C. Personal income tax paid.-The total normal tax paid by those making returns in 1916 was $51,440,558. The total additional tax (super tax, etc.) amounted to $121,946,136, a total of $173,386,694. The average rate of tax on incomes of under $5,000 was less on incomes of $4,000 to $5,000 than on incomes of $3,000 to $4,000, being, respectively, 0.204 per cent and 0.289 per cent. The rate on incomes of $15,000 to $20,000 was only 0.934 per cent, and the rate on incomes of $5,000,000 and over was only 12.908 per cent-the average rate on all incomes taxable being 2.753 per cent. D. Taxes paid by corporations.-The total normal tax paid by corporations showing a net income in 1916 was $171,805,150, divided as follows: The total national income in 1917 was estimated at sixty-three to sixty-four billions. A. Personal income.-It is estimated that for 1917, there were about three and a half million tax returns under the reduction of exemption from three and four thousand dollars to one and two thousand, respectively, and that the total income was approximately twelve billion dollars, of which four to five billion was subject to the normal income tax and two and a half billion to three billion was not subject to the normal income tax because it was received from dividends. B. Corporate income.-The total corporate income in 1917 is estimated at approximately $10,450,000,000, divided roughly as follows, among the five large classes of corporations or industries: Financial___ Public service_ Industrial___ Mercantile.__. Miscellaneous.... Total. $630, 000, 000 1, 500, 000, 000 6, 500, 000, 000 620, 000, 000 1, 200, 000, 000 10, 450, 000, 000 The Treasury Department has prepared a statement comparing the net income of 240 industrial corporations in 1917 and in 1916. These are widely distributed as follows: Net income, dividends, and surplus for 240 industrial corporations, years 1917 and 1916. Of these groups of corporations only 12 of the 36 showed a smaller net income in 1917 than in 1916, but the total net income of these 240 typical industrial corporations was nearly $400,000,000 greater in 1917 than in 1916, the figures being in 1917 $1,818,644,000, and in 1916 $1,425,531,000. The copper companies reported (31) showed a net reduction in 1917, the net income in 1917 being only $122,030,000, as against $164,806,000 in 1916. The price fixing of copper seemed to have an effect. Nineteen iron and steel corporations for which returns were given showed a large increase, the net income in 1916 being only $440,878,000, and in 1917 $707,296,000, an increase of about $367,000,000. TAXES. It is estimated that the total income tax paid by all the corporations under the excess-profits tax for 1917 was $1,691,000,000, while their war profits amounted to $5,204,864,000. An 80 per cent tax on war profits would have yielded about $4,163,000,000. The actual tax paid was equal to 32.5 per cent of the war profits, as follows: SUGGESTED TAXES ON CONSUMPTION. In the memorandum of "Possible sources of revenue," suggested by the Treasury Department and submitted to the Ways and Means Committee, the following statement is made; "The retail-sales tax, however, raises a different set of considerations. That tax is recommended not only to raise additional revenue, but for the equally important purpose of discouraging wasteful consumption and unnecessary production. It would be superfluous at this stage of the war to dwell upon the fact that waste and extravagance are akin to treason. We pay lip homage to this truth, but we neglect its practice. We are not yet cutting our personal budgets sufficiently to make the excess of national production over national consumption equal to the needs of the Government. The retail-sales tax distinctly labels the taxed articles as luxurious and serves notice that the Government's ban is upon it." The consumption taxes on nonessentials, suggested by the Treasury Department, would tend to defeat their own purpose. It is stated: "The retail-sales tax distinctly labels the taxed articles as luxurious, and serves notice that the Government's ban is upon it." In other words, the Government says that the purchase of the articles upon which this 20 per cent or higher tax is levied is, to quote the memorandum, "akin to treason." It would seem obvious that the Government should not compound a felony or even a misdemeanor by the payment of a 20 per cent tax, whether this tax is paid by the manufacturer or by the purchaser. The suggestion is an indirect and impracticable method of attempting to reduce consumption and secure revenue at the same time. We say impracticable" on the basis of the experience of our allies, which have tried the system of taxation as shown in the pamphlet prepared by the Ways and Means Committee in the Legislative Reference Library of Congress entitled, "War Taxation of Incomes, Excess Profiits, and Luxuries." Luxuries are manufactured, and the Government derives some revenue therefrom, but only a small proportion of the cost of the war, and our allies, mistakenly from a fiscal point of view, have relied upon these taxes, "indirect income taxes," instead of upon a direct income tax. They are raising only a very small pro- portion of the total current cost of the war by taxation. In view of the fact that the United States is underwriting the entire financing of the war, it would be an aggregious blunder, inexcusable in the light of our allies' experience, for us to attempt the same method of getting revenue. We ought to face the fact that in order to finance the war we have got to reduce consumption right down to the core; that men and women must not buy clothing and furniture, nor a single one of the articles upon which the memorandum of the Treasury Department suggests a retail tax or specific tax, unless these articles are absolutely needed. The suggestion about "padlocking" revenue by requiring manufacturers or merchants to give bonds is not feasible. We must eliminate the manufacture of all nonessentials. The Government has got to go through the factories of the country with a finetooth comb, and take out the men who have had training on farms and place them back on the farms, or else we shall be in imminent danger of losing the war through starvation. Hundreds, if not thousands, of nonessential factories must be shut down, including unquestionably factories manufacturing goods on the lists suggested by the Treasury Department, and this, at least, for the period of the war, and possibly for a longer time. If we reduce consumption sufficiently to raise twenty-four to twenty-eight billion dollars for the cost of the war, whether by bonds or by taxes, very few of the articles or commodities suggested for taxation in this memorandum would be purchased, and the revenue therefrom would be negligible. A detailed analysis of the list shows this fact plainly. Some watches have got to be bought. A tax of 50 per cent thereon is exorbitant if people need watches. If not, a tax of 500 per cent would be just as reasonable. There is no excuse for manufacturing jewelry during the war, and such manufacture can not be made patriotic by a 50 per cent tax. No automobiles, motor cycles, and bicycles, including parts and accessories and tires, should be manufactured during the war for pleasure purposes. The Treasury Department and the Fuel Administration seem to be working at cross purposes, inasmuch as the Fuel Administration has reduced the coal allotment for factories making pleasure automobiles to 25 per cent of the normal quantity consumed. Musical instruments, while essential in peace times, are completely nonessential during the war, except for military purposes. The manufacture thereof should be stopped, and those engaged in the manufacture thereof put to work to help win the war. Obviously, no liveries should be manufactured during the war. Congress should not only tax the butler out of the pantry, but the coachman off the box. The proposed tax upon house furnishings must be criticized similarly. People do not need to buy ornamental lamps and fixtures, fancy articles, and knick knacks during the war. We have a large supply on hand. If they do need curtains or carpets or rugs, as in the case of clothing, it is better economy to purchase a substantial wearing one than poor ones which are more expensive in the long run. It is difficult to comprehend the mental processes of those who suggest a tax upon cutlery-the serviceable kind—and upon purses, brushes, combs, and other toilet articles of reasonable necessity; also a tax upon furniture costing more than $5 per piece. It is not considered a crime to marry and raise children, and those who marry will have to buy furniture. Why they should be taxed thereon, if they buy only what they need, is inexplicable. Chinaware, or some sort of tableware is a necessity; cut glass a luxury. Yet, these are put in the same class in the suggestion to the Ways and Means Committee. A study of the proposed taxes upon soft drinks, chewing gum, etc., raises the question as to why the Food Administration and the Treasury Department do not get together. The Food Administration has suggested the elimination of soft drinks as far as possible, as consuming sugar, of which we are short. The Treasury Department would seem to throw the mantle of patriotism over the unpatriotic consumption of sugar by taxing its use in these beverages. We can probably survive the period of the war without great indulgence in perfumes and cosmetics. The United States will probably take a lesson from the British Labor Party and realize the necessity of complete prohibition during the war. A tax upon denatured and wood alcohol would be a most vicious burden upon the farmers of the country. The suggested tax upon tobacco in its various forms is the most nearly excusable tax suggested, but the situation could be better met by eliminating the tobacco industry for the period of the war, except in so far as the Government needs it for men in the service. The suggested tax of 10 cents per gallon on gasoline, levied on the wholesale dealer, is an admission either that the wholesale dealer is profiteering unconsciously, in which case he can be reached by a war-profits tax, or that some further discouragement on produetion is due the farmers and other producers. A tax upon automobiles, if applicable, as is not clear from the context, to trucks, is an inexcusable burden upon production. The license tax on a Ford ear of $15 will, of course, affect very largely the farmers of the country who use these cars for business and to save horses; that is, to save feed. They do very little pleasure riding. The doubling of the tax on admission to amusements seems unjust, because there is no exception. The Treasury Department evidently has overlooked the fact that the majority of the families of the country have an income of less than $1,500, and that their recreations are cheap because they have to be. The tax on yachts, pleasure boats, power and motor boats seems to compromise the Government, since those propelled by gasoline and by coal use essentials which the working people and the poorer classes are asked to conserve. and which all should conserve. The payment of even a large tax should not grant license to those who can indulge in conspicuous consumption to waste material needed for the winning of the war. The suggested tax upon servants will produce little revenue but many liars, since it can be evaded. The only effective way to prevent extravagance and the consumption of nonessentials and luxuries is not through the system suggested by the Treasury Department but through the absolute prohibition of the manufacture and production of nonessentials and the transformation of factories producing such nonessentials and luxuries into war service and those employed therein into similar help in winning the war. Sufficient revenue can be secured by heavy taxes on incomes, on war and excess profits, and on the value of unused and inadequately used land. The collection of taxes suggested by the Treasury Department would involve the services of two or three Army divisions which might better be employed in production necessary for the winning of the war. How $12,500,000,000 can be raised for the fiscal year ending June 30, 1919, twelve billions for the war and half a billion for ordinary Federal expenditures, exclusive of Army and Navy, in 1919: War-profits tax. Income tax.... Corporation tax_ Customs - Tax on the value of unused and inadequately used land. Total $3,875, 000, 000 6, 000, 000, 000 555, 000, 000 230, 000, 000 500, 000, 000 1, 321, 215, 000 12, 481, 215, 000 Twenty-four to twenty-eight billion dollars must be raised during the current fiscal year for the cost of the war, by loans or taxes. Since this has got to be done, half of this sum can be raised by taxation if Congress determines to do SO. It resolves itself into a question of whether the Government shall borrow from those of small means and tax those of comfortable and enormous incomes, or borrow chiefly from the well-to-do, and tax the workers. 1. The war-profits tax: The war profits-that is, the profits over the threeyear prewar period-were, last year, approximately $5,295,000,000, as shown above. Had we levied a war tax of 80 per cent, we would have secured approximately $4,163,000,000, instead of the proceeds of the excess-profits tax-about $1,691,000,000. In other words, we would have secured about $2,472,000,000 additional. The estimated net income of corporations for the present year is $9,600,000,000, divided as follows: Financial____. Public service- Mercantile Miscellaneous. $600, 000, 000 1, 400, 000, 000 5, 900, 000, 000 600, 000, 000 1, 100, 000, 000 The income subject to a war-profits tax is approximately $4,305,000,000, divided roughly as follows: Financial__ Public service_. Industrial___ $60, 846, 000 286, 701, 000 3,230, 980, 000 90, 160, 000 636, 169, 000 Ample deduction having been made, it would seem perfectly reasonable to levy a tax of 90 per cent upon these war profits, which would yield $3,875,000,000. 2. Personal income: The personal income last year was estimated at $12.000,000,000, of which four to five was subject to the normal income tax, and two and a half to three billions was not subject because dividends. The personal income for 1918, with the exemption, as in 1917, of only one and two thousand dollars, respectively, will be approximately $14,000,000,000, from which three and a half billions should be deducted as dividends. This income of about eleven and a half billions received by approximately two and a half miltion families and individuals averages $4.600 per family. In 1916, approximately 5,530 families or individuals received each a net taxable income of over $100,000 Had the Government taken in 1917 all net incomes in excess of $50,000, the Government would have secured from this group, in round figures, a total of $1,519,535,000; a moderate tax rate on the net incomes of $3,000 to $100,000 would have yielded $1,520,430,000, a total of $3,039,965,000 : All incomes in excess of $50,000. Moderate tax on incomes from $3,000 to $100,000_ Total_ The rates would have been an average of— 10 per cent on the net income of those receiving from.......... $1, 519, 535, 000 1, 520, 430, 000 |