anaheim-gazette 1923-11-29

MELLON'S REDUCTION PLAN At the request of Representative Greene, acting chairman of the House Committee on Ways and Means, Secretary Mellon outlined in a letter to the committee a program of federal tax reduction and equalization. Owing to the length of this statement, the regular news associations did not carry it in its entirety. Due to its great importance, a great many newspapers have requested more information upon the subject. The following is a summary of Secretary Mellon's recommendations, the most important parts being quoted in full: 1. Make a 25 per cent reduction in the tax on earned income. The fairness of taxing more lightly income from wages, salaries and professional services than the income from a business or from investment is beyond question. In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it. In the other, the source of the income continues; it may be disposed of during a man's life and it descends to his heirs. It is estimated that this amendment will mean a loss in revenue of about $97,500,000 a year, the greater part of which falls in the lower income brackets. 2. Where the present normal tax is 4 per cent, reduce it to 3 per cent, and where the present normal tax is 8 per cent, reduce it to 6 per cent. This affects all personal incomes and the loss of revenue comes largely from the lower brackets. It is estimated that this will mean a loss in revenue of $91,600,000 a year. 3. Reduce the surtax rates by commencing their application at $10,000 instead of $6,000, and scaling them progressively upwards to 25 per cent at $100,000. This will readjust the surtax rates all along the line, and moreover, is not in any sense a partisan measure. It has been recommended, on substantially this basis, by every Secretary of the Treasury since the end of the war, irrespective of party. The present system is a failure. It was an emergency measure, adopted under the pressure of war necessity and not to be counted upon as a permanent part of our revenue structure. For a short period the surtaxes yielded much revenue, but their productivity has been constantly shrinking and the Treasury's experience shows that the high rates now in effect are progressively becoming less productive of revenue. "The high rate put pressure on taxpayers to reduce their taxable income tend to destroy individual initiative and enterprise, and seriously impede the development of productive business. Taxpayers subject to the higher rates can not afford, for example, to invest in American railroads or industries or embark upon new enterprises in the face of taxes that will take 50 per cent or more of any return that may be realized. These taxpayers are withdrawing their capital from productive business and investing it instead in tax-exempt securities and adopting other lawful methods of avoiding the realization of taxable income. The result is to stop business transactions that would normally go through, and to discourage men of wealth from taking the risks which are incidental to the development of new business. Ways always be found to avoid taxes so destructive in their nature, and the only way to save the situation is to put the taxes on a reasonable basis that will permit business to go on and industry to develop. This, I believe, the readjustment herein recommended will accomplish, and it will not only produce larger revenues but at the same time establish industry and trade on a healthier basis." 4. Limited losses to 12%. The present on capital gains puts no limit would be set to recognize capital losses tax laws." Recognizes the tax on same rule losses "so far the tax may not exist loss." In law now affair which to deduct losses but cent for capital estimation law will in 100,000. 5. Limited gross income the year after stress character of these items come tha provides tha acquire titles is not ineffective purchase cash and bposes. It is a taxpayer reached for be permitted less losses. 3. Reduce the surtax rates by commencing their application at $10,000 instead of $6,000, and scaling them progressively upwards to 25 per cent at $100,000—This will readjust the surtax rates all along the line, and the Treasury recommends the readjustment not in order to reduce the revenue but as a means of saving the productivity of the surtax. In the long run it will mean higher rather than lower revenues from surtaxes. At the outset it may involve a temporary loss in revenue, but the government actuary estimates that even during the first year, if the revision is made early enough, the net loss in revenue from all the changes in the surtaxes would be only about $100,000,000 and that in all probability the revenue from the reduced rates will soon equal or exceed what would accrue at the present rates, because of the encouragement which the changes will give to productive business. "The readjustment of the surtaxes, The growth of tax-exempt securities, which has resulted directly from the high rates of surtax, is at the same time encouraging extravagance and reckless expenditure on the part of local authorities. These state and local securities will ultimately have to be paid, principal and interest, out of taxes, thus contributing directly to the heavy local taxation which bears so hard on the farmers and small property owners. There is no immediate remedy for this within the power of Congress except the readjustment of the surtaxes on a basis that will permit capital to seek productive employ- The past year has been a bountiful and proall thankful. Looking back over the year that they have many things to be grateful f of prosperity, for which we extend thanks Our associations with all our customers h treme. To them we extend greetings, and ships will always be as pleasant. SOUTHERN COU sense a partisan recommendation basis, by treasury since respective of item is a failure measure, measure of war counted upon our revenue period the surrevue, but their constantly treasury's experilhary rates now merely becoming pressure on tax-exempt in individual intl. and seriously that of producers subject to afford, for execlan railroads upon new enquiries that will arise of any rea. These taxes their capital gains and investmpt securities fewful methods of taxable to stop busi- should normally discourage men the risks which development of will always be destructive in any way to save the taxes on a will permit busi- try to develop. Justment here-complish, and larger reven- e establish in healthbais ment and keep it from exhausting itself in tax-exempt securities. The productive use of capital in our railroads and industries will also tend to bring lower costs for transportation and manufactured products, thus helping to relieve the farmer from the maladjustment from which he now suffers. "4. Limit the deduction of capital losses to 12½ per cent of the loss.—The present revenue act limits the tax on capital gains to 12½ per cent, but puts no limit on capital losses. It would be sounder taxation policy not to recognize either capital gain or capital loss for purposes of income tax laws." But so long as our law recognizes capital gains by limiting the tax on them to 12½ per cent, the same rule would be applied to capital losses "so that the amount by which the tax may be reduced by capital loss will not exceed 12½ per cent of the loss." In other words, the way the law now stands it is a jug-handled affair which per mits the individual to deduct unlimited sums for capital losses but to be taxed only 12½ per cent for capital gains. Secretary Melon estimates that this change in the law will increase revenues by $25.000,000. "5. Limit the deductions from gross income for interest paid during the year and for losses not of a business character to the amount the sum of these items exceeds tax-exempt income of the taxpayer.—The 1921 act provides that interest on indebtedness to acquire or carry tax-exempt securities is not deductible. This provision is ineffective because a taxpayer may purchase tax-exempt securities for cash and borrow money for other purposes. It is felt also that so long as a taxpayer has income, which is not reached for taxation, he should not be permitted to deduct his non-business losses from the income which is $92,750,000 would be saved by that class of income taxpayers who have a salary ranging between $1,000 and $6,000. In other words, 40 per cent of the tax reductions proposed by Secretary Melon would directly benefit the man of small income. Fifty-two million dollars more of the proposed cut would be on those whose income is between $6,000 and $10,000, so that, all told, 70 per cent of the proposed tax reductions would be on incomes of $10,000 or less. Only 5 per cent would be on incomes of $100,000 or over. The man of small salary would receive his proportion of the savings due to the proposed repeal of taxes on theater tickets, baseball tickets and other amusement tickets, as well as repeal of taxes on miscellaneous articles, such as watches. PROPAGANDA IN SCHOOLS During the war the public schools were used effectively in helping to put over Liberty Loan drives and other important war propaganda. Though many educators felt that it was a mistaken use of the educational system, the public on the whole seemed to feel that it was justified by the greatness of the emergency. Since the war there have been many demands that the schools be let alone by publicity seekers. It is urged that a school is a place for teaching children and developing their abilities not for spreading specific propaganda however worthy. In one city, just before the election of November 6, the schools were used, with the consent of the school board and the teachers' federation, for the distribution of literature in favor of a measure which was to come before the voters. That a great many leading citizens were in favor of the measure, and that it had been endorsed by the school board and the teachers' body seemed sufficient reason for development of will always be destructive in any way to save the taxes on a will permit business to develop. Adjustment here accomplish, and larger revenge establish healthier basis. The alter-rackdown in the nation of industry as a nation: exempt securi-directly from tax, is at the extravagance on the part these state and ultimately have interest, out ling directly to which bears and small pro- no immediate the power of adjustment of that will per-ductive employ- The 1921 act provides that interest on indebtedness to acquire or carry tax-exempt securities is not deductible. This provision is ineffective because a taxpayer may purchase tax-exempt securities for cash and borrow money for other purposes. It is felt also that so long as a taxpayer has income, which is not reached for taxation, he should not be permitted to deduct his non-business losses from the income which is taxable, but should be restricted in the first instance to a deduction of these losses from his non-taxable income. The estimated increase of revenue from this source is $35,000,000. In addition to this, Secretary Mellon advocates the repeal of the taxes on telegrams, telephone, amusement tickets, theater tickets and what few miscellaneous taxes that remain that are known as nuisance taxes or luxury taxes, such as taxes on table silverware, and watches. These are the last of the war taxes, and their repeal would mean a reduction of about $100,000,000. By the changes recommeded, Secretary Mellon estimates there would result a net reduction in federal taxes of $222,900,000. Of this amount saved children and developing their own not for spreading specific propaganda however worthy. In one city, just before the election of November 6, the schools were used with the consent of the school board and the teachers' federation, for the distribution of literature in favor of a measure which was to come before the voters. That a great many leading citizens were in favor of the measure, and that it had been endorsed by the school board and the teachers' body, seemed sufficient reason for reaching the public through the children. The next day opponents of the measure demanded that the school board distribute their posters and literature. They insisted that the board's actions in reaching voters through pupils had established a precedent, and that the campaign facilities of the schools ought henceforth open equally to all. The abuses that would arise if all schools were thus made the free distribution agents for all factions and groups are obvious. Teachers would have no time to teach or pupils to study under such circumstances. Schools are a tremendous influence for progress in a community, but their service is likely to be weakened by such interruptions. to Our Friends EDISON DIVI regularity. The dend has just been common stock. untiful and prosperous one, for which we are over the year the officials of this bank feel to be grateful for. We have enjoyed a year extend thanks to our friends and patrons. Our customers have been pleasant in the ex-greetings, and trust that our future relation-ant. EDISON DIVI regularity. The dend has just been common stock. 64,000 are sharing in the industry. Their It is Easy 7 Pct. Preferred S on the monthly p Southern C Own OUR WINTER FUEL it makes home comfortable on the chilly damp days that come to Sunny Southern California. For cheerful heat—the even, steady kind that fills your rooms with a delightful glow of comfort. 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