The Bozeman courier. (Bozeman, Mont.) 1919-1954, 1924-01-23
WHO GETS SOAKED" BY HIGH sURTAxEs?

The escape of sO-caled milliOnaires from paying federal taxes !
is the most serious tax problem confronting the federal govern
ment today. The extent to which the wealth of that class of our
citizens escapes paying taxes is set forth in a striking manner in
tables furnished by Secretary Mellon.
According to the records of the treasury department, the total
net income OF all classes of citizens reported for taxation in 1916
was $6,298,000,000 Their total net income reported for taxation
in 1921 had increased to $19,577, OOOOO, or 2O per cent.
; The total. net incomes of those reporting incomes of 100000
or over was 1892, 973, 900 in 1916, but in 1921 this had dwinded to
$153,534,000 or a decrease of 85 per cent.
On the face of these official figures, it would appear that the
rich are getting poorer and the poor are getting richer, that in the
last five years the average citizen has multiplied his income by
three, while the milionaires have divided their income by six.
But everyone knows the absurdity of such an argument. The de-
crease of 85 per cent in the total incomes reported for taxation by
those having incomes of over 100000 has been due not to the
fact there are fewer milHOnaires with large incomes than there
were in 1916, but to the fact that the millOnaires are investing
their money in tax-exempt securities, and thereby escaping pay
ing heavy federal surtaXes.
The records of the treasury department furnish corroborative
evidence of this fact. The inheritance tax unit of the internal
revenue bureau has taken a survey of the inventory of estates
scheduled for inheritance tax where such estates netted $1,OOOyOOO
or over. The result of this survey shows that, in the aggregate,
tax-exempt securities composed only 221 per cent of such estates
in 1917. By 1920 tax-exempt securities composed 979 per cent
of such estates, while in 1923 tax-exempt securities composed
2897 per cent of the estates.
Taking that portion of the estates consisting of stocks and
bonds of all kinds, the internal revenue bureau finds that of the
stocks and bonds, taX-exempt securities composed 1926 per cent
in 1917. By 1921, taxeXempt securities composed las per cent of
the stocks and bonds of estates of a million dollars or over, and
in 1923 tax-exempt securities composed Al SO per cent of the stocks
and bonds of estates of one million dollars and over.
The effect of this transfer of investments from taxable to nom
taxable securities is seriously reflected in the returns to the United
States treasury. The amount of surtaxes paid by those having
incomes of $780, 900 or over in 1916 amounted to 668 per cent
of all surtaXes paid in that year-surtaxes beginning on incomes
of $4,000. Year by year the percentage of federal income tax
paid by those with incomes of 100000 or over decreased until in
1921, the last year of which there has been an analysis, the per-
centage of surtaxes paid by those with incomes of 100000 or
over was only 206 per cent of the total surtaxes paid.
In other words, the 100000 income class paid less than one
third the surtaxes in 1921 that they did in 1916, although the
rates in 1921 were much higher than in 1916.
All of the above facts concusively prove that high surtaXes
have but one effect, that is, to drive men of wealth to invest their
money in nontaXable securities. The result of this is a loss OF
revenue to the federal government from the millionaire class. Sec
rotary Mellon estimates that if the money now invested in non
taxable securities were invested in productive business the gain il
income tax to the government would be over $780, 00,000 a year
Or, to put it the other way, the government is losing ~$4OOOOO,OO
a year in taxes because high surtaxes are driving wealth into non
taxable forms of investments.
All this is of vital and immediate concern to the man o
small income. The $4OO 100000 loss due to evasion of the fed
eral tax law by the rich investing in non-taxable securities mus
be made up by men of small incomes paying higher taxes. None
with which the government is run must be raised by taxes, and
those of great wealth are able to evade paying their share, it nece
sarly follows that the man of small income who cannot evade tn
federal tax collector must pay an increasing proportion of tn
burden.
Therefore, the politician or the political party which play
the demagogue by proposing a tax bill to soak the rich man ar
relieve the poor man is in point of fact and practice proposing
bill which relieves the rich man and soaks the poor man.