Evening star., 1922-12-06


such heavy pressure on the larger
taxpayers to reduce their taxable in
comes that new ones 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 yielding
less and less revenue each year.
Time to Face Facts sauarely.
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 tho methods
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.
Exchange Of property And securities
so as to avoid taxable gains.
Investment in tax-eAempt securities,
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
unnatural and frequently harmful
economic results. To reach the evil
the thing most necessary Is the re-
duction Of the surtax rates them
for avoidance and maintain the
revenues derived from the surtax.
Until some such readjustment Is
made the yield OF the higher surtaxes
will tend. IN the ordinary course OF
events. to drop toward the vanishing
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"
High Surtax Defeats Own Purpose.
To support his argument that the
high surtaxes gradually are defeat
ing their own purpose" he calls at
tention that while net incomes OF all
classes during the period from 1916
to 1920 increased from ss.oss.577,s2o
in 1916 to $23.735,s29,1s3 in 1920. and
the number of returns from 437,o36 in
1916 to 7.e5s,s44 in 1920. the number
OF returns Of incomes over 100000
from 1896 in 1916 to 3s6 in 1920. and
the amount Of incomes over 100000
from $ss2s72,ss6 in 1916 to s246,354,-
5S5 in 1920.
In earnestly urging" prompt adop.
tion of the proposed constitutional
amendment against the further issu-
ance of tax-exempt securities. the
Treasury Secretary says these securt-
ties. now reaching the market at the
form the "outstanding avenue" of es-
cape from the surtaxes.
with these securities available for
investment. fully exempt as they are
from federal income surtaxes." Mr..
Mellon continues. investors who
funds into productive enterprise are
automatically driven under the pres
sure Of high surtax rates into invest
ment in tax-exempt securities. with
the result that the federal government
loses the revenue. business and indus
needed for productive purposes are
diverted into unproductive and fire.
Quently wasteful expenditure.
This Is q situation which cannot
be permitte to continue without grave
danger to our economic structure. as
we'll as our system Of taxation"
Pointing out that the present law
limits the tax on gain in capital trans
actions to 122 per cent of such gain,
but puts no limit on the deduction Of
losses in such transactions. Mr.. Mellon
urges that the amount by which the
tax may be reduced on account Of
losses from the sale Of capital assets
shall not exceed 1871 per cent OF the
amount OF such loss.
Check ON One Avenue Of Escape.
This would. to a large extent" he
asserts. "check one Of tho methods
widely used by taxpayers at the pres
ent time for decreasing their yearly
income. The alternative is to refuse
to recognize either capital gain or
capital loss for income tax purposes,
and II the present situation is allowed
would save revenue to adopt this
course. This is, in fact, the practice
which has been followed in England
for many years."
AS to tho avenue of escape afforded
in tho section of the law dealing
Treasury Secretary =zges that the
statute be amended SO as to limit the
cases in which securities may be ex-
changed for: other securities, with
out the realization Of taxable income.
to those cases where the exchange
is in connection with the reoreaniza-
ton, consolidation or merger Of one
or more corporations.
illustrating the actual workings
under the provisions of the existing
law for the exchange Of property
held for investment for other prop
erty of . like kind without the reali-
zation Of taxable income. Mr.. Mel
Ion says q taxpayer who purchases
q bond for $1,000. which appreciates
in value, may exchange that bond
for another Of the value Of $1,000,
together with 800 in cash, without
the realization of taxable income.
Says Privilege IL Abused.
This provision of the act is being
widely abused" he adds.
Aside from his recommendations
for tax revision, Mr.. Mellon deals in
his report with conditions generally
over the country and with the opera
tions Of the various divisions Of the
Treasury. He sounds an optimistic
note as to the business outlook and
reports substantial progress both In
the reduction Of the public debt and
in economy in public expenditures.
The past twelve months. he says.
have been marked by further liquida-
ton and recovery from depression.
and, more recently, by a substantial
revival Of business. Prices of COM
moditieS have risen materially, the
volume of business has been mount