Newspaper Page Text
BILLIONS AVAILABLE BY PAINLESS TAXATION
- I Le vy on Luxuries Will Not Onlyj Yield Money But Help Mobil izationofAmer ican Industry for War By O. M. W. Sprague Converge Professor of Banking and i Finance, Hari-ard University A YEAR AGO, when the first war revenue measure was before Congress, there was widespread doubt pf the ability and ; willingness of the people to pay j very heavy taxes. To impose addi? tional taxation to an amount very much in excess of $1,500.000,000, it was asserted, would be likely to prove disturbing to business, damp-! en the spirit of enterprise and se? riously diminish subscriptions to Liberty bonds. All these fears have proved groundless. Additional taxa? tion to the amount of about $3,000, 000,000 was levied, and no untoward consequences have manifested them? selves. Business is most active, lim? ited only by available supplies of materials and labor; the spirit of enterprise has not departed; in? deed, it has been found necessary to keep it in check by controlling new issues of securities; and, finally, subscriptions to Liberty bonds have been large enough, together with tax receipt?, to cover the huge war j expenditures. It is doubtful wheth er there is now any one in the United States who would seriously contend that our war preparations would be further advanced at the present time if lower taxes had been imposed by Congress last autumn. Modifications of Law Are Needed The statement that under exist- j iiig laws the limits to which taxa-] tion may be safely carried have not been approached does not imply that there are no defects in those laws. Experience with the working of the income tax and of the excess profits tax shows clearly that modifications of the laws are needed, to simplify methods of as? sessment and remove inequalities in the burdens to which taxpayers having similar earnings are subject. The necessity for amendment of the present law becomes more urgent with the sharp increases in rates which are in prospect. Happily, the work has been taken in hand in good season. Congress will have ample time to weigh carefully each proposal for changes in existing rates as well as for new taxes, and to frame suitable administrative ar? rangements for the particular taxes which are finally adopted. It is also an advantage that the new revenue law will presumably be completed k-ng in advance of the date of pay? ment of income and excess profits taxes, so that taxpayers may have ample opportunity to adjust their affairs to the burden for which they must make provision. The yield of the present taxes is somewhat greater than was origin? ally anticipated. Congress did bet? ter than it knew in the matter ol adequate taxation. It is proper tc add that it probably went quite af far and perhaps a little beyond pub of opinion, as it had declared il would during the first months of oui participation in the war. Since thai time a number of influences hav? ken at work which warant the con- | fident expectation that Congress I *ttl find widespread support | throughout the country for a policy P greatly increased taxation and a more general, and therefore more equitable, distribution of this par? ticular war burden. Bu?nesa-aa-Usual Polly Must Die Each month finds us engaged "?ore deeply in war activities, both W'intary and industrial. The busi fces8-a8-uRual folly is decidedly and 8;gnincantly less vociferous. More *?<i more generally it is being rcc cWi??ed that, since the war requires th? use of supplies of materials t *ow, it is only through the curtail LUXURIES TO THE COLORS! ment of consumption now, i. e., by! saving, that the war can be financed. Each of the three possible methods of financing the war brings about this contraction in consump? tion, but with important differences in the burden on different individ? uals and classes in the community. The issue of government paper money and bank credit, whether in the form of bank notes or of de? posits, enforces enconomy through advancing prices, but in a hap-haz-1 ard fashion, and mainly from those in receipt of stationery money in? comes. We would certainly regard a tax as most unjust which took S300 or $400 a year from a woman having a fixed Income from bonds of $1,000. And yet that is precisely what we are doing in financing the war in part by means of credit in? flation. Subscriptions to Liberty bonds, from whatever source derived, pro? vide the government with funds, but those of them which are made by banks and by means of loans by commercial banks to subscribers are an effective means of securing a larger portion of the total output of industry for war uses only because the money incomes of a large pro? portion of the people do not ad? vance at an even pace with rising prices. The war can only be financed with savings from current income, Credit inflation is a potent means o? enforcing involuntary economy, but in a most uneven and grievously un? just fashion. Some escape entirelj and even profit from the situation; higher salaries and wages in th? case of many more, at least in part offset the advance in prices; then remains a very large number wh( 1 secure no relief whatever. Thej contribute a huge quota of enforcec ? savings in support of the war ant have nothing to show for it, eithe ? in Liberty bonds or even in the in I ward satisfaction of definite ta: ! payments to the government. ! The Danger of ! j Further Inflation Enlightened self - interest, then, should prompt every one with a sta? tionary or near stationary income to advocate vigorously all measures designed to induce or compel a suf? ficient amount of direct saving to cover the entire cost of the war. Frequently the high cost of living is urged as a reason against taxes which would fall upon people hav? ing very moderate or low incomes. Such a policy would be positively harmful to those whom it is de? signed to benefit. Moderate taxa? tion of the well to do and light tax? ation of the rest of the community, together with voluntary saving in order to subscribe to Liberty bonds have not provided the government with funds sufficient to meet our war expenditures during the past year. Credit expansion to something like $2,000,000,000 was required to . balance the account. There is, in ! deed, evidence of increasingly rigor? ous saving on the part of many peo? ple, but at the same time the ex? penditures of the government are : mounting with extraordinary rapid ? icy. There is, therefore, grave dan? ger of further and more rapid in ? flation than we have as yet expe ? rienced. It can be escaped only by the adoption of measures which will induce drastic economy in consurnp tion on the part of every member of ! the community. Inflation enhances the money cost of the war, and consequently the burden of taxation after the war, when prices will presumably fall to a lower level. But there is a far more immediate and vitally serious con? sequence of inadequate saving. The continuance of the civilian de? mand for commodities seriously re? tards mobilization of the labor and capital of the country for war uses. If drastic economy were universally practised both labor and the owners of factories would be far more eager to transfer their services to war work. The insistent civilian de? mand for goods is a cause of friction and delay which the offer of fancy prices and wages by the government dees not entirely overcome. Methods Should Compel Saving In shaping the war taxation and also the war loan policy of the gov? ernment two objects should and can be attained. In the first place funds in sufficient amount to carry on the war must be raised. This is abso? lutely esential. In the second place, in raising the necessary funds, every effort should be made not in | consistent with the major object to ! secure the funds by methods which ! will induce and even compel saving j and economy by every member of I the community, rich and poor alike. These two objects cannot possibly be attained through piecemeal patchwork legislation. A compre? hensive financial policy is required To work out such a programme ir detail would far exceed the limits oi a newspaper article, but the genera scope and character of the policj which is needed can be indicatec briefly with some approach to com pleteness. i Landlords Have an Unfair Advantage Under the present law the income ! tax and the excess profits tax are the chief sources of revenue. They ! should continue to be our main re-1 liance All super-tax rates except those on portions of income above $500,000 should be sharply ad? vanced. In Great Britain all in? come in excess of $50,000 now pays , 52 Vj per cent, and 25 per cent of the I entire income is paid on earned in- | comes of $12,500 and on unearned ! incomes of $10,000. In addition to the upward revision of rates, a number of equitable changes in the law would materially increase its yield. The rental value of houses occupied by owners should be in? cluded in the determination of in? come. At present they enjoy an unfair advantage over those who pay rent for their homes. Again, the incomo from future issues of municipal securities should in some way be reached. This should be done, among other reasons, to pre? vent the unhealthy stimulation of municipal undertakings which an artificially low price for municipal bonds will induce. It would be fruitless to attempt to suggest changes in the detailed provisions of the excess profits tax law until the officials who are ad? ministering the law shall have made a report of its workings. The base for the computation of the tax?the return on invested capital?is not easily determined, thus inviting eva? sion and involving an inequitable diversity of assessment on taxpay? ers who are in virtually the same situation. Defective methods in levy? ing a tax become more and more serious as the rates are advanced. Whether the present excess profits tax can be so amended that a drastic advance in rates can be equitably made should be given, most careful consideration in Congress. It may be found the wiser plan to retain or even reduce the rates in the present law and supplement it with a war profits tax modelled after that in i successful operation in Great Britain ! and most of the other warring coun i tries. Based on the comparison of profits before and during the war, a war profits tax is a comparatively simple tax to administer. Moreover, ; experience demonstrates that a very PROFESSOR O. M. W. SPRAGUE high percentage indeed (80 per cent is taken in England) of profits en? hanced during war can be taxed away without untoward conse? quences. Far from retarding, such a tax seems positively to enhance war industrial activities by removing from the minds of the mass of the people suspicions of huge profits to ? the few. Luxuries Should Be Heavily Taxed High rates of income and excess profits taxation are primarily, and almost solely, to be favored because of the revenue which they will yield, since much of the money thus se? cured would have been saved and in vested in Liberty bonds. But, ob? viously, a billion secured by taxation is more satisfactory from the point cf view of the country as a whole than a billion secured by the sale of bonds. Heavy taxes on articles of luxury and on a few articles of gen? eral consumption would also yield a large revenue and at the same time enforce economy in consumption, ! tlius setting free materials and labor for war uses. Tobacco is the only commodity in widespread use which is heavily taxed. Even so, it is taxed far less ? heavily than in most if not all other | countries. Raise the tax on tobacco i by all means, but at the same time tax, and tax heavily, a few other arti? cles of even more general consump? tion. The importance of taxing a few articles in this class heavily rather than placing light taxes on many ar? ticles can hardly be over-emphasized. A tax of a cent a pound on coffee, for example, would yield little reve I nue, and might or might not reduce consumption appreciably. This would depend largely upon whether the tax I were absorbed by producers and mid? dlemen, or used as the occasion for I advancing the price from 3 to 5 cents a pound. A tax of 10 cents a pound ! on coffee, on the other hand, would I certainly reduce consumption, would j produce much revenue, and, since it would certainly reduce consumption, no advance in price beyond the amount of the tax could be made by i dealers. Among other commodities which j would serve admirably as subjects i for general consumption taxes may be mentioned tea, at, say, 20 cents a pound (it is taxed a shilling a pound in England) and other temperance beverages. Sugar might well be taxed 2 or 3 cents a pound ; it is a commod? ity the consumption of which must be kept down in any event. For the j same reason a tax of, say, $1 a bar- j re! on wheat flour might properly be imposed. These taxes would not sub- j ject any considerable number of peo? ple to an Intolerable burden. Thanks to the intense war demand for labor of every description the poorest tenth of our population, if able and willing tc work, is better off than before the war. For those incapable of work some other and more adequate mode of relief should be adopted. A policy which is desirable for the community as a whole should not be put aside on account of incidental disadvanta? geous effects upon an exceedingly small minority. Vicarious Service an Object for Taxes Against taxes and luxuries the su? perficial objections which are raisec against taxes on articles of genera consumption do not apply. Sucl obviously do not impose a grievou; burden during a great war, evei though they are made sufficient!; heavy to bring about an extensivi diminution in consumption. Service as well as articles of luxury shouli be taxed. A few illustrations wi! serve to show what can be done ii this branch of taxation. Consider th case of the automobile, both its man ufacture and use. The men employe in making the cars have the ski: needed in all sorts of war industries the factories could be converted t war uses. Gasolene, it is said, can t produced in quantities sufficient fc all requirements, but its productio takes a part of the scanty supply ( labor and its transportation contril utes to the traffic congestion on ? railroads. The huge pleasure c? mileage also is in part responsib for the large amount of labor ar material employed in keeping hig ways in repair. In these cireur stances a tax en automobile sale though a proper souce of revenue, ! rp1ativp.lv unimnortant. A heavy tax should be imposed on the use of cars for pleasure pur? poses. This can be accomplished through a system of licenses to pur? chasers of gasolene. In England, be- I fore the purchase of gasolene for pleasure use was cut off altogether, it ? was found to be perfectly feasible to I distinguish between commercial and j recreational uses, even when the I same car was used for both pur- j poses. A tax of 20 cents a gallon on gasolene may seem excessive at first blush, but it should be borne in mind I that there is no kind of expenditure | which is so conspicuous as the omni- j present motor car. A Stamp Tax on Articles of Luxury It"would certainly be far more easy , to convince the workmen in receipt of high wages that thrift and the pur? chase ?of war savings stamps are vitally important factors in winning the war if the unnecessary use of motor cars were to be discontinued. Upon a small class of automobil? owners still another tax should be imposed. Chauffers have mechanical aptitudes and possess not a little mechanical skill. All of them could be usefully employed in connection with our shipbuilding programme or in allied occupations. What conceivable objec? tion then can there be to a tax of $10 a month, rising by stages to $50 a month, on all employers of chauffeurs for other than commercial and pro? fessional purposes? Automobile expenditure has been considered in some detail for illus? trative purposes only. All other ave? nues of large unnecessary expend? Origin of Playing Card Symbols PLAYING cards have an interesting | history. Popularly spcakmp, | they are supposed to date from their so-called invention for the enter? tainment of Charles VT of France by i Gringonneur, a miniature painter. One authority says that the game Jeu de Itoi is derived from the game of cards invented in days of yore by an illus? trious and learned person. Such a dis? covery, however, is not likely to have gone unchallenged, and Gringonneur most probably got his ideas from the i original cards with emblematic figures ? then in use for fortune-telling through ? out Europe by the gypsies. No specimen exists of the original cards, but traces of them may be found in the cards called "tarots," from the Greek "to pierce." A complete tarot pack numbers seventy-eight, of which fifty-two have their equivalents in the modern pack, namely, the forty "pip" cards from the ace to ten and the four kings, queeti3 and knaves. There were originally besides four knights, which later wer? suppressed. The balance of the pack is made up of the "Fool," which has no number, and twenty-one "atouts": (1) The Juggler, (2) the Papes>s, (3) the Emperor, (4) the Empress, (5) the Pope, (C) the Lover, (7) the Chariot, (8) Justice, (9) the Hermit, (10) the Wheel of Fortune, (11) Fortitude, (12) the Pendu, or man hanging by one leg, (13) Death, (14) Temperance, (15) the Devil. (16) the House of God, or Thunderbolt, (17) the Star, (18) the Moon, (19) the"*"Sun! (20) Judgment, (21) the World. This last is reckoned highest among atouts, which again are of superior value to tho court or coat and minor cards. The "Fool" counts separately. It has no independent value but the power to increase that of any card in combination with it, and answers to the sero in Arabic numerals. It also corresponds to the ancient Phil, or ele? phant, of Indian chess, or the "Fol," or "Fou," in the tower or castle. The Juggler, or Master of Fortune, with his oap and bells, is another Ori? ental symbol, modified to suit the times. "Pope Jean," or the "Papess," refers to an alleged female occupant of the Holy See for a reriod of nearly two year? and a half between the pon tification of Leo IV and Benedict III, On^he Italian tarots the "Lover" is represented by a regular Cupid, what? ever may have been the original love emblem. The "Pendu" is suggestive of a Chinese torture, and possibly im? plied suspense, as the Egyptian "Char? iot" speed or promptitude. It is signifi? cant that 13 is the "Death" card. A universally accepted emblem is the "Devil," who had his personal appear? ance much embellished in the Middle Ages. "The House of God," which shows a house shattered by lightning, is symbolical of desolation, the conse? quence of a catastrophe. The "Star," the "Moon," the "Sun," objects of prim? itive worship, are sufficiently emblem? atic, and their accessories on European tarots, as in the "World," which has a prayer meeting, are plainly after? thoughts. The only method traceable in such is that of class distinction, as in tarots of the four Indian canted; the vase is the symbol of the priest, money of the merchant, the sword of the warrior and the club of the tiller of the soil. Sim? ilarly on mediasval cards swords sig? nified the nobility, chalices the clergy, coins the citizens and clubs or staves the peasantry. Yet, taking the entire tarot pack, the whole ia held together by a, ayaUa not at first apparent, but which is also to be found in Chinese packs of 77 tab? lets. Thus, omit the fool, or zero, and there remain in the puck 77 cards, or! 11x7, while the atouts and the others separated give, respectively, 7x3 and 8x7. Now, 7 is the sacred number of | the Orient, which occultism uses also to distinguish the periods of human? ity's development from matter into spirit, and this connection which it makes is therefore worth remark. Otherwise with tarots it is the cards which correspond to European atouts that afford the clew to the original con? ception. Thus, in certain Indian cir? cular cards the pack consists of 120 pieces in 10 suits each, with its pre? siding "atavar," or incarnation of Vishnu. These are the Fish with fish aa emblems on the court and "pip" carda,'the Tortoise with tortoises, the Boar with shells, the Manlion with disks, the Buddha with lotuses, the Dwarf with watering pota, Paraeurama with clubs, Rama with arrows, Vala rama with clubs. Of tbese Rama ranks aa the most powerful, club-rama com? ing next. Here, too, the first five suits are headed by four-handed kings and the ten is reckoned highest, while to reverse the process two-handed king? control the last five groups, in which ' the ace count? moat. 'Business as Usual" Folly Departing?Na? tion Learning That Savings Must Pay for Victory ;ure should likewise be subjected to ?nerous taxes. Here the luxury taxes idopted in Great Britain and in Prance furnish valuable precedents. The recent British budget, for exam? ple, contain? provisions for the im? position of a stamp tax on purchases sf all commodities which are deemed uxuries, either from their nature or ;heir price, at the rate of two lence to the shilling. This is a meth? od of dealing with the matter which is far more satisfactory than the taxation of producers or of dealers. Neither class would have valid ground for complaint, since, owing to the curtailment of production of lux? uries which is an unavoidable conse sequence of the war, stocks of sucbj goods are certain to appreciate W value. Four Billions Could Thus Be Added * ? From these various sources $4, 000,000,000 of additional revenue can be derived without the slightest dan? ger of retarding war industrial ac? tivities. On the contrary, the mobili? zation of the economic power of the country would be positively stimu? li) ted. It is also a reasonable as? sumption that the savings available for subscriptions to Liberty bonds would not be reduced by anything like the amount of the additional revenue derived from the taxes. In? deed, it is not at all improbable that there would be a positive increase in the total as result of a diminution of wasteful extravagance induced by the luxury taxes. Taxation, if properly devised, might be made to provide all the funds required for the war. Public opinion is apparently not prepared for so drastic a course and adequate : administrative machinery is lacking. Much more than half the funds i needed for the next twelve months of j the war will be borrowed. Will there be sufficient increase in savings to ; enable us to escape the evils of fur | ther credit inflation? It does not j seem probable, if we continue to rely I entirely upon voluntary action stim? ulated only by the interest rate on government bonds. Each Liberty bond campaign is : followed by a drop in the price of bonds. This is an inevitable conse I quence of subscriptions far in excess j of actual savings. Each successive future bond issue will therefore pre? sumably involve an advance in the interest rate unless savings make a closer approach to the amount which the government must borrow. j An Involuntary j Economy Bond One possible means of inducing adequate savings may be mentioned. In New Zealand income tax payers are required to subscribe a certain percentage of their income to gov? ernment bonds. A more elastic ar? rangement would doubtless prove more satisfactory to taxpayers and so permit a more rigorous applica? tion of this method of securing funds. This could be accomplished by im? posing a further tax of 10 per cent in addition to whatever regular rates of income tax may be carried in the new revenue measure. Taxpayers might then be allowed the option of paying the additior.nl tax or of buy? ing three or four times the amount of the tax in bonds. These bonds, which might be called economy bonds, would in many respects be quite unlike Lib? erty bonds. They would be regis? tered and non-transferable until one year after the close of the war; they would be ineligible as a basis for rediscounts at Federal Reserve banks, and all bankers would be urged, as a patriotic duty, not to grant loans to facilitate their pur? chase. Further, in order to gain ex? emption from the extra tax, the tax? payer would be required to state in his income tax return that ho had purchased his quota of economy bonds from savings and from no other source; and that his holdings of securities and other property were the same, or the equivalent in value of those which he owned at the be? ginning of the previous year. The adoption of an arrangement of this kind would furnish the individual | citizen with a powerful motive for economy and would set free much labor and materials for war use?. It would also diminish materially tho extent to which the further expan? sion of credit will be required to finance the war, and so enable us to ! escape the burdens attendant upoq a further advance in prie?*?