The Commoner
S13FTEMBEB, 1919
Who Will Pay the New Taxes?
How the Government Will Raise $8,000,000,000
trvh Hon. Claude Kitchin, chairman of the
House of Representatives committee pn Waya
and Means, prepared for the Forum, a .careful
niVQt of the new war revenue taxes clearly
defining the government's attitude toward buai
nflM ond war profits. Congressman Kitchin'a
I article is printed in full-below. Ed.)
The Administration, through the Secretary of
the Treasury, announces that to properly finance
the Government for the fiscal year ending June
M, 1919. It Is necessary- to raise by taxation, in
addition to the amount npw being raised under
existing law, $4,000,000,000, or a total taxation
of $8,000,000,000.
When one contemplates the enormous amount
of bond issues which, without this larger tax
levy, must become necessary and the immense
burden which their annual interest charge alone
would entail upon this and future generations
and the danger of inflation of credits and rise
of prices which large bond issues involve, the
wisdom of the Administration's insistence upon
such increased tax collection becomes. at once
apparent. v
The closest estimate of Secretary McAdoo is
that wo shall have to expend for the war at least
$21,000,000,000. If, with a new revenue
measure, we raise in all the desired $8,000,000,
000, we will have to issue for the finance require
ments of the year $16,000,000,000 of bonds.
We have already issued and sold $10,000,000,
000, totaling $26,000,000,000, issued and to be
issued, exclusive of $2,000,000,000 of war saving
certificates provided for.
Tiie annual interest charge on these bonds, at
the 4 per cent rate, is $1,105,000,000, requir
ing more than one-eighth of the contemplated
amount of taxes each year to pay.
Should we make no furthor tax levy and con
tent ourselves with the collections. under existing
laws, our bond issues by the end of the year
would amount to $30,000,000,000.
This would entail an annual interest charge,
even if we can keep the interest rate at 4 4 per
cent, of $1,275,000,000, and it would take more
than one-fourth of the collections from taxes each
year to pay it.
From this it is not difficult to conclude that
not only is the Administratidn's determination
to insist on . such increased taxation economic
wisdom but an economic necessity.
Eight billion dollars is twice as much as this
country "or any other nation in the world has
ever attempted to raise by taxatioi in one year.
It is nearly three times the total amount of col
lection from the taxes and bonds during the four
juars or tne Civil War.
HARDSHIPS IN TAXATION INEVITABLE
It goes without saying- that to provide for the
um il of this huee sum" Congress has a most
mmcult and appalling task. But the duty is clear,
the responsibility is vast. The Constitution im
poses the duty and responsibilty of originating
such revenue measure upon the House of Repre
sentatives, and- 1111 flor in. mine t-Uo.tr in flift fivet
I Jatance are transferred to the' Ways and Means
uiuimn.ee. rue Committee has already assumed
woJCS5onsibnity and beSun the first steps to
wards the performance of the duty and will go
wwam determinedly and as rapidly as possible,
potest and condemnation are inevitable, espe
cially from thfRA Wlin llovn .nit1,A.. ,1 ,... ., . -
I sponsibllity in the matterT '
10 rrame any bill imposing high taxes which
niILiV?Te he alProval of all the taxpayers is im
imnr i ; r lB U Psslble to write a bill without
innl. i5g hardshlps on many taxpayers or with
mequities and iTinmiBi?Ho JL' Mn.tA..i.
I .,;!', . lere nevor has keen and never will be
civil Perfectly equitable. Indeed, every law,
vIqIL crimIna1' however clear and just its pro
shine miay, seem' works in lts operations hard
ar fin inequalities in .cases that sometimes
Coiin-'r SI1 l be tne effort of the Committee and
eni7mif.SS obviate as far as possibly such in
wo hi,? and ineuies. To aid us in the effort
ami r? ore us th0 experience of the operation
aim enforcement of the present revenue acts.
exUMi, ?f a blU additional to the two or three
in ml acts the Committee proposes to embrace
one comprehensive bill all the tax legislation
respect to internal revenue, including the
income tax,, excess of war profits tax, the estate
tax and all other excise taxes. It may bo said
here, too, that no doubt in order to ease the pay
ment of the colossal amount of taxes a reasonable
installment plan will be provided for.
WERE THE HUGE TAXES WILL PALL
How shall we go about it to get the $8,000,
000,000? Congress and the country are in entire
agreement with the president in the declaration
in his revenue message that the big increase must
come chiefly from incomes, excess of war profits
and the luxuries. Wealth, therefore, 'must bo
taxed Instead of poverty, luxuries instead of ne
cessities. We shall have to retain the list, in
cluding the luxuries and semi-luxuries, subject
to the excise tax of existing statutes and increase
the rates In most, if not all, of them and shall
have to add many articles to the excise tax list.
After doing this, it is evident that the larger por
tion of the increase must be derived from in
comes and excess of war profits. The require
ment of such large increased rcvonues neces
sitates, of course, largely increased rates.
We should proceed along the concretely prac
tical rather than the abstractly ideal line. What
an ideal and happy situation would confront us
if, vas the boy at the front is devoting to h'a
country his full capacity to fight, the bmdncss
man, the money-maker, at home would make up
his mind to devote to his country, during tho war,
his full capacity to make money, and- be glad in
the thought that, each morning as ho begins his
labor, the day should be a day of service c his
country, ambitious in rivaling his competitor only
in contributing a larger proportion to his Govern
ment for its support! But the longest war is too
short a time to educate such a sentiment and
effort into him. Nor is it practical or possible to
force them into him -by law.
All collections from business must come from
profits. In exacting contributions from business
wcmust recognize its fundamental incentive to
effort, profits, its main ambition, more profits.
We must not destroy either. We must keen in
mind that business as it relates to the national
revenues has two important and necessary func
tions to perform, first, to furnish the Government
a large portion of its needed collections, second,
to help the Government dispose of its Liberty
Bonds at each new issue.
THE GOVERNMENT THE NEW PARTNER
IN BUSINESS
Without profits it can perform neither, atid If
incentive and ambition of business be destroyed
there will be no profits. We must take care that
the goose that lays the golden egg be not killed
or disabled. The egg just now is essential to the
Government and the survival of the goose is es
sential to the egg. That is to say, in any scheme
of large tax.levies, the cupidity of business must
be reckoned with and, after payment of all taxes,
it must be left profits sufficient to preserve the
incentive of aggressive efforts to continue its
profit-making. It must continue to make efforts
and to make profits because the Government must
continue to have a part of those profits, and In
all probability, in many cases, a large part.
Not only the Committee and Congress, but the
Price Fixing Board should keep these considera
tions constantly in view. Otherwise, Congress
might be forced to resort for the greater portion
of its revenues to direct taxes on consumption.
On the other hand, the war needs of tho country
demand that Congress require of business, cor
porate and individual, a partnership in its Income
' and profits with the Government. It may be
necessary in many cases for the Government to
be the bigger sharer. Business, too, must be open-
and honest with its new partner, and should so
control its cupidity and ambition as to co-operate
with glad enthusiasm in all the alms and efforts
of such partner.
To get rich quick out of the war, or during the
war will by the revenue necessities of the Gov
ernment hereafter be a forbidden indulgence.
Designed profiteering and "blood-money" making
must cease. However, we should be careful not
to construe all increase of incomes and profits
since the war as profiteering and "blood money.
Large inflation, or rather expansion, of credits
and the hi difference between suimly and de
mand have caused to lie made Immonso profit.
Tho man and tho industry that had the supply
lnovltably made extraordinary profit. Porhaps,
thoy will continue to make such profits but will
not be able to approprlato so large part to their
own use. Tho big new partner will t&ko a heavy
hand in the appropriation to its own use.
While, no doubt, others have engaged In the
deliberately planned and manipulated profiteer
ing aud "blood-money" making, tho Government
contractors and subcontractors will probably be
found to bo the chief offenders.
0
WEALTH WILL NOT BE PENALIZED Olt
CONFISCATED
Wealth will not be penalized or confiscated,
but it will understand, of courso, that the Gov
ernment must not be paralized by lack of funds.
Tho taxpayer, howovcr, big bo ho, can be sure
that tho Committee and Congress will not adopt
in tho making 61 a tax bill any such theory as
taking for tho Government all incomo in excess
of any specified amount, now being agitated by
quite a respectable fow.
A comparison of the income tax returns or cm'
porations and Individuals for tho years 1914
tho year the war began 19 1G and 1917 and tho
prodigious increase of incomes in 1917 over those
of 1914 furnish us a sure starting point In tiie
incomo and excess profits tax program. Corporate
net Incomes for the year 1914 amounted to
$3,940,000,000; individual net income amounted
to $4,000,000,000, a total incomo of $7,940,
000,000. In 191G corporate not incomes amounted to
$8,705,900,000; individual net incomes amounted
to $G, .100,000,000, a total of $15,065,900,000.
This shows au increase of 191G over 1914 in cor
porative , incomes of $4,825,900,000 and In in
dividual incomes of $2,300,000,000, or an
increase in both of $7,125,900,000. While for
the calendar year 1917 the returns have not as
yet been completely tabulated, It is estimated by
the Treasury Department that corporate incomes
w'll reach $10,000,000,000 and individual in
comes will reach $7,000,000,000, or a total of
both $17,000,000,000. Thus there was an in
crease in 1917 over 1914 in corporative incomes
of $G,0G0,000,000, and individual incomes of
$3,000,000,000, au increase ln both of $9,060,
000,000. Assuming that for the calendar year
of 1918 the incomes, corporate and individual,
will equal those of 1917, and tbe&will, unless
the Price Fixing Board materially interferes, and
that we shall be compelled to raise from such in
comes and profits $6,000,000,000, It can be seen
that, if proper adjustments are made, it can be
done without destroying or seriously crippling
business or confiscating incomes of corporations
or individuals. After taking the $0,000,000,000
and that amount may not be necessary there
will still remain to the individual and corporation
at least $3,000,000,000 more income and profits
than In 1914, or about 40 per cent more.
Whatever amount the Government must have
from such incomes and profits, arnon,g the dif
ferent problems arc, how to make tho proper ad
justment, how many brackets in the graduation
of the rates, vhat will the rates in each bracket
be, what should the deductions be, how much
exemption should be allowed, shall business or
industry be placed in different groups, and a dif
ferent exemption and rate apply to tho several
groups, etc. These are somo of the intricacies
and difficulties confronting (he Ways and Means
Committee and Congress. 'However high the rate,
however large tho amount tho taxpayer, Indi
vidual or corporate, must contribute, ho should
console himself with the thought that every
dollar of it is to help his Government save his
life in the death struggle now going on. All
should realize that the time has come for every
patriot to do, not his bit but his all for his coun
try. The boy at the danger front In France is
doing his all.. Can we who remain at home in
safety afford to do less? -
Big business and its metropolitan newspaper
mouthpieces are arguing very strenuously
against the government's idea of what con
constitutes excess profits. The New York World
says that the distinction should be kept clear in
one's mind that excess profits strictly chargeable
to the fact that there is a war on are to be
distinguished from profits in excess of the normal
8 per cent and that are no larger than they were
before tho war. The government needs revenue
and it needs a lot of it, and there isn't any good
reason why an excess above a reasonable return,
on an investment shouldn't be, taxed no matter
whether It came from war contracts or lu plU
or mere newg a war.
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