Evening star., 1924-02-22
Income Tax a Burden.
"Tax.Free" Securities i'm Fact
'Tax-Discounted.'

To the Editor OF The Star:
! Now that the subject Of the income
tax is being discussed daily in the
! papers. 1t might be well to consider
it from different point Of view than
that usually advanced, and so i am
telling you this little story as an il
lustration.
:, Some time ago / met lawyer
! whom had not seen for some years.
asked him what he was doing He
replied that he was spending most Of
: his time on income tax work. / in
| quired, What do you think the in
| comeStax costs the people il you take
into consideration individual labor.
extra office expense. including clerk
| hire. bookkeeping and legal advice.
the cost to trust companies and banks.
the cost Of collections, including law
suits. both to the individual and the
+, government He thought for a mo-
! ment and then said, Between IS and
/ 100 per cent" ] asked next. Suppose
We add to this the disadvantage Of
| having money put into so-called tax
exempt securities and keeping it out
OF commercial enterprises?' He
/ thought for 4 little while and said,
That would bring it up far beyond
4
cent" This was higher than l ex-
pected, but since that time / have put
F.! the proposition up to at least dozen
! lawyers some Of them eminent in
! their profession. telling them of the
| conversation which have just mar
| rated, and every one of them said. SUBJ
stantially. Il don't believe that is far
out of the way!
| The income tax is thought by some
! to be spite tax. and like everything
else done for spite reacts on those
| who hold the spite Even though it
were, it would be Justifia bic if it ac-
! complished the results desired. Would
1t not be we'll now TO stop and think
and find out what the situation ac-
tuaily is rather than TO continue in
| ignorance. If, of course, all this labor
and money now expended to compute,
enforce and collect the income tax
| were eliminated, it could be applied to
! constructive work and thus add stlil
moro to the net gain to the country.
! MIR. MELONS plan is a step in the
right direction and is undoubtedly a
! compromise between his real views
! and what he thinks Congress may
agree to at the present time, and un-
! til it has been sufficiently educated
along this line to realize that the
income tax really fails in the object
for which is was intended and reacts
F.! upon those for whose benefit it was
/ planned.
/ 1t is pertinent here to call attention
| to the tact that tax-exempt securities
| is a misnoiner and has led the gem
! eral public TO misunderstood what
they really are. The term tax-dis-
! counted or tax-prepaid securities would
! be more accurate designation. The
discount or prepayment is equal to
terest on these securities and that
| on equally good securities not free
from annual personal property or in
/ come tax. although the inheritance
/ tax is the same in all cases.
+; AT the present prices the discount
| or prepayment feature allows cities.
counties. states. territories. the ma
! tional government. federal land banks
&; and joint stock land banks issuing
such securities to borrow money at
s., from IL to per cent less than they
would otherwise have TO pay
! There are two remedies:
+, Tax-discounted or prepaid securi-
! ties already issued must run their nat
! ural course to time Of redemption.
/ but ii would probably be possible to
! prevent the issuance of more such
securities by constitutional amend
| ment. However. this would take time,
/ because each of the governments and
banks now enjoying the right to issue
! such securities at reduced interest
F., rate would be very willing to have
the new order of things applied to
! all except to itself.
: Far the best method would be to
adopt Mr. MELONS plan imme dia tely.
with a further reduction each year
! for say two or at most three years.
j come tax would be entirely elm
mated. The effect of the adoption of
{ this method would be the Immediate
| and increa sing flow Of money to in
dustrial securities. with their conse-
/ quent rise in price and j correspond
/ ing decrease in demand for so-called
! non-taSableS. so that in the near
/ future taxable securities would
, have to compete with other securi-
q. ties on a practically equal footing
, WILLIAM PHELPS Emo.