Evening star., 1937-11-21
NEW DEAL FOES WINNING
DRIVE FOR TAX REVISION
Turning Weak, Business Gaining Vic.
tory Denied During Period of
Reviving Health.

gains are Jumped With ordinary income
and subject to the same income tax
rates.
In this respect. the law does have
the following qualification: If prop
erty is sold after ownership Of less
than one year, the entire sale price Is
added to taxable income. If property
Is held more than one but less than
two years before selling, only 80 per
cent OF the capital gain is added to
taxable income. Further graduation
continues to a point where only 80
per cent of the capital gain Is taxable
II the property has been held more
than 10 years.
$4,000 Deduction Allowed.
With regard to capital losses the
present law allows deductions only in
the amount of $4,000 more than capi-
tai gains of the same year. For ex-
ample, II a taxpayer has a capital
gain of $4,000, representing the sale
price OF 2 piece of property, but cap
ltal loss of $4,000, representing the
decrease in value of securities sold, he
may deduct from his taxable income
a capital loss amounting only to the
sum OF his capital gain, $4,000, plus
$4,000. or total of $4,000. And the
unabsorbed loss may not be carried for
ward to another years income tax
return.
In Justifying imposition of this pro-
vision of strict limitation of capital
loss credit. the Treasury Department
during enactment of the law reported
that no method of tax avoidance had
been more widely applied than that
previously allowed Of establishing large
capital losses and carrying them
through several years to nullify other
income.
Critics of the law make one rather
telling point, however, particularly at
this time, in blaming the capital gains
and losses provision for the reluctance
OF large investors to release great
amounts of capital in new business
ventures. Their contention is that
an lnvestor-speculator sees no advan-
tage in risking the loss of a million
dollars If he is to get no more than
$4,000 credit on his income tax re-
turn for such loss but would be taxed
heavily and in full if there should be
quick capital gain.
The criticism also is made that the
provision has an artificial effect on
security markets since it discourages
selling at profltably high prices
thereby forcing prices higher.
Numerous suggestions have been
MADE for altering this tax, among
them allowing capital losses to be
carried over a period longer than the
single year in which the transaction
took place. The House committee has
admitted studying this possibility.
Another suggestion is to set up a
separate schedule of rates by which
capital gains would be not subject to
such nigh surtax rates as apply to the
top brackets for ordinary income.
Computed as They Accrue.
The committee on taxation of the
Twentieth Century Fund recommends
that capital gains and losses be COM
puted as they accrue (such as quoted
values OF securities) rather than wait.
ing until they are realized through
sale. AS an alternative proposal, the
committee suggests more liberal al
IoWances for capital losses.
In view of the necessity of replac-
ing any revenue lost through modi-
ncatlon OF these two tax procedures.
attentlon has been directed at Dos
slole sources of additional tax in.
come. Three have presented them
selves, as follows: % Broadening OF
the individual income tax base: (2)
Tightening of present tax exemptions,
particularly with regard to tax-exempt
securities; 90 refusal to admit COM
munlty property returns from States
now recognizing that principle.
One tremendous obstacle, the DO
!itical implications, stands in the way
Of each Of these methods.
Foremost champion of the pro-
posal to broaden the income tax base
is Senator La Toilette, Progressive, of
Wisconsin, whose plan calls for lover
ing the income exemption for single
persons from $1,000 to $500 and that
for married couples from $4,000 to
$4,000. The Senator estimates that
such a change would add approxi-
mately 100000 persons to the in
come tax-paying group and would have
brought an extra $110,0OO,0 900 in rev.
enue this year.
The bulk of the increased amount,
the Senator claims, would come not
from the new taxpayers, but from
those in the upper brackets whose
rates and taxable income would be
raised by the lowering of exemptions.
Three Arguments Advanced.
Three main arguments are advanced
In behalf of this change in income
tax: CD That it would make the tax
a more dependable source of revenue,
reducing the wide fluctuations in yield
between prosperity and depression
years; (2) that it would make q larger
share OF the population tax conscious
and thus introduce a new check on
Government expenditures; (3) that it
would make the tax system more
(see TAX, Page C-3)