The Redwood gazette., 1935-08-29
Tax-Exempt Securities

There are approximately 80 billion doll
ars worth OF taX-exempt securities, bonds of
the various states and of the United States,
outstanding today. These securities will not
be affected should the people of the United
Safes ratify constitutional amendment Civ
ing the federal government authority to tax
the securities of states, municipalities and
other local units, and the states authority to
tax the securities of the federal government.
Any change in the policy on these securities
will apply to those issued in the future Pres
ent holders will not be affected. Doubtless
this fact accounts for the lack Of any oppos-
ition to the taxing of the class of securities
now exempt under state and federal law.
Naturally the holders of existing securities,
not being affected by the change, are not at
all vociferous in opposition to it. But this
is not an intelligent viewpoint toward any
public question upon which there is room for
discussion. It is tinctured with selfishness,
an attitude which unfortunately seems to
determine the views of the most of our citi-
zenS on public questions. 1t is regrettable
that in this discussion vast majority of the
people are unable to approach the argument
in an unbiased frame of mind and consider it
in the light of what is best as a matter of
public policy.
The tax exemption provision of secur-
tiles sold by governmental units originally
was set up because, being exempt from taxa
tion of all kinds, those securities carried a
lower rate of interest. The person with
funds seeking investment could well afford
to take the lower interest bearing bonds be-
cause when he considered their freedom
from taxation their yield was greater than
that on bonds yielding a higher rate but
subject to taxation. But in the present era
of low interest rates we find public securi-
ties, in many cases even with their lower
return, better interest payers than many
securities which are not exempted from tax
alton. So the same influence toward lower
rates does not seem to apply as forcibly as
it did once. AS long as Is years ago Secre-
tary Mellon, then head of the treasury de-
partment, was advocating the removal of
tax exemptions on government securities of
all kinds. A preponderant majority of those
who have discussed the question in the last
two decades have been of the opinion that
tax-exempt securities should be done away
with. AS a matter of public policy we are
inclined to that belief. The tax-exempt
security, it seems to us, is out of joint with
our general theory of taxation Moreover, it
is frequently lure to capital which other
wise would be invested in productive enter
prise and thus work for the people at large
~ Jul AiAAO, ~ 10 POO1 puUIlC pOl1Cy Ill CQ0
extreme to afford any one class of investors
an advantage over other classes by issuing
securities which are free from taxation. The
investor in tax-exempt securities not only
ties up his funds so that he can not be made
to pay his share of the tax burden, but this
class of investment inevitably operates to
keep staggering sums away from invest
ment in that sort of enterprise which adds
to the prosperity of the country.
The case against the tax-exempt securi-
ty has been growing for long time. It is
not particularly partisan matter. Men of
all political faiths have advocated the elm
ination of the provision. We seem to be
heading for that elimination. To our way
of thinking, this is matter of simple COM
mon sense and equity. There never was
any real argument in favor of exempting
any sort of investment from it's share Of the
tax burden and there is no argument in that
direction now. It is against the very essence
of the principle on which all taxation sys-
TENS are supposed to be builded, the prin-
ciple that all must pay according to their
ability-News Telegraph, Atlantic, Iowa.