The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-08-15
Liberal Viewpoint
by DIR. HARRY ELMER BARNES

ONE of the main arguments against high in
~ come taxes on the very rich is that such
policy is self-defeating. 1t is alleged that high
income taxes and surtaxes imposed on the
wealthy will lead them to evade taxation alto
gether by putting their money in tax-exempt
securities.
How far is this contention backed up by ac-
tual facts regarding the investments made by
the very wealthy?
Fairly decisive figures based upon DR.. Charles
o. Hardy's excellent study, "TaX-eXempt Sc
curitieS and the Surtax," enable one to answer
the argument in reasonably defnitive fashion.
In 1926 the Senate Committee published a
report covering some 1904 individuals who had
incomes of more than 100000 yearly in 1916
The incomes of these persons were followed
through to the year 1924.
From 1917 to 1924 we endured the highest
income taxes the country had ever known. Did
these rich men transfer the bulk of their in
yestmentS to tax-eXempt securities? Not at all
TINE relative investment in tax-exempt Sc
Il curites by these wealthy persons gradually
increased. But as late as 1924 their tax-exempt
income only amounted to about one ninth of
their total inconne-$17 ,G39 900 as against S144-
$4,000. DR.. Hardy showed that in 1923 less
than half of the exempt securities were held by
individuals with incomes of over $4,000, and by
business corporations. The distribution of own
ership of all outstanding tax-exempt securities
in 1923 was as follows:
HOLDING OF WHOLLY TAX-EXEMPT SECURITIES
JUNE 80, 1923
Federal State Federal
Character of Holdings: Possessions Local Liam
comes Of $4,000 or more $4,000 19o5,4a s4sa1O
Corporations making reports
rl SsSsPp Corporation. Si fs assss
Federal Investment and -.
State tai investments and Trust .o
Municipal Investments and ,.o 100
Balance. including ndiyidgo
Ai income %.n foTeis cS part
nerships and individuals 1880
who conceal their holdings 96t.7is S79S224 5S55O7
2lOl2O2 9141,511 11ls,S2I
By depression times the situation had not
changed markedly. In 1923 those persons hav-
ing each an annual income Of 100000 or over
had total net income of some $770,302S86. OF
this only about observation-disclosures SAT 492O45
was from investments in taX-eXempt securities.
On June 80 1890 the total volume Of outstand-
ing tax-eXempt securities amounted to S22,652
100000 Of these, persons with incomes of over
100000 owned only S977 915,485, or about one
twenty-third These last figures show that the
very rich give no evidence of hysteria in buying
government securities even in days of depression
when corporate profits are shrinking and dlYi-
dends disappearing.
Il
l. those on income taxes In 1929 tax-eXempt
bonds constituted only 606 per cent Of the gross
value Of these estates.
1t is further alleged that high income taxes
will deprive legitimate industry of new capital
because the rich will invest their money in tax
exempt securities. The above figures show that
they do not do so to any great degree. But
suppose that they did. If all very rich indi-
viduals bought tax-exempt securities they would
to this degree deprive banks and financial cor
porations of investment opportunities in this
same field The latter would then have to put
their surplus in private developments.
The Labor Bureau, in an important study
correctly concluded:
There does not seem re be much real dan
ger that rich men can or will escape any very
large proportions Of their income taxes, no mat
ter how high the rate of surtax, by the route
of tax-eXempt securities. AS long as the
rich believe stocks Of private corporations and
other kinds of property have good chance of
approaching in value. and as long as there is a
prospect of good return on their existing value
for a number of years TO come, they stand to
make more by this type Of investment than by
investment in government bonds, no matter how