The Washington times., 1938-10-11
CONGRESS HELD
READY TO TAX
U. S. SECURITIES
Senator Brown Set to
Study Plan
BY THEODORE HUNTLEY

OOuIlu1I1BS al ILlC - . - " l
pointed definitely for the first
time today to positive action by
Congress during the coming win
ter to tax all future issues Of Fed
eral securities.
From the present outlook, the
ACKNOWLEDGEMENTS drive
speeded up by the Treasury re-
Gently as q move to reinforce the
current business recovery by di-
verting investment funds into in
dustrial channels, will be backed
in the Senate by Senators PrentiSS
Brown of Michigan and Harry F.
Byrd of Virginia-both Demo-
Gratis, although of different varie-
ties.
POKES A FINGER
Senator Brown, it was learned,
has found time during the Con-
greSSional adjournment not only
to poke q finger into politics as
chairman Of the Democratic Sena-
torial campaign committee, but to
make a study of tax exemption
as applied to Federal securities
The latter job was handed him
by the Senate last spring, when he
was made chairman of special
committee on taxing Government
securities and salaries.
COMMITTEE REPORTS
Although the Senator himself
has not spoken-he has been in
Michigan, and is due in Washing
ton this week-it is the current
understanding that when the spe-
cial committee reports to the Sen
ace as it is required to do before
March l next, it will recommend:
/. Taxation of the income from
all future issues of Federal securi-
ties, thus effectively ending the
historic exemption attached to
such issues as an inducement to
investors to buy governments.
2. That no attempt be made to
repeal the exemption as to out
standing issues, in view of the
questionable constitutionality Of
such a course.
SECURITY INCOME
8. That as to the income from
Government securities issued by
States, municipalities and other
Governmental agencies other than
the Federal Government, as well
as taxation of salaries of State Of
ficials, Federal judges and other
groups who now escape the income
tax because of constitutional re-
strictions, Congress consider sub
mitting a constitutional amend
ment bringing all income from
such sources within the scope of
Federal and State income tax laws. /
Should Congress approve rec
omrnendation No. /, the next step
in all probability would be an at
tempt by the Federal Treasury to
refund as much of the outstand-
ing national debt as possible by
substituting taxable bonds for nom
taxable issues now in the hands
Of investors.
INVESTOR REACTION
The extent and rapidity of this
refunding process, IN the view OF
those. who have studied the sub
ject, would depend primarily on
the reaction of the investors, as
expressed in the readiness to ac-
cept bonds on taxable basis at
interest rates corresponding to
the 212 or 3 per cent average at
which the Government has been
able to borrow long-term money
since it undertook the refund of
high-intereSt issues of the World
War period, including the several
liberty and victory loans.
A survey by the Treasury and
Census bureaus disclosed that the
Federal Government has outstand-
ing $35, 1903, 900 900 of tax-exempt
securities; State and local govern
mentS 1882, 900 more, and Fed
eral agencies as distinguished from
the Government itself, another
$10,547, 900, making a total of IS
billions of such securities. Some
of them are free of normal anl
surtaxes, owners of others escape
the normal Federal income tax,
and third group escape the sur
tax.
PROSPERITY AHEAD
But it isn't the revenue from
such bonds that the Government
is thinking of at the moment. The
economists and other forecaSters
have convinced the Administra-
tion that there is a period of pros
perity ahead of the world ever set
ties down and quits talking war.
Their forecasts are bolstered by
the squirt taken by business in re-
cent weeks, plus the sharp rise in
security prices since Hitler and
Chamberlain worked out q reals
tic peace in Munich.