Evening star., 1939-06-02

&$&&M IA facturer, prom
inent Socialist. a
Charles G. Ross. highly articulate
farmer, two bankers, two lawyers.
an accountant, four economists of
various schools, labor union Of
| flclal and a technical expert on taxa
tlon'-Was that the income from
future issues of Federal securities
be made subject to taxation by the
States, and, reciprocally, that the
Federal Government be given the
| right to tax the income from future
State and local bonds. The group
recommended in short, as did Presi-
dent Roosevelt in message to Con-
gress year ago. that the issuance
OF tax exempt public securities be
discontinued.
The majority of the Fortune
round table" thought, with the
President, that direct action by Con-
gress TO achieve this result was pref.
cradle to the submission of a con.
stitutlonal amendment to the States.
/ Congress, it was urged should pass
| an appropriate laW--as the Presi-
dent has said, short and simple
statute will do-and leave the oues-
ton OF its validity to the Supreme
| Court.
Should Have Place in Tax Program,
1t would seem that the strong
packing OF the proposed law bv lib
erals and conservatives alike should
guarantee it high place in anv
program of tax revision. The Of
tlcial appeal for the abolition of tag
exempt bonds. moreover. is not new,
ana 1t has no trace of partisanship.
The last four Observation-Disclosures
| CooHdge, Hoover and Roosevelt-alI
nave urged the reform, as have Sec.
retarles Of the Treasury GLASS;
Houston, Mellon, Mills and Nor
genthau. Typical of the views of
these officials was the statement bv
Secretary Mellon more than Is wears
ago that 1T is almost grotesque to
permit the present anomalous situa-
ton to continue"
Despite such testimony as this and
| despite the evidences of agreement
among ordinarily divergent schools
OF economic thought that tax
exempt public bonds future issues
only) should be eliminated, Con-
gress withholds action.
This dalliance is due in part. no
doubt, to the feeling of some Con-
gresSmen that the proposed law
| would be unconstitutional. 1t seems
10 the writer that the ground was
cut from under the constitutional
argument by the recent decision of
the Supreme Court in the OKeefe
case, permitting the reciprocal tax
alton OF public salaries. Though
tnls decision cannot be taken as q
certain sign of favorable court ac-
ton on the proposed statute. it
points very strongly in that direction,
Law Ought to Be Passed.
In any case, law ending tax
exempt bonds ought to be promptly
! passed and the decision on its va
lldity put up to the Supreme Court,
! The twilight zone of discretion in
Which the Supreme Court operates
has assuredly been sufficiently
oroadened in recent months to war
rant this action by Congress. Should
the Supreme Court 60 back to earlier
precedents and upset the law, then
steps should be taken to get an
enao!lng amendment before the
| States.
Doubt as to constitutionalitv.
however. is not the main reason
why law to end the patiently in
equitable taX-eXempt system has not
oeen placed on the current must"
list OF the leaders of Congress. The
main reason for the omission is the
pressure which has been brought
to bear on the lawmakers by state
and municipal officials. Theirs has
been the most effective piece Of
lobbying in the present Congress.
Short-Sighted Opposition.
The argument is that the viping
out OF tax exemption would in
crease the cost of state and local
borrowing. So it would but the
offsettlng gains would be great. In
the words of Undersecretary of the
Treasury Hanes, it gives a false
impression of the taxpayers posi-
ton to try to break him into pieces"
ana set his interests as local tax
payer off against his interests as
Federal taxpayer. He is the same
taxpayer no matter what govern
ment he is Contributing to- The
elimination of the storm cellar"
in which vast amounts of the capi-
tai OF the high h-bracket taxpayers
are now taking refuge would work
to the ultimate great advantage Of
the average taxpayer. At the pres
sent tax rates, the Treasury esti-
mates, only about one person in
lO0O stands to benefit from tax
exemption
Moreover, as the Treasury points
out, increases in the cost of local
borrowing are likely to be small and
TO be postponed. 1T would be many
years before the amount of addi.
tional interest involved became an.
preciable." To Government as a
whole there would be net financial
gain, and thus gain to the tax
payer viewed as single individual.
The prime consideration, however,
Is the potential flow of now sterile
funds into job-making enterprises
If tax-exempt bond issues are
stopped.
In what is manifestly the interest
OF the Nation as a whole, Congress
should reject the short-sighted argu-
ment OF the State-and- municipal
lobby, put the bill to terminate tax
exempt bond issues on the must"
list and pass it at this session.
No Reason for Divorce