The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1922-01-09
THE TAX PROBLEM.

THE TAX PROBLEM.
Writing in the National Real Estate
journal, Alex Dunbar declares that
the effect of tax exemption is to shut
off the flow of capital into business
channels and to deaden business ini-
tiative. The fact is, however, that it
is too much taxation instead of too
little that shuts off the flow of cap
ital into business channels"
Atwood, the financial writer, in a
recent article, says: while the su-
per-tax takes away three-quartersr of
the income of a man engaged in bust
ness or investing in industry, there is
a wide open access to the safe and
tempting refuge of tax exempt gov
eminent, state and municipal bonds"
Conservative estimates place the vol
ume of tax exempt securities at $16,-
900. 100000. with $1,000,OOO.OOO being
added each year. Doctor Adams, tax
expert in the treasury department,
states that the volume of exempt Sc
curities is sufficient for all wealthy
men to invest nearly their entire for
tunes. In the case of very large in
comes, the temptation of exempt Sc
curities is irresistible.
A man with an income of $1,0OO,O 900
a year, who pays taxes on taxable Sc
curities yielding "a per cent, will have
no more left than if he owns 5 q
per cent exempt security. If he buys
a mortgage or a 6 per cent stock, he
has left after paying his taxes only 1
or per cent, or, if he is in the million
part of his principal.
Thus the rich man is offered an
actual premium to stop working
worrying and risking his money.
There can be no stigma upon the man,
rich or poor, who puts his money into
exempt securities. Every dollar of
the billions of exempt securities has
been issued by the federal, state or
municipal governments, and made ex-
empt for the double purpose of induc-
ing people to purchase them and les
sening the taxes of those issuing the
securities.
1t is noted that the removal of the
large investor from the investment
field has fallen with special weight
upon the building industry and has
been an important factor in the recent
shortage of houses. Atwood states
that one very large holder of mort
cages in New York City, said TO have
owned 100000, had only L per
cent of his income left after paying
his tax in 1918, and has since been
paying brokers a commission for re-
iieving him of his mortgages and SELL
ing them to savings banks. A wit
ness before a senate committee re-
Gently stated that he had been told of
man with 100000 who formerly
carried so per cent in mortgages, but
now has 95 per cent in exempt securi-
ties.
The president of the American
Electric Railway association is quoted
as saying that no one with an income
above $4,000 can afford to buy even
an per cent public utilities security
in preference to a per cent exempt
bond. "Yet the utility industries need
$7,50O,00o of new money a year, are
behind over s1.O0O,OO0,oo0 in inf-
provements, which cannot be made
because the money cannot be obtained
and they are usually forbidden by
state law to make over s per cent
profits"
It has been pointed out repeatedly
that the whole investment market has
been perverted by the forcing of rich
men into tax exempt securities. The
wealthy investor receives as much net
return from a 5% per cent tax exempt
bond as from a taxable Industrial in
vestment paying over-24 per cent.
This whole tax problem can be
solved by substituting a sales tax for
the higher schedules OF the income
tax