Evening star., 1939-01-18
BY JOHN c. HENRY.


tax-exempt public securities is act
Ing as barrier to the enterprise
capital market, John w. Hanes,
Undersecretary of the Treasury,
urged a special Senate Committee
today to support legislation ending
such exemption both for future
public securities and salaries.
Mr.. Hanes said the Treasury
might realize as much as $500 900 900
annually by adopting President
Roosevelts suggestion that the in
terest on future Federal and State
bonds be taxed and reciprocal taxa
ton be allowed on salaries of Fed
eral and State employees.
The President, who previously has
urged such a program, said at his
press conference yesterday that he
would send another message to Con-
gress urging lifting of these tax
exemptions.
Mr.. Hanes answered the criticism
that the end of these exemptions
would raise costs of Government
borrowing by submitting estimates
that such costs would rise from s19.-
600 1000 to $4,000, 900 annually. while
income tax revenue as a result would
jump from s179,0O0,OOO to s337,-
100000.
Legislation Held Legal.
The position of the Treasury De-
partment was bulWarked by a pres
entation of the Justice Department.
submitted by Assistant ATTORNEY
General James w. Morris, upholding
the legality of legislation to effect
this end.
Reviewing court decisions as to
constitutionality of reciprocal public
income taxation, Mr. Morris con-
cluded that the language of the
10th amendment would seem to au-
| thorlze the taxation of income from
such sources and that a second
amendment should not be necessary.
| Even if there were greater doubt
as to the final solution of these con-
stitutional problems, the legislation
recommended by the President
would still be justified For only
by such legislation can the question
be settled as to whether or not,
under the Constitution as it now
stands, such income can be taxed.
The enactment of legislation un-
der substantially similar circum-
stances was approved by the Su-
preme Court in Evans VS.. Gore.
There, the court noted, the express
sion OF members of Congress who,
not Withstanding strong doubts as
to its constitutionality. had sup
ported the legislation in order to
secure determination of such con-
stitutional questions which could
not otherwise be settled. That the
court sanctioned such course can
not be doubted
President Roosevelt last April
asked Congress to take the initial
steps to end this tax condition and
the present studies of the special
Senate committee are part of the
administration effort toward tax
reform.
Criticism Answered.
In making his case in favor of
ending the exemptions for securities,
Mr.. Hanes specifically answered the
criticism of those who have con-
tended that the change would bear
most severely on widows, orphans.
institutions, etc.
POINTING out that the exemptions
work to grearest advantage of pur-
chasers of large income, since any
added taxable income would fall into
the higher tax brackets, Mr.. Hanes
added:
Persons of relatively slender
meanS-Who may as in the case of
widows or aged persons. be abso-
lutely dependent upon investment
income for frequently
do not find public securities sufi-
clently remunerative investments.
The need for greater income often
forces them to compromise with Sc
curity by taking risks they should
not have to take.
Removal of the exemptions, by
increasing yields somewhat, would
make public obligations a more suit
able investment for them. AS the
situation stands now, we are encour-
aging venturesome investment by
those who ought not to take risks
and discouraging it in the case of
those who should"
Derive Greater Benefit.
In further elaboration of the cost
to investors of this tax exemption,
that is through the lower interest
return, Mr.. Iianes continued:
Persons with large incomes derive
much greater benefits in reduced
taxes than they pay for through
sacrifice of interest returns. Part
of this excess benefit falls as a
burden on holders of tax-exempt
securities who need them for other
(See TAXES, Page A-3O