Evening star., 1933-01-22


ton will undergo modifica-
~ tion when q revision OF rev.
enue laws Is undertaken IN
the new Congress.
Shrinkage in revenues from income
taxes during the depression has
forced consideration of the alterna-
tive of increasing the share Of the
burden borne by consumption taxes
such as special excise levies or some
form of general sales tax.
While President-elect Franklin D.
Roosevelt recently was Mortified"
when some of the Democratic leaders
a manufacturers sales tax as means
Of balancing the budget, the horror
among the rank and file of Democrats
was equally great when his sanction
was given to an increase in income
taxes.
Direct Taxes Hit Wealth.
Ever since the exigencies Of the war
opened up the enormous possibilities OF
the income tax under the constitu-
tional amendment approved in 1913,
more than half Of the revenues Of the
Federal Government have usually come
from this form of direct tax. Direct
taxes such as income and estate or in
heritant taxes, are applied upon wealth.
Therefore those who complain Of an
inequitable distribution of wealth have
welcomed taxes upon incomes and es-
tates as a means Of bringing about q
redistribution. Income taxes have
many advantages, especially in times
Of prosperity.
UP to the time earnings shriveled
up in all lines of business 1t had been
possible to obtain more revenue by
SO adjusting income taxes as to bear
more heavily upon persons Of great
wealth. The members of Congress
most enthusiastic over the principle
Of ability to pay, which Is exemplified
In the income tax, were able to keep
the normal rates low enough and the
exemptions high enough so as not to
be oppressive on the small wage
earners and farmers.
Now the situation has changed ma
terially. The large incomes have van
ished to an extent that makes it i'm
possible to raise any substantial amount
of revenue by increasing surtaxes. The
tax on corporation incomes was boosted
to dangerously high point in the
1892 act. The only method Of increas-
ing the income tax yield is by further
increasing normal rates on individual
incomes which were sharply advanced
last year and by further lowering eX-
emptions. While this would reach per-
sons with large incomes, 1t would also
hit the small taxpayers and would
bring within the scope Of the Federal
tax collector thousands of citizens who
have heretofore been exempt. Obvi-
ously, this effect, together with the
rapid adoption of the income tax with
low exemptions in the States, raises
question as to the desirability from
cfo inf nf QrtiOyl Q1nnO
this line.
Practical Politicians Revolt.
It was natural that the practical
minded politicians among the Demo-
Gratis should revolt when the word went
out that the conference of congressional
leaders with President-elect Roosevelt
in New York had given tentative ap--
proval to the increase in the present
normal income tax rates from 4 and
8 to 6 and IL per cent, the highest
rates adopted during the war, and to
a further reduction in the personal ex-
emptions which were cut in last years
revenue act from $500 to $2,500 for
heads of families and from $500 to
ST 900 for single persons. The normal
rates prevailing at the time of the en-
actment of last years law were only
~, and per cent.
Despite q traditional noStlIlty 70 q
sales tax by those emphasizing the abil-
ity-to-pay principle, the reaction to the
suggestion for an increase in the direct
tax burden upon persons with small
incomes has raised doubts IN the minds
of some of them as to whether mod
crate indirect levy spread over wide
range of commodities would not be less
painful.
In determining tax policies 1t Is neces-
sarily a case of getting the most featn-
ers with the least squawking. :.
Indirect taxes, including those on
tobacco and liquor and customs duties;
formed the exclusive source OF normal
Federal revenues before the World war
when total expenditures were consider
ably less than $1,000,000, 900. Since
the war, with normal Government
expenditures in the neighborhood OF
$4,000. .O00, 900, the indirect taxes nave
until the last year, occupied SUD-
ordinate position in the revenue
raising scheme No country. however,
ever has been able to rely upon direct
taxes such as income and estate taxes
alone The yield from indirect taxes
has shrunk less during disordered
economic conditions than from the