Obrázky na stránke
[ocr errors][merged small][merged small]



ONSIEUR TURGOT, who became Marquis de l'Aulne, is one of the most famous taxgatherers of history. He was Minister of Finance for France in the reign of Louis XVI. It is related that when he took office the credit of the state was tottering, but that he was so successful in reducing the deficit that the Dutch bankers who had a short time before refused to buy French securities at all were eagerly offering to take a loan of 60,000,000 livres at 5 per cent.


[ocr errors]

His motto was, "No bankruptcy, no increase of taxation, and no borrowing, and when he was asked how, with such a policy, he could increase the public revenue, he is said to have answered that the art of taxation lay in the ability to pluck the goose without making him squawk." That he was master of his art is attested by his record, and he practiced it by so rearranging the French taxes that every one and everything paid a little, but not enough to restrain development or enterprise. The result was that commerce, which had previously been hampered by oppressive and inquisitional taxes, grew rapidly and the public revenue reflected the increased prosperity of the entire country.

Now, despite its seeming cynicism, there is much truth in Turgot's remark about the goose and its squawk. For several years to come our Government will have to raise somewhere between four and five billions annually by taxation. There is not much hope of any reduction, for even if we do pay off part of the public debt the money will have to be provided by taxation, and it is much to be feared that Congress, whether it be Republican or Democratic, will fail to practice the economy that both parties are now preaching on the stump.

Now, is the sum so overwhelmingly large? Even before the war had made of us a creditor nation we were voluntarily taxing ourselves about three billions a year to pay for the liquor that we bought. It cost some two billions at wholesale, to which should be added about a billion for the saloon-keepers' profit and the expense indirectly involved in the maintenance of almshouses and penitentiaries, many of which are now vacant. There are some who are even clamoring for the reimposition of this tax, because for them it was a pleasure to pay it.

1This supplements an article by Mr. Price printed in The Outlook on July 14, 1920, under the same general title, and is the substance of an address delivered before the National Association of Cotton Manufacturers at Maplewood, New Hampshire, September 23, 1920.-THE EDITORS.

[merged small][ocr errors]


Our expenditure for automobiles and their upkeep during the year 1919 must have been nearly as large, if not larger, for there were seven millions of them in use on the 31st of December last, about 1,600,000 of which were new machines manufactured and sold during the preceding twelve months. So it is not so much the amount of the taxes that we pay as the method by which they are collected that makes us uncomfortable.

The income surtaxes and the excess profits tax were popular with the economists because it was thought that they were in theory equitable, and with the legislators because it was believed that they would yield the largest returns and make the smallest number of people uncomfortable. According to the returns of 1917 (later figures are not available), there were only 161,996 persons in the United States who reported incomes of $10,000 or over in that year, and it did seem equitable that a rich man who had a lot of property for the Government to protect should pay more taxes than the poor man who cost the community little or nothing. But experience has proved that in taxing the few we have only increased the burden of taxation for the many.

Chief Justice Marshall's famous decision, under which State and municipal bonds and the interest received from them are not taxable by the Federal Government because "the power to tax is the power to destroy and Congress has no right to destroy the governmental agencies of sovereign States, is, for instance, the cause of the

[ocr errors]

high rents that are a consequence of the housing shortage.

As Mr. Otto H. Kahn has pointed out, a man with an income of $1,100,000 a year will get as much net return from a tax-exempt bond paying 534 per cent a year as from a taxable bond yielding 212 per cent, and one with an income of $200,000 a year would have to get 16 per cent on his taxable investments in order to have the same net income that he would derive from tax-exempt securities yielding only 534 per cent. In the case of an income of $100,000 a taxable yield of 13 per cent would be required to equal a tax-exempt return of 534 per cent, and so on down the scale.

These calculations take into account only the Federal income tax; if State income tax and other taxes are also considered, the advantage in favor of non-taxable securities would be even greater; and the result is that a very large share of the country's capital which might otherwise be invested in new houses or mortgages on them is being put into municipal or State securities. Their issuance has been correspondingly stimulated, and the ease with which they can be sold has in some cases led to great extravagance and wastefulness.1

There are many other ways in which the high interest rates on taxable investments caused by the high income supertaxes increase the cost of living and limit production. The manufac turer or merchant who has to pay, as at present, eight or nine per cent for the capital he requires is naturally disposed

1 Since the above was written John S. Parrish, secretary of the advisory council of real estate interests of the City of New York, has testified before the United States Senate Committee on Reconstruction and Production that the withdrawals from mortgage investments in real property in the borough of Manhattan during the first half of 1920 amount to approximately $83,000,000


In the newspaper report of this testimony Mr. Parrish is quoted as adding that "nowhere in the history of the city can there be found a parallel for such a drainage of basic capital from any field of investment." It indicates a rate of withdrawal of money from investment in mortgages in Manhattan alone of over $165,000,000 per year.

"An explanation of this unprecedented course of investment money will be sought in vain outside the operation of the income tax laws, Federal and State. This movement in and of itself supplies the most complete and sufficient explanation of the Nation-wide shortage in housings. It will inevitably continue its strangle hold on the building industry until the incidence of the income tax is raised from mortgage income and shifted to another point.

"The income tax is fundamentally uneconomic. It is an obstruction to the foremost of the industries, the great building industry with all its ramifications, and discourages the people from investing in it. This may not have been foreseen when the law was enacted, but the experience of the last three years and the cessation of housing construction and the prostration of the mortgage market has afforded a demonstration of which there can be no question."

to limit his activities. He employs fewer men, carries smaller stocks, reduces his turnover or output, and tries in every way to avoid borrowing money. The predicament of the railways and the higher freight rates recently authorized are in part due to the fact that the money needed for the improvement of the roads cannot be borrowed by even the best of them at less than from seven to seven and a half per cent.

But I could employ all the space allotted to me in an exposition of the injustice and disadvantages of the high supertaxes and the excess profits tax. To a reasonable and reasonably graduated income tax I see no objection, but the present surtaxes penalize success. They compel the enterprising man to pay the Government an immoderate share of his gains in a profitable year, and leave him to bear the losses of an unprofitable year alone. They kill the ambition and initiative of those who can do big things and are willing to take risks, thereby throttling the development by which society might benefit. They are inquisitorial, they are difficult to collect, they put a premium upon legalized evasion, against which the Government cannot protect itself without laws that would be, in fact, confiscatory; and they do not, as it was hoped they would,lessen the economic burden of the poor, for they have greatly increased the cost of existence for every one.

Of the disadvantages of the excess profits tax I need hardly speak, for they have become so apparent that both candidates for the Presidency have declared I themselves in favor of the abatement or repeal of the tax, and it is highly probable that it will soon be abandoned. If not, it may be that there will be no excess profits to tax, for with production costs increasing and prices declining as they have latterly it is quite possible that the word profit may shortly become obsolete.



[merged small][subsumed][ocr errors][ocr errors][merged small][ocr errors][graphic][merged small]

facturers who are not able to follow the same policy will be excluded from the market.

This is, in fact, one of the chief objections to the excess profits tax from the standpoint of the Government. The returns from it are too uncertain. good year they may be large, and in a poor year almost nothing. From the standpoint of the people, or the average business man or manufacturer employing a moderate capital, another disadvantage of the excess profits tax is the opportunity that it offers the large concern to strengthen a monopolistic grip through advertising, whose cost, being deducted from the profits made, is largely paid by the Government. A recent case in point is to be observed in the grocery trade, where a great commotion has been caused by the announcement that the manufacturers of a nationally advertised article would hereafter sell to the retailers direct, so cutting out the jobbers' discount and being better able to undersell their competitors. If the theory upon which this action has been taken works out in practice, other manu

I must admit that I have but recently come to the conclusion that the very high supertaxes and excess profits tax are inequitable and inexpedient. The theory which underlies them had a strong appeal for me when they were at first imposed, for it did seem just that those who had the most should pay the most and pay largely.

I am, however, convinced that in taxation, as in other matters, it is impossible for us to foresee the conflict between fact and theory until the latter is applied.

I well recollect a cartoon which was published when the Titanic collided with an iceberg and sank, despite her water-tight compartments, double bottom, and all the other devices to make her unsinkable with which she was equipped. The iceberg was labeled "Fact" and the Titanic "Theory." It was "Theory" that perished.

I doubt if any one, even the so-called tax experts, can say in advance what the incidence or effect of any new or untried tax will be, and we should therefore be careful before we decide to flee from the taxes we have to others that we know not of.

is politically impossible to get them radically changed at once.

Even if it be admitted that the present taxes are against the interest of the public, it must also be admitted that it

It is probable that the excess profits tax will be repealed. It is possible that some reduction in the income supertaxes may be secured, and it has been suggested that the tax on earned incomes should be revoked, leaving "unearned incomes" alone subject to taxation. The unwisdom of attempting to discriminate between earned and unearned incomes will probably become apparent as the proposal is considered. It would drive capital into tax-exempt securities, penalize thrift, and encourage people to spend their earnings instead of saving them.

This is the most we can hope for some years to come. The popular belief in the justice of the income surtaxes is too deep-seated to permit of their entire surrender; and in so far as new taxation is concerned, the practical question is, by what method shall we raise the revenue that may be required to make good the deficit that will result from a remission of all the excess profits taxes and a reduction of the surtaxes?

[blocks in formation]

mineral, and industrial production of the United States is now worth an aggregate of about seventy billions a year, and that in its passage from producer to consumer it generates a trade or commerce which involves an aggregate turnover of about five hundred billions annually. A tax of one per cent upon this turnover would yield a revenue of five billions a year, which is nearly twice as much as we are likely to need in the future, and a tax of one-half of one per cent would not be appreciably felt by the individual consumer, so why not levy it and be done with it?

It would collect itself, for it would only be necessary to require that every one should on the first of each month send a statement of his sales and a check for his taxes to the Treasury Department, or be prosecuted; and the buyer would hardly know that he was. paying the tax, because it would be hidden in the price and absorbed in the seller's overhead charges.

It all looks very simple, but let us examine it. Would it be politically possible to get Congress to pass a law taxing the farmer on what he receives for his crops? It is very doubtful. Would it be physically possible to compel the newsboy to pay a tax on the papers that he sold, or the peanut vender to make a monthly statement and send a check? Does the bootblack sell a shine" or his labor, and would the latter be taxable? Is it freight room or service that we buy from the railways? Should either be subject to the consumption tax, and should the banker who sells hundreds of millions of securities be subject to a turnover tax that would break him, or be given an exemption that Congress would never grant?


[ocr errors]

These are just a few of the questions that suggest themselves, but they make it plain that the problem is one of infinite complexity: It is probable that the goose would not squawk very loudly if he were plucked through the application of a consumption tax, but the difficult thing is to impose such a tax fairly and to make it politically acceptable.

I have given the subject much thought, and here again I must confess that I have changed my views. I do so without embarrassment, for I am one of those who believe that " a wise man changes his opinion, a fool never," and that "consistency is the weakness of the narrow-minded." When the turnover tax was at first proposed, it impressed me so favorably that I advocated its adoption in an article published in The Outlook for July 14 last.

But when I came to think out a practical plan for its collection I found that it would have to include more exceptions than are to be found in Greek grammar, and that each exception made would inspire a demand that another class be excepted, until there would be nobody left to tax.

Therefore I have given it up, and my mind, still seeking for some tax that would be "painless" and would not and would not make the goose "squawk," is gradually turning toward a tax that would be levied on those who employ others to work for them as the nearest approximation to an equitably distributed consumption tax. that we can obtain. I frankly admit that I am groping, but it is said that Edison tried 253 different sorts of material before he finally got a satisfactory filament for the incandescent light, and if it will not weary you I will tell you briefly my reasons for presently suggesting a tax on the priv. ilege of employing others to work for us, levied pro rata upon the amount paid them, for your consideration.

I say for your consideration, for all I can aspire to do is to stimulate thought on this all-important subject. I have no hope of being able to devise a plan that will be impeccable.

All that we consume and all wealth are, of course, the product of work. The banker's profit and the bootblack's pennies are alike the result of work. Speculation and judgment, the willingness to take risks and the ability to select and limit them intelligently, affect the reward that different men receive for doing the same amount of physical work, but these are elements that, being intangible, exempt themselves from


By and large, the great mass of things that mankind consumes are the product of work-on the farm and in the mines, factories, and offices. Therefore, if the labor cost of these things was taxed we should approximate an equitably distributed consumption tax, and if it were supplemented by a reasonable income tax plus moderate surtaxes we would, it seems to me, be coming about as near as we can get to a painless and fairly apportioned tax.

I am fully aware that there are a great many exceptions that would have to be made or would, so to speak, make themselves in the application of this theory. The men and women who employed no household servants, as well as those who sold the product of their individual labor directly to the public, would be exempt, but I am inclined to think that this is desirable, for it would stimulate personal economy and industry. On the other hand, the rich man who maintained an expensive country place and employed many servants and functionaries would have to pay for the privilege.

Doubtless a tax on the privilege of getting others to work for us, levied pro rata upon the amount paid them, would lead some to reduce the daily or hourly wage and increase the bonus payments or piece work, to which the labor unions would probably object. Bonus payments, gratuities, and piece-work wages should therefore be included in the taxable disbursements.

Human nature being as it is, there will always be an effort to evade taxa tion, especially direct taxation that is concentrated upon a small class whose members feel that their success is penal ized and that they are unjustly singled out to bear an unduly large share of the cost of government. Therefore, and without intending to be cynical or flippant, I maintain that it is more essential that a tax should be painless, that it should have a low visibility, that it should, so to speak, collect itself grad. ually and in small amounts, that it should not be inquisitorial, and that it should be laid upon what we spend and not upon what we earn, rather than that it should conform to the law of abstract justice, which I am convinced none of us understand or can hope to apply.

The revenue now required by the Federal Government is about five billions per annum. In round figures this is equal to about 15 cents per capita per day for every man, woman, and child in the country.

Most of us would a great deal rather pay 15 cents a day each day than $54.75 at the end of the year or on March 1 next succeeding; and just as the cashand-carry system promotes economy, so daily tax payments made through a small addition to the price of what we bought would probably stimulate thrift. The employers' privilege tax, while it would be paid directly by the farmer, the manufacturer, and the merchant, would be immediately passed on by a microscopic addition to the price of the article produced. It would therefore be almost invisible, it would be nearly painless, and it would be promptly paid in small installments from day to day or month to month.

A manufacturer or merchant whose monthly disbursements for salwages, aries, or piece work totaled $100,000 would at the end of the month send a statement to Washington with a check for the amount of his tax. If the tax were five per cent, his check would be $5,000, which he would include in his overhead charges and add to the selling price of his product.



The price paid by the manufacturer of an entirely finished or marketable product for the raw or partially fin ished material that he used would have been correspondingly increased by the employers' privilege tax paid upon wages paid to those employed in its production, and thus the price at which the article was sold for consumption would include all the employers' priv ilege taxes that it had to bear in its progress from the first producer to the ultimate buyer.

As to the aggregate of the wages paid in this country, which would be the principal sum upon which such a tax could be levied, no definite figures are available. Roughly speaking, there are probably fifty million men, women,

and children in the United States who sell their labor, directly or indirectly. If they earn two dollars a day and work three hundred days a year, the labor income of the country is thirty billion dollars a year. This is hardly more than a guess, but if it is anywhere near correct, a tax on the privilege of employing others that would equal seven per cent on what the employer pays would probably provide all the revenue we need to offset the reduction in the excess profits and income supertaxes for which we hope.

Such a tax would be paid directly by the employers, and for the most part by the large employers. Where the work paid for produced the things that the people consume the tax would no doubt be passed on in the prices charged, and in the case of those who employed oth

ers to lessen their own toil or minister to their comfort, luxury, or extravagance, the tax could not be passed on and would act as a deterrent to unproductive expenditure.


I submit the suggestion for consideration and criticism. I realize that it is only out of the conflict of opinion that truth is evolved. There may be great many objections to the proposed tax that I cannot see. Constant study of a single subject is apt to impair the vision.

All that I hope or can expect to accomplish is to stimulate thought upon what is our most important domestic problem, and I am certain that a satisfactory solution can be found if the energies of the collective American mind are concentrated upon the same subject.

[ocr errors][merged small][merged small][merged small][merged small][merged small]



MARION old man, in early years a political opponent but now a supporter, estimated the Republican nominee for the writer. "The trouble with Warren Harding," said he, "is that he never had any ambition. We've had to push and pull him from one public place to another. He was never a hand to blow his own trumpet or further his own fortunes. Of course after he gets in a race he runs true to form, but he always has hesitated to start, and it was always his friends who sort of chucked him, mildly protesting, beyond the barrier.


That is how it was when they first ran him for the State Senate. Some of us who had been dealing with him in business here for twenty years and who knew he had the levelest head and farthest sight of any man in_town insisted he stand for the office. It was the same when he was proposed for the nomination for Lieutenant-Governor. Finally he said, 'Well, boys, if you think it's for the good of Marion and the party, I'll be the goat.' When they put him up for the United States Senate, he was against it. He actually had the nerve to tell some of us, privately, that he doubted if he was competent for a National place like that. Besides, as a newspaper man with a shrewd estimate of public opinion, he honestly stated and believed that he lacked the political appeal necessary to bring success to the party. But he was elected by over a hundred thousand majority and ran far ahead of his ticket.

"This Presidential nomination was forced on him in the same way. I guess

[ocr errors]

BY RICHARD BARRY those Senators in Washington associating with him for five years came to look on him just as we do here in Marionthat when it comes down to cases in any close decision on public matters he holds a little finer balance than anybody else, but that he never uses it until all the others are discarded. He came about as near evading the nomination as a man could under the circumstances. They say he is like McKinley, but there is one vital difference, at least. McKinley consciously and with longheaded political acumen groomed himself for at least a dozen years for the Presidential nomination. While he was Governor of Ohio he neglected the business of the State and spent most of his time building National political fences. The exact opposite is true of Warren Harding."

In contrast is the expression of a leading citizen of Dayton, a close associate of the Democratic nominee. "Cox," said he, "is literally confident, coldly and absolutely confident, that he will be elected President next November. I don't mean this in the usual political sense. He believes in himself to a degree I never knew in any other man. Cox is accustomed to success, but he is never over-confident. You have to associate with him some time to realize what this means. He is as concretely analytical as an engineer, but he never thinks of failure, never prepares for it, never believes in it.

"If any man has raised himself by his own boot-straps, it is Jimmy Cox. If he wants a thing, he never thinks twice about getting it; he may think as often

as necessary about how to get it, but never once about the propriety or the desirability of his having it. This was characteristic of his business and professional career before he entered politics. He was forever reaching out and upward, attempting what seemed the impossible to other men, but relying solely on himself to get there, and usually doing it.

"When Cox was first nominated for Congress, it was a surprise to every one, for he was not the type we were accustomed to in public life. His personality was not known, he was a poor speaker, and he had the enmity of most of the powers that be. But coldly and alone he had made up his mind that he was going to Congress, and he went.

"In politics, as in business, he has the instinct for picking the right man (not men) for advice. In business it was Paul Sorg who became his backer and adviser. In politics he sought John McMahon, one of the shrewdest political brains in Ohio. It had been the dream of McMahon's life that his son should be a prominent office-holder, but he has never been able to do anything for his son, while it is his proud boast that he has piloted Cox to at least within a step of the White House.' (McMahon is eighty-seven, Cox fifty.)

But the initiative has always come from Cox. Two years ago he told his friends he would be the Presidential nominee this time. McMahon was the only one who believed him."

In general these expressions may be fairly accepted as the estimates of

(C) Underwood & Underwood


Marion and Dayton on their respective leading citizens. While there is a disagreement on the tenets of political faith, there must be a certain agreement on essential characteristics.

Harding is the Yggdrasil of Marion, under whose umbrageous shade pilgrims assemble for meditation and to absorb wisdom which permeates them as though from mystical sources. His strength comes as from a secret spring fed by unknown reservoirs.

There is something saga-like, something almost Oriental, about Harding's imperturbability and his seeming granite aloofness which the moment one approaches it becomes a velvet couch for reassuring revery. He looks and acts the part of and is the first patriarch. They dress his picture in a peruke and he looks like Washington. They dent in his cheeks and shade his eyes and he looks like Lincoln.

[ocr errors]


One cannot imagine Harding ning" for office. Offices and men and events just naturally have to "run" to Harding. It is like piping water down hill from a spring; gravity is a better force than the most ingenious mechanism or the most powerful pump.

These forces have been at work for a generation in that city. The writer was told that in thirty years not a measure of public enterprise has been accomplished in the community in and around Marion if Harding opposed it, while he has supported practically every one that has become a fact. This is not saying that all the business enterprises Harding has supported have been prosperous, for he told the writer himself that he could paper a room with stock certificates he held in Marion business concerns now worthless.

The Harding-Marion way has been this; unconventional, perhaps, but more

invariable than if it were caused by a written statute. Something new is desired for the town-perhaps a bond issue to extend streets, perhaps a little capital and the incorporation for a new factory, perhaps a subscription for a country club, perhaps the extension of electric lighting to a new development. After the initial work of early discussion and promotion is over there always comes a time when some one asks: "Well, have you seen Harding? What does he say?" Harding is always the focal point, the peak, of the promotion. focal point, the peak, of the promotion. This is not a financial control, for his money interests are not large, and in nothing but his newspaper dominant. It is rather the benevolent guidance of a commonly recognized community vision broader and surer than any other. Wise instigators in that locality study the ap proach to Harding's mind just as wise attorneys study the entrance to the Supreme Court. For if he approves the scheme, whatever it may be, it is assured. of at least a try. If he withholds approval, it will fall to the ground of its own weight sooner or later. The essential point to be emphasized here is that Harding never disapproves and never opposes; he only withholds approval. No one ever heard him publicly attack any enterprise in Marion, or any individual, except in the stress of a political campaign, and then never personally.

Harding is temperamentally and by training and by lifelong experience essentially a "booster." It is almost impossible for him to say a harsh or an unkind word about anybody. His shrewd estimates of men and measures are unerring, but they are always on the sympathetic side. The writer has heard his confidential opinion of such men as Wilson, Cox, La Follette, Johnson, and others, each of whom, in differing ways,

he has at various times opposed politically. He always speaks first of his opponent's strength, and then cautiously, if at all, of his weakness. This is not with lawyer-like reserve either, but with the sang-froid and often the easy slang of the hit-or-miss newspaper man.

[ocr errors]

In the early years the office of the editor of the Marion "Star often usurped the functions of the local police court and of the county court-house, for so many people who wanted to avoid the delays and complications of the law would by common consent submit their differences to Harding as referee, as nearly every one felt that he would give an intelligent and impartial opinion. Despite the fact that as an editor he might profit in thus gaining news of interesting differences, there was never an instance in which he did not seek to help people to patch up their troubles. Thus, unofficially, he was for long the chief magistrate of the city.

The writer asked the "Star's Democratic competitor, the editor of the Marion "Tribune," if he would oppose Harding in this election. "Yes," he grudgingly admitted, "we will oppose him, but not very hard. People around here won't stand for it."

A similar question was addressed to the Republican editor of Cox's chief competitor, the Dayton" Herald and Journal." "We will not only fight him tooth and nail, from now until election," was the fiery answer, "but I am

sure we will lick him. Cox will not carry his own county."

This feeling is the resultant of twenty years of fierce contest in the maelstrom of city journalism and politics.

Business men in Dayton, if not political enemies, have for Cox a genuine admiration as a successful mau. It is the same sort of admiration they have for a cash register or a motor car or an independent lighting system for the making of which their community is celebrated. They look upon him as a unique and marvelous human mechanism which has an uncanny faculty of performing well any task to which it may be set. They were not astonished at his Presidential nomination, though few anticipated it; they have come to look upon any success which he attains as well within the man's reach. When he made his sensational charges about the Republican campaign fund, those who knew him were sure he had what he thought to be definite proof. "Cox is not a four-flusher," one Dayton manufacturer said; "he is a born prosecuting attorney; he never brings an indictment unless he thinks he can prove his case, but he never looks beyond into causes and effects. He is an expert in wrecking, and he lets the other fellow do the salvaging, while he stands by cannily ready to profit personally, if possible. In wreckage he has initiative; in salvage he is a follower."

However, in all of this feeling there

« PredošláPokračovať »