Evening star., 1938-04-25
(Tert OF the Presidents
message, page A-7.)
BY G. GOULD LINCOLN.


President Roosevelt today proposed
to Congress that it cut the Gordian
knot which has hitherto obstructed
reciprocal taxation of Federal. State
and municipal securities and of Fed
eral and State salaries.
He recommended in special mes
sage that effective action be
promptly taken to terminate these tax
exemptions for the future"
Such legislation can, I believe. be
enacted by a short and simple
statute said the President. 1T
would subject all future State and
local bonds to existing Federal taxes,
and it would confer similar powers on
States in relation to future Federal
issues
The same statute. the President
said could subject State and local
employees to existing Federal income
taxes and the State would have SINH
lar power to levy income taxes on
the salaries of Federal employees.
Amendment Argument.
In the past it has been argued that
a constitutional amendment would be
necessary to permit such reciprocal
taxation between the Federal Govern
ment and the States. Admitting that
court decisions have given a policy
of reciprocal immunity" so far as Fed
eral. State and municipal bonds and
salaries are concerned, the President
declared that recent opinions have
given hope the court-which finally
means the Supreme Court-would up
hold such a law as he now proposes.
The Presidents recommendation to
Congress was made at time when
the Senate Judiciary Committee had
| before it a favorable report from a
subcommittee on proposed constitu-
| tional amendment offered by Senator
Byrd of Virginia. designed to accom-
plish the reciprocal taxation asked by
the President
1t was made, too, while the con-
ferees of the House and Senate were
considering an amendment to the
new revenue bill, offered by Senator
Borah of Idaho and adopted by the
Senate, proposing a tax on all future
| Government securities. Such an
amendment was adopted before by
the Senate. but was killed in con-
ference on an earlier revenue bill.
Wants Action Now.
The language of the Presidents
message was interpreted as meaning
that he believed the plan for recipro-
cal taxation of Federal and State and
municipal securities and salaries
should be written into law without
further delay. Since he mentioned
short and simple statute" as the
means by which it should be done.
the impression developed that the
Borah amendment would probably be
stricken from the new and voluminous
revenue bill and the matter tackled
in a new bill confined to the one pur-
pose. The new bill would be an ad-
ministration measure
The President based his belief that
law permitting reciprocal taxation
on all Government securities and sal-
aries is constitutional on the language
Of the Sixteenth Amendment, the Fed
eral income tax amendment.
The Sixteenth Amendment, he
pointed out. expressly authorized the
Congress to lay and collect taxes on
incomes, from whatever sources de-
rived
That is plain language" said the
President. Fairly construed this Ian
guage would seem to authorize taxa
ton of income derived from State
and municipal, as well as Federal
bonds, and also income derived from
State and municipal, as we'll as Federal
Offices"
Situation Held Changed.
He commented that the courts had
not followed this seemingly obvious
construction Of the Sixteenth Amend
ment.' Instead, the courts read into
the amendment policy Of reciprocal
tax immunity" Whatever advantages
this reciprocal immunity have had in
the early days of this Nation have
long ago disappeared, the President
insisted.
Today this system of tax immunity
has created vast reservoir of tax
exempt securities in the hands Of the
very persons who equitably should net
be relieved Of taxes on their income"
he said. This reservoir, he main
tanned, NOW constitutes a serious
menace to the fiscal systems of both
the States and the Nation" which
have come to rely upon graduated in
come taxes for their revenues.
The Presidents proposal does not
apply to Government securities which
have been issued by the Federal, State
(See EXEMPTIONS, Page A-7)