The Richmond palladium and sun-telegram. [volume] (Richmond, Ind.) 1907-1939, 1922-01-18
STATE RIGHT
ISSUE REVIVED
BY TAX PLAN
Proposed Levy on Local Bond
Income Would Be Bitterly
Contested, Declares Mark
Sullivan.
URGE SURTAXES Be CUT
BY MARK SULLIVAN

WASHlNGTON, Jan. 1S.-The pro
posal to make bonds issued BY states,
cities, townships and villages subject
10 the federal income tax is going to
revive what has been one of the old
est and most vital issues in American
politics.
1t is anywhere from 10 years to half
a generation since Estates rights" used
TO figure every day in the debates of
congress. Most of the fights went
against the states, and in the swift
and drastic Capitalization of power at
Washington that occurred during the
war, states rights almost disappeared
as a live issue.
At this moment however it is COM
ing rapidly to the front not only in
connection with the project of putting
a federal tax on state and other local
bonds, but also in connection with the
Dyer bill to make the crime of lynch
ing subject for federal action to-
gether with the project for a federal
department of education to have some
kind of centralizing relation to public
schools and other institutions now
wholly under control of the states.
Drastic Invasion
OF all these movements. present and
posed invasion of states rights on the
part of the federal government is the
proposal to put federal restrictions on
the power of the states to borrow
money
The movement arises out of the in
come tax. When the owners of
large fortune invests in the bonds of
a private business corporation, he
must pay from 25 to So per cent of his
income in taxes. But when he invests
in the bonds of the states, cities and
villages, he need pay no income tax
on the interest.
The result has been that pri-
vate business corporations borrowing
money must pay roughly from 512 to
~ per cent, whereas cities and towns
can borrow 1t at from to per cent.
1t follows necessarily that private cor
porations have difficulty in borrowing,
while states and cities can borrow
freely.
Two Remedies
To get rid of this handicap against
private business there were two feas-
ible remedies. One was to reduce the
highest taxes on incomes to some
thing like 80 per cent or less and thus
restore in the mind of the large in
vestor something like equality of at
tractiyeness between the bonds of
private corporations and those of
states and cities.
This was the remedy Harding pro-
posed first He recommended it in a
letter to congress. but congress turned
IL down. Thereupon. Harding in his
last address to congress recommended
that state and city bonds be made
subject to federal taxation the same
as the bonds of private business cor
porations.
This could only be done by means
of an amendment to the constitution
of the United States, and it is to con-
slider the advisability of such an
amendment that the hearings are now
being held.
Federal Revenues Affected
1t must be admitted that the pres
ent situation is not only hurtful to
the federal governments revenue, but
that it also has an indirect effect not
widely noticed. 1t puts a premium on
the municipal ownership of public
utilities and promotes it greatly.
Any given gas company or electric
light company or telephone company
must pay from 512 to ~ per cent for
it's borrowed money, whereas the same
company, if turned over to the city
government, can borrow its money at
from Az to five per cent.
The resulting stimulus to municipal
ownership is readily apparent. There
still remains, of course, the alterna-
tive remedy that Harding first sug-
gested, namely, Il reduction of the
higher surtaXeS on large incomes to
something like % per cent.
The project for an amendment to
the constitution by the action of three
fourths of the states would take at
least two years time under the most
favorable circumstances. And, as a
matter of fact, the project would en-
counter the most stubborn opposition
and revive the old states rights issue
in a vital form.
Earnest Debates
The Dyer bill authorizing the fed
eral government to take cognizance OF
lynching and punish it in the federal
courts has given rise to earnest de-
bates in the lower house of congress.
II was initiated by the Republicans to
fulfill a platform promise. and the
Democrats claim it is put forward
largely to make a Republican appeal
TO the negro vote, which is so large
as to be decisive in such doubtful
states as IndiGGa and Ohio
Southern Democrats say that lynch
ing is already decreasing through the
only sound means by which it can be
decreased, namely, by the growth of
local public sentiment against it.
They say further that for the federal
government to interfere would merely
make the whole troublesome race
question worse.
Undoubtedly it is the view of per-
sons who are most enlightened and
free from partisan prejudice that the
best hope for amelioration of the race
question in its largest aspects lies in
local treatment of it without the inter
ference of force from the outside. The
race question has grown steadily less
troublesome in proportion as the fed
eral government has receded from the
use of force, which was a cardinal Re
publican doctrine in the generation
following the Civil war
The project for federal bureau of
education has been opposed by Presi-
Ninh @F 1lt u Ii.t