Grand Forks herald. [volume] (Grand Forks, N.D.) 1916-1955, 1922-12-21
TAX EXEMPT SECURITIES
That some steps are necessary for til

That some steps are necessary for the ~curtail-
incnt of the issuance of tax exempt securities is gen
orally admitted. The constantly increasing volume
of such securities invites investment in them, to the
exclusion Of taxable securities the proceeds Of which
ate needed for continuing the constructive work of
the nation. The abolition of the exemption feature,
however, is not as simple as it often appears.
The federal government may tax Its securities,
wise tax or exempt from taxation it's own securities
and those issued by its various subdivisions. But
the taxation by a governmental body Of securities
issued by itself has usually been avoided for reasons
which it is easy to understand.
Every government wishes to be able to borrow
money on the most favorable possible terms. The
|desirability OF a security is generally expressed in
Its interest rate, and every government wishes to
be able to sell at par bonds bearing the lowest pos
[sible rate of interest. The bond bearing 4 per cent
and not subject to taxation has approximately the
same intrinsic value as the 5 per cent bond on which
a one per cent tax is paid. It is clear that If public
securities are taxed as other property is, the rate of
interest on such securities must be advanced or in
|vestors will seek other forms Of investment and
there will be no market for the public securities.
If the additional interest, and no more, were re-
turned to the issuing body iii the form Of taxes, the
and the various classes Of security would stand on
practically an equal basis: But here enters a cofnpli-
cation. The purchaser Of a 5 per cent bond knows
that his $500 will earn him S. in a yeaf, no more and
no less. But If his bond is subjected to indiscrimin-
ate taxation he does not know what part Of his In
tefest receipts he may be required to return in the
form of taxes. With that element Of doubt in the
situation one of the desirable features OF the invest
meilt ~vanisles. He might be willing to accept an
assufed 4 per cent net, but hd may not be willing to
take as per cent gross and leave his net returns to
the necessities or the whirns Of one or many taxing
bodies. In order to make himself safe he il likely
Ito allow a large margin for possible taxation, and
lin that case the issuing body must paw a high rate
of interest to compensate the investor for his hazard.
The problem would be much simpler If .securi-
ties were purchased only BY members Of the COM
n,ulity issuing them. AS citizens interested not
only III the earnings on their investment, but in the
credit of their government, they might be expected
Ito use their influence in the sterilization of their
finances, 50 that equity would prevail. But securi-
ties are sold everywhere. State and municipal bonds
issued in western states, especially, are marketed
largely in the east. They are purchased BY non
residents who are unfamiliar with local. conditions
land who desire as one OF the elements in their in
Ivestne1t the assurance which 10 conveyed by. the
words, exempt from. taxation"
All of this indicates, not that the pfor1iscuous
issue Of tax-free securities should be continued but
Ito all the surrounding facts, to the end that in
Irennedying, an admitted evu we do not thoughtlessly
Involve ourselves in other and unnecessary troubles.
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