Evening star., 1925-09-06
Evading Taxes
BY David Lawrence.

Perusal of the income tax lists as
published in various cities has in
vartably aroused curiosity as to why
persons known to be wealthy have
paid relatively small if not negligible
| sums to the Government.
The Treasury Department doesn't
favor publicity of income tax returns.
but on this phase of 1t the Govern
ment would like to have people pom
der carefully the statistics as re-
vealed in the lists being printed by
the newspapers.
EVERY wealthy person who is pay
ing a trif1ing sum or nothing at all
represents a potential source of rev.
enue to the Government. The fact
that such an individual is not bear
ing his share of the tax burden is
not blamed on the wealthy person,
for the process is wholly legitimate
and permitted by law. There are
plenty. of ways to avoid taxation
without violating the law. One of
the principal methods is to put
funds in securities of States and
cities, which, of course. cannot be
taxed as the Federal Constitution
has been interpreted by the Supreme
Court as guaranteeing the States and
municipalities against Federal tax
alton.
Twelve Billions Tied Up.
1t is estimated that there are at
least S12 1000, 100000 in taX-exempt
bonds in existence. Most of them are
known to be In the hands of people
OF wealth Just as soon as Congress
imposed a burdensome surtax, the
wealthy people promptly figured it
out that even though tax.exempt in
vestments yielded only around 4 per
cent still that entire per cent was
free from tax, whereas an ordinary
or per cent investment meant
giving the Government sometimes a
halr or even more of the income, de-
pending on the amount of total in
come. For as incomes increase the
surtax rates go higher. Some tax
payers have found that on every ad-
ditional $4,000 they receive in income
they have to give the Government
nearly $5 600. So in considering in
vestments many persons of means
nave gobbled up the tax-exempt Sc
curities and the Government has been
that much poorer every year.
There is no way of estimating ex-
actly what the Federal Government
might have received if there were no
tax-exempts, but it would have been
such substantial sum as to enable
persons of small income to pay lower
taxes. AS it is today, the Govern
ment has decided on a policy which
will extract more revenue from per-
sons OF wealth simply by making
taxable securities more attractive
than they have been before and com,
peting with tax-exempts.
Always i'm Demand
This is not calculated to hurt State
a M mn
that there always VIII be a market
for them among people who want a
giIt-edged security. Most of the peo-
pie of wealth who own tax-exempts
can anord to take chances on invest
ments that pay high rate of inter
est and in which there is risk in
volved.
Capital, in other words, is in large
part dormant at present, absorbing a
per cent income when il could be
making return much larger than
that. Business development is not
being assisted as it should be by the
available capital. Foreign countries
which need American funds to help
build them up are not getting what
they should because even if they offer
ana per cent they cannot attract
the people of large wealth, who
promptly figure out that 6 per cent
really means or less when Federal
taxes are deducted
The Treasury hopes to make it DOS
sible for the surtax rate to be dimin-
fshed to such an extent. that il will
not make the deduction for taxes
more than per cent, so that a 6 per
cent investment when the tax is paid
will be equivalent to 4 per cent tax
exempt. and so that and per
cent investment will have something
of the same appeal it used to have 70
people of wealth who could afford to
risk their money in new enterprises.