The Waterbury Democrat., 1933-05-26
By RODNEY BUTCHER (NEA Service Wrfter)

washington, May 26.-TnlS IS 10 explain why J. P. Morgan and his partnersEalong with perhaps hun dreds of other millionaires-did not pay any income tax in 1881. Also why the Morgan partners did not pay any income tax for 1882 and why they will not pay any for 1883 unless congress does some- thing about it in the immediate
 future before it's adjournment. Millions of poorer, middle class persons paid increased taxes this year on last years incomes and probably will be soaked 50 per | cent more on 1883 incomes in
 order to pay the costs of the nn- employment relief program. But the 20 members of the
 House of Morgan and others who still receive huge incomes go free.
 This was disclosed during the in- vestigation of the Morgan firm by
 the senate banking and currency
 committee.
 Inventory Losses, Charged Against
 Tax, Left No Tax to Be Paid Under the Law
 The Morgan partners, under the law, were able to take an inven-
 tory which showed a large decline | in the value of their assets. They were able to charge this loss
 against the tax which they would l otherwise have paid on their i'm
 comes. principally received in the
 form of interest.
 As a partnership, they were able
 to show that they had no income
 whatever for taxable purposes,
 the federal tax law still permits
 dealers in securities to charge off
 losses on stocks and bonds against
 other income on their tax reports. The stock market crash Of 1929
 and the subsequent period cost the
 treasury hundreds of millions of dollars through such deductions. Corporation and individual income
 tax payments dropped from about l $2,200,000.000 in 1929 to $57O, ,0O0.-
 900 in 1881. Losses on stocks,
 bonds and real estate entered in-
 income tax returns for 1881 to-
 tailed $1,235,000,000, offset by
 some $450,000,000 of capital gains
 and resulting in a federal loss of | somewhere near $200,000,000
 which wiped off income tax that
 otherwise would have been due.
 Beneficiarics of Losses and Gains Provisions Fall Into Three , Groups
 i Part of that $200, ,o0O, 900 saved the Morgan partners from the bur
 den of contributing to the national
 upkeep. But most of it was charg-
 ed up by income tax payers who
 had been speculating in the stock
 market. To get the picture as it
 existed and as 1t now exists under the 1882 tax law 1t is necessary to divide the beneficiaries of the stock
 loss and the capital gains and
 losses provisions into three groups: l. Previously all profit or loss on the sale Of securities which had
 been held less tban two years was chargable on tax returns as ordin-
 ary profit or loss against incomes. AIter the market crash specula-
 tors in large numbers wiped out their income taxes. A man receiv- ing $10,00Q a year in salary who had lost $10.000 on stocks would pay no tax. If he had lost $5,OOO he would pay tax on only $5.0o0. The 1882 act eliminated this privilege except as it permitted the charging of any such loss off against any sSSSR eS@AA sA3~S may OC Ak1dQCs 2. The capital-gains tax treats persons who have held stocks or real estate more than two years as a separate class of investors, rather than as spectators. This was not changed. It permits taxpayers to treat the gain on sale of stock after two years as ordinary income or to add to his tax 12 1-2 per cent of the gain. In case of loss he must deduct the loss from ordinary in- come or apply f2 1-2 per cent of 1t as credit against the tax on his ordinary income-according to which method produces the largest tax. Nearly $300.000,00 was enter ed as capital loss in 1881 and this provision continues to wipe or many income taxes.
 2. Dealers in securities are per- mitted to inventory their securities every year for tax return purposes. They and persons engaged in the banking business--and the House of Morgan falls under both catc- gories---aro exempted from the 1n@fI0f of fho 1019 ant o..,.-l...~