Republican farmer., 1919-09-05

a drastic readjustment in the di3tri- button of the national income. Noting that the excess profits tax for this year while reduced "is still very SO vere,' MT Kahn assumes the case of a corporation whose excess profits tax amounted under the rates pre- vailing until this year to 40 per cent. on profits over and above "an ar bitrarily fixed and, everything cOnsid- cred, low return on money actually invested Tn business"
 It was impossible, he points out, for such a business to make one dol lar profit over and above such arbi- trary return without charging to the purchaser something over two dol lars, it being pointed out that earn ings were subjected in addition to an income tax of 1 ? per cent. The Gov ernment the memorandum remarks, takes the difference.
 Most articles before reaching the ultimate consumer, the banker con tinues, pass through several inter mediaries, each of whom is subject to much these same conditions. He concludes this discussion of this Tar- ticular tax with these observations:
 The excess profits tax has tended furthermore to increase actual cost Of production, inasmuch as costs nat uraIly are deducted before taxable profits are arrived at, and, therefore, under the operation of the excess profits tax, there is not the same in ducement as under normal circum- stances to keep costs down as much as possible. but in fact rather the re- verse. Nor is there any longer any inducement to employ accumulated l profits in the business without cap italizing them, which of course, makes for lower cost of production. On the contrary, there is every in- Gucement to capitalize every justii- able item-and this makes for higher cost
 ''The excess profits tax in peace time must not be confounded with ,he war profits tax in time of actual warfare A war profits tax, however heavy, is wholly sound, morally, so- cially, and economically. and its effect on prices is largely mitigated through circumstances and agencies which are operative when a country is at war.
 The objection to a very heavy excess profits tax in peace time rests not so much on equitable grounds as on the ground that on the one hanL 1t does not, and cannot, accomplish the social purpose aimed at, and on the other hand it tends to hurt trade, discourage enterprise, and burden the public. Our excess profits tax cer- tainIy has not stopped, but rather has intensified what is commonly termed "proffteering."
 If ever the American people should reach the conclusion. almost incalculably far-reaching in the ram- ifcations of it's effects that profits are to be limited to a definite maxi mum, they will have to accomplish that purpose by direct statutory en- actment. It cannot be accomplished by excess profits taxes"
 Expostulating the income tax, MT. Kahn in his memorandum observes that one of the most valuable by products of wise taxation is the pro- motion of thrift, but says the pres ent tax, by reason of the kind and manner of its graduation is a breed CT of extravaganza and thus of higher prices there being a general senti- ment against saving so long as "the Government takes it away in chunks. ' Moreover, the investor. to recoup his income tax demands higher return from securities, thus enhancing the cost of capital and once more raising prices. or else buys tax-exempt mu- nicipal, State or Government bonds,