New-York tribune., 1920-01-14
Capital Strikes
Against Taxes,
Kahn Declares
Banker Explains How Levies
Have Stagnated Invest
ment Market and Proved
a Menace to Business
Prices Must Remain Up
: Foreign Relations Council
Hears Domestic Problems
and Paish's Call for Funds

Hears Domestic Problems
and Paish's Call forFunds
american capital has gone on strike
against high taxes, according to Otto
H. Kahn, of Kuhn, Loeb g. Co. In an
address before the Council of Foreign
Relations at the Hotel Astor last night,
the investment banker declared that
"the owners Of medium size or large
incomes have gone on strike as far as
investing in corporate securities is
concerned, thus greatly diminishing
the quantity of funds available for pri-
vate enterprise"
"In consequence of this entirely
logical attitude Of self-defense on the
part OF capital" he continued, "the
American investment market for the
time being has been largely destroyed.
Unparalleled stagnatlon has charac-
terized it for many months.
Shrinkage in Values Shown
"The shrinkage in the value of exist
ing corporate bonds, which, though in
part due to causes of a general char
acter, is to the largest extent at
tributable to the income tax amounts
to billions of dollars. A successful
bond issue OF large size, even at what
formerly would have been considered
exit ordinarily attractive rates of in
terest, has not been known for long
time.
THE free flow of capital, the normal
working Of the investment market arc
absolutely basic elements for every
kind of trade and industry The eff
fects of their disturbance to any scri-
Gus degree for any legnth Of time are
all-pervading.
ave cannot have a return to normal
conc, ,tions Of trade, prices, etc, until
our Investment market will have come
within measurable distance, at least,
OF normal conditions. And that is i'm
possible as long as our present income
tax remains in force, even if all other
elements which have operated 20 bring
ABOUT the present abnormal situation
were removed.
Our newborn aspiration to be the
great financial mart of the world has
been strangled in it's cradle because &
broad. active and deceptive investment
market is IN indispensable prerequisite
for the establishment of potent finan-
cial center.
Call for Investment Fails
ut is wholly futilc, under our present
income tax, to expect private capital
to invest in foreign securities to any
adequate degree and thus aid to cure,
to an extent, at least, the unprecedent-
edly abnormal state of the exchange
rates, which sooner or later is bound
TO prove a formd dable obstacle to our
export trade. No foreign bond can
possibly compete with our own tax
exempt securities under the existing
scale of taxetion.
III we wish the world to continue to
ouy from: us on ,a~large scale, If We
wish to do what duty and self-interest
demand in aiding Europe to normalze
and stabilize itself, then unless we are
prepared TO torego those opportunities
Of lasting value to the country which
the present situation offers, we must
be- willing to advance considerable
funds to our foreign customers, as
England, France and Germany have al
ways done in pre-war times, and as, in
deed, England is doing now to the ex-
tent Of her ability.
The banks cannot possibly carry the
whole load of financing such advances.
We may not look to the government to
do so. Private capital cannot be in
duced to do so under the circumstances
explained. There is only one way to
end the deadlock, and that is intelli-
gent and purposefal revision of our
taxation policy and methods.
Enterprise Is Hampered
Enterprise is hampered and thereby
production retarded (and production is
enc q the crying needs of the hour)
An apparent contradiction to this sta &C.
ment may be seen ir- the great in
dustrial activity which prevails now
and has prevailed for some time. But
the contradiction is merely an appar-
ent one.
"C.ur present prosperity is due to
abnormal causes. 1t is not normal in
its concomitants, nor is it at all uni
form or even in its workings. New
enterprise is largely confined to those
activities in which, owing to prevail
ing conditions, wholly abnormal profits
are possible, profits so great that they
can stand exorbitant taxation"
In suggesting O way out Mr.. Kahn
said:
"For country as immensely rich and
fntrinsically as little burdened, rela-
lively, as ours, it is really not a prob.
lem OF great difficulty to raise, by taxa.
tiof, the sum which the needs Of the
occasion require.
Way Out Is Suggested
"A small committee Of we'll informed
men of different callings, approaching
their task free from political, socia
and sectional bias, would not find it &
formidable undertaking 20 evo1ve 3
measure which, while ially responsive
to the dictates OF equity and social Jus
tice, would produce no less revenue
than the taxation now in force, and We
would be far less burdensome upor
the country, less hampering to enter
prise and less productive Of econoni,
disturbance and dislocation."
Sir George Paish, a leading British
financial writer, who is in this coun
try. as a representative Of the "F;gh
the Famine Council" and who alse
spoke, warned that Complete break
down of the exchanges of commerc,
and trade is already within sight" un
less credit Is organized and obtained
from the investors Of the Unite;
States.
aThe situation" he said, demands:
"First. That America sell her prod
ucts for securities of uneuestionet
value, so that the American people ma,
be sure that they will, on the ma
turity OF the securities, receive pay
mept and in the meantime receive thei,
interest regularly and promptly.
"Secold That tina mower to ;aau.