The sun. [volume] (New York [N.Y.]) 1916-1920, 1918-09-23
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TAX EXEMPT BONDS
STATE WAR PUZZLE
Comptroller Travis Believes
Federal Levy Should BE
Repaid to Holders.
AFFECTS PUBLIC CREDIT
Better Way Would Be for Con-
gress to Seek Revenue From
Other Sources.
AFFECTS PUBLIC CREDIT
Special Despatch 10 TIE sux.


ALBANY, Sept. 22.-Opposition to the
nroposed Federal tax upon State and
municipal bonds, which passed the
House Of Representatives last week. was
appraised tonight by State Comptroller
Travis in a statement In which he points
oil, that such levy would be In direct
vi,ltion of the contract by which these
purchasers were guaranteed tax ex-
emption of all kinds.
IN the event that this levy il re-
uuired for the period of the war. how
ever. Mr.. Travis believes 1t would be
the plain duty of the State and munich
pal governments to pay this on out
standing bonds and reimburse them
relyes by a general property tax. which
would mean that the already over
Surdened real property Of the State, now
paying SO per cent Of the taxes, would
have to hear this additional burden.
The Comptroller said in part:
The proposal to impose a Federal
income tax upon State and municipal
bonds so vitality and detrimentally
Affects the finances of political SUBJ
divisions over which the Comptroller is
required by law to exercise supervision
that feel warranted In expressing on.
position to the proposal While The
conditions Of the present time are diff
ferent than any one could have fore
seen some years ago and the successful
prosecution Of the war requires taxa
ton In forms none of US dreamed Of
(but which we concur In for obvious
reasons Of patriotism) the proposed tar
on income from public bonds places
State. county. city. town, village and
school district governments In most
embarrassing position and II imposed
may seriously affect their credit for
years to come
Millions I'm New York State.
an New York State alone are out
standing hundreds or millions of bonds
Of this character. The State itself has
out approximately $250.000,000 and to
this must be added the enormous in
debtedness Of New York city and OF
the other cities and subdivisions. all of
which have issued their bonds sinco 1909
with clause covenanting that they
shall be exempt from taxation. Thir
covenant was made in good faith. The
legislature authorized II for the pur-
pose Of creating better market for
public bonds and keeping down the in
terest rate.
The greater part OF these public
securities are held in fiduciary capa-
city by trust and insurance companies.
savings banks and estates for the benefit
dents The income upon funds of this
character is founded upon investments
Welding rate Of return based upon
The purchase price II the proposed tax
were deducted from such incomes It
would cause hardship to those who,
through lack OF earnings capacity. could
not overcome the logs Of income which
this tax would entail In the case OF
savings banks and trust companies
nh La. A.
sderably deprecated by war time con-
ditons 1t would cause still further de-
yress'on in values.
But the worst effect would be upon
the state itself. For all time to come il
would be under the stigma Of not being
able to protect its written promise The
war and its financial difficulties will
pass and some day normal conditions
will return. but never again could New
York or any other State expect the in
restor to accept its guarantee OF tax
exemption, because a higher power
could set aside the guarantee.
should Reimburse Holders.
The only way in which the State or
the municipality can keep this promise.
II the tax Is imposed. is to reimburse the
hondholders out OF the public treasury
;or any tax that may be imposed upon
'Hthe puDIlC SECURITIES. NO matter now
extraordinary such a step would be
from business standpoint, no one can
question its moral soundness.
Perhaps some one will say: 'Conoed-
ing that 1t Is improper to impose this
tax on outstanding public bonds. why
should future issues be tax exempt /?
In the first instance. II is the good re-
pute Of the State that would suffer in
the second instance. the sufferer would
Oe the public pocketbook. II Congress
decides TO impose this tax the effect
will be to raise the interest rate on flu
'ure Issues. That is. the public would
he required to pay more for the money
Y borrows from investors. These bonds
Usually run long time before maturing.
In the meantime. the necessity for the
Federal tax may disappear. whereupon
ne investors income from these public
bonds will Increase and the securities
grow In value.
On the whole. the proposition threat
ems so much OF legal and other compli-
cations. apart from its embarrassment
20 the governments which Issued the
oonda that the Federal authorities
ought to obtain from some other source
me little revenue which these bonds
would yield and assist in protecting the
good name Of the States and their