Evening star., 1933-02-07
'TAX-EXEMPT BOND
FIGHT IS WATCHED
Investors Interested in Pro.
posaI of Senator Hull Af-
fecting U. S. Securities.
Special Dispatch to The Star.

SpeCldl DlSpdCCn TO Inc star.
NEW YORK, February THE in
tention Of Senator Cordell Hull to pre-
sent to the Senate an amendment tc
the Constitution that would prohibit
future sales of tax-exempt securities
has aroused great interest among in
vcStorS and banking houses that spe-
cialize in Government and municipal
obligations
1t is e-timated that there are out
standing today about $35, ,000, 100000 o1
securities free from all Federal, State
municipal and local taxation, except
estate and inheritance taxes. The only
United States Government lean that
is fully tax-exempt is the first Liberty
3i2s. AS each new Treasury loan is
offered emphasis Is placed on the fact
that it is exempt both as to principa.
and interest from all taxation Except
estate or inheritance taxes) now OF
hereafter imposed by the United States
any State, or any of the possessions oi
the United States, or by any local tax
ing authority"
Retreat of Capital
The freedom from paying income
taxes which the holder of this type OF
security possesses during periods when
rates in the high brackets are extreme
means that those subject to high taxes
have been~protecting themselves through
the purchase of either Government
bonds or the obligations of the States
and municipalities This has been re-
sponsible at different times in the past
as it is today, for much municipal
financing Of an extravagant character
1t was easy to borrow money at low
rates Of interest because the investing
public wanted the tax-exempt kind Of
securities. Just now the effect Is dis
elimination against taxable bonds. WIFE
the great bulk of institutional and pri.
vately controlled capital concentrated
on the market for bonds that are free
of taxes.
In his message to Congress last De-
cember President Hoover discussed the
necessity of balancing the budget ano
referred to the fact that Federal in.
come taxes had already been advanced
to the limit. The effect of such high
income tax schedules, he said, vas "tht
retreat of capital into tax-exempt Sc
curities and the denudation of industry
and commerce of that much available
capital" Various attempts have beer
made in the past to initiate policy
of making all new Treasury issues tax
able. So far none of the Treasury
officials has been willing to start ou'
on such a radical program.
The necessity for it now arises out
Of the Treasury position and a demand
for tapping new sources of income. II
Is obvious that with $35 1000, ,000, 900 o1
various kinds of bonds free from tax.
alton the Government annually lose,
an enormous revenue. It is estimated
that II the same taxes as apply tx
corporation bonds could be imposed or
securities that are now tax-exempt, i,
would not be difficult to balance ths
budget.
Refunding Is Near.
Another phase of Government financ.
ing that brought forward the propose
of Senator Hull to make additiona
Treasury loans taxable is the nearnes!
to the time when there must be 9
refunding Of a large body Of the pres.
ent outstanding Government debt. AL
of the bonds that may be retired anc
exchanged for loans carrying lowel
rate Of interest are now tax free. tt
make the new issues taxable woule
obviously compel a modification of ths
plans tentatively discussed, and which
in general, involve the replacing O.
the first and fourth Liberty loans
bearing a rate of interest of 4A pel
cent, with moderately long-term loar
at 3A per cent. However, should the
new loans be taxable, it is doubtful
If there would be a satisfactory re.
sponse to an offering at a coupon ratt
OF sAj per cent.
Copyright 1881