New-York tribune., 1920-03-18
Houston Says
War Tax Must
Stand to 1922
Urges Change in Excess
Profits Levy to Flat
Rate; Would Try to
Improve Liberty Bonds

WASHINGTON, March 17-Income
and excess profits taxes cannot be re-.
duced until after 1922, Secretary of the
Treasury Houston to-day wrote the
House Ways and Means Committee.
urging an immediate simplfication Of
these taxes and substitution of a fiat
tax on excess profits, instead of the
graduated rates of 20 and 40 per cent.
Only moderate reductions may be
made in the calendar year of 1922, col
lected in 1923, the Secretary wrote
Under the plan OF fat tax. the letter
stated, "it would be possible to adopt a
declining rate, say, of 25 per cent for
the first year in which the change is
in operation, 20 per cent for the second
year and 10 per cent thereafter"
Unless action is taken at the present
session of Congress, Mr.. Houston said
existing taxes "must continue to be
collected on the basis of the present
law until the close Of the calendar year
1922. Such a condition, he wrote. sis
contemplated with the gravest apprc-
henson."
Will Recover Some Losses
Immediate losses to the government
under the Supreme Courts decision
that stock dividends are not taxable
will approximate $1O5 900 900. the let
ter stated. Secretary Houston added
however, that the ultimate loss would
be only s25,000,00O, as much of the
original loss would be recained
through the sale of stocks and sub
sequent taxes on them. The Secretary
estimated that $4,000, 900 collected in
1913 would have to be refunded and
SfO,O0O.000 would be lost on 1919 taxes.
Aggregate losses for 1918 and 1919
under exemption to personal service
corporations will approximate $4,000.
900, involving $500 corporations, the
Secretary wrote, adding that the need
tor immediate legislation to meet this
situation arose mot so much from the
possible loss of revenue as from the
obvious undesirability of permitting
$500 corporations and their stockhold
ers to escape the taxes upon the cor
porations and those imposed upon in
dividuals'
Opposes Delayed Policy
"An imperfect and uncertain tax
Mr. Houston said. "affects the future
even more adversely than the present,
and 10. similar reasons it is COSTLY
and unwise to make a bcneficent modi-
hcatlon OF the tax law retroactive or
even to delay its adoption and an
nouncement until the time at which il
is to take effect. 1t should never be for.
gotten that the tax system itself is ono
OF the most powerful factors affecting
public expenditures.
tor the sinnplitica ton of the taxes.
with resultant modest reduction. >
the Secretary first recommended en-
actment OF an amendment authorizing
the Internal Revenue puroau to make
final determination and settlement
OF any tax claim of assessment. which
shall not thereafter be reopened or
modified by the government except on
a showing of fraud. The particular
Importance of this change. the Secre
tary said, was that if the present levies
continue and all back taxes alone with
the current taxes are contained in the
same year "the result may be highly
disastrous to business" in case of in.
dustrial depression.
Other Recommendations
Other recommendations included:
Extension to all income and profit
tax laws of the iivc-vear limitation
contained only in the 1918 law on the
time for bringing suits for collection
of taxes.
Consolidation of the varying exenlp-
tiops on the Liberty bond issues so as
to strengthen the market standing of
those securities.
Extraordinary income as compensa-
tion from personal service and gains
from sales or dealings in property for
a period of years be deemed to have
accrued or been received ratably dur
ing the years in which the. service was
rendered or the property held and the
amount of extraordinary income so as
signed to any one year be sub jected to
the surtax rates prescribed by law for
that year.
Provision for simplificaton aud fun
damental modification or repeal of the
excess profits tax at the earliest pos
sible future date.
Chairman Fordney of the House Ways