, 1921-06-30
A EVIL.

One of the growing. evils of the country and one
that is rapidly running the credit standing of the gov
eminent and all the minor political subdivisions de-
pending upon taxationEfor their support, is the is
suance of tax-free securities. The practice may be
said to have taken on the importance of a menace.
The record shows that S14,425,0 00, 900 of tax-ex-
empt securities have been issued up to January, 1921,
of which about half represents the debts of states,
cities, school districts and other political subdivisions,
while half represents the obligations of the govern
ment. In the last few years we have seen the per-
sonal wealth of the country SO rapidly segregated into
the tax-free class, that whereas the taxable income of
individual taxpayers under the federal income tax law
WIS $992, 972,9S5 in 1916, the amount decreased to
s7S1'S72'o6s in 1917. and to $se2.247,s2e in 1918:
It is not to be supposed that the actual income of
these taxpayers had thus decreased. On the con-
trary, it is a safe conclusion that they had converted
their wealth into tax-free securities so rapidly that
at a similar rate of conversion they would be "scot-
free" of all income tax by 1922.
The situation has reached such a point that it Is
the subject of a resolution in congress looking to a
constitutional amendment and the committee on bank
ing in the house points ont that the custom is result
ing in the creation of two classes, the wealthy, free
from the burdens of taxation, and the workers, who
are forced to bear the burden, of which the wealthy
are relieved, through the purchase of tax-exempt Sc
curities, is a violation of social justice which is crys-
tahzing in broad public opposition and discomfort, as
the issuance of tax-exempt securities expands.
More than $1,000, 100000 of state and municipal
tax free securities were issued in 1920. If these Sc
c~urities are held by the wealthy, whose federal in
come tax is at the rate of 70 per cent, the total an
nual loss in this one form of tax alone is over $685.
100000, if the interest rate on these bonds averaged
D per cent. And as is further pointed out, while
there may be an apparent saving to the borrower of
from one-haf to one per cent per annum, this saw
ing on 81 ,00o,000,000 in five per cent bonds Is only
S25o,000 per year or .0o711 per cent of the annual
loss in taxes. If the rates of taxation are not re-
duced, the loss in federal income tax alone would, for
the life of this billion dollars in bonds, represent p
loss of $500, o0o,o 900 against a total saving in inter.
est of. only $4,000, 900. On the most conservative ba-
sis the annual loss is from ITS to 200 millions on
t~ax-exempt bonds already issued.
The wealthy investor receives as much net return
from a 5 per cent tax-exempt bond as from a taxable
industrial investment paying over IT per cent. Rail-
ways, public utilities and other industrials cannot COM
pete on this basis, and are now being deprived of the
capital which they need for expansion. This is a se-
rious handicap to the normal progress of industry
which should be terminated. The tax-exempt bond
has contributed to the depression in the value of Lib
erty bonds, causing the holders to sustain still further
losses upon liquidation. The issuance of tax-exempt
securities by the government, state or other political