New-York tribune., 1918-08-28
IL Per Cent on All Normal
Profits Probably Will
Be Put in Bill
Conferences Near End
kitchin and McAdoo Expect
Measure Will Go Before
House Friday
By Theodore M. knappen

w AoHlN ~ ON, aug. ZI.-f uTLNe-
discussion Of the normal income tax
rate to-day between the Ways and
Means Committee, including confer
encc between Chairman Ki.chin and
Secretary McAdoo, crystallized into q
probable decision to abandon the ef-
fort to discriminate between earned
and unearned income as administra-
lively hopeless. In that event the nor
NAL income tax rate will be fixed at
12 per cent In the improbable event
of differential being established a
deduction of per cent will be allowed
in favor of earned income, making the
rates 10 and 10.
Secretary McAdoo and the Treasury
advisers have strongly supported diff
ferential in favor of earned incomes,
and there has been general sympathy
with the idea in the committee, but in
the attempt to frame workable def
ritions Of the two kinds Of income
both, according to Mr.. kitchin, have
about come to the conclusion that a
workable definition is impossible.
Originally the Treasury held that in
come from common stock was earned
income and Shat dividends on pre-
ferred stock and interest on bonds
were unearned.
ENorbtant salaries, such as one Of
100000 which has been discovered,
would be considered as earned income,
whereas the small income of widow
from her husbands estate might all be
classed as uncarned income and sub
iect 10 higher tax than The wealthy
mans salary of s7oO,OOO. Again It
seems simple to say that man oper-
atirg his own business is entitled to
consider his income therefrom as all
earned, but it is plain that the capital
invested in the business contributes in
part to the income. The principle
seems such a plain and equitable one
that all Of the warning countries have
tried to apply it., but found that it was
not practica BILE, and that an attempt to
apply it resulted in fully as much in
justice as there is acknowledged to be
in taxing all incomes alike. Great
Britain has abandoned it in the case
of Ill incomes in excess of S125OO,
and if diferential is finally written
into the present bill it probably would
not apply beyond incomes of $4,000
or s25 900
In case the differentia is abandoned
the minimum normal rate will probably
be made per cent-that is, on in
comes not exceeding $4,000. With the
normal rate fixed at ~, some reduc-
tions in the surtaxes in the higher in
comes will probably follow. Thus, there
will result little or no difference in the
total amount of revenue to be realized
from the personal income taxes.
Though there may be no differential
as between earned and unearned in
comes, it should be remembered that
under the present law the normal rate
on uneaned incomes is only d per cent.
whereas earned incomes pay 12 per
cent per cent as income tax and 8
per cent as excess profits. AS indi-
vldual and partnership business are
exclusively under the income clause,
both kinds of income will pay the same
rate, which is considered as important
relief from discrimination against
earned incomes.
The fixing of the normal income rate
at IL per cent and the minimum at 6
and the inclusion of both kinds OF in
come at those rates will go far toward
meeting Secretary McAdoos repeated
request that an increased taxation OF
normal incomes be resorted to in or
der to stabilize the price of Liberty
bonds
Decreasing the higher surta3es also
tends to meet one of Mr.. McAdoo's
ideas, viz, that it is important no. to
make them so high that they will be
destructive rather than productive of
revenue, by driving people of means to
disposing Of their taxable securities
and investing the proceeds in exempt
securities.