The Mankato free press. [volume] (Mankato, Blue Earth County, Minn.) 1879-1924, 1922-12-08

Federal Secretary Treasurer
| Shows Heavy Reduction
In Gross Debt
IAssociated Press Dispatch.I
Washington, ID. c., December g.
Reduction of the maximum income
surtax rate from the present so per
cent to not more than twenty five
per cent and the closing up SO far
as possible of existing avenues OF
escape from federal taxes are urged
by Secretary Mellon in his annual
report, transmitted today to con
gress. No general revision of the
revenue laws is proposed nor are ad
ditional taxes suggested, Mr.. Mellon
expressing the hope of meeting any
indicated government deficit through
collection of back taxes and income
lsro,n other sources.
The treasury secretary informs
congress that TO attempt alone to
stop the gaps through which there
| is an avoidance of tax payments to
the government will not be enough
because the existing rates OF surtax
''put such heavy pressure on the
larger taxpayers to reduce their
taxable incomes" that new ones
would surely be found He adds that
the high rates 'soGnd productive, y
tut that the fact remains that they
are becoming increasingly ine1ec-
tive and are yielding less and less
revenue each year.
Then bluntly he tells congress the
time has come to face the facts
squarely" and to correct the arti-
fetal conditions which now prevail
and which, he asserts, are not whole
some from the point of view OF bus
mess or industrial development, and
at the same time, are impairfng the
revenues of the government The
more important of the methods used
by the taxpayers to reduce the
amount OF income subject to taxa
ton are listed by Mr.. Mellon as fol-
lows:
Deduction Of losses on sales of
capital assets, with the failure to
realize on capital gains.
Exchanges of property and secur-
tiles so as to avoid taxable gains.
Investment in tax exempt securi-
division of property, creation Of
trusts and the like.
Higher Surfaces Tried
"Not all of these things can be
controlled by law or by regulation"
he continued, "ant most of them
lead to unnatural and frequently
harmful economic results. To reach
the evfl the thing most necessary is
the reduction of the surtax rates
themselves, in order to reduce the
pressure for avoidance, and maintain
the revenues. derived from the SURF
tax.
made the yield of the higher surtax
es VIII tend, in the ordinary course
of events, to drop toward the van
ishing 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 pos
sibIe, the gaps which now exist. On
this basis he revision can be made
without loss of revenue, and, in the
long run with material benefit to
the revenues"
To support his argument that the
high surfaces gradually are defeat
ing their own purpose" he calls at
tention that while net incomes of all
classes during the period from 1915
to 1920 increased from $6,571,S20 in
1916 to $23,735, 629s1S3 in 1920, and
the number of returns from 437,036
Der of returns of incomes over $780,
900 decreased during the same per-
iod from 1926 in 1915 to 396 in 1920,
and the amount of incomes over
$500, 900 from 1892 1872 1856 in 1916 to
$246, 354,5S5 in 1920. \ a....E....
Wages Prompt Adoption
In earnestly urging prompt
adoption of the proposed constitu-
tionaI amendment against the fur
Their Issuance of tax exempt sect1ri-
ties, the treasury secretary says
these securities, now reaching the
market at the rate of about $1,000
0O0, 900 annually, form the ,'outstand
ing avenue of escape from the sur
taxes, -AfE
with these securities available
are from federal income surfaces"
Mr.. Mellon continues, investors
-who would normally put their sur
plus funds into productive inter-
prise, are automatically driven I'M
der the pressure of high surtax rates
into investment in tax exempt Sc
culities. with the result that the.
federal government loses the rev.
elue, business and industry loses
the capital, ard funds badly needed
for productive purposes are diverted
into unproductive and frequently
wasteful expenditure.
This is situation which cal not
be permitted to continue without
grave danger to our economic str,ic-
ture, as well as our system of tax
alton"
Pointing out that the present law
limits the tax On gain in capital
transactions TO IL 12 per cent OF
such gain, but puts no limit on the
deduction of losses in such transac-
tioas, Mr.. Mellon urges that the
amount by which the tax may be re-
duced on account Of losses from the
sale of capital assets shall not ex-
coed IL 2 per cent of the amount
of such loss.
"This would. to large extent" he
asserts, check one OF the methods
widely used by taxpayers sat the
present time for decreasing their
yearly income. The alternative is to
refuse TO recognize either capital
gain or capital loss for income tax
purposes. and if the present situa-
ton is allowed to continue there is
no doubt that it would save revenue
to adopt this course. This is, in fact,
the practice which has been follow
ed in England for many years"
Provision of Act Abused
As to the avenue OF escape afford |