Evening star., 1933-06-04
MORGAN TAX FURORE RECALLS
PAST APPEALS FOR REFORMS
Hoover, Mellon and Many Other Leaders
Wanted to Change Income Law, but
CONGRESS Failed to Act.

! rates In 1922 for the first time fiat
rate Of 1917 per cent was levied. Be
! tween these two years the number OF
/ taxpayers with incomes in excess OF
100000 increased from 246 to 537. and
Of this number 1865 would not have been
| in that class except for the realization
of capital gains.
"Prior to the insertion Of the capital
gains section in the law, investments
did not charge hands, property was tied
up, and the Government collected little
revenue from this source.
when the rate of tax was reduced
to 1912 per cent. however, the Govern
ment opened up vein Of revenue
which in that one year yielded over
S31 ,000,0 900 in taxes
TT is quite obviously Of as much ad-
| vantage to the Government that the
tax on capital gains be reduced as to
the taxpayer and to business. Most OF
all is the moderate taxpayer benefited
by removing some Of the load from him.
The rate was such as permitted the
traffic to move, and it did move, to
everybody,s advantage"
Views Given in Book.
Mr.. Melons views were given further
in a book, Taxation, the Peoples Busi-
ness" published in 1924 and containing
some of his addresses and papers. In
that volume he wrote: II believe that 1t
would be sounder taxation policy
generally not to recognize either capital
gain or capital loss for purposes of in
come tax. This is the policy adopted in
practically all ether countries having
income tax laws, but itshas not been the
policy In the United States. In all
DrCba hilitU moro rovoY1r1o hoe hapn Loaf
to the Government by permitting the
deduction Of capital losses than has
been realized by including capital gains
as income"
Specifically the Secretary advocated
limiting capital losses to 1914 per cent,
thus putting capital losses on all fours
with capital gains in income tax returns
But he favored this compromise only as
partial substitute for the more COM
plete reform implied by his insistence
upon taxation of real as opposed to
theoretical income. He wanted the
revenue philosophy of the Government
to be simple enough for child to un-
derStanu. Instead, he saw that "in
order not to put all business and dealing
in property in a straitjacket, page
after page Of exceptions must be written
into the law. With so many doors to
the house, the effort to close them all
has given us the most intricate tax law
in history"
But the agitation which he had
sponsored did accomplish one gain
the 1914 per cent limitation on de-
auctions OF capital losses was imposed,
thus establishing a symetrical system
for the treatment of gains and losses !"
Under this arrangement the Govern
ment was proportionately protected 30
long as the country remained prosper
GUS, but, as Mr.. Mellon very well under
stood. it was left unguarded when that
prosperity was dissipated.
The Morgan partners paid taxes in
amount Of $11 900, 900 on their incomes
for 1929. That was a boom year. When
the slump occurred they were legally
entitled to charge of their capital losses
against their earned income, and they
took advantage of the privilege What
was sauce for the Government goose be-
came sauce for the Morgan gander.
Hoover Made Appeal.
In an address on October 2, 1890,
President Hoover told the American
Bankers Association Convention that
1T is urged by many thoughtful citizens
that the peculiar economic effect of the
income tax on so-called capital gains
at the present rate Is to enhance specu-
lative imitation and likewise impede
business recovery. I believe this to be
the case" He returned to the subject
In his next message to Congress, urging
special study Of the problem.
Coincidentally, as it happened John
j. Raskob, chairman of the Democratic
National Committee, urged abolition of
capital net gains taxation In . radio
address. Others who supported the
same proposition included senators
Couzens, who as early as 1929 intro
duced an amendment to reduce the rate
from 1914 to II per cent; Blaine, Borah
Brookhart. Cutting, Frazier. johnson,
La Toilette, McMaster, McNary, Nor
beck, Norris. Nye, Barkley, Black, Blease,
Caraway, Harris, Mcclellan, Steek, Ste
phens and Thomas. But some iof these
men voted against the tax-reduction
resolution on final passage. The gen
eral plan for abolition Of the whole cap
ital gains and losses provision was advo-
Gated by Senator Reed Of Pennsylvania
on numerous occasions.
A gesture at the necessary reform
was made in the revenue act of 1882.
Prior to that date the loss from secnri-
ties sold might be deducted from net
income even though the sale was for
that purpose" The law required only
that the transaction be bona -f1de one.
and that the same or practically identi-
cal securities be not repurchased within
80 days, If the loss we're to be deducted
from income
This 30-day provision still holds, but
the 1882 act allows loss from the sale
Of securities to be deducted from net
income only to the extent of offsetting
gains from other such sales, unless the
securities have been held more than two
years. In the latter case they are con-
sidered capital assets, and loss from
Quoted"