Evening star., 1925-08-24
BY DAVID LAWRENCE.

Honest returns are made by nine
tenths of the taxpayers, indeed the
proportion is even greater. but avoid
ance of income taxes by legitimate
and legal means Is practiced by an
incalculable number of persons.
And by avoidance one does not
mean evasion. but simply a recogni-
tion of the weaknesses in the existing
law and a taking advantage of them.
This is the outsta nding fact about
the experience OF the Treasury De
partment with the income tax returns
of more than 100000 persons. an
experience which today can be re
duced to general principles and traced
through every years returns.
The Governments desire naturally
is that tax rates and methods shall be
productive. Anything that interferes
with productivity is the Government s
concern. For example, one of Amer
ica'S wealthiest men says frankly that
he has made more money under the
high surtaxes of the Treasu than he
would have done under loW surtaX
rates. Rather than invest his money
in securities the income on which was
taxable he turned sympathetically
toward some enterprises, which in or
dinary times he would have regarded
as risky IL not unwise.
Enterprises Prospered.
The enterprises could not possibly
for 10 years reach the point where
the earnings would have to be dis
tributed, and everybody has known
that tax rates would come down by
the end Of that period. Even If they
did not come down, the income could
he segregated in the form of stock
dividends and held for future sale.
The particular enterprises in ques-
ton prospered and the profits will
be held intact for some time to come.
The sums involved are very large.
Now the Government will get very
little share out of the transaction
mentioned. Yet, hadf the surtax rate
been very low, the individual with
his investment in the doubtful en-
terprises. but would have made in
vestments Immediately taxable be-
cause the taxes payable would have
been regarded by him as relatively
insignificant compared with the risks
that he would take in the doubtful
enterprises.
While this particular episode turn.
ed out favorably for the man with
capital, the Government lost a heavy
tax. In other words, looking a. taxa
tlOn StTlCIlN from the government
viewpoint, the individual must be
tempted to put his money in things
that yield a tax to the Government.
And in dozens of different ways the
experience of taxpayers is more or
less like the example mentioned. The
taxpayer figures out schemes where
by his tax rate will be low and shapes
his course accordingly Would he
not do the same under any tax rate?
He would naturally pay as little tax
as possible. But the volume of his
transactions in taxable things would
be larger.
Principle Is Age-Old.
1t is the age-old principle of when
a tax becomes burdensome it will be
avoided or evaded. When it is neg
lible it is paid without much thought
being given to the subject of avoid
ance. The safer way Is selected as
the best way
In a large sense this is what the
Treasury now feels has been demon
strated so conclusively by the returns
that it Is no longer a theory but
fact. High surtax rates have pro-
duccd much less taxes than reduced
rates. The increases in revenue to
the Government have not been too
great, as the scale of rates has been
lowered but the principle of greater
return has been completely vindi-
Gated.
Under the circumsta noes, therefore,
the question now Is how low can sur.
tax rates really be made and yet give