LOW WAR TAXES FORCE BONDS
Follette, Robert M. La
Low War Taxes Force Bonds Schedules In New Senate Finance Bill Favor The Rich--Burden Falls Heavily On Poor By ROBERT M. LA FOLLETTE The following speech was delivered by Senator La Follette in...
...anything that I say now I have no expectation will prevail with the Senate...
...Far from it...
...The first corporation income-tax statute was enacted to apply to corporations with a net income in excess of $5,000 per annum...
...In other words, the rates of the substitute bill would apply to $750,000,000 more profits than are taxed under the pending or the House bill...
...I have reduced the normal income tax in order to relieve the tax upon incomes of people of modest means...
...In 1916, 341,253 corporations made returns of income to the treasury...
...155 2.38 320 4.92 165 2.54 $7,000...
...This is higher than the rate of the pending bill and would reach net income not distributed for the foregoing purposes...
...As I said, I have only endeavored to indicate in a brief way how these relief provisions will operate...
...It is estimated that this increase is almost 25 per cent, and that there are now about 400,000 corporations in the United States...
...It was futile then so far as votes in the Senate were concerned, and I understand perfectly well that it would be futile now...
...Changes Made by the Substitute Bill...
...The 1916 statistics of income, the latest available, show there were 341,253 corporations that made returns of taxable income...
...Thetotal net income for the three years 1911, 1912, and 1913 adopted as the prewar years of all corporations was $12,368,000,000...
...I have reduced the income tax proposed by the committee bill, but I make it up on the surtax on the rich...
...that is, the average profit for the prewar period...
...To a man in this position the difference between fifty and a hundred dollars in his income tax is a serious matter...
...A just measure would allow no man or corporation to retain a dollar of profits made directly out of this war...
...Bear Heavily on People I AM not going to follow, Mr...
...The Treasury estimated the net income of corporations for the year 1918, and this is the basis of my estimate...
...The total disbursements for the fiscal year 1918 are given in the report of the Secretary of the Treasury for the year 1918 at $21,813,356,508.39...
...Thousands of letters are coming to us daily from the families of soldiers who are being supported by charity because the Government has failed to pay to these dependent ones the insurance and allotments to which they are entitled...
...In the minority report presented at that time these figures and estimates were controverted, and in that report it was said: At the very least our people must raise in excess of $13,000,000,000 to be expended in the present fiscal year, even if the war should stop then...
...Now, as to the estimate of $5,000,000,000 of war profits and that the tax under the war excess-profits brackets of the pending bill is only 48 per cent of that amount, the Senator from Utah said that the estimate which I made "includes all of the business of the country, some of which does not pay any excess war-profits taxes...
...Anything that I said at that time did not prevail...
...And yet you balk at taking less in income taxes than is imposed upon incomes in Great Britain, except in the case of the incomes of the few very rich...
...In order to raise the money to pay the expenses we have incurred, and are bound to incur, the Government must reach out and put a heavy hand, through its power of taxation upon every citizen in the land, and if it be presently discovered that the hand of the Government bears heavily and unjustly upon the masses and touches only lightly the rich— in proportion to their ability to pay —it will produce conditions of discontent and resentment not pleasant to contemplate...
...Wealth, which profits out of war, has had no time, sir, for the consideration of scientific government finance, which from Adam Smith down through all the great students of that great science to the leading men of our own time lays down as a sound, as a just, proposition to begin with, that all wars should be paid for as you go by taxing wealth, rather than by selling bonds and levying upon labor of the future to pay the WHATEVER may have been the forces which caused the present world war, one result of it must be apparent to every man of intelligence, and that is that the plain citizen has come to realize his power as never before, and consequently will assert his rights as never before...
...The speech attracted wide comment through the press of the nation.—Man-aging Editor's Note...
...President...
...I have therefore offered a substitute bill thst is far short of the requirements that justice demands...
...Every dollar of this increase comes from incomes in excess of $5,000, and the great bulk of the increase is from incomes in excess of $25-000,000 per year...
...For at least a portion of the fiscal year 1919 we know they will be proportionately larger, and I here venture the opinion that they will be nearer $22,000,000,000 than $18,000,000,000...
...10 0.40 $30 1.20 $10 0.40 $3,000...
...The streets of our great cities are thronged with men looking for employment...
...But, sir, I know that such a bill would receive little support in this body...
...I undertake to say that the Senate bill can not be, and has not been, defended upon that ground...
...It is true, Mr...
...But if you do succeed in conducting the war on the credit plan the trouble is sure to come later...
...240,600,000 240,600,000 Special (luxury taxes...
...The average annual net income for the three years was, therefore, $4,122,666,000...
...6,780 11.30 14,830 24.71 21,585 35.97 $70,000...
...2,000,000,000 Second loan...
...Bills Are Compared THE normal tax of the committee bill will raise $114,000,000, while under the substitute it is estimated to produce only $70,000,000...
...we can not excuse the now admitted inadequacies of the last revenue act on the ground that we have had to meet unexpected expenses...
...The provision of the pending bill not only applies to such non-profiteering associations, but it extends the ex-emption to include associations that act as selling agents not only for their own members and without profit, but which also sell for nonmem-bers...
...In the pending bill, page 51, this very just exemption of the existing law is expanded and the door is thrown open and the opportunity given for the evasion of the corporation-tax law...
...It has been well said, sir, by the great body of economists of the United States—representing practically every great university and college under our flag, in a petition signed by more than 300 of those leading economists, submitted to the Congress—that: The policy of borrowing within the country itself does not shift any part of the Nation's burden of war expenditures from the present to the future...
...When the revenue bill of 1917 was before the Senate I pointed out that the revenue act of that year was wholly insufficient to meet the requirements of the Government for the taxable year, and that the only result of adopting the measure would be one bond sale after another by the Government, with all of the hardships resulting to the people from the vastly increased cost of living, as well as the danger in which it would ultimately involve our entire financial system...
...I am willing that these estimates should stand as the measure of the revenue-producing power of the substitute bill...
...bill Income taxes: Normal .......$ 414,000,000 $ 70,000,000 Surtax...
...conditions under which we have financed the war are on the threshold of a mighty change...
...17,000,000 17,000,000 Admissions and dues...
...295 3.28 6S0 7.71 385 4.28 $9,500...
...posed in the substitute bill at every bracket is substantially greater than that under existing law...
...Hundreds of thousands of men in the change from war to peace will be out of employment...
...under the substitute $10...
...Individual Incomes THE first change of importance which the substitute bill makes in the Senate bill occurs in the tax on individual incomes...
...3,140,180 62.80 8,783,030 76.66 3,961,435 79.23 is done by us may be long endured, and in framing the legislation to raise these vast and almost inconceivable amounts of money, we are directly affecting the lives and fortunes of every one of our people and we can not afford to enact this legislation unless it can be defended upon the ground that it is just as fair to the poor man as it is to the rich in proportion to the ability of each to carry the burden and sacrifice of war...
...Any injustice that Comparispn of income taxes upon specified incomes of married persons under the existing law, the Senate bill, and the proposed substitute bill...
...To accomplish this I propose to amend section 210 by reducing the normal tax in the Senate bill from 12 per cent to 2 per cent and change the rates of taxation upon incomes as shown ih the substitute bill...
...130 2.16 .250 4.16 130 2.17 $6,500...
...We tiptoe around this question of taxing incomes...
...But, sir, it has been the political and the public-service policy of my life to pursue principle, regardless of results...
...The question of taxation versus bonds is not merely one of economics...
...The Secretary of the Treasury informed us when before the finance committee that our people have already subscribed for bonds aggregat-gating $17,968,340,000, as follows: First loan...
...3,600,000,000 1910...
...It proposes to raise less than $6,000,000,000 by taxation to meet the expenses of the Government for the taxable year...
...Sir, when imposing these taxes upon incomes arid war profits we ought to remember that the family that gives up the father and the sons at the call of the Government gives up absolutely all it has, gives up not only its income-producing power, but in giving up the father and the sons it gives up its capital as well as its income— balk at taking less in income taxes than is imposed upon incomes in Great Britain, except in the case of the incomes of the few very rich...
...Individual exemptions are based upon a very different principle than are the exemptions of corporations...
...How Rates of Pending Bill are Applied NOW it is only claimed for the pending bill and the report accompanying it submitted by the majority of the committee that the bill produces $2,400,000,000 in revenues from war excess profits...
...It appears to me that the striking out of this exemption mast result in a large increase in the revenue that would be derived from war profits...
...So, then, the war-profits tax would be levied under the following formula: Net income minus the average prewar income, but not less than 10 per cent of the invested capital minus $3,000 shall pay a war-profits tax of 80 per cent...
...The chairman of the finance committee stated in the course of the debate on Saturday: Nobody ever supposed that even the war-profits tax of 80 per cent would in practical operation be more than 70 per cent upon war incomes...
...I am not going to reargue that question...
...A vast amount of money, sir, has been drawn from the people by the government loans already made...
...I plead with you then to inaugurate the right kind of a plan of taxation at the beginning of this war, knowing full well, if we started out on a policy of taxing too little and borrowing too much, that it would be carried on throughout the war...
...At the time we framed the revenue bill of 1917 the facts were before us, or could have been obtained, by which the expenditures of the Government for the then taxable year could have at least been approximated with reasonable certainty and something at least approaching a proper rate of taxation could have been adopted...
...It occurs to me that Senators would do well to take that into account...
...This number has greatly increased since that time...
...And that, sir, is confirmed by all history...
...I demonstrated then the peril of raising the money to finance the war by bond issues...
...219,000,000...
...70,000,000 70,000,000 Total...
...31,000,000 31,000,000 Floor taxes...
...The next result of the change I propose is to increase the total amount of the tax collected from that source by $352,510,000...
...The former secretary of the treasury stated before the finance committee but a few days ago that we will expend for the year ending June 30, 1919, at least $18,000,000,000...
...Every dollar of this revenue will be taken from concerns that have been piling up abnormally high profits, whether these profits are what may be strictly termed war profits or merely the excess profits, over a reasonable return on business...
...It is from this class that the war has taken a large toll in the way of actual military service, but even more serious than that is the hardship which it has brought to them in the greatly increased cost of living with no corresponding increase in income...
...20 0.67 60 2.00 20 0.67 $3,500...
...80 1.60 150 3.60 60 1.20 $5,500...
...I make reference to it in this connection solely to remind Senators how near the limit of destitution and suffering a great mass of people in this country are actually living...
...From this point on, however, the tax proAJUST measure would allow no man or corporation to retain a dollar of profits made directly out of this war...
...The surtax of the substitute bill, it is estimated, will yield revenue in the same period to the amount of $1,644,510,000...
...Incomes of $5,000 are taxed under existing law at $80, under the Senate bill at $150, and tinder the substitute at $60...
...But the viciousness of this provision is that membership in such organizations can be had for a mere nominal fee, and individuals who would not ordinarily find it advantageous to belong to such organization will under this provision find it a benefit to be a nominal member in such an association...
...355 3.55 830 8.30 485 4.85 $12,500...
...772,000,000 700,000,000 War excess profits tax...
...It is estimated that at the present time there are upward of 400,000 corporations in the United States...
...2,400,000,000 8,200,000,000 Estate or inheritance taxes____ 22,000,000 110,000,000 Transportation facilities...
...and when I put my hand to the plow I go straight through to the end of the furrow...
...But, sir, I know that such a bill would receive little support in this body...
...I would take all of the incomes over enough to enable the owner of the income to support his family in comfort...
...It is a trifling matter to even the very small corporations...
...That would amount to a war-profits tax of 76 per cent on the estimate of $5,000-000,000 of war profits, and would make the substitute bill produce revenue of $1,784-610,000 in excess of the revenue estimated to be derived under the pending bill...
...War-Profits Tax THE next fundamental change my substitute proposes to make in the pending bill re-lates to the war and excess profits tax...
...I know of nothing which has occurred since the revenue act of last year was framed and BUT when all the changes are made by the substitute-and every change it proposes is for the purpose of placing the tax where it belongs, on wealth and luxuries that can well afford to bear the tax, and by taking a little off the poor—the total increase in revenue under the substitute bill would be $1,234,510-000...
...Under the Senate bill there can be no doubt that hundreds of millions of dollars made by individuals out of this war—middlemen, agents, contractors, and the like—escape all taxation upon profits made out of the war, except as taken as an income tax, and justifies its being levied at a high rate...
...Suggestion is made that in making the estimate of $5,000,000,000 of war profits for 1918 allowance was not made for earnings of new corporations or new capital invested by old corporations...
...10,980 13.72 23,930 29.81 34,035 42.54 $100,000...
...198,535,000 198,535,000 Beverages...
...The Senate considered it at that time...
...5,310,000,000 1916...
...These are not taxed as high in England, for the very rich made the income tax of Great Britain...
...I make reference to it at all only to show that had the arguments been heeded which were then urged by the minority we would have laid the foundation for a just plan of taxation and one which would prove a protection and a safeguard to us in the great financial stress we are sure to encounter when the period of readjustment and depression incident to waste and destruction of this war comes upon us finally...
...8,880 12.69 19,130 27.33 27,485 39.26 $80,000...
...I would take every dollar of war profits, leaving business its enormous prewar profits and its capital untouched...
...On their face these provisions of the Senate bill seem to bear some relation to an 80 per cent tax on war profits made by corporations...
...Upon all the balance of the net income the substitute rate is 18 per cent...
...730 4.87 1,670 11.13 1,235 8.23 $20,000...
...There was never any limit placed upon the number of men or the quantity of munitions we would send to Europe, and the amount of money we would loan to the allies was measured by necessity only...
...At $100,000 the substitute bill imposes a tax of $48,435, and the Senate bill only imposes a tax of $35,030...
...President, while J do not purpose to reargue that issue at this time I must here and now, and shall at all times, maintain that the cost of this war and the cost of all wars, should be paid wholly or in larger part by taxation and that bond issues should be held down to the lowest possible minimum...
...Not a fact has ever been given by anyone which attempts to show that the expenditures of the Government for the fiscal year 1919 will be less than those of 1918...
...This is an increase in revenue under the surtax rates of $626,000,000...
...but we must consider more than next year...
...It is in no captious spirit that I refer to this matter...
...2,980 8.51 6,270 17.91 8,635 24.67 $40,000...
...To a man in this position the difference between fifty and a hundred dollars in his income tax is a serious matter...
...I DO not intend in the present discussion to repeat the argument which I submitted to the Senate in support of a wise and just policy of war finance when the last revenue bill was before this body in 1917...
...There is no war-profit tax for individuals, except as it may reach them under this greatly increased rate of taxation on the larger incomes tuch as I have provided for in the substitute bill...
...10,000,000,000 The estimate of $10,500,000 000 corporate net income for 1917 and $10,000,000,000 fog 1918 are made by the Treasury Department and can be safely relied on as not being too high...
...The fact is that the act of 1917 failed to properly tax war profits and excessive incomes, and subsequent events have only proven what we then knew or should have known...
...THE substitute bill follows the general form of the House bill up to the tax on beverages...
...In the tax upon corporations the substitute bill recurs to the rates and form of the bill as it passed the House...
...President, that statement is true, and it is true because of the unreasonable deductions from the net income of corporations permitted before the war-profits tax is levied...
...That statement is verified by the report of the Secretary of the Treasury for 1918...
...Upon no class has this war borne more heavily than the man with a small income, with a family to support out of it...
...How is it going to do it, especially if it has not properly taxed wealth and war profits...
...4,176,516,850 Fourth loan...
...The policy of taxation for war expenditures is demanded by justice...
...I come now to the corporation tax...
...10,500,000,000 1918 (estimated...
...235 2.93 530 6.63 285 3.56 $8,500...
...It restores the House rates on estate taxes and a striking out of the inheritance tax as it has been written in by the Senate committee...
...Where these associations make profit as the agent of a nonmember, such profit is taxable...
...President, now as I did when the tax bill of 1917 was pending before this body, step by step, the history of the financing of various wars in which the United States has been engaged...
...When a family so situated gives up the father and the sons to the service of the Government they give everything...
...4,122,666,000 Excess of 1918 over prewar income...
...Apart from the injustice arising from price inflation (resulting from large government loans), the policy of paying for the war by bond issues gives properly a preference over life...
...How are we to meet this situation...
...265 3.12 605 7.12 335 3.94 $9,000...
...16th...
...31,680 21.12 ,37,030 44.69 86,935 57.96 $200,000...
...At the same time, in fairness to the Senate, I must express the belief that the revenue that would be derived under the war-profits bracket would be larger than the estimate...
...This is the first appearance of such an exemption in a bill proposing to levy a tax upon the incomes of corporations...
...We then stood pledged "to our last dollar and our last man" to win the war...
...it is of no consequence to the large companies, and it means a good slice of income to the government, amounting, as I have said, to $96,000,000 in the aggregate...
...Even if the tax should make it necessary for a man with a hundred thousand dollars of income to dispense with a few luxuries, it will not do him or the country any harm, and, as a matter of fact, a large portion of those fortunate individuals who are in the enjoyment of incomes of that character at the present time have in one way or another made a profit of this war...
...The tax under the Senate bill on incomes of $25,000 is $3,720, and under the substitute bill is $3,935...
...passed which should not have been foreseen, and nothing whereby the expenses of the Government were increased over the amount which it should have been reasonably expected we would have to meet...
...The existing law very properly provided for exemption from the corporation-tax section of farmers, fruit-growers, and like associations organized and operated for the purpose of marketing their products, and which are operated without profit...
...Assuming that of these 250,000, or little more than half, would pay a tax under the war-profits bracket, it would mean that 260,000 corporations would each receive under the substitute bill a deduction less by $3,000 than under the Senate or the House bill...
...If the rich gave all of their income and loaned the Government all of their capital, they would give no more to support the war than the hundreds of thousands whose fathers and brothers were taken for this war service...
...I do not know as to the mail of other Senators at the present time, but I know that my own mail daily, many times a day, comes to the office loaded with appeals from the families of soldiers who are suffering because the allowances and the insurance have not beeen paid...
...Upon no class has this war borne more heavily than the man with a small income, with a family to support out of it...
...Capitalized at 8 per cent, the rate allowed by the pending bill to corporations before levying the excess-profits tax under brackets Nos...
...3,580 8.95 7,730 19.33 10,985 27.46 $45,000...
...105 1.91 215 3.19 95 1.73 $6,000...
...The surtax of the Senate committee bill, according to the estimate of revenue, will yield in the one-year period $1,018,000,000...
...No Sound Reason SO FAR I have heard no sound reason advanced to justify this exemption...
...30 0.86, .90 2.57 30 0.86 $4,000...
...192,680 38.54 323,030 64.60 361,435 72.29 $1,000,000...
...Sir, when imposing these taxes upon incomes and war profits we ought to remember that the family that gives up the father and the sons at the call of the government gives up absolutely all it has, gives up not only its income-producing power, but in giving up the father and sons it gives up its capital as well as its income-producing power...
...It is not a great amount in the case of any one company, but this "relief" to 400,000 corporations means a loss of $96,000,000 in revenue to the government...
...It is problematic how much loss there may be to the Government in revenue, and there is no need of introducing this uncertainty when every legitimate association of this character is exempted under the existing law...
...5,180 10.36 11,030 22.06 15,685 31.37 $60,000...
...President, that wealth, which has had much to do with bringing on all wars, is potential enough to control the legislation that shall finance wars...
...All it does is to make possible a different distribution of the burden among individuals and social classes, to permit repayment to certain persons who have contributed income during the war by other persons after the war...
...Low War Taxes Force Bonds Schedules In New Senate Finance Bill Favor The Rich--Burden Falls Heavily On Poor By ROBERT M. LA FOLLETTE The following speech was delivered by Senator La Follette in the United States Senate on Dec...
...and second, that the expenditures of war should hi paid for as you go as a sound, business, financial proposition for the Government itself...
...I have therefore offered a substitute bill that is far short of the requirements that justice demands...
...I call the attention of the Senate to that, for I think that is a material consideration which you ought to have in mind in voting for or against the substitute which I now propose...
...I would take all of the incomes over enough to enable the owner of the income to support his family in comfort...
...The $2,000 individual income free from income tax is made free so there may be assured to the family enough to aid in meeting liv-ing^expenses...
...But the general public do not understand this, and when they read that there is a tax rate of 80 per cent on war profits they accept that to mean that after taking out of the net income an amount equal to the prewar profits the remain-der is taxed at 80 per cent...
...The substitute bill has practically the House bill rates, but does not permit a corporation taxed under the war-profits method a specific exemption of $3,000, as does the House bill...
...These estimates were prepared by the Treasury expert...
...Thousands of letters are coming to us daily from the families of soldiers who are being supported by charity because the Government has failed to pay to these dependent ones the insurance and allotments to which they are entitled...
...This I take it is ample to cover the growth of the war period...
...The theoretic maximum under the pending bill is a tax of 80 per cent on 90 per cent of bill is a tax of 80 per cent on 90 per cent of the war profits, less $3,000, or about 70 per cent...
...I do not know as to the mail of other Senators at the present time, but I know that my own mail daily, many times a day, comes to the office loaded with appeals from the families of soldiers who are suffering because the allowances and the insurance have not been paid...
...1,780 7.12 3,720 14.80 3,935 15.74 $30,000...
...Insurance...
...Making allowance for the normal net income of new corporations—corporations that were not in existence during any of the prewar period and for growth of existing corporations—it is plain that the war profits must still account for at least $5,000,000,000 of the net income of $10,000,000,000 for 1918...
...While it is true the man of large income under the terms of the substitute bill would pay the normal income tax at the same rate as the man of small incomes the substitute bill does not permit him to escape...
...But if the exemption of $3,000 and the 10 per cent of invested capital were eliminated from the credits allowed under the third bracket, and the credit confined to the average of the actual prewar-period income, and the cushion provisions were eliminated, then as to all the corporations reached by this bracket it would be an 80 per cent war-profits tax...
...180 2.57 390 5.57 200 2.86 $7,500...
...Upon the net income of corporations from which dividends are paid or to discharge bonded indebtedness or to buy obligations of the United States the rate is 12 per cent...
...That the estimate of $5,000,000,000 war profits made by corporations during the taxable year is a reasonable estimate is asserted by the Treasury expert, and also appears from a comparison of the net income of corporations during the war with their prewar net income...
...From this point on the tax under the substitute bill rapidly draws away from that imposed by the Senate bill...
...On the other hand, a man with an income of $25,000 or more may be a little inconvenienced by an increase in his income tax, but neither he nor his family are going to suffer any real privation on account of it...
...Not Sufficient Revenue NOW, what does the present bill propose...
...Many people under the pressure of the times borrowed to buy Government bonds...
...If the rich gave all of their in come and loaned the Government all of their capital, they would give no more to support the war than the hundreds of thousands whose fathers and brothers were taken for this war service...
...Recent years have emphasized the need of the state to encourage the family relation...
...2,380 7.93 4,930 16.43 6,285 20.95 $35,000...
...3,761,000,000...
...Obviously, therefore, the Senate bill does not impose an 80 per cent tax upon war profits, or anything approximating that...
...Incomes of $4,500 are taxed under the existing law at $60, under the Senate bill at $120, and under the substitute bill at $50...
...No, Mr...
...In order to raise the money to pay the expenses we have incurred, and are bound to incur, the Government must reach out and put a heavy hand, through its power of taxation, upon every citizen in the land, and if it be presently discovered that the hand of the government bears heavily and unjustly upon the masses and touches only lightly the rich—in proportion to their ability to pay—it will produce conditions of discontent and resentment not pleasant to contemplate...
...325 3.42 755 7.95 435 4.58 $10,000...
...Poor Are Relieved WHILE relieving the small taxpayer, the tax to be collected under both the normal and the surtax sections by the rates of the substitute will exceed the amount of the committee bill by $352,510,000...
...A period of reaction is at hand...
...It may well make the difference between actual privation and suffering and a reasonable degree of comfort...
...It will be observed that starting with incomes of $2,500 the tax under the Senate bill is $30...
...5,877,334,000 Allowance for earnings upon new capital (estimated) .. 877,334,000 War profits...
...Capitalized at 10 per cent it allows for a return on $8,777,334,000 of new capital...
...The suffering resulting is appalling...
...4,714,000,000 1914...
...So depending upon the rate per cent at which this allowance is capitalized, it takes care of an increase of the prewar capital of from 20 to 25 per cent...
...Senate bill Sub...
...Before the war his income and living expenses were about even...
...This, deducted from the $10,000,000,000 net income of corporations for 1918, leaves $5,877,334,000 in excess of the average of all the corporation profits for the three prewar years...
...1,018,000,000 1,714,510,000 Corporation tax...
...5,000,000,000 This allowance of $877,334,000 to cover the earnings of new capital exempted from war-profits taxation is, in my view, reasonable...
...These associations are mere selling agents for the individual farmers...
...But in the meantime another half year has passed, with the expenses mounting at the rate of a billion or more a month, and we are now face to face with the difficulty involved in raising the money to finance the government for another year...
...The total of the taxes under the two excess profits brackets plus the amount of the war-profits bracket will equal 48 per cent of the war profits...
...Now I will briefly explain in detail the increases which my substitute makes in the tax on individual incomes...
...To this sum is added $3,000 specific exemption...
...If these average profits fall short of 10 per cent of the capital for the prewar period, then the actual prewar profits are increased to 10 per cent of the capital...
...If conscription of men is just and right conscription of income is the more so...
...Because an exemption of $2,000 is granted to married persons under the individual income-tax provision is not a reason to justify the granting of such an exemption to a corporation...
...16,180 16.18 35,030 35.03 48,435 48.44 $150,000...
...Each corporation is permitted to deduct from its net income for the taxable year its war profits...
...As a result of pursuing the same policy that we are pursuing now in financing this war we narrowly escaped financial collapse in previous wars of this country, the War of 1812, the war of 1846, and the war of 1861, the expenditures of which were but a pittance compared with those with which we are dealing now...
...His ambition and hope was to save a little by economy and frugal living, and put by something for his family as a protection against sickness, old age, or death, It is from this class that the war has taken a large toll in the way of actual military service, but even more serious than that is the hardship which it has brought to them in the greatly increased cost of living with no corresponding increase in income...
...Our list of casualties and wounded is truly appalling, but that must have been expected when we entered upon the war...
...I make reference to it in this connection solely to remind Senators how near the limit of destitution and suffering a great mass of people in this country are actually living...
...It is to be remembered also that the above table takes no account of the vast sums made by individuals and partnerships out of the war...
...A large portion of this loss in revenue is made by the big decrease in the normal taxes upon the smaller incomes...
...Returning to the point from which I digressed, from this petition: The citizen who contributes even his entire income, beyond what is necessary to subsistence itself, does less than the citizen who contributes himself to the nation...
...His ambition and hope were to save a little by economy and frugal living, and put by something for his family as a protection against sickness, old age, or death...
...The Treasury expert has stated to me that the average net income return in the prewar period represents a return of about 10 per cent upon the capital...
...I do not mean that the pending bill levies a war-profits tax of 48 per cent...
...6,989,047,000 In addition, war savings stamps have been sold and issued amounting to $800,000,000, or a total of $18,768-340.000...
...War Profits Should be Taken WOULD not have it understood that I regard the substitute bill as the best measure that might be drawn to meet present requirements...
...All adequate allowance was made for this purpose...
...But the act of 1913 and the acts of 1917 levied a tax upon all corporations and made no distinction r granted no exemption such as is carried in line 10, page 62, of the Senate bill, allowing this exemption of $2,000...
...Instead of seeking where we can pare down a little here and there for the benefit of this corporation or that interest, or insert a cushion to take off the jar that comes to a special interest because its taxes are raised a little, we should be trying to see how we can raise the last dollar possible out of the wealth of this country and out of the profits of war in order to meet the expenses of the war...
...Escape of Disaster COMMENTING on the narrow escape from financial disaster which we experienced as a result of the mistaken policy pursued in financing the Civil War, Prof...
...The total revenues produced under the substitute bill from individual incomes is $1,714-510,000 as against $1,432,000,000 under the Senate bill...
...530 4.24 1,235 9.88 860 6.88 $15,000...
...Income Senate bill Substitute bill Existing law Rate per Per cent Rate per cent of cent of cent of Amount entire Amount entire Amount entire income income income $2,500...
...3,940,000,000 1915...
...40 1.00 120 3.00 40 1.00 $4,500...
...77,805,000 77,805,000 Stamp taxes...
...3,808,776,150 Third loan...
...205 2.73 460 6.13 235 3.13 $8,000...
...5,600,940,000 6,743,450,000 Profits Tax of Substitutes THE computations presented have been sub-ritted to the Treasury expert—in fact, the estimates were prepared v him...
...Large Expenditures Foreseen THE inadequacy of the present revenue act is attempted to be excused at this time on the ground that unforeseen contingencies caused greater expenditures than were anticipated, and that, while the rates of taxation in the law of 1917 were justified by the then known facts, experience has shown that money enough was not raised...
...On incomes of $4,000 the tax in the substitute bill and the existing law are the same—$40—while the tax under the Senate bill is $120—three times the amount...
...Corporation net income, 1918 Treasury estimate .......$10,000,000,000 Average of corporate net income for years 1911, 1912 and 1913...
...The THE justification for this change seems too plain for argument...
...The substitute bill increases materially the amount of revenue which will be collected under the war excess-profits tax...
...Their effect upon the revenues of the Government is clearly indicated by the estimate of the amount of war excess profits to be collected under the pending bill...
...Henry C. Adams, in his excellent work on Public Debt, says: An adequate policy for the management of war finances is a tax policy, assisted by credits, rather than a credit policy assisted by taxation...
...and that the substitute carries the same tax for his income as does the existing law...
...In the substitute bill, without making too many changes, I have endeavored to save, and the provisions of the substitute bill will save, to the Government revenue to an amount of from $800,000,000 to $1,400,000,000 out of the tax on war excess profits alone...
...Before the war his income and living expenses were about even...
...This provision means that each corporation shall not be required to pay tax upon $2,000 of its income...
...Taking all these taxes together, the result is a tax equal to about 48 per cent of the amount of the war profits...
...That line means a saving to the corporations and a loss in revenue to the government of nearly $100,000,000...
...Change Seems Plain THE justification for this change seems too plain for argument...
...It is estimated that the rates of the pending bill will produce $2,400,000,000 of war excess-profits revenue, while by the substitute bill there will be raised under this heading at least $3,200,000,000, an increase of $800,000,000...
...The first year that corporations made income tax returns to the Federal Government was 1908 The following table shows the corporate net 1 come from 1909 to date: Corporate Net Income, 1909 to 1918 year Net Income 1909...
...WE tiptoe around this question of taxing incomes...
...That was what every Senator looked forward to, and every Senator knows that by the unexpected breaking of the German war machine we have come out of the war at least a year earlier than we at that time had reason to expect, with the consequent saving of billions of dollars...
...This $600,000,000 added to the estimated $3,200,000,000 would bring the total yield of revenue under the war excess-profits tax to $3,800,000,000...
...President, quite in detail the operation of the rates which are proposed in the income-tax section of the bill...
...It is no answer to the soundness of their reasoning to assert that wars generally have been financed more largely by borrowing than by taxation...
...As I understood it, between four and five billion of this amount is represented in loans to the allies...
...The substitute bill, under the heading of special taxes, is estimated to produce $262,805,000, as against $77,805,000, than the rates of the Senate bill under this heading would produce...
...Seven hundred and fifty million dollars of profits additional to the profits taxed under the war-profits bracket at the rate of 80 per cent would yield additional revenue of $600,000,000...
...it deals unjustly as between citizen and citizens...
...4,151,000,000...
...Some Comparisons Made IN arriving at that estimate I have taken all the taxes levied under the war excess-profits section of the pending bill—that is, all the taxes paid as excess-profits taxes and all taxes paid as war-profits taxes and credit all these taxes as war-profits taxes...
...You may get along with that policy all right at the time...
...8,765,900,000 1917 (estimated...
...As a matter of fact, while the pending bill contains this rate, there is no 80 per cent tax on war profits...
...Whatever may have been the forces which caused the present world war, one result of it must be apparent to every man of intelligence, and that is that the plain citizen has come to realize his power as never before, and consequently will assert his rights as never before...
...92,680 30.89 173,030 57.68 203,435 67.81 $500,000...
...How is the Government going to float loans covering the next 12 months of from ten to twelve billion dollars of bonds, probably more, in addition to those already taken...
...Corporation Tax I HAVE explained, Mr...
...But when all the changes are made by the substitute—and every change it proposes for the purpose of placing the tax where it belongs, in wealth and luxuries that can well afford to bear the tax, and by taking a little off the poor—the total increase in revenue under the substitute bill would be $1,234,510,000...
...When a family so situated gives up the father and the sons to the service of the Government they give everything...
...We then expected a war longer by at least a year than it has proved to be...
...Incomes of $5,500 are taxed under existing law at $105, under the Senate bill at $215, and Under the substitute at $95...
...But, Mr...
...The substitute strikes out that portion of section 236 that aims to specifically exempt from taxation $2,000 of the income of corporations...
...We can, of course, pass this bill, wash our hands of the matter, and hope that in the next few months something will turn up, or that the people will continue to buy the bonds of the government...
...4,380 9.73 9,320 20.71 13,335 29.63 $50,000...
...That report states that the expenditures on account of war for the fiscal year ending June 30, 1918, were $13,196,071,287.40...
...It is enough to say that substantially all economists agree that war should be financed solely by taxation, never by loans...
...This is required by the principles which should govern the just distribution of the burdens of war and is demanded as a wise and sound policy of government finance in time of war...
...They give all their income when they give the power that produces that income...
...49,180 24.59 101,030 60.52 125,435 62.72 $300,000...
...They give all their in, come when they give the power that producer that income...
...Limitations of space make it impossible to present the address in full...
...On the other hand, a man with an income of $25,000 or more may be a little inconvenienced by an increase in his income tax, but neither he nor his family are going to suffer any real privation on account of it...
...These are not taxed as high in England, for the very rich made the income tax of Great Britain...
...The provisions of the pending bill, commencing at page 83 and dealing with war excess-profits taxes of corporations, are, to say the least, very remarkable...
...Tens of thousands of them are out of employment now...
...I submit a table showing the estimated revenue for the 12-month period under the pending bill and the substitute...
...We were to loan the money necessary and send the men and munitions necessary to win the war...
...The substitute bill, by restoring the House provisions with respect to estate taxes will be capable of producing an estimated revenue of $110,000,000 under this head—an increase of $88,000,000...
...75,000,000 75,000,000 Tobaccos and cigars...
...It may well make the difference between actual privation and suffering and a reasonable degree of comfort...
...475,180 47.52 703,030 70.30 761,435 76.14 $5,000,000...
...As a matter of fact, however, they impose no such tax...
...3,503,000,000...
...The suffering resulting is appalling...
...Incomes of $6,000 are taxed under existing law at $130, under the Senate bill at $250, and under the substitute at $130, the same as the existing law...
...This is a discrimination that should be wiped out of the bill...
...They must earn the money to pay their debts...
...interest and the principal of the bonds...
...1,180 5.90 2,630 12.15 3,935 11.67 $25,000...
...1 and 2, it would allow for a return on $10,966,675,000 of new capital...
...It is true that under the pending bill the war excess-profits tax is the sum of the amounts levied under the rates of the three brackets...
...it is one of morals, of right against wrong...
...The rate of the tax on the incomes increases as the incomes increase...
...60 1.33 120 3.33 50 1.11 $5,000...
...For purposes of clearness I have prepared the rate and per cent of the tax upon the incomes of heads of families as shown under the existing law, the committee bill, and the substitute bill...
...My reasons for this belief are the followings The estimated revenue under the war excess-/refits tax as it passed the House was $3,200-^00,000...
...That means to each corporation a saving of $240...
...54,000,000 54,000,000 Excise taxes...
...I would take every dollar of war profits, leaving business its prewar profits and its capital untouched...
...It will be recalled, without my going into the figures in detail, that when in August of last year the revenue bill was reported to the Senate it was accompanied by a report from the Committee on Finance estimating the expenditures for the fiscal year 1918 at $5,693,000,000, and estimating receipts from various sources at amounts which left additional revenue necessary to be raised by taxation or a further bond issue at $1,943,458,000, and it was further estimated that the bill would produce something over $2,-000,000,000...
...This is the same rate which all the net income, including the portion used for these purposes, pays under the rates of the pending bill...
...Par from that...
...At the bracket on incomes of $25,000 the tax under the substitute bill overtakes and passes the tax under the Senate bill...
Vol. 11 • January 1919 • No. 1
