Evening star. [volume] (Washington, D.C.) 1854-1972, 1938-03-10
Reason to Doubt Validity
OF Graduated Income Tax
TO the Editor Of The Star:

To the Editor OF The Star:
While the panning which David Law
renee, In The Star for March 4, gives the
newly proposed tax on closely-held cor
porations is assuredly richly deserved,
there should be more general realiza-
ton Of the difficulties inherent in tax
system based on the attempt to re-
distribute wealth by taxing ability to
pay" Giving America lat last sensible
system of revenue collection without
punitive taxes and petty politics" is
easier said than done. There are lot
of wheels within wheels in our fiscal and
financial system which have not had
adequate consideration from Mr.. LaWr-
ence or anybody else.
Is there not good reason to doubt, in
deed, the validity of the whole theory
Of the graduated income tax? Has the
distribution of income become more
equitable under the operation of this
system or less so? Why has it worked
SO badly and led to SO many subterfuges
and subtleties, all of them quite legal
and proper, in tax avoidance? Were
Justice Fields forebodings as to the
sinister future of this tax system really
the expression of a narrow, illiberal,
Tory mind, or were they a realistic
analysis of the way in which democracy
has been sold down the river" to those
interests which Mr.. Lawrence refers to
as bank brokers and money changers"
recently, alas, by the Democratic party?
When a government clothed with
monetary authority-an essential of
sovereignty which was specifically denied
tn ln fo{n i
to the Federal Government by the Con-
stitution-goes in for the un-Jeffersonian
folly OF borrowing, it cannot tax the in
come it pays to its own creditors. HAM
ilton made that clear. Yet if it does
not tax that income, but does tax others
on basis of surtaXing large incomes,
then industrial financing must tend to
move out Of large personal incomes and
dividends to be paid out of tax avoid
ance. A huge superstructure of financ-
ing thus arises in the form of industrial
mergers" and investment trusts"
whose securities represent the business
Of tax-avoidance rather than industrial
financing. No competition can arise of
sufficient size to be industrially efficient
or comparatively effective without being
financed in the same way. True in
dustrial profits, upon which alone COM
petition can be erected, are eclipsed and
profits become chiefly speculative and
dependent upon the "windfall' of
hedging against the effects of general
changes in price levels unstable money
value). Industrial ownership is managed
by financial figure-heads whose business
1t is to buy up competition and keep
ownership dispersed so it will not have
to pay taxes. the proceeds of these opera
lions being forthwith invested in tax-free
securities.
On the one hand, then, responsible,
managing ownership is eliminated from
industry as fast as tax-free bonds are
issued, and on the other, the public
credit is good in the measure of
the failure of the Governments attempt
to collect from ability to pay" Big
salaries and fees of all kinds develop
witness the cost of antitrust prosecu-
tlons!-paid to the captains" of this
kind of finance, but unrelated to the rue
ability Of industry to pay them; and
these are split with the Government at
rate that is of no consequence to their
recipients but of great consequence to
the solVency of an industry also saddled
With non -competitive, fixed labor charges
that relegate competition in costs to the
field of devising new and otherwise need
less and uneconomic ways of avoiding
employment of labor Thus competition
in tax-avoidance has taken the place of
normal competition in industrial service:
and this is what We euphemistically call
"capitalism!"
In the face of all this, a new assess
ment against closely-held companies is
now proposed A new subsidy for the
Wall Street game of organizing holding
company monopiles! Call the bell-hop,
Mr.. Lawrence, and page Senators Borah
and OMahoney if you seek the defeat
Of this measure!
ALDEN A. POTTER.