Evening star., 1939-05-27
Continued From FIRST Page.)

| VIC ODJCCIiNC VI preventing tdA
avoidance and had acquired promi-
nence as a psychological irritant
largely because of the widespread
and emotional criticism which has
been directed against it."
Another question he suggested for
re-examination was the absence of
any provision in present income tax
laws for carrying over net business
losses to be deducted from business
profits of future years.
Secretary Morgenthau said profits
or losses of each year now were con-
sidered without reference to those of
any other year and. in consequence,
a business with alternating profit
and loss now pays higher taxes over
a period of years than does a busi-
ness with stable profits, although
the average income of the two firms
may be equal
The present capital stock tax and
the related excess profits tax, he
testified operate very erratically."
Only Broad Suggestions.
Mr.. Morgenthau said he did not
| consider that his broad suggestions
constituted IAN adequate program
Of tax revision" >
Such program" he said, can
not be static, but must be adapted
to changing conditions. But the
general lines along which Federal
taxation should develop in the
future appear to be quite clear.
I'VE ought to increase the part
played by direct taxes that can bs
made to take account of differences
in the abilities of individuals TO
support Government.
This means that we should
endeavor to minimize the use of
manufacturers eXcises and other
commodity taxes which tend to be
shifted directly to consumers, put
ting the emphasis on taxes based on
capacity to pay. Such revision
would facilitate coordination Of
Federal with State and local
taxation"
Early in his testimony, Secretary
Morgenthau suggested the need for
co-ordinating tax studies by having
the Ways and Means and Appropria-
tlonS Committees of the House and
the Finance and Appropriation
Committees of the Senate meet each
session as one joint committee on
fiscal policy to consider the overall
aspects of the expenditure and rev.
enue programs.
Simplifcation and greater effec-
tiveness would result, he declared,
adding:
This committee" he said, should
have continuous life for the pur-
pose of actively studying fiscal
problems between, as we'll as during,
sessions of Congress. The Treas
ury Department would, of course,
cooperate in this work to the full
extent that the committee de-
sired"
A group of nuisance" taxes which
provide more than s400 900 900 an
nually expire June 80 under present
law and one provision of the pro-
jected tax bill would continue these.
Administration leaders are anxious
to have the revenue measure passed
fore June 80 in order to avoid any
loss of revenue.
Text of Testimony.
Secretary Morgenthau's prepared
testimony on tax revision follows:
Il appreciate this opportunity to
appear before your committee to
discuss with you certain broad fiscal
problems and certain specific tax
questions.
Tax proposals cannot be dis
cussed comprehensively except in
relationship to our whole national
and fiscal position. We are now in
the midst of world situation which
imposes on this Government
special responsibility. We must
demonstrate that democratic gov
ernment has the power and the
f1exibility to survive a prolonged
crisis and chaotic world conditions
with the strength of its free institu-
tions unimpaired.
Preservation of our democratic
form of government over a long
period of years requires. in my
opinion, fiscal program which has
fourfold objective: % Promotion
of free enterprise and private invest
ment; 90 attainment of full busi-
ness recovery; 90 maintenance of
our public finances in a sound and
unassailable position, and % a Just
distribution of tax burdens and a
more equitable distribution OF ma
tional income.
Solid Links Necessary.
Successful operation of democ-
racy demands that all four objectives
be solidly linked together. When we
consider any specific change in our
fiscal program, we must satisfy our
selves that the change makes fer a
better and not worse distribution
OF tax burdens and of national in
come, that the change promotes and
does not retard business recovery.
and that the change makes easier
and not more difficult progress to-
ward the establishment of balanced
relationship between revenues and
expenditures.
Full attainment of these objec-
tlves is difficult at best. It is made
more difficult by new and ominous
development In world affairs-the
armament race now gripping the i'm
portant nations of the world.
Great Britain in the present fis-
Cal year is spending $1,000, ,OO0, 900
on military expenditures, or almost
so per cent of its national BUDGET.
France is devoting over 40 per cent
OF its national governmental expen-
dltures to the same purpose; italy,
30 per cent; Germany, probably 60
per cent; Japan. over TO per cent,
and it is reported that Russia has
just authorized an increase of about
30 per cent in budget allowances
Tor armament. These huge expen-
dltures are being financed largely
by borrowing. The race is becom-
ing more intense and there is no
end in sight.