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The Commoner
VOIi. 17, NO. 8
30
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Income Tax Exempt
tion on Bond Issues
In the July number of Equity, the editor,
Charles F. Taylor, presents an argument for the
removal of 'the Income tax exemption from all
future t ond issues by the United States. Under
the caption, "Liberty Bonds for the Rich," ho
eays:
"In connection with income taxation, it is un
fortunate that the -'Liberty bonds' are exempt
from income taxes. For this reason these bonds
will have dfforont values for different holders.
"While to 'the masses' these bonds will bear only
oM per cent., to the wealthy man whoso income
la such that the higher portfons of which is sub
ject to a surtax of 50 per cent, these bonds will
bo equivalent to a btnd bearing 7 per cent in
terest. To him, tho income of a 7 per cent bond
would have to bo cut 50 per cent, if the new law
provides for audi a surtax, and the surtax may
be higher; while the 'Liberty bond,' bearing 3
per cent not, which will bo made higher if fu
ture bonds are offered at a higher rate, does not
have to bt. oven mentioned in an income tax re
turn. This double valiu gives an undue advant
age to the large holder. For this reason, bonds
thus exempted will finally find their way into
the vaults of the very wealthy. This is not good
public policy, and it is unfair. It is both unfair
and bad policy to oxempt any kind of productive
property from taxation. If it is too late to re
move this exemption from the first bond issue,
it should bo removed from future issues.
"Mr. Otto H. Kahn, a prominent financier of
New Ycrk city, figures that, according to the in
come rates as flxedSJu the war revenue bill as
It passed the house of representatives, invest
ment in 3" per cent Liberty bonds is equivalent
to investing In taxuble security according to the
following table:
Per ceut
52 in respect of Incomes over....$ 100.000
B.38 In respect of incomes over... 150,000
5.93 in respect of incomes ovei . . . 200.000
6.45 In respect of inco nes over. . . 250.000
7.07 in respect of incomes over... 300,000
7.82 in espect of incomes over... 500,000
8.75 in respect of incomes over... 1,000,000
8.97 in respect of incomes over... 1,500,000
9.21 in respoct of income over... 2,000,000
"Usually, 'war taxes' disappear very soon after
the cessation of war; but the war debt remains,
tc be paid largely by the returning soldiers and
their descendants. When this war ceasea we. may
expect sucn unusual taxes as excess profits tax,
munitions taxes, etc., to be removed, for tho
very gcod reasons that there may be no more
excess promts, and that munition manufacture
will gre?.tly decline. But huge private incomes
will not cease. The 'war' income tax should re
main until the 'entire war debt has been paid."
grade school boys." See Congressional Record
for May 22nd, 1917, pages 2960 and 2961. He
has also used that expression in his correspond
ence with mo. It is a great satisfaction to me
to observe that the senate finr.nce committee re
moves that defect in its recent report.
Now it is important that tho income tax ex
emption should be removed from all future
bonds issued by the United States; else theso
bonds in future years (they can not be paid nor
readjusted under fifteen years the time should
have been five years at the longeet instead of
fifteen) will drift into th hands of persons with
largo private! incomes' in order to escape sur
taxes on their income's.' The value of ithe recent
Liberty (3 per cent) bonds to such persons
has bee figured out by Mr. Otto H. Kahn and
is given on the page above referred to in Equity
and marked therein. This is somewhat startling.
When we think of our tremendous indebted
ness at the end of this war and the means, for
paying the interest and repaying the debt, we
meet at once with the problem of taxation. The
excess profits tax will no longer then be pos
sible because the excess profits will have disap
peared with the war and possibly before. The
usual internal revenue Sources will have greatly
diminished owing to the greatly diminished con
sumption of alcoholic beverages. The two chief
sources remaining will be sur-taxes on large in
comes and the undemocratic taxation of con
sumption. The surtaxes on large incomes are
already seriously crippled by the issuance of the
Liberty bonds and the Farm Loan bonds with
income tax exemption. If the future bonds are
issued with income tax exemption the sur-tax
on large incomes in order to pay the interest
and principal of the war debt will entirely dis
appear as a means of revenue for that purpose
or for tny other purpose.
A great mistake has been made. It seems
that the . vernment, parti 3ularly your branch
of the government, is about to continue this
great mistake on an even larger scale., I hasten
t" you with this warning and with on urgent
suggestion that all future bonds of Ahe United
States be issued without income tax exemption.
The existence of productive property in, pri
vate hands, tax free, is a great evil to any gov
ernment. Particularly is this true qoncerning
income tax exemption on the obligations of the
United States government at the present time.
Very sincerely yours,
C. F. TAYLOR.
LETTER TO THE SECRETARY OF THE
TREASURY
Following is a copy of a letter bearing on his
subject which was sent to Secretary of the
Treasury McAdoo by Mr. Taylor:
Philadelphia, July 25, 1917.
(Hon. William G. McAdoo,
Secretary of the Treasury,
Washington, D; C.
, My dear Sir: I fear that the democratic prin
lple embodied in the recent income tax amend
ment, is in jeopardy concerning the sur-tax on
large' incomes, the very feature of the income
tax that we most value.
Two billion United States "Liberty" bonds,
ijhave been issued with income tax exemption.
The Farjbi Loan bonds (4 per cent) have also
ibeen issued with income tax exemption. We are
now facing another largo bond issue and if the
income tax exemption continues on these bonds
this administration will receive severe criticism
and. condemnation in yejars to come.
I am enclosing July Equity opened and marked
at the place (pg. 129) where my recent refer
endum to the economists of the country on fi
nancing the war begins. I wish to call your at
tention particularly to tho" marked portion of
this report on, page 136. The defect, there .men
tioned, in the present income tax makes sur
taxes on large incomes payable practically only
every second year; and this defect has enabled
Congressman. Edmund Piatt to class those who
a.vor. sur-taxes on large incomes with "fourth
DEMOCRATS IN THE LEAD
To The Commoner,
Lincoln, Nebr.
On June 20 the dry republicans of the state
held a convention at Columbus to consider
er and determine whether or not they shall or
ganize as dry rupublicans. On the same day
the executive committee of the Democratic Dry
Federation held a meeting to put the finish
ing touches to their organization.
We are not informed as to whether the demo
cratic committee planned to have their meeting
on the same day that the dry republicans meet,
or whether, the two meetings occurring on the
same day is a circumstance which is usually
catalogued as a "strange coincidence." But, be
that as it may, the fact that the executive com
mittee of the Democratic Dry Federation meets
to" complete their organization on the same day
that the dry republicans meet to start their or
ganization is a contrast a contrast that marks
well the characteristic progressiveness of the
democrats.
Probably the democratic committee will fe
licitate the dry republicans upon their decision
to organize. It is well that they should; and
who can gainsay their right to do so? In 'fact,
they may do so with all tho satisfaction of pre
ceptors for have they not shown the dry re
publicans the way?
It wus on April 12 that the dry democrats
held their convention and decided to organize.
Two months and eight days after the dry demo
crats organize the dry republicans follow suit.
Not only have the democrats taken the lead in
the fight for prohibition in Ohio, but they have
acquitted themselves as well, if not better, in
other states and In the nation.
Of the twenty-five dry states, eighteen of them
are in the democratic column. After repeated
efforts, extending over a period of fifty years or
more under republican administrations, to vote
the District of Columbia dry, the temperance
forces had to wait for a democratic congress to
pass the law and a democratic President to sign
it The two attempts to pass tho Webb-Kenyon
bill under republican administrations failed the
one attempt under a democratic administration
succeeded the Webb-Kenyon bill, prohibiting
the Shipping of intoxicating liquor into dry ter
ritory, is now the law. The postal regulations
under republican administrations never prohib
ited the sending of papers and periodicals car
rying liquor advertisements into dry territory
but these advertisements are now barred from
the mails thinks to the democratic adminis
tration at Washington. It does look as though
the democratic party has pre-empted the tem
perance field of all honors. It is time that our
jcepublican brethren'got started.
But to return to the two state organizations
It will be recalled that it was William J. Bryan
who first suggested that the drys o'both parties
organize. It was expected that tho democrats
would act upon it, but now the members of the
party that has bought for years to destroy him
do likewise. What a tribute to his influence!
What 'a demonstration of his leadership! Cer
tainly it is great to be a democrat and a dry one
WM. P. HALENKAMP, Sec'y.
-V Democratic Dry Federation of Ohio,
Columbus, Ohio.
Politics in Germany
From The American Review of Reviews for
August. ,
If Americans do not understand clearly why
the German chancellor, Dr. Theobald Theodor
Frederic Alfred .von Bethmann-Hoilweg, was
obliged on the 14th of July to retire from the
post which he had held for exactly eight years,
they may at least console themselves by the re
flection that the German public was also much
bewildered about it, and the German press in
terpreted it in a variety vof ways. The Reichs-'-ag,
which is the popularly elected parliament
ary body that represents all Germany, has no
direct control over imperial policies', but has im
portant indirect influence over policies' through
its tfdwer to giv6 or Withhold the money that
pays the public bills. Furthermore, it is a na
tional debating sqciety and its discussions bear
importantly upon the shaping) of. German opin-
ion. For although Germany is not as completely
governed by public, opinion as England or the
United States, it is useless to deny that so in
telligent a country as Germany is in the last
resort controlled by the dohiiiiating sentiment of
its people.
THE REICHSTAG PEACE PROPOSAL
For some time past, there has been a steadily
Increasing clamor in Germany for peace at al
most any price except that of dismemberment
and humiliation. Large and important groups
in the Reichstag, ordinarily out of sympathy
with one another, have been coming together on
the platform of peace along lines that Russia
and the United States might regard as reason
able. Thus the Catholic element, known as the
Centrist party, and the social democrats
, these two groups being much the largest of the
' eight or more distinct parties in the Reichstag
were able to agree upon a peace resolution
and to secure the support of a third group called
the Radicals the three groups thus brought to
gether constituting a large majority of the total
chamber. The strength of the three parties sup
porting the peace resolution was reported as
follows: Socialists 107, Center 91, Radicals 45,
making a total of 243. The rest of the Reichs
tag consisted of National Liberals 45, Conserv
atives 44, and the so-called German party 27,
these three groups being devoted to the idea of
a "Gorman peace' based upon victory, annex
ations, indemnities, and German dominance
everywhere. Besides these there ar 20 Inde
pendents and a group of 18 Poles. The peace
resolution of the majority parties was so im
portant that we must quote it here in full. It is
as follows:
"As on Augu. 4, 1914, so on the threshold of
the fourth year of the war the German people
Btand upon the assurance of the speech from tne
throne 'We are driven y no lust of conquest.
"Germany took up arms in defense of Its lib
erty and Independence and fo? the integrity or
its territories. The Reichstag labors for peace
and a mutual understanding and lasting recon
ciliation among the nations. Forced acquisi
tions of territory and political, economic, an
financial violations are incompatible with sucu
a peace.
"The Reichstag rejects all plans aiming at an
