Omaha daily bee., 1920-03-04
Wig Not Tar the Scale
of Llu1nQ
(From The Kansas City Star.)

1t is possible for an unwise system of taxa
ton to ruin industry To take an extreme ex-
ample in Turkey several years ago the govern
ment levied SO large tax on English walHut
trees that it was more economical for the owner
to cut down his trees than to pay his tax. I
The experience Of the last two years with
the existing federal taxation has demonstrated
that the plan has been having an effect some
what like that of the Turkish tax on the walnut
trees. The excess profits tax and the heavy
surtaxes on incomes have resulted in discourag-
ing the expansion OF industry and in increasing
prices.
Take the case OF the business earning $780,
600 year. The owner will pay tax of $l6l, 900
Suppose, then, he contemplates' expanding his
ings of $5O0000 His tax will then be $303 0O0 In
the first case his income with the tax deducted
would be $l3o,000, while after his expansion mis-
income would be only $4,000 more. That is
he must increase his profits 100000 in order to
make $5800O Naturally he is apt to regard the
risk run as excessive in view of the small profits
allowed.
The effect is to hold back business. The
way in which the heavy tax falls is direct IN
centive for man to invest where he thinks his
money will be safe and will appreciate in value,
rather than to open UP industries that will pro-
duce income large share Of which will SO to
the government
AS to the effect of the surtaxes on prices,
1t is evident that each dealer who handles goods
will be anxious to pass on as much of the tax
as he can. He doesn't know what his income
figures approximately and adds what he thinks
he can to his prices to make up the amount OF
the tax If it were an era of slack business he
might not be able to do this, and there would
be numerous failures because the tax would
have taken away the margin OF safety that every
/ business must have. But Under existing condi-
tons prices are loaded with more than the
amount of the tax, thus increasing the cost OF
living.
But how could the government raise the vast
sums OF money it needs without ayailing itself
of the income tax?
come tax and perhaps moderate surtax. But
the suggestion to which people are turning
more and more is sales tax There might be,
for instance, as Mr. Otto>H Kahn Of New York
suggests, tax on all retail sales above, say 81.
It might start at per cent on smaller amounts
Of course there are other ways Of applying the
principle. The one outlined is merely one sug-
gestion.
The result of such tax would be to make
sharp distinction between that portion of the
income used for productive purposes, such as
Investments or savings deposits, and that de-
voted to living expenses. The more moderately
person lived. the less would be his taxes. The
more extravagant his scale of living, the higher
would he be penalized. A sales tax would dis
courage extravaganza and encourage thrift
Such tax would not fall with severity on
the family of small means. A family with an
income Of $l,500 probably would not pay $40 in
taxes a year, while the tax would increase rap
idly as expenses went up.
Moreover, as the tax would be definite and
fixed and paid by the purchaser, it would not
be added to the cost of goods at every step in
their transfer. The load imposed by the exist.
ing system on the cost of living would BE- re-
moved.
The heAvy tax on business imposed by the
surtax and the excess profits tax has produced
such factory results that there is increas-
ing sentiment for change. The sales tax de-
serves the most serious consideration as sub
sttute for the present system.