Evening star., 1933-02-05
PLAN BILL TO END
BOND TAX XFREED0M
Senator Hull Aims to Reach
Federal, Municipal and
State Securities.
Continued. From First Page.)

generally. however. that the volume Of
securities wholly exempt from Federal
income tax Is approximately $26.000.-
| 100000. In addition. there are about
s12 000, ,000, 900 which are exempt from
the normal income tax only.
Through the failure of the Govern
ment to levy taxes on these securities
the Government loses perhaps half a
| billion dollars in revenues annually.
Glass Voiced Hostility.
More than a decade ago 1t became
| apparent that the exemption of Fed
eral State and municipal bonds from
| taxation was affording a refuge for
great wealth from taxation. During
| the Wilson administration, Senator
Carter Glass Of Virginia, then Secre-
| tary of the Treasury and now slated to
become Secretary of the Treasury
again in the Roosevelt administration.
voiced his hostility to the exemption of
public securities from taxation In his
annual reports as Secretary Of the
Treasury. Former Secretary Of the
Treasury Houston, in the Wilson ad-
ministration, took the same view and
fol- mer Secretary Mellon made the abo-
| from taxation one the main plankS in
his platform Of fiscal reform.
When the late President Harding
entered the White House he recon-
mended the adoption Of a Constitu-
! tional amendment to provide for in
come taxation Of future issues OF Gov
ernment bonds in his first annual
message to Congress. Mr. Mellon. then
Secretary of the Treasury, strongly
urged the adoption of this Constitu-
tional amendment Mr.. Mellon said
at the time. THE issue of tax exempt
securities has a direct tendency to
ineffective and non-productive because
it enables taxpayers subject to sur
| taxes to reduce the amount Of their
| taxable income by investing In such
| securities; and at the same time the
result is that a very large class OF
capital investments escape their just
share of taxation" President Hoover,
who was then Secretary of Commerce.
| in letter to Chairman Smoot Of the
| Senate Finance Committee pointed out
that the escape from taxation through
, direct exemption of public securities
was net the whole story, "for they fur
| nish wide basis for further avoidance
| of taxation"
| The proposed Constitutional amend
ment to prohibit further issues Of tax
exempt securities was voted upon in the
House January %, 1923, and received
the necessary two-thirds votes. 223
yeas to l01 nays. The amendment
! however. did not receive consideration
/ in the Senate during the remainder Of
the short session, and that Congress ex-
pired March 4 without final action
upon 1t.
The late President Coolidge renewed
the Harding recommendation, for
| Oy,Sfit1tiCno1 on1enfpoenf at the n.
ing Of the next Congress. Mr.. Coolidge
! said in his message to Congress, THE
existent system not only permits large
amount of the wealth of the Nation to
escape its just burden, but acts as
continual stimulant to municipal ex-
travagance All the wealth CT the Ma
| ton ought to contribute its fair share
to the expenses of the Nation"
Failed to Pass House in 1924.
While the resolution proposing con-
| stituticnal amendment was favorably
reported by the Ways and Means Com
mittee of the House February 8, 1924
| it failed to pass by vote OF 247 yeas
to 1873 nays. The proposed amend
ment had been approved in the House
| with margin Of seven votes above the
| required two-thirds majority in 1928.
DUL III 1877 ~ 1d4C0 Wy q lial 6Ii VA
seven votes. Opposition at that time
came chiefly from the Democratic side
of the House and was led by Repre-
sentative Garner. the pre,ent Speaker
and Vice President elect. 1t was
charged by the then Representative
William R. Green. former chairman OF
the Ways and Means Committee and
! now judge in the United States Court
of Claims, that the amendment had
been defeated by representatives from
| the South who believed their States
| could borrow money more cheaply II
permitted to issue tax-exempt securi-
ties" There was oppo;dticn, too, from
| farm organizations which wished to
continue the exemption of Federal farm
| loan bonds and from advocates of the
municipal ownership CT public service
enterprises, who held that the advan-
| tage given municipal securities by tax
exemption would promote the acquisi-
| ton of public utilities by the municipal
| government.
With the continued reductions in the
rate of Federal income taxes, the agita-
ton for an amendment to prohibit the
issue of tax exempt securities fell on.
In those days, however, the Federal
Treasury had a surplus. With deficit
of more than a billion dollars staring
the Treasury in the face, the demand
for a tax system which would reach
these public securities is growing rap
ic'lv.
| In 1929, the Treasury sought and
obtained from Congress legislation au-
| thorizing the issue Of Treasury bills on
a discount basis, payable at maturity
without interest. The same law car
ried a provision that future issues OF
Treasury bills as certificates Of tndebt-
edness should be exempt from all Fed
eral income taxes
The Secretary Of the Treasury also
had authority to issue Treasury notes.
maturing in one to five years. free OF
normal income taxes and turtaxes. All
of the notes now outstanding have been
given this exemption.
Exemption Feature Dropped.
Two years ago new legislation was
sought by the Treasury increasing its
long term borrowing power by $8,000,-
900 900 in order to facilitate the refund
ing of bonds which would become call
, able during the ensuing three years.
The Treasury Department proposed to
make the income from all the new
bonds exempt from surtaxeS as well as
the normal income taxes. Secretary
Mills explained that the purpose OF the
proposed exemption from surtaxes was
to remove q present discrimination be-
tween individuals and corporations, the
latter only paying the normal tax. Be
cause of the opposition which devel-
oped in the Senate, however. the tax
exemption feature was eliminated and
the bill was passed without 1t.
| President Hoover, in q recent mes
sage to Congress, called attention to
the fact of the early refunding of out
standing high interest bearing liberty
/ bonds which must be undertaken and