The daily monitor leader. [volume] (Mount Clemens, Mich.) 1942-19??, 1944-01-14
. BEHIND THE SCENES
IN WASHINGTON .

WSic tdh-licc, olldlllDeIk ulSu
the same year the Bureau Of
Internal Revenue began suit, but
his estate carried on the action.
Evidence in the case was pre-
sented before the u. S. Tax
Court in Washington last sum-
mer, and the court is preparing
to hand down its decision early
in January.
CASE TO SUPREME COURT
This opinion will not, how
ever settle the issue. No matter
how it is decided, the case will
be appealed to the Supreme
Court for another round. If the
decision here goes in favor of
the estate of Alexander j. Sham
berg, Treasury officials will
have to begin all over again
their effort to levy taxes on
state or municipal securities. If
the government gets the decis-
ion, however, the Treasury De-
partment may then be expected
to recommend to Congress the
enactment of new law to con-
form to the Supreme Court de-
cision and provide for federal
taxation of securities issued by
state and local governments.
Throughout this action, Treas
ury Department officials have
tried to make clear that if the
Bureau of Internal Revenue
wins the Shamberg case, the
government will not attempt
to collect taxes on back issr~s
of these securities, but only on
new issues. There are now some
$50, 100000 worth of these
taX-free securities outstanding,
although the state have been
retiring their Indebtedness at a
rapid rate during the prosperous
war years. Because the interest
from these securities is now tax
free, the federal government es-
timats that it loses some S270,-
100000 in income taxes every
year. Such securities have
always been sought after by in
dividuals and institutions want
ing to invest part Of their
money so as TO reduce taxable
income.
from these securities have
always been sought after by in
divfduals and institutions want
ing to invest part of their money
so as to reduce taxable income.
g. FROM WHATEVER
SOURCES DERIVED"
The entire argument goes
back TO study of English, an
Interpretation of the meaning
of the 18th Amendment to the
Constitution which provides that
Congress shall have the power
to lay and collect taxes on in
comes, from whatever sources
derived" and so forth, The
from whatever sources deriv-
ed" is the key to the whole
thing.
When ratification Of this
amendment was being sought,
Charles E. Hughes, then COVER
nor Of New York, raised the
question Of whether il would not
permit federal taxation Of in
come on state bonds. Senator
William E. Borah took the lead
in assuring the states it would
not be so interpreted. And Cor
dell Hull. then chairman of the
House Ways and Means Com
mittee, put definite exclusion
clause to exempt local govern
mental securities from the first
revenue act passed after the 18th
Amendment was ratified in
1913.
A similar exemption has re-
NAMED in the revenue ever
since, and nearly 100 efforts TO
secure a constitutional amend
ment to remove this immunity
from federal taxation have all
been defeated. 1t is this statu-
tory restriction which has
caused the Treasury to take the
rather roundabout way of re-
moving the barrier by starting
court action to collect income
taxes on interest from Port of
New York Authority bonds.