The daily star-mirror. (Moscow, Idaho) 1911-1939, 1922-12-06
SECRETARY OF TREASURY POINTS
OUT WEAK PLACES IN us. RE-
VENUE LAWS.

VENUE LAWS.
Washington, December CA. P.)-
Reduction of the maximum incom
surtax rate from the present SO pc
cent to not more than 25 per cent ant
the closing up so far as possible O
existing avenues of escape from fed
eral taxes are urged by Secretary Mel
lon in his annual report, transmitted
today to Congress. No general re
vision of the revenue laws is proposed
nor are additional taxes suggested
Mr.. Mellon expressing the hope O1
meeting any indicated government de-
ficit through collection of back taxes
and income from other sources.
The treasury secretary informs con-
gress that to attempt alone to stoI
the gaps through which there is an
avoidance of tax payments to the
government will not be enough be-
cause the existing rates of Surtax put
such heavy pressure on the larger tax
payers to reduce their taxable in
comes" that new oUs would surely
be found. He adds that the high rates
:" sound productive" but that the fact
remains that they are becoming in
-creasingly ineffective and are yield
Ing less and less revenue each year.
Then bluntly he tells congress the
time has come to "face the facts
;sQuarely /" and to correct the artificial
conditions which now prevail and
which, he asserts, are not wholesome
from the point of view of business
or industrial development, and, at the
same time, are impairing the revenues
of the government.
The more important of the methods
used by the taxpayers to reduce the
amount of income subject to taxation
are listed by Mr.. Mellon as follows:
Deduction of losses on sales of capi-
tai assets, with the failure to realize
on capital gains.
Exchanges of property and securi
ties so as to avoid taxable gains.
Investment in tax-exempt securi-
ties; and
Division of property. creation of
trusts and the like.
Not all of these things can be con
trolled by law or by regulation" he
continued, " and most Of them lead
to unnatural and frequently harmful
economic results To reach the evil
the thing most necessary is the rednc-
tion of the surtax rates themselves,
in order to reduce the pressure for
avoidance and maintain the revenues
derived from the surtax.
Until some such readjuStment is
made the yield of the higher surfaces
will tend, in the ordinary course of
events, to drop toward the vanishing
point The wise course is to reform
the surtaxes now while the system
still functions and at the same time
to close, SO far as possible, the gaps
which now exist. On this basis the
revision can be made without loss of !
revenue and, in the long run, with
material benefit to the revenues"
In oarQeStlV urging ~ prompt (
adoption of the proposed constitution |
al amendment against the further is !
suance of tax exempt securities, the |
treasury secretary says these securi- I
ties, now reaching the market at the /
rate of about $1,OOO,O00,OOO annually, I
form the " outstanding avenue of es .
cape from the surtaxes. i
With these securities available for |
investment, fully exempt as they are
from federal income surtaxes," Mr..
Mellon continues, investors who
would normally put their surplus
funds into productive enterprise, are
driven under the pres
sure of high surtax rates into invest
laent In tax-exempt securities, with
the result that the federal govern
rnent loses the revenue, business and
Industry loses the capital, and funds
badly needed for productive purposes
are diverted into unprqductive and fre-
1nently wasteful expenditure
8 This is a situation which can not
be permitted to continue without !
grave danger to our economic struc-
ture, as well as our system of taxa
tion' f
Pointing out that the present law li
limits the tax on gain in capital trans
actions to II 1-2 per cent Of such {
gain, but puts no limit on the deduc- I
Ion of losses in such transactions,
Mr. Mellon urges that the amount by |
Which the tax may be reduced on ac- I
;ount OF losses from the sale of capi- i
al assets shall not exceed II 1-2 per {
'ent of the amount of such loss i
This would, to a large extent" he r
asserts, 'Scheck one of the methods S
widely used by taxpayers at the pres
snt time for decreasing their yearly {
ncome. The alternative is to refuse /
% recognize either capital gain or t
capital loss for income tax purposes,
md If the present situation is allow
ID to continue there is no doubt that
t would save revenue to adopt this !
course. This is, in fact the practice
which has been followed in England
or many years."
AS to the avenue of escape afford
ID in the section OF the law dealing
With exchanges of securities, the r
reasury secretary urges that the q
tatute be amended so as to limit y
he cases in which securities may be q
xchanged for other securities, with ff
ut the realization of taxable income h,
0 those cases where the exchange is ftl
n connection with the reorganiza- O.
ion, consolidation, or merger of one II
r more corporations. v
Illustrating the actual workings
nder the provisions of the existing bt
aw for the exchange of property held IL
Or investment for other property of re
like kind without the realization of a
axable income, Mr.. Mellon says a Ii
~