The Washington herald., 1920-10-23
BUSINESS HELPED
OR SLOWED UP BY
SURTAX SCALE
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be accomplished by them to better
effect and advantage than by the
Federal government. To be en-
q abled to do that the States should
have access to ampler revenues than
they now possess or can possess
when virtually every source of rev.
enue is so largely appropriated by
washington. One of the resources
and logically belonging TO
the States primarily seems to me
to be the inheritance tax.
Proper Inheritance Tax.
Incidentally. inheritance taxation
should be imposed not according to
the value of the estate, but accord
ing to the size of the distributive
shares. Under the present Federal
system an estate bequeathed to one
descendant is taxed at the same
rate as an estate divided among,
say. six descendants. That is mani
festly unfair and socially undesir-
able.
Consideration should be given to
the question whether there should
not be revision of the theory of
taxation, in the sense of basing it
not merely on income. but also on
the social use made of income. II
a man has an income Of, say, $780,
900. whereof he spends $4,000 for
his own and his family's living and
other expenses, and saves, 1. G.. di-
rectly or indirectly. uses construc-
lively the remaining sl50,000, he
ought to be subject to a lesser tax
than the man equally in possession
of an income of 100000 who spends
the whole or larger part of that
sum on extravagant living. 1t seems
to me methods should be devised
somewhat on the line suggested in
a previous article, by which
sharply marked distinction is made
between such portion of a persons
income as is used constructiVely
in savings. investments or enter
prise and such portion as is spent
on his scale of living.
Differentiation in Favor.
Many people are inclined TO advo-
cate n differentiation in the rate of
taxation as between earned" and
"unearned' incomes - the latter
term indicating, generally speaking,
income from invested funds as con-
trasted with wages, salaries, fees
and profits from active pursuit OF
business. The argument is plausi-
BILE and in theory just. But I am
satisfied that in practice such a diff
ferentiation would not work apart
from adding another complication to
the already excessively complicated
machinery of the income tax. If
applied TO people with moderate in
comes from Investments it would be
great hardship, and it is hard
enough for such people TO make
both ends meet as il is. II applied
to large incomes, 1t would not only
be easy to cirCumvent TO a great
extent. but 1t would again enact the
vice of our present taxation OF pc
nalizing thrift and discouraging in
vestment other than in tax-exempt
securities.
The national value OF saving. large
and small. the Importance of afford
ing to II every duly consistent con-
sideration, the necessity OF a free
flow 10 investment capital into cor
porate securities and other business
ventures, the harm in the commun-
ity at large OF impaling or divert
ing that fruCtifying current. cannot
be oNeremphasized. We may be fol-
lowing a superfcially unimpeach-
able theory in enactinG certain
measures, but If the result il to de-
ter investment We shall indulge in
a most damaging practice.
$4,000 n Year Income.
And then, what is the point at
which. intrinsically. income ceases
to be earned and becomes "un-
earned" Suppose a lawyer earns in
his practice $4,000 a year, whereof
he spends half and saves and invests
the other half Why should the in
come from the half which he has
saved and invested. instead OF
spending it on seIf-indulgence. be
considered and treated as "un-
earned income?
Suppose a man. directly or through
mortgage. invests in houses. for
which there is now so urgent a need
Would the rent or interest which he
receives be "unearned income" and
as such subject TO a differentiatins
tax as against earned income" II
so, would not the necessary sequence
be that capital will be deferred from
flowing into building: And if, be-
"a 1St u the pr tnl imperative nee
for housing, you We're to exempt
CAPITAL used for that particular pur-
pose from the differentiation agains
"unearned income" you would have
broken through your principle. other
exemptions would be claimed and
ultimately granted. and then the
whole scheme would come to work
inequitably and finally would fall tc
the ground.
The differentiation which. in my
opinion. should be made and which
l. is entirely practicable to make. is
not between earned" and "un-
earned income. but between the So
cially advantageous and the socially
undesirable use of income, i. e., be-
tween thrift and waste.
1t is worthy of mention that thus
far there is only one country. Eng
land, which in actual practice has
tested the experiment of discrimi.
mating between earned" and "un.
earned" incomes. In England. how.
ever. rot only is the differential sc
small as to be Of little Importance
but for practical reasons it has been
found necessary to cease the differ
ential altogether just at the point