Evening star., 1920-03-27
BY G. GOULD LINCOLN.

A proposal to have the Secretary of
the Treasury authorized to issue
$50. 100000 az per cent govern
! ment bonds, payable at the end of
nfty years and entirely tax free, sole
ly for the purpose of exchange for
bonds Of the first. second. third and
fourth liberty loans, is contained In
bill introduced this week by senator
| Frelinghuysen of New Jersey and re-
| ferred to the Senate finance commit
| tee
1t is said that the purpose behind
| the bill is primarily to extend over a
! longer period. with, lower rate OF
| interest. the governments war dept:
| At present some of those issues OF
bonds are for a considerably less pc
| riod than fifty years. The future III
| is contended. should be made TO pay
! part of the expenses of the war
Ready Exchange Expected.
| That the bonds will be largely taken
F, in exchange for the liberty bonds is
| the prediction of supporters OF the
! measure due to the non-taXaDle Yea :
! ture. The issues of the first. second
| third and fourth liberty loans totaled
| only about S17.000.0 900. 600, therefore
/ the authority to issue s30.00o.0Oo.ooe
of these non-taxable 31a per cent
! bonds would not only provide for the
| retirement of the outstanding honos
| of those issues. but would MAKE ~
possible to issue some S13.ooo,e"o'"
more of government bonds. II neces-
sary to meet further expenses by the
government growing out of the war.
There seems no doubt that the
| tax exemption feature of the ponas
would put them at a premium. Inc
exemption extended to the 5'2 per
cent bonds of the first liberty Ioah
issue kept them well up in price when
= ha ~. of 70 10 3.
though paying a higher rate or inter-
est. was materially lower. Ii is easy
to see that in these days of high IN
come and excess profits taxes there
are many persons and institutions OF
large wealth which would seek TO
place their money in these non-taX-
able securities
Some Opposition Exists.
Strong opposition to the issue OF
lnon-taxable securities. either by the
Igoyernment or by states and munici-
palities. on the ground that the! ar {
economically unsound is to be fouho
among many members of Congress
Senator Mclean of Connecticut is un-
derstood to have a decided opinion
tagainst the wisdom of non taxable is
sues 1t Is pointed out that because OF
the attractive non-taxaDle ieature
millions of dollars are taken from
| productive industry and invested In
these securities, issued either by the
| federal government or the states or
municipalities. Production is what
the country. and In fact the who're
world, needs today more than an!
thing else to help to bring back nor
NAL condition.
| The Frelinghuysen bill contains a
proyiso that when the rate of taxation
upon net incomes shall be reduced 10
| the normal rate in force on Januar!
| 1. 1914, the income derived from tne
bonds issued under the Dill shail pe
subject of such normal tax. IL ooes
not appear, however, that there is
much chance for a return to a norma
income tax rate for long time 10
come. The estimates for the govern
ment this year run something oNei
81. 900. 600. 900. and it has been preolc'
ed that the government VIII lace
5000, 900, 900 deficit.
shows Resulting Evils.
| o..o Kahn of New York in a re-
Gently published discussion OF IN
tsration system at present In vogue
30 nointed out the evils OF ta1-ex.
| amnt securities. He points out ina
under the existing schedule OF incolne
taxation the inducement TO ouy "a
exempt bonds is so great and the us.
,n.nd for them so strong that READ!
market is found for bonds at the com
! fnaratively low rate of from y PEI
| cent to per cent. whicn may oe
sued by pretty nearly every townsnIl
~asted in such bonds not only has
! been and is free from taxation. but
owing to the effect of the income tax
in stimulating the demand for tax, tax,
free bonds. such capital has remained
rnimpaired while capital invested Ia
large shrinkage Unless constltu-
tonai amendment were enacted, IT is
impossible, it is said. to tax tnese
state and municipal bonds.
Mr.. Kahn points out the immense