Evening Star Newspaper, January 22, 1933, Page 19

Part 2--8 Pages SELF-LIQUIDATING LOANS FIND FEW ELIGIBLE TAKERS Restrictions Set Up by Congress Allow Huge Fund to Remain Idle in Hands of R. F. C. BY REX COLLIER. 'ANTED—Somebody to whom Uncle Sam can lend a billion and a. half dollars before January 23, 1934. It sounds foolish. But that is approximately the situation which confronts the Government with re to that much-heralded aid to employ- ‘ment and prosperity, the self-liquidating loan provision of the Reconstruction Fi- nance Corporation act. ‘With only a year to go, come to-mor- row, before the offer automatically is withdrawn, the R. F. C.—world's largest financial institution—finds itself in the anomalous position of one with plenty of money to lend in an extreme credit stringency—and few takers. Perhaps the statement should be qualified: Few eligible takers. There are plenty of applicants for this capital, but most of them, when tried under the rigid rules imposed on the R. F. C. by law, are found wanting. The picture is one of Uncle Sam hold- ing his money bags out to the States, cities and other agencies for whom the vast sum was intended, but having so many strings tied to the bags that it is proving difficult to open them. 3,000,000 Jobs Possible. So far cnly $18,000,000 in round fig- ures has come out of that billion-and-a half dollar fund. About half a hundred loans totaling approximately $150,000,- 000 have been authcrized, however. The approved loans represent but 10 per cent of the money which Congress has given the R. F. C. until next year to disburse. z It is estimated roughly that the loans already sanctioned will provide employ- ment for nearly 300,000 men, working 30 hours a week for one year. If the same ratio of jobs to dollars may be ap- plied to the Temaining fund, entrance into circulation through self-liquidating projects of the entire fund would mean employment for 3,000,000 men. Yet, in the words of Harvey Couch, R. F. C. director in charge of self- liquidating loans, “the surface of this vast_reservoir of credit has hardly been touched.” Mr. Couch, concerned over the slowness with which these loans are trickling into circulation, has made ur- gent, direct appeals for applicants. He believes there are many projects which could be financed by the corporation within the limits fixed by law, if the | R. American people were fully aware of the fact that money is available—with re- strictions. There are two formid:ble strings whish are the chief cbstacles to imme- dint> and widesprecd distribution of - cf this ch~rac'c”. Call them “red if you wil'. Br whatever name, ' ings were tied to the loans by bird'=7 on the R. F. C. until another wct lco=2ns them. “Self-Liquidating” Defined. String No. 1 is a provision that the money must go only to “self-liquidat- projects. String No. 2 is a qualification that all loans must be fully and adequately secured. ‘There are, in addition, a lot of smaller strings. limiting the character of appli- cants, the nature of projects, and so on. Even with these minor restrictions, so to speak, the field of applicants and projects eligible for loans is expansive. The law does not leave to the R. F. C. the responsibility of interpreting what is meant by “self-liquidating.” Here is the statute’s own definition of the term: “For the purposes of this sub- section a project shall be deemed to be self-liquidating if such project will be made self-supporting and financially solvent, and if the construction cost thereof will be returned within a rea- sonable period by means of tolls, fees, rents or other charges, or by such other means (other than by taxation) as may be prescribed by the statutes which pro- e rcdrlsthe ?r‘;ojef}t:i: provision of the I cuss act, M. Coulc'}z\ told construction in- terests recently: “The potential borrower should con- sider two questions: First, will the in- come from the project be sufficient to meet operating and maintenance charges, interest and amortization? Second, do the prospective revenues arise from wmc:gst v{n’mn the contem- lation of the statute?” > The first question, he points out, in- volves the compiling of the best avail- able estimates of costs, income and ex- penses and considering them in the light &!’ probable interest and amortiza- . tion charges. It is not so simple as it sounds. A meeting of engin minds on de- tailed estimates of this sort is not easily achieved. What appears'to be sound, self-liquidating project to one group of engineers may develop serious flaws when considered by another group. There are financial to a self- liquidating project g for some- thing more than mere engineering ability. The proposition may be per- fectly sound from an engineering stand- point but insecure from the standpoint of financial return. Yet the law re- quires the R. F. C. to make sure that the financial phases are thoroughly sound—that the undertaking will make a profit and eventually return to the Government the amount of the loan, with interest. ‘To pass on the engineering phases of the projects, the R. F. C. has created an engineers’ advisory board, composed of five outstanding men of the engineer- ing profession. At present there are some 250 applications awaiting the ver- dict of this board. Whether these ap- plications can hurdle this board will depend on how well they meet the speci- fications laid down under the law’s measuring stick. ‘The seconc t to be considered by a prospective wer is whether the revenues from a project will come from sources approved law. project for which people are to be taxed, for example, is ineligible to receive a loan. The revenues may, however, be raised by tolls, fees, rents or other charges. Many projects that Congress intended should be financed by the R. F. C. are being held up because the appli- cants themselves are not authorized in their own States to apply for a Federal loan. Loans for low-cost housing and slum clearance, for forest development and for publicly-owned bridges are in this category. Congress restricted loans for housing and slum improvement to corporations formed wholly for this purpose and under State or municipal regulation. New York was one of the few jurisdictions having corporations subject to such control. Many other States and cities are hastening to secure legislation or ordinances which will meet this provision, however. Similar regulations are necessary in many States before forestry enterprises may be brought within the purview of the . F. C. Many agencies named as eligible for self-liquidating loans have no provision in their charters for ob- taining a Government loan. The char- ters must be amended. Urges Early Applications. Until these obstacles are removed the flow of loans is bound to be small, it is pointed out. According to meeni-g Congress and they are | Couch, Senator Robert F. Wagner of New York, sponsor of the loan act, and several other tors are consid- loosen the purse strings and ma- chinery #md men to work with the spontaneity contemplated as the outset. Meanwhile the R. F. C. and other organizations interested in giving the movement more acceleration are ap- pealing for loan applications. “Some communities,” Mr. Couch said, “have appointed committees to make investigation of all their public works in order to determine whether or not there are any repairs or any new pro- jects which may be handled at this time.” ‘The consumation of efforts to amend the act so as to liberalize the loan policy should not be allowed to delay applications, he says, for perhaps the application may receive prompt ap- proval under existing law. Lawrence M. Conant_of .Carl Byor & Associates, a New York organization which has been conducting a survey of the possibiiities of reducing unemploy- ment through self-liquidating projects, believes that a wider realization of the fact that Pederal loans are available will result in a flood of applications. “With the proper display of energy,” he sald yesterday. “State and local agencies can get these funds for their projects, and literally hundreds of work not only on the projects ,them- selves but in the mills, mines and plants that supply raw and finished ‘materials for construction — to sa; nothing of the railways and other in- dustries that must be called into action on any great construction activity. “With a little encouragement there is no good reason why 1933 should not se¢ the self-liquidating project live up to its reputation as a work producer.” World Has 30,000,000 Without Jobs, But Recent Betterment Is Shown By ALBIN E. JOHNSON. ENEVA—In its latest official rts for submission to the G gg%amtory Committee of the proposed World Economic Con- fice has ascertained that while unem- ployment, as compared with 12 months age, is still increasing, there has been t three months, as compared v‘;nhghptalfe figures for July, August and September. im- unemployed workers in the more porlugv.oy industrial and agricultural countries of the world, and the frozen nding power, amoun! ‘more :)F;:n 10%‘000,0004000 gold frencs (about $20,000,000,000) last year. the face, avoiding political implica- Hioms 3o Tar as possible, an € in- ternational co-operation in International Labor Office has map] biti rogram for 1933. Its DML tatk 19 10 frame a report for sub- survey, preparatory to drafting ference, the International Labor Of- a perceptible decrease in idle workers There are still more than 30,000,000 capecity, mdudtncldenwuy Continuing its policy of looking facts world-wide unemployment problem, the mission both to the Economic Confer- ence and the annual assembly of the |idl bor Bureau, which meets in Geneva {l‘: May, on the question of reduced working hours, Committees are also pressing for action in regard to inter- national public works schemes which it is hoped will absorb several hundred thousand idle European workers the coming Spring and Summer. VU. S. Co-operation Expected. jon of the United States, s W?x‘sc time officially, with the International Labor Office is expected Wwhen President-elect Roosevelt takes office. 1t is believed Mr. Roosevelt will comply with the resolution of the Amer- jcan Federation of Labor asking that a representative of th;eUnlud ‘.Is‘f::ll;l .l')‘s- rtment of Labor be permai - floned at "5‘;"‘ to keep in touch with Labor ice. - mfn its review of the actual world sit- uation the Labor Office finds that un- employment continues practically un- abated in most countries as the new year gets under way. Only Poland and Esthonia, out of 25 countries from which official or authoritative reports are available, show a decrease in the num~ ber of workers unemployed as compared with the beginning of 1032. The en- couraging sign, however, is that while there are more idle than there were & year ago, in the industrial countries of. Belgium, Prance, Poland and Great Britain there are less unemployed now than there were during the late Summer and Autumn months. Ordinarily un- employment_increases in normal times during the Winter months, but this ad- verse seasonal fluctuation appears to have been overcome in the above-men- tioned countries. In Germany and Italy, also heavily industrialized countries, the increase was relatively slight, -Ger- many'’s total of unemployed as com- pared to her entire working population increasing only from 28 per cent to 29 per cent, and Italy’s workless growing from 980,000 to 1,075,106. At the beginning of January 37.2 per cent of Belgium’s workers were idle, as against more than 40 per cent three months ago. Poland showed the great- est recovery, her total percentage of unemployed falling from 10.3 per cent to about 7.1 per cent of her entire ped | working population over the same pe- riod. Poland has reduced her unem- ployed by nearly half over the past year. She now has only about 150,849 e. A little over 22 per cent of Britain’s working population is idle as 1933 be- gins, which is a gain of 1 per cent over last year. Latest figures show 2,849,- ‘compulso; insured workers on 'D‘?isols." Thltri,l 114,171 more than the same date l; year lfa.‘ Germany’s %- mw‘d- receipt of compulsory - surance relief, number 5,357,643, whicl is a gain of nearly 300,000 in 12 months, ‘The countries hardest hit during 1932 are Ireland, whose unemployed have increased 241 per cent in 12 months; Chile, which has 158 per cent more idle now than a year ago, and France, where the increase in unemployed for the year is 136 per cent. In Austria, Germany, Australia, Norway, Italy, Yugoslavia and New Zealand the in- crease amounts to around 20 per cent for the year. Increase in Japan. Mr, | of_prosperity. thousands of men can be put back to | this lin EDITORIAL SECTION he Sundoy S, WASHINGTON, D. C, SUNDAY MORNING, JANUARY 22, 1933. Who VWill Pay the Tax? Income Return Shrinkage Opens Debate on Sales Levy. BY ARTHUR CRAWFORD. NDER the compulsion of neces- sity policies respecting taxa- tion will undergo modifica- tion when a revision of rev- enue laws is the new Congress. Shrinkage in revenues from income taxes during the depression has forced consideration of the alterna- tive of increasing the share of the burden borne by consumption taxes such as special excise levies or some form of general sales tax. While President-elect Franklin D, Roosevelt recently was ‘“horrified” when some of the Democratic leaders in gress were inclined to turn to a manufacturers’ sales tax as a means of balancing the budget, the horror among the rank and file of Democrats was equally great when his sanction was given to an increase in income taxes. Direct Taxes Hit Wealth. Ever since the exigencies of the war opened up the enormous possibilities of the income tax under the constitu- tional amendment approved in 1913, more than half of the revenues of the Federal Government have usually come undertaken in from this form of direct tax. ~Direct taxes, such as income and estate or in- heritant taxes, are applied upon wealth. ‘Therefore those who complain of an inequitable distribution of wealth have | welcomed taxes upon incomes and e: tates as a means of bringing about a redistribution. Income taxes have many advantages, especially in times Up to the time earnings shriveled up in all lines of business it had been possible to obtain more revenue by so adjusting income taxes as to pear more heavily upon persons of great wealth. The members of Congress most enthusiastic over the nlmclflple of ability to pay, which is exemplified in the income tax, were able to keep the normal rates low enough and the | exemptions high enough so as not to be oppressive on the small wage earners and farmers. Now the situation has changed ma- terially. The large incomes have van- ished to an extent that makes it im: possible to raise any substantial amount of revenue by increasing surtaxes. The tax on corporation incomes.was boosted to a dangerously high point in the 1932 act. The only method of increas- ing the income tax yield is by further increasing normal rates on individual incomes which were sharply advanced last year and by further lowering ex- emptions. While this would reach per- sons with large incomes, it would also hit the small taxpayers and would bring within the scope of the Federal tax collector thousands of citizens who have heretofore been exempt. Obvi- ously, this effect, together with the rapid adoption of the income tax with low exemptions in the States, raises a question as to the desirability from a political standpoint of any action along e. Practical Politicians Revolt. It was natural that the practical- minded politiclans among the Demo- crats should revolt when the word went T out that the conference of congressional | Fees. leaders with President-elect Roosevelt in New York had given tentative ap- proval to the increase in the present normal income tax rates from 4 and 8 to 6 and 12 per cent, the highest rates adopted during the war, and to a further reduction in the personal ex- emptions which were cut in last year’s revenue act from $3,500 to $2.500 for heads of familles and from $1,500 to $1,000 for single persons. The normal rates prevailing at the time of the en- actment of last years law were only 11, 3 and 5 per cent. Bespite a_traditional hostility to & sales tax by those emphasizing the abil- ity-to-pay principle, the reaction to the suggestion for an increase in the direct tax burden upon persons with small incomes has raised doubts in the minds of some of them as to whether a mod- erate indirect levy spread over a wide range of commodities would not be less ful. mx&‘determininz tax policies it is neces- sarily a case 10( gtemng tfi; gmost feath- rs with the least squawking. 5 Indirect taxes, including those on tobacco and liquor and customs duties, formed the exclusive source of normal Federal revenues before the World War when total expenditures were consider- ably less than $1,000,000,000. Since the war, normal Government expenditures in the neighborhood of $4,000,000,000, the indirect taxes have until the last year, occupled & sub- ordinate position in the revenue- raising scheme. No country, however, ever has been able to rely upon direct taxes such as income and estate taxes alone. The yield from indirect taxes has shrunk ~less during disordered economic _conditions than from the “state of war” has not alleviated con- dlf.wnlulnd industmrz and the agriculturzl crisis is deepening. The statistics compiled by the Labor Office shows, for the countries from which reliable figures can be obtained, the following increase or decrease in unemployment, as compared with & ’Tu;h"lz 12 per cent; Germany 6 per cent; Britain, 4 per cent; Belgium, u A ( ion figures 1 per cent increase and ac- cording to employment exchange re- turns a decrease of 22 per. cent); Chile, 158 per cent; Denmark, 80 per cent; Finland, 34 per cent; France, 136 per cent; Hungary, 28 per cent; Irish Free State, 241 per cent; Italy, 12 per cent; ; New Zealand, 10 per Sweden, 70 UPPER, LEFT TO RIGHT: SEN. SIPPI, REPRESENTATIVE HENRY T. RAINEY OF ILLI DAVID I. WALSH OF MASSACHUSETTS AND REPRESENTATIVE ROBERT | L. DOUGHTON OF NORTH CAROLINA. LOWER, LEFT TO RIGHT: SENATOR CORDELL HULL OF TE! NESSEE AND REPRESENTATIVE HEARTSILL RAGON OF ARKANSAS. THESE MEN WILL PROBABLY HOLD KEY POSITIONS IN THE |, The obiection to the greater use of NEW CONGRESS IN SHAPING THE BALANCING PROGRAM. ATOR PAT HARRISON OF MISSIS. 01S, SENATOR DEMOCRATIC TAX AND BUDGET. | direct taxes. Consumption of taxable commodities does not decrease to the same extent in bad times as do in- comes. It has been evident that the tax system must be modeled more to meet present conditions. Therefore a readjustment of the ratio of direct to| indirect taxes to meet the existing ! situation becomes difficult to avoid. Hoover Urges Sales Tax President-elect Roosevelt stands for | the greatest possible utilization of taxes based upon the principle of ability | to pay, which in a radio speech during the campaign he defined as meaning income and inheritance taxes. Presi- dent Hoover and Secretary of thei Treasury Mills, while willing to utilize these taxes so far as possible, have recommended approval of a 2!5 per cent manufr cturers’ sales tax applying on nearly cll commodities except food and some articles of clothing. In the budget for the fiscal year| 1934, nc - pending in Congress, receipts from all “sources are estimated at| $2,949,162,713, including $157.393,525 of trust funds which are paid in for use for specific purposes. Exclusive of trust fund receipts, the | remaining $2,791,769,188 is divided as follows: Per cent Amount. of total. $1,010,000,000 ~ 36.18 inter- nal revenue. 981,000,000 Customs .. 320,000,000 244,991,989 Interest, c. 21,872,511 35.14 1146 8.78 4.75 2.91 2,791,760,188 100.00 All internal revenue receipts, in- cluding income and miscellaneous taxes, account for $1,991,000,000, or 71.32 per cent of the estimated 193¢ total; custom receipts for $320,000,000, or 11.46 per cent, and miscellaneous receipts for $480.769,188, or 17.22 per cent. In the fiscal year 1932 income taxes represented almost 50 per cent of ordinary revenues, miscellaneous taxes about 23 per cent, customs duties about 15 per cent and mls:euaneous receipts about 12 per cent, Excise Items Increased. The imposition of new excise taxes in the 1932 revenue act has increased the percentage of the items classified as miscellaneous internal revenue so as almost to equal the income tax reve- nue. In recent years the income taxes have borne a much larger share of the total. PFurthermore, while the income tax revenue has dropped from more than half to a little more than a third of the ordinary revenues, it will repre- sent in 1934 only about oue-fourth of the estimated expenditures. In the fiscal year 1928 income taxes represented 56.2 per cent of total or- dinary revenue and an even greater percentage of expenditures, as there was a surplus that year. The amou raised from that source was $2,174,573,~ 000. ‘The largest amount ever obtained from income taxes was in 1920, when the total was $3,956,936,000. This rep- resented 59 per cent of all ordinary Tevenues. At that time normal rates on individual incomes were 4 ‘and 8 per cent and the maximum surtax was 65 per cent and the war-time excess profits {ax on corporation incomes was atill in effect. An even higher per- centage of total ordinary revenues was shown in 1919, when income tax re- ceipts amounting to $2,838,999,000 rep- Between 1922 and 1926, which period three successive tax Juctions became effective, the income tax share of revenues fluctuated between 44 and 50 cent. year | 000 in it | net income classes of $100,000 and over only 11.5. The miscellancous taxes brought in $503,760,000 in the fiscal 1932, as compared with $569,400,- the fiscal year 1931, a decline of $65,700,000. The tax on cigarettes declined in yield by 11.5 per cent, ali other tobacco taxes by only 5 per cent, the stamp tax on capital stock transfers by 30.6 per cent, the stamp tax on bonds and capital stock issues by 37.8 per cent, all other stamp taxes, including playing cards, by 20.9 per cent; the estate tax by 1.5 per cent, and all other internal revenue by 15 per cent. Total receipts from taxation amount- ed to $1888,700.000 in 1932, as com- pared with $2.808,100,000 in 1931, & decrease of $919,400,000 or 32.7 per cent. | Customs Receipts Decline. Customs receipts dropped to $327.- 700,000 in 1932 from $378,300,000 in | 1931, & decrease of $50,000,000 or 13.4 | per cent. Miscellaneous receipts, due largely to the failure to collect the for- | eign debt payments during the one year moratorium, dropped to $232,500,- 000 in 1932 from $509,100,000, a de- crease of $276,600,000 or 54.3 per cent. Total ordinary receipts in the fiscal year 1932 were $2,121,200,000, compared with $3,317,200,000 in 1931, a decrease of $1,196,000,000, or 36.1 per cent. Just why the income tax has not stood up as a consistent revenue pro- ducer in times of depression is evident from an examination of figures relat- ing to incomes. ‘The number of incomes between $5,- 000 and $10,000 was reduced by 9.9 per cent between 1928 and 1930 and by 23.7 per cent beiween 1930 and 1931, the 1931 figure being for earnings of that year on which taxes were paid in 1932, The number of incomes between $10,- 000 and $100,000 was reduced by 30.1 per cent between 1928 and 1930 and by 33.5 per cent between 1930 and 1931. The number of incomes of $100,000 and over was reduced by 61 per cent between 1928 and 1930 and by 48.9 per cent between 1930 and 1931. ‘When incomes of individuals were in- creasing prior to the stock market crash the additional amounts were subject to progressively higher rates and the total tax paid therefore increased more rap- idly than the incomes. Sitilarly with the decline in incomes the tax rgvenue has dropped more rapidly than the in- comes. Higher Brackets Lose Most. ‘The tax paid on incomes betwegn $5,000 and $10,000 decreased by 22.3 per cent between 1928 and 1930 and by 295 per cent between 1930 and 1931; incomes between $10,000 and $100,000 by 49.1 per cent between 1928 and 1930 and by 45.1 per cent between 1930 and 1931; and incomes of $100,000 and over by 66.1 per cent between 1928 and 1930 |.g,dlby 54.6 per cent between 1930 and 1931. ‘The fact that two-thirds of the de- cline in individual income tax revenue between 1928 and 1931 occurred in the illustrates why the authori- e Treasury ties insist that little could be accom- | saj plished by increasing surtaxes. The surtaxes, which had gradually been re- cuced in the post-war years to a maxi- mum of 20 per cent, were boosted'to a maximum of 55 per cent in the 1932 act. -The returns to be filed in March on income of the calendar year 1932, which is the first to be affected by last year's law, will show a further incomes from 1931. Even under the increases from 115, 3 and 5 per cent in normal individual rates and the sharp increases in the graduated surtax rates and the increase from 12 to 13% per cent in the flat rate on corporation earnings under the 1932 act the total estimated yield for all income taxes for the fiscal year 1934 of $1,010,000,000 is considerably less than half the yield under the much lower rates in the fiscal year 1928. In the light of this demonstration of the weakness of the in poor | not only spend a larger part of their | portion of their commodity expense is in | sales tax, which, according to present estima are levied on one set of persons in the expectation and intent that they will be passed on to others by the process of shifting. The income tax lends itself to progressive rates wherein the rate increases as the amount becomes greater. As to its incidence the income tax tends to remain where it is levied, especially in the case of personal in- comes. About the only way a person may attempt to shift his personal in- come tax is by obtaining an increase in salary. There may be efforts to shift taxes on corporation and business incomes through an advance in prices or to employes in lowered wages. It may be impossible to do this by either of “these methods and as a rule a genera: tax on corporation or business income is not readily shifted. Those who believe that the use of the taxing power is justified to accom- plish a tribution of wealth have favored imposition of the highest pos- sible rates on the larger incomes. The income tax has been a boon to the various groups which have sought an -expansion of governmental activ- ities llon%mm not originally centem- plated. e ease with which large amounts of revenue could be obtained through this tax in times of pros- perity has been regarded as a major factor in keeping Government expend- itures at a high level in the years since the war. Held Regressive in Effect. The objection to the greater use of tion of commodities has been that they are regressive in effect, which means that they bear more heavily on those with small incomes than on those with large incomes. Commodity prices are not edjusted in accordance with the purchasers’ ability to pay. The poor income than the rich, but a larger part of their expenditure is for commodities. Further, it is likely that the larger pro- for articles generally taxed. Organized labor and the farm organi- zations oppose a general sales tax. They have not objected to such special excise taxes as are levied upon commodities which are regarded some- what as luxuries. The Executive Council of the American Federation of Labor in a report to its recent ann convention declared that the sales tax | represents “an attempt to transfer the burden of taxation from wealth and from those who are able to bear it to| the masses of the people and to those who are least able to bear the burden | of taxation.” It was added that the| sales tax is.a movement to “soak the | poor.” | Those who object to a manufac-| turers’ sales tax such as was defeated | in the House last year and has been | recommended this Winter by President Hoover and Secretary Mills assume that it would be passed on to con-| sumers. This is not necessarily true. | The only way in which the tax can be shifted is by an advance in price of the commodity. One method is to in- voice the tax separately through to the consumer. Another is to shift it by silent inclusion in the retail price. Some May Absorb Levy. ‘The ease with which the shifting can be accomplished depends upon the | demand for the commodity and the competitive character of the business.| In many lines the dealers prefer to| absorb the tax rather than to inter- fere with established prices. This is apt to be the case with respect to articles sold for a small price such as in 10-cent stores. In times of depression as at present, when the price tendency is downward even to a point below the cost of production, it is exceedingly difficult to shift the tax. The manu- facturers or dealers are forced to absorb it. 1f a manufacturers’ sales tax should be adopted in the near future its burden upon consumers might be considerably less than if normal income tax rates were increased. As business improved and prices advanced a sales tax would be reflected to a greater extent in the cos'lc‘h of living. e ibility of the pyramiding of a tax while a commodity is being passed through various hands on the way to the consumer has been one of the chief objections to a general sales tax. The plan approved by the House Ways and Means Committee last year, which was patterned after the Canadian system, seeks to prevent pyramiding by a licensing system under which no tax is applied when a commodity is passed from one licensed manufacturer to another, the tax applying only once, when it is sold by a licensee to one who is not licensed. One objection to the adoption of a les tax is that if once made a part of the revenue system it probably could not be dislodged and in times of pros- perity might help to encourage ex- cessive expenditures, just as has the income tax. Yield Put at $355,000,000. ‘Those who believe it to be desirable or necessary to adopt a manufacturers’ tes, would yield at the 2% per cent rate about $355,000,000 annually, and which under last year’s estimates was supposed to yield nearly $600,000,000 annually, contend that it should not be judged by itself, but as It ?.l‘ = i over as large a part of the population as_possible. Every one shouid - tribute to the support of the Govern- ment according to this theory. Other taxes, including income taxes and gen- le&pmwnytuumthesuwlmd those who own or who have and |of these islands as submarine bases. | place actual presence—even a short subdivisions, affect principally | im) JAPANESE ON VERGE OF BOYCOTTING LEAGUE Conciliation Procedure Now Appears Exhausted After Tokio’s Rejection of Compromise. BY PAUL SCOTT MOWRER. ARIS.—A crisis appears definitely to have been reached in the League of Nations’ handling of the Sino-Japanese conflict. The convenient fiction that what has happened in Manchuria and other parts of China is not war or ag- gression or invasion, but merely a dis- pute, is still maintained. But the con- ciliation procedure which the League in consequence has been seeking t.o| apply cver since September 18, 1931, now seems virtually exkausted. The chances are that, still under the | theory that the trouble is a mere dis- | pute, the League must now move on | from paragraph 3 to paragraph 4, article 15, of the League covenant, lndi draft a report and recommendations | without regard to the views of Japan ! and China, after which, if the report is unanimous, the League members aflee not to go to war with the party which accents the recommendations and, if the report is merely a majority one, each nation regains its freedom of action. “Hole in the Covenant.” This latter alternative is the famous “hole in the covenant” seemingly au- | thorizing war in certain circumstances. | Under a mere majority solution, Japan | would thus seemingly regain its right to_make war on China. But, despite this prospect, Japan appears to be displeased. If the recom- | mendations, even those merely by ma- jority, tend in any respect to condemn Japan’s action or teng to interfere with Japan's desire to brihg about a settle- ment by means of direct Sino-Japanese negotiations, Japan intends apparently to manifest its disapproval, not by quit- ting the League, but by following the Argentine precedent and _boycotting the League for a certain length of time. It is estimated in some quarters that Japan's hesitation actually to quit the League and join the United States and Russia in being non-members is due to the fear that it might thus lose the mandate over the former German islands in the South Pacific. It is suspected by some members of the League’s Mandates Commission that | Japan, contrary to the League's regu- lations, has been equipping certain parts No proof has_heretofore been available | because the Japanesc allow nobody to g0 to see whether this is so. In any case, this correspondent learns, according to thé Japanese view- point, wherein the Japanese claim they have British support, that Japan’s man- date derives directly from the treaty | of Versailles and, except for the filing | of occasional unchecked reports, is not | subject to League jurisdiction. For the recent slight stiffening of the League’s attitude against Japan the latter tends to blame the United States. The joint representations made last week by the American embassies in Paris and London, together with Presi- dent-elect Roosevelt's bulletin backing Amcrican Secretary of State Henry L. Stimson and President Hoover in their Far Eastern policy, have created an immense ~impression abroad and a tightening of the American-Japanese tension is alleged to have been an immediate result. This correspondent is able to reveal Japan's arguments in the crucial private meeting Wednesday of the Committee of Nineteen in Geneva against inviting the United States and Russia to participate on the proposed conciliation comrittee as follows 1. The League has no right to invite non-members, 2. The presence of the United States might tend unduly to favor China. 3. If the American representative should in any respect tend to infringe on the independence of Manchukuo, it might be impossible to restrain the feel- ings of the Japanese public. 4. The presence of Russia on the commission would be also objectionable and Japan understands that Russia will refuse to serve, but if the United States is invitsd and accepted, then Russia would accept. In these circumstances it is interest- ing to review the attitudes of the prin- cipal powers. Great Britain and France, as the League members principally in- terested, are undoubtedly determining the League's attitude. The majority British opinion seems to favor China, but in British foreign policy the public and Parliament seem to have little say, The government decides. A majority of the British government, including For- elgn Minister Sir John Simon, seems to feel that, with China disorganized, Japan’s situation is exceptional and worthy of every consideration. Dislikes League Sanctions. The British government dislikes the possibility of League sanctions as long as the United States is not a member of the League; it feels that the British fleet is underbuilt and undermanned, and wants to maintain the balance of power as between Japan and Russia, Japan and China and perhaps even between Japan and the United States. It remembers how in 1927, when Great Britain had trouble in China, the United States refused to co-operate, yet it greatly desires to maintain the friendliest relations with the United States. It is further hampered by in- terior political difficulties, labor agita- tions and the possibility of new eiec- tions soon. French opinion in the vast majority is also pro-Chinese, though the leading newspapers for various reasons are sym= pathetic with Japan. The French gov- ernment wents to pursue the better Franco-American relations begun under former Premier Andre Tardieu and de- (Continued on Third Page.) English Find Pound Sterling Holds Purchasing Power BY ANDRE SIEGFRIED. | Having just returned from a short | visit to London and having breathed the English atmosphere, I would like to ual | Tecord at once the impressions I have | brought back with me. This experience is another proof that nothing can re- | visit is more enlightening than a long | study. It was just about a year ago that I wrote an article analagous to this one, right | after returning from a trip to Oxford and London. At that time the fall of the pound had occurred only a few months before, and every one was anx- ious; they did not say very much about it, but an approaching rise in prices was feared. A year has gone by and prices have not mounted. At the present rate of | exchange, the pound sterling shows a loss of approximately cne-third of its value. But nevertheless—and this I was able to confirm—its purchasing power remains the same, and there are even some indications that it has been enhanced; as much can be done with a pound today as could be done before its fall, and even a little more. This is a singular thing and reminds us in no way of what has happened to us in France. The Englishman who never | leaves home could very easily believe that nothing had happened and could | even believe that the pound had the same value that it had before Septem- ber 21, 1931. This extraordinary situation has its explanation: While the pound was de- preciating, world prices, expressed in | gold, fell equaily, in such a way that the | rise in prices which should have oc- curred in England was compensated for by the fall that occurred elsewhere. A great number of other currencies de- preciated at the same time as the Brit- ish currency, on account of their soli- | darity in the zone where sterling holds sway—a zone which extends over a great part of the world. As W result England experienced no change in the relative value of her money. The English people therefore find themselves in the exceptional situation | of having benefited by the gains in ex- portation caused by a depreciating money and at the same time not under- going the usual rise in prices with which this advantage usually has to be paid for. The current opinion in Eng- land is—of this I was able to assure my- self—that this situation will last; it is believed, in what seems to me to be a rather light-hearted way, that the pound sterling could fall even further without causing a rise of home prices. Briefly, the English have not suffered from tne dzf‘rechtion of the pound, and the result is that no real lesson has been learned. When the English speak of inflation today they do so with a sort of lack of conscience—the word is hardly too strong; it is an inflationist atmosphere that reigns supreme. No one talks of economizing, of working more; on the contrary, saving is openly discouraged, because it would reduce consumption and lessen the volume of business. The anxiety that pervaded England a year ago has disappeared; at least it is so well hidden you are never conscious of it. d“'f,'o be !:Iioret zéglld{. the English are proud o magnificent way in which they have settled their political and fiscal difficulties. In 1930-'31 the ‘was lament- able; the country was at a low ebb, the heads of the government, without exer- H 2 e in Markets at Home occurred without producing a catas- trophe. In England there has been ab- solumteh;i ;oj sign of panic. addition, when the citizens wi asked by their government to exchanc;: any gold which they had in their pos- session for the depreciated pound they did so without even asking themselves if these pounds they were given would fall still further in value. When the question of the recent conversion was decided upon the bearers of notes ac- cepted it with a non-stabilized cur- rency. Every day the English are mak- ing long-term contracts with the pound as a basis, just as if they were assured that the exchange will not fall during the next three or six months. In the last analysis the English do not reason—this is patriotism together, per- haps, with a little ingenuousness. The average Englishman does not for a mo- | ment believe that the pound has been lowered in value; it is gold, he says, that has mppreciated in value. If there is anything changed in_the world, he | thinks, it is not the British currency, but international prices that have been bungled by the holders of gold in Amer- ica and in France. In his eyes there is only one thing fixed and that is the pound, and the result has been that the internal purchasing power of the pound has not budged. This point of view, of which I was already cognizant and which seemed to be a little ludicrous looked at by con- tinental eyes, becomes more explicable in certain aspects when you are in Lon- don. It is certain that the pound plays a large enough role in the world to give the appearance of being a center of at- traction that escapes all exterior fluc- tuations. Such is the state of mind I have en- countered; an absolute confidence (irra- tional because it is instinctive) in the solidity of the British nation. Nevertheless, those in power know ex- actly the serious consequences of a fluctuating money—above all when that money is the pound sterling. The thou- sands of industrialists rather rejoice in the fall of monetary values because that is the equivalent, for them, of a premium on exports. But the city, the international finance center, is ad- versely affected by having to deal with a monetary instrument whose value is not stable. In world transactions the importance of a draft on Londrn is known; from time immemorial e people of the world have used the Yound as the basis for computing and 11aking their pay- ments. Why? Beciuse the pound is, because it was, the most stable money in the world and the one most inter- nationally accepted. But if its value is no longer assured, will,it be used in this way in the future? Yes, without doubt it will, with safeguards insur- ing against fluctuation But in the end will not the world vurn from it? This of course, is a_danger—if this . ace has not already materialized 1v 18 because competing currencies hove no: arisen to meet the situation. Neiuter New York nor Paris has succeeded in acquiring the international impertance of the city. But London is we'l aware th:r. it must pay attention an watch out That is why England from tais day on desires to return to a stabilized cur- rency based on gold, though she shows no haste in this respect. It would be too great a risk to remain a long time in this uncertainty, for while the English look upon the pound as stable, other countries do not so consider it. When we look upon the British situation from the outside, with its unemployment, the melting away of its volume of business, the loss of its export markets, the increase of short- term loans, we are obliged by pure rea- son to be pessimistic. But the impressive confidence that the n::llsh ‘:I‘l"va u; themselves be- comes, we must confess, a stabi factor and a promise of mmfiognn‘ In spite of yourself you cannot help t.hlnhns‘o’f &pfil:umophy of ?r Coue: t every wa am o % and better.” 4 o