The gazette-times. [volume] (Heppner, Or.) 1912-1925, 1921-08-25
TAX FREE SECURITIES
ARE GREAT MENACE
Must Re Some Provision 10 Stop Ex-
emption of State Bonds from Tax
alton.


Washington. August 22.-In the
course Of his recent statement to the
Congress concerning the national H.
nances, Secretary Mellon said the re-
celpts from the individual income tax
are rapidly dwindllng and funds which
otherwise would be invested In pro-
ductive enterprise are being driven into
fields which do not yield taxable In
come" In other words. more and more
capital Is being invested In non-tax-
able securities. In the opinion Of many
financial authorities and particularly
in the opinion OF those who have made
study of public finance, the problem
Of tax-exempt securities is one Of the
most serious with which the country
has to deal
These securities are issued by states
and various political subdivisions OF
states. They are exempt from federal
taxes in conformity with the constitu-
tional guarantee that the federal gov
ernment may not levy taxes against a
state, and levying taxes aginst secur
equivalent. The theory is that the pow
er TO tax Is also the power to destroy
by making the tax SO heavy as to be
destructive. This exemption, intended
to safeguard the sovereignty Of states,
has been by the continuous issuance
Of state securities of all kinds, exempt
from federal taxes. 1t is conservative
ly estimated that between s15,o00.0oO
900 and $40, 900, 100000 of such secur-
tiles have been issued up to date and
they are being increased at rate OF
over 1900, 0OOO 900 a year.
Investors figure that tax-exempt Sc
curities bearing per cent are better
investments than taxable securities
paying 12 per cent or even more, The
damage Is two-fold. II prevents rail-
roads, Industries, public utilities and
private enterprises from floating bonds
and obtaining needed capital,-unless
they offer an almost ruinous rate OF
interest--and II drives capital to invest
in tax-exempt securities and thereby
deprives the federal government OF any
income tax from that class which should
pay the most income tax.
In order to correct this evil Repre-
sentative McFadden, chairman Of the
House Committee on Banking and Cur
rency, has introduced a resolution pro-
viding for a constitutional amendment
In speaking OF 1t he said:
THE creation OF two classes. the
wealthy. free from the burdens OF tax
alton, and the workers who are forced
TO bear the burdens OF which the veal
thy are relieved. through the purchase
Of tax exempt securities, is a violation
Of social justice which is crystalizine
in broad public opposition and discon-
tent"
Senator Smoot, OF Utah. has also
been studying the problem and has In
troduced resolution proposing con
stItutional amendment which would
permit the federal government to col
Iect income taxes from all such secur-
tiles. Any fear that the federal gov
ernment might misuse this power to
the injury OF some state by an exces-
siye rate of tax could easily be allayed
by making such federal rates UNIFORM
for all states and never in excess oi
the rate the government collects on In
comes of its own securities.
Those who have made study OF the
question say unless some method IL
provided for taxing all securities Is
sued by states and their political sub
divisions not only will one of the great
est sources Of federal revenue disap'
near. but states and municipalities run
grave danger Of going bankrupt be-
cause Of the ease with which they car
issue and sell their tax-exempt bonds
and thus encourage public extrava'
gance and the increase OF their public
debt