at the
present time from per cent up TO an
outside limit of Is per cent, the latter
rate applying on that part Of an lndl-
vidual's annual income which exceeds
S2,000,000. It is practically certain that
these rates will be greatly increased
within a short time. and subsequently,
further increases during The period oil
the war are probable. Taking the rates
however. as they are at present, mar
ricd man with an income Of less than
$4,000 year pays no Federal income
tax. One with an income Of $4,000 pays
an annual tax of $50. or { per cent;
one with all income of 100000 pays
S42 800. or nearly Sc per cent. while
one with an income Of S3,000.000 payr
$387,920. or 1873 per cent. Now. it Is
obviously worm iHuCu Hicit 10 tNCdpt
an income tax OF 1919 per cent than orc
Of sc per cent, and 1t is worth more
to escape one Of Sc per cent than one
of per cent.
Tho results OF eXempting bonds from
Federal income taxes under such n sys-
tenn is evident. It tends TO make the
bonds rich mems Investments, and the
richer the man the more tempting arc
the bonds made to him. This situation
Will tend strongly to defeat the gov
ernment's purpose, which the law itself
declares to BE- 20 make this a popular
loan" and to "givo all citizens Of the
United States an equal opportunity TO
participate therein OF course. the
greater the competition for the bonds
on the part Of rich men the higher the
market price Of the bonds Will 90 and
the lower the net interest yield will be
TO the wealthy owners. The number Of
men. Ho~eycr, with very large incomes
H. small.