Evening star., 1933-05-28
CHANGES CONSIDERED.
Congress Held Likely to Drop Capital
Gains and Losses Section,

Special Dispatch to The Star.
NEW YORK, May 81 (C.P.A.).-It has
finally been borne in on the conscious
ness OF Congress, and of the Treasury
officials who have strongly advocated it,
that the capital gains and losses feature
OF the income tax law is beneficial when
times are good and Treasury surplus is
large, but that it fails to yield its pro-
portion of Government revenues when
times are bad and the Treasury Is most
in need of funds.
The disclosures in connection with the
Mitchell and Morgan income tax state
ments have sufficiently verified this fact
to bring Congress to the point where
an uneconomic portion of the tax law.
In his report for the fiscal year 1880
the then Secretary. of the Treasury,
Andrew w. Mellon, noted in some de-
tail the effect on income Of the loss of
revenue due to the decline in securities
and other investments. In 1880 this
income, on returns of net income Of
$4,000 and over showed a decrease,
compared with 1928, of S4,230, 900 900.
In 1928, profits reported from sales Of
real estate, stocks and other invest
ments, including those reported for tax
as capital net gains, were about $4,500.-
000,0 900 and losses $4,000, 900. In 1880
profits reported we're nearly covered by
losses, the profits having been $1,070,-
100000 and the losses $980,000,000.
Losses Ahead in 1881.
In the fiscal year 1881. according to
the report of Ogden L. Mills. then Secre-
tary, losses exceeded profits by about
s634, 100000. The returns for the fiscal
year 1882 covering this item are not yet
available There is no doubt that they
were of about the same relative char
acter as in 1881, with the losses ex-
ceeding profits.
This is one of the factors throwing
the entire income tax situation out OF
balance and causing wide difference
between preliminary estimates of reve-
nues and actual receipts. Every pos
sible means of showing losses has been
used by individuals and corporations
compelled to make tax returns. This
scheming has been reduced to a science
by tax experts, who have come to feel
certain amount of professional hu-
initiation if the statements of their
clients indicate they are in debt to the
Government when their returns are filed.
The liquidation that has accompanied
the process of establishing losses has
UCcu OilC Ol uIlldfOIdUlC ul1luClICc al IllC
security markets for the last three years,
when the time for establishing losses is
expiring.
Bulk From Moderate Incomes.
The social effect of evidence that
wealthy individuals have been able to
avoid payment of income taxes by tax
ing advantage OF the quite legal prac-
tice of selling securities on which there
were losses and making these offsets
to income from investments or profits
from business, steadily becomes more
harmful. The great bulk of the tax
return is derived from individuals Of
moderate means, whose income is in
the form of wages and salaries. They
are the class who feel they are preju-
diced by the provisions of the law and
that they are carrying too heavy por-
tion of the tax burden. In 1881 tWo-
thirds of the decline of about 1897 ,000,-
900 in individual income taxes occurred
in the net income classes of 100000
and over. This was undoubtedly due to
the drop in profits on real estate and
securities and the losses established on
the sales of such investments.
In the first quarter OF the present
calendar year there was additional
liquidation of securities to establish
losses for 1888, as it was apparent there
would be some increase both in the
normal tax and surtax schedules in
order to meet Treasury requirements.
During this period the condition Of the
stock and bond markets was such that
sales then made would show heavy
losses on investments that have been
held for more than two years. The re-
cent sharp advance in all securities has
checked this type of selling.
(Copyright 1881