Evening star., 1933-06-30
Business Philosophy.


the firm Of Kuhn. Loeb a. Co. have
during the recent lean years paid
no income taxes to the Government. or
very little. Mr.. Kahn himself paid no
income taxes during the last three
years. This did not mean that the
senior partner Of this large private
banking concern had no income. It
merely meant that Mr.. Kahn, like other
men Of great means, had made use OF
the provisions Of the income tax law
which enabled him to write OF stock
losses against income taxes. The
revelation few weeks ago that ]. p
Morgan and the partners of the J. p
Morgan Company had paid no income
taxes in 1881 and 1882 set the country
gasping. The present testimony Of Mr.
Kahn before the Senate Banking Com
mittee merely confirms the belief that
generally speaking the great wealth OF
the country in large measure avoided
paying income taxes through the same
method-that of selling securities to
show losses at the close of q taxable
year.
Mr.. Kahn told the Senate committee
that the profit and loss provision OF
the income tax law was bad and should
be abandoned. In the light Of the in
quiry into the manner in which these
provisions have operated there can be
no doubt that the country generally
will agree that there should be .
change in the law. Indeed, the Con-
gress already in the industrial recovery
act has undertaken to I'LL up the holes
through which men of wealth have been
able to avoid paying income taxes. II
was Mr.. Kahn's contention that where
profits have been made through the in
crease in value OF securities there
should be no increased taxation, as well
as when there were losses there should
be no writing of Of the losses. There
Is difference, however, in the two opera
tions as they have been permitted. For
example. a man may earn through q
profession or work for which he is paid
a considerable sum in one year on
which he pays an income tax. The
following year he may be unable tc
make a tenth as much, due to many
conditions. In the third year he again
earns as much as he did In the first
year. There is no provision of law by
which he can charge of his loss OF
earnings In the second year against
the tax he must pay at the close OF
the third.
Mr.. Kahn, like the Morgan partners
told the committee that he had little
recollection Of the transfers of stock at
the close Of the taxable year by which
he was enabled to write OF his in
come tax. Apparently. from the testi.
mony. these were details which were left
to the ONCE forces and to the lawyers
But Mr.. Kahn insisted that he had nc
intention Of doing anything to the
detriment Of the Government. He was,
it is asserted, acting wholly within the
law when he transferred large blocks
Of stock to his daughter in December
1880, with an indicated loss Of $117,584
and then obtained these securities again
by reassignment from her In March
1881. It Is obvious that the transac-
ton was purely for the purpose oi
avoiding payment of an income tai
which Mr.. Kahn would have been COM
PEELED to hand over to the Government
had he not taken this loss" It seems
improbable that members of Congress
who voted for the provisions Of the In
come tax law under which such opera
tions are held to be legal did 30 with
the expectation that such devices would
be found for tax avoidance.
The senior partner Of Kuhn, Loeb
& Co., in his testimony before the COM
mittee, said that 1t was q hazardous
piece Of business to gamble" on the
country's prosperity in the way Of q
profit and loss provision Of the income
tax law. He is right when 1t comes to
the collection Of the necessary revenue
through any such income tax law as
has been in operation In the past. How
ever, Mr.. Kahn defends speculation"
in all kinds of business, even to the ex-
tent Of the buying of stocks on margin.
In his opinion, such buying is only
gambling" when the man cannot af.
ford to take the losses he might have
to incur. Apparently what is specula-
ton for the wealthy man is mere
gambling for the poor. Mr.. Kahn has
proved an interesting and alert witness
before the Senate Committee, although
his philosophy of business and Govern
ment does not appear entirely consis-
tent.