The New York herald. [volume] (New York, N.Y.) 1920-1924, 1920-12-09

the report calls them, Consumption
taxes, Mr. Houston said:
In the case of individuals who pay
income tax. particularly surtax, the in
come tax operates as a general and per-
haps the best form of luxury taxation.
But there Is luxurious or wasteful con-
sumption among those persons who do not
ordinarily pay income tax. and to reach
this class OF surplus income of taxable
capacity excise or sales taxes-here
briefly referred to as consumption
taxes'-must be employed.
1T Is not necessary. however. to tax
every luxury. Consumption is elastic.
If the tax Is laid upon tobacco and the
particular consumer prefers tobacco to
candy, he will reduce his consumption of
candy In order to secure his accustomed
supply Of tobacco 1t is desirable to
avoid absolute neessaries OF life. how
ever. because some individuals have little
or no waste income to be tapped either
directly or indirectly. But II the abso-
Lutte necessaries are avoided. the selection
OF other articles of taxation should be
controlled by practical considerations of
simplicity and convenience.
"In appearance consumption taxes do
not conform to the theory of ability to
pay But when used as supplementary
to a highly progressive income tax they
do not nocessarily--if moderate in
amount and properly selected--violata
this principle. The system of taxation
may conform to this principle, though
each tax may not. The continued use Of
Consumption taxes in the budgets Of the
most advanced countries seems TO prove
that they have a legitimate though re-
stricted place.
"Consumptio9 taxes must be largely
justified, IL at si, by the practical
virtues of certainty. s-ssvenience, pro-
ductivity and efficient collection. Some
of the excise or consumption taxes at
present imposed by the revenue act OF
1918 do not meet these tests. On this
account l recommend the repeal of
the taxes upon fountain drinks, ice
cream and other similar articles OF
food and drink imposed by Section
$50; the excess price or so-calied
luxury taxes imposed by Section 904,
and the taxes imposed upon medicinal
articles by Section 907 OF the revenue
act of 1918.
One Tax EASILY Evnded.
'"These taxes are not highly produc-
tive (yielding in the aggregate less than
$4,000 900 In the fiscal year 1920 !;
they are i'll defined and uncertain: they
are vexatious and expensive 10 the
dealers who pay them; and / am In
formed by those in charge of their al
ninistration that they are widely
evaded and that such evasion can not
he stopped without the employment of a
larger number of agents and measures
more drastic than the potential i'm
portance Of these taxes would justify
To this last statement there is one pos
sible exception: The taxes imposed by
Section 907 apply not only to patent or
proprietary medicinal preparations. but
to perfumes, toilet waters, cosmetics and
long list of allied Injuries.
THE n ost striking defects of the
present tax affecting these articles would
be remedied by collecting the tax not
on the individual sale. but from the
manufa cturer producer, or importer:
and II the tax seems important enough
to retain, it should be changed from the
present basis 10 that suggested. 1t may
be added that Canada has just changed
the method of collecting stamp duties
on patent and proprietary medicines and
perfumery by having the stamps affixed
by the manufacturer or importer and
not by the retailer"
Mr.. Houston proposed in readjusting
the surtaxes that incomes be divided
into two classes-saved or reinvested,
and spent. On the former class he
wishes the nlgnest tax 10 De ~ per
cent. whereas spent income might be
taxed UP to so per cent.
Grade for Income Tax.
His plan is that incomes between
$4,000 and $4,000 be taxed 2 per cent.
on the part saved and 2 per Cent. on
that spent On incomes of $4,000 the
maximum Of 20 per cent. on saved in
come is reached at the same ratio with
a graduated increase. Above that the
rates proposed are: