Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1921-12-08
RAlNCOATS WILL SERVE IF
THERE ARE NO UMBRELLAS
No Law Congress Can Pass viii Pre-
vent Money From Seeking to Get
In Out Of the Wet

m Out OF tne "et
MONEY is Ike men. 1t knows enough to
A'A got IN out of the rain
Secretary Mellon comp aimed Of the re-
suits OF this habit Of money in a letter to
the chairman Of the House Committee on
Ways and Means last May. President
Harding has indorscd the Scrrctary's com
plant. and recommended the submission to
the States of constitutional amendment
which will deprive money Of Its umbrella.
forgetting that there are such things as
rOlncoats.
The thing to which the President aud the
Secretary Of the Treasury object is the ex-
istcure Of large mass of state and mu-
ntcipal bonds witch, under present laws, the
Federal Government cannot tax.
Congress can tax or exempt from taxation
all Federal bonds when they are issued. 1t
can tax incomes derived from business or
from investment in railroad or industrial
bonds or stocks. But it has been held that
a Federal tax on State or municipal bond
is an interference with tho control Of the
States over their own financial affairs.
When the war income tax was levied,
taking up to - per cent OF the incomes OF
private citizens, investors at once rushed
into the market to buy state and municipal
securities They were willing to accept a
lower rate of interest II the income was
tax free than they were getting from their
industrial securities.
Nct with this knowledge available, 50 ex-
| pPricuCed banker as Mr.. Mellon is urging
! and has persuaded the President to urge
! such change in the Constitution as will
! permit the Federal Government to tax all
securities, no matter by whom or By what
| issued.
The conditions which have called ont this
! suggestion would not have arisen If the In
! come Tax Law Ind been framed With any
! proper consideration OF sound principles Of
! taxation. There IS always a point beyond
! which tax law ceases to yiGl any revenue.
| i is the point where the levy becomes con-
| fscatory.
! No law which Congress or any State
! Legislature can pass will change this con-
| dition, because every man with dollar TO
! be taxed will do his utmost to protect his
| property. He will not consent to have it
| taken from him by an excessive tax.
The wisdom of taxing the income from
any form Of public bonds. whether Federal
| State or municipal, is doubtful II the bond
! Is taxed. the rate of interest must be in
| creased to such all amount that the net re-
turn will satisfy the investor. This increase
Is usually about tho amount of the tax. So
a taxed bond means a lot Of governmental
| bookkeeping and no net return in revenue,
for tho tax collected will amount to about the
extra sum that must be paid in interest.
This is recognized by the CITY Of Phila-
ILL., ia ,,,oi
taxation. Il is also recognized by the State
, OF Pennsylvania. which Icv.cs no tax on the
! securities which It issues
The practice is critirt2cl chiefly by the
, dcmagogueS, who always insist that what
! they used to call ''thc boa, ed bondhod"rs"
be made to disgorg" for the relief Of tho
poor and the humble. They ignore the fact
that public bonds always bear lower rate
Of interest than the bonds Of private cor
rorut!ons and that the bondholdcr, by ac-
ccpting this lower rate, IS really paying
q tax.
The way out for Cong cys is not by an
amendment 10 the Constitution providing
that hereafter there may be no tax-cxempt
bonds issued, but through radical reduce
ton OF the surtaxes on incomes in the
Revenue Law and by the adoption OF Il
| sales tax.
The sa,es tax would rest "quitabiy on all
consumers, the rich paying iii proportion to
their expenditures and the poor likewise.
And Il reduction Of the surtaXcs would re-
move from tho recipients OF large incomes
the incentive TO hide their wealth from the
tax collector b. investment in tax-cxcmpt
bonds The difference between tho income