Evening star., 1937-02-28
HIGHER TAX HELD NEED
ON FOREIGNERS CASE
Increase in Cold Content of Dollar Also
Advocated as Way to Control Inflow
of 'HOt Money" to u. S.

Of Europeans desire to find o safe
place for their capital, is no longer
of more than academic interest. The
fact Of the inflow is alone the i'm
portant thing There are some close
students of the subject who raise q
question as to the seriousness Of any
real threat to stock market prices in
herent in the hot money situation.
While this writer shares their view
point, space here does not permit eX-
animation of that particular aspect
of the subject The only question that
here concerns us is: What can be
done to carry out the Governments
object of discouraging further capital
inflow?
Tax on Trade Profits.
The most natural suggestion Is TO
tax more thoroughly md more heavily
foreigners trading profits here. In
theory this would tend to diminish for
eign participation in our stock mar
ket and, it is hoped, make the ulti-
mate stock market decline less pre-
cipitous. But to assess tax on capi-
tai gains. such as We had on our stat
uteS prior to 1886 is one thing; to COL
lect it involves administrative prob
lens which the Bureau Of Internal
Revenue is unlikely to relish. Still,
Great Britain has similar tax, which
is collected at the source. and it seems
feasible for this Government to assess
such a tax, making stock transfer
agents responsible for its collection.
Even if loopholes develop to permit
evasion of the tax, its imposition will
be step IN the desired direction.
Therefore recommendation of such a
tax by the administration may be eX-
pected during this session OF Congress.
But how will such a tax be viewed
by the State Department? Mr.. Hull
would like to see the channels of trade
opened wider; if he had his way, more
foreign goods and less foreign capi-
tai would ultimately find their way
here. But since his progress is proving
slow and difficult, there seems TO be
no question of our importing more
foreign goods instead of capital and
gold. To interfere . tn the free flow
of capital is, in fact, to impose just
tercourse, and in that sense would
seem clearly to be a step down hill,
however much the thoroughly patriotic
and nationalistic Chemical Founda-
ton would welcome it. In short, the
State Department can hardly be very
enthusiastic about hot money control.
Because Of the Influence of foreign
spectators on our stock market, the
S. E. c. is naturally interested in the
matter, and Chairman Lands has been
participating in the conferences with
Mr.. Morgenthau and Mr.. Eccles on
the subject. The Treasury is keenly
interested, not only because of its in
terest in potential revenue. from such
taxation, and because the gold inflow
affects its currency stabiliZation eff
forts. but also because of the question
about the legality of the present
method of sterilizing gold. If this
method should turn out to be illegal,
all the Sterilized gold might auto
matically swell the excess reserves, and
the Federal Reserve System, which has
now raised reserve requirements to
the maximum, would have a problem
on its hands again
| Treasury Awaits Move.
AS between the Treasury and the
Federal Reserve, there is evident on
| this matter of hot money much polite
ness and mutual Difference. Evidently
! the Treasury is not anxious to stick
/ out its neck" too far. and at the
moment, nothing definite has been
decided as to what will be done. The
best guess is increased taxation Of
foreigners plus some form Of CO.
operation with foreign governments,
many Of which are reluctant to see
their capital being drained here.
The ideal way out of the dilemma
would be higher tax on foreigners
| plus an increase in the gold content
of the dollar. The latter course would
tend to remove the original source of
the capital inflow.
But. politically, lowering the price
of gold would be very difficult to pass
: through Congress. Although Presi-
dent Roosevelt is reported as quite
dtsillusioned about the so-called War;
rem gold theory, he is not yet ready
to reverse his gold policy and thereby
publicly record confession Of a mis-
take. even though the matter was
given very grave consideration during
Mr.. Runciman's recent visit from
England. The logical cure is therefor
| most unlikely at present.