The Topeka state journal., 1922-12-26
LIGHT IN DARK PLACES.

LIGHT IN DARK PLACES.
1t has been noted that big financial
interests favor pu4ing an end to the
issuance OF tax-exempt bonds. Since
these interests have been designated
as the chief beneficiaries of the non
taxable securities their attitude has
been difficult to understand. Light
is thrown on the matter by James b.
CIews. who says:
THE effort to obtain legislation de-
signed 10 end the issue of tax-exempt
bonds represents another way of ap-
preaching the situation which has
been supposed to- call for the imposi-
ton of new taxes"
This means that if financial inter
ests are to bo called upon for an ad-
ditionaI levy they prefer to have it
fall on securities which they do not
hold.
The debate in the house on the pro-
posed constitutional amendment to
make state and city bonds taxable by
the federal government. says the New
York Times, turned largely on what
Judge story might have called the
conflict of laws. Two systems, two
principles. We're opposed 10 each
other. On the one haWnd. the ma
tioDal government -was pictured as
aiming at complete Capitalization ana
proposing to extinguish the last re-
naming vestiges of the rights of the
states on the other, there was held
up the danger that the states and mh-
inequalities by a vast extension of
their issue of tax-free securities might
more and more cut down the yield
of federal taxes and threaten serf-
ously to impair the taxing powers of
congress. This part of the discus
sion,"' says the Times, while i'm
portant. is largely theoretical. The
actual decision will be made on quite
other grounds than nice balance be-
tween the indissoluble union and the
indestructible states"
The states cannot be expected to
surrender their existing privilege OF
floating loans exempt from taxation.
They know well enough what this
means to them financially. They can
virtually command q higher price for
their bonds than would otherwise be
possible. In this way they can pro-
internal improvements at a less cost
to the taxpayers than would be in
evitable if the income from state
bonds could be taxed by the federal
government
1t is this practical consideration
which has all along made it highly
improbable that congress would adopt
the amendment as urged by the presi-
dent and by Secretary Mellon, or that,
even if it did. three-fourths of the
states could be induced to ratify If.
Commenting further on the debate
in the house the Times says:
In all the speeches deliveKed in the
House there was a great deal about
the principles of government, but al
most nothing about the principles of
taxation Amid the Outcry about the
flight of capital into tax-exempt Sc
curities, few voices We're raised to
show the exact reasons why the thing
is done. That it was a direct conse-
quence of the high rates os taxation
levied by the federal government no
representative seemed to think it
worth while to point out with any en-
phasis. Secretary Mellon hinted at
the facts in his annual report. lie at
least is aware that taxes made unrea-
sonably high always tend TO defeat
their own ends and to result in fac-
tually diminished total returns. Il is
a phenomenon as old as. civil govern
ment. but each ~generation seems to
have to learn the truth over for itself
The difference in tho yield OF a tax,
able income from hphds and one that
is exempt can easily be figured out.
When lawmakers proceed to make
this difference so large as to be a di-
rect and continuous inducemept to In
vest in tax-exempt bonds, such invest
ment is certain to follow. and all the
grumblings and protests and efforts to
impede the free flow Of capital can
not prevent il The true way in which
to check the swelling volume of state
and city loans free from taxation is
not by means OF an impractieable con-
stitutionai amendment. but by reduc-
ing federal taxes to the point, where
investors will prefer to pay them
rather than go to the trouble Of le-
gaIly evading them.