The sun. [volume] (New York [N.Y.]) 1916-1920, 1918-09-19

A Dog In the MaBEcr Tax.
IF there were no question whatever
as to the legal right Of the Federal
Government to tax future issues OF
State and municipal bonds, IL every
mothers son Of us conceded that such
taxes could be legally and properly
laid, there still would be layge Ques-
ton as to the wisdom and the effec-
tiveness Of such tax.
Plainly it Is the intent Of the House
Of Representatives to drive big in
vestment capital into Government
bonds, subject to heavy surtaxes,
rather than let 1t 20 into State and
municipal bonds tax free. Evidently
the House thinks that IL all those
bonds are made taxable. then, as a
matter Of course, the Government Sc
curity will become preferred bond
with the big investor.
But the common sense Of the thing
Is that If big investment capital can
not or will not 20 now into Govern
ment bonds under sIrtaxes so heavy
that they make the interest returns
only nominal, then that same capital
will still refrain from going into those
bonds although the interest returns
on some other bonds also may become
only nominal. Again. the common
sense of the thing is that the big in
vestment that cannot or will not go
now into Government bonds still can
and will be drawn, after and despite
the tax, into State and municipal
bonds.
In offering bonds the Government
will not bid high for money: The State
and municipality must. If the Con-
2Fess revenue bill claps the income
tax upon State and municipal bonds,
then what must happen is that! to b1r-
row money In competition with the
United States. the States and munich
palities wll raise their interest rates
enough to cover the investors tax on
such State and municipal bonds. In
effect. that investor will not pay the
taxes: the State and municipality will
pay them. The Federal Government
still will not get the bond subscrip-
tons. All that will have happened.
in the matter Of such subscriptions, Is
that the Congress revenue measure
will have raised interest rates against
the State and the municipality. This
Is why local governments within the
United States are bitterly protesting
the House tax scheme as nothing bet
ter than a dog in the manger policy.
State and municipal bonds are put
out. for the most part in long term
issues. When the Federal revenue
measure increases the interest rates
on them it Is going to put upon the
States and municipalities crushing
burden which must be carried for
years after the war is over and after
the heavy Federal taxes have been
reduced or removed. Then. invested
in such State and municipal bonds,
paying the investor > per cent. per
cent. perhaps per cent, for gener-
alton or more after the war is fought
and won and ended big capital will
have gold mine.
Is it sensible, Is 1t rational, to pile
enormous interest charges upon all
the communities within the United
States without thereby achieving the
purpose Of forcing market for Lib
erty bonds with capital in big blocks;
The greater the needless burdens
loaded upon the State and the munich
pallty and the heavier the local taxes
which citizens must endure TO meet
those heavier burdens Of the loca
governments the more weakened must
become the resources Of the interests
and individuals within those com
munities and the less free capita
must they have to yield to the Fed
eral Government.
II the leaders OF the House can fig
ure out in cold blood how the sales
OF United States bonds can be ben
Gifted by this tax on State and mu
nicipal bonds there might be some
justification for it. But II 1t Is mere
ly going to cost the local govern
ments and communities billions o.
dollars-if it is not going TO benefi
anybody materially except big inves
tors, by giving them n fatter interes
rate than they Otherwise could pos
sibly get-then the Senate ought t,
kill IL ns dead rs Il door mil