Evening star., 1924-12-08
MELLON DECLARES
GIFT TAX IS FUTILE
Illustrates Pressure to Es'
cape Heavy Charges on
Incomes, He Adds.
BY DAVID LAWRENCE.

While tax reform" is not one of
the administration proposals for this
session of Congress. there is unques-
tionably a good deal of sentiment in
Congress for amendment of the pres
ent revenue act where specific harm
is being done in the application of
the law.
Much has been said about the pub
Lofty provisions of the law, but there
is another phase. namely, the gift
tax, which is coming in for wide
spread criticism. Under the present
act every gift of more than $500 to
any one person, even to members OF
ones immediate family, must be re-
ported and is taxable II there already
has been given away $50,000.
The tax applies to corporations, too.
and the question has arisen whether
companies will be inclined hereafter to
give pensions to the injured or en-
pioyes retiring at old age. or to pay
bonuses If these gifts are to be taxed
and the total expense thus Increased
II a company had large number of
employees the total taxes would be large
even though the bonus to the individual
employe might be small.
This tax on generosity, II not philan-
throphy, in some instances, together
with the penalty that 1t imposes on the
sums their employees have really earned
by faithful service, Is all due TO an ef-
fort to prevent avoidance of tax pay
ments by the few who give their money
to members OF their family or close
friends so as to escape nigh surtaxes or
Inheritance taxes.
Some of the inequitable features
Of the present law are to be noted
in the case of a man who gives away
$50, 600 a year to another for 10 years.
That giyer pays no taxes nor does
the recipient. Since the tax is on an
annual basis only the giving of
$4,000 a year would avoid taxation
and yet at the end of 10 years a
total of 100000 would have been
donated. Should a corporation at
tempt to give away 100000 in any
one year in bonuses to its employees
the total tax would be $4,000. Yet
in each case 100000 is the amount
of the gift.
The gift tax provision was inserted
in the present law on the floor or
the Senate and was not referred to
any committee.
Mellon, 'It was never thoroughly
studied and not tied up with other
provisions Of the law. AS an ex-
ample, IL a donor should give away a
piece of property which cost him
$4,000 and which at the time Of the
gift was worth 100000, he is taxed
on the basis of 100000.
IF the donee should then sell this
property for 100000 he would be
taxed on the basis of what the prop
erty cost the donor, and be obliged
to report $4,000 profit for income tax
purposes, although the property was
w fixed
value for taxation as a gift.
Aside from the grave constitu-
tional question of the right of Con-
gress to tax gifts at all. the gift tax
is an excellent illustration OF the
futility of trying to prevent avoidance
Of excessive taxes and still not penal
ize legitimate transactions. Under
the statute, If property Is sold or ex-
changed, the difference between the
value Of the property and what is
received Is considered a gift So, II
seller makes a bad bargain, ne
suffers not only his loss on the bar
gain but he must pay a gift tax on
this loss The more he has lost the
more tax he has to pay. The duty
devolves upon the taxpayer to report
every transaction where he received
less in value than he gave, and upon
the Bureau of Internal Revenue,
therefore, to pass upon innumerable
business transactions"
The Secretary of the Treasury says
examples Of the "unsound nature of
this attempt to close loopholes for the
avoidance of excessive taxes could
we'll be multiplied" and that 1T Is
better ito adopt reasonable rates of
taxation which do not compel avoid
ance, and to avoid indirect and arti-
fetal restraints upon usual and proper
transactions-someth Is wrong
with our tax policy If legislation such
as this Is necessary to make the col
lection of revenue effective"
The Senate committee which is in
vestigating the administration of the
bureau of Internal Revenue is head
ed by Senator CouZens of Michigan,
who has already found many things
wrong with the gift tax and his COM
mittee Is considering the recommend
alton in its reports of several amend
ments.
It may be a year before the whole
problem of tax reform is tackled In
earnest, but the inequities of the
present law are every day demand
ing attention as the new law passed
by Congress last Spring becomes
more familiar to the taxpayers and
the chances are they will learn their
first lessons about its unique provis-
ions from now on as they begin to
prepare for the returns that are pay
able next March on transactions of
every sort occurring in the year end
ing this month.