Evening Star Newspaper, July 26, 1935, Page 7

v WALSH-ROOSEVELT BREAK OVER TAX Senator, in Forum Speech, Hits “Stlare-the-WeaIth" Program. - A warning against hasty enactment of tax legislation was sounded last night by Senator Walsh, Democrat, of Massachusetts, who broke squarely with President Roosevelt on the “share-the-wealth” program, in a critical analysis of its provisions and implications. Speaking in the National Radio Forum, arranged by The Evening Star, and carried over a Nation-wide net- work of the National Broadcasting Co., the Massachusetts Senator said the - administration proposal is one for “reform” rather than “revenue” and that “there is no urgency for this kind of a tax bill.” Increases Declared Essential. “* Senator Walsh argued that Govern- $nent expenditures have reached a plane necessitating levies “which will materially increase taxes in all classes | &t income from the smallest to the highest,” and that to ignore that| fact is “merely postponing the in- | evitable day of reckoning.” “In my judgment.” ®Congress should adjourn and the | ‘committees of the House and Senate work on a tax bill for the remainder | of the year so that when Congress reconvenes next January, revenue tax fegislation may be the first order of business.” Text of Speech. The text of Senator Walsh's address follows: Financing & government on bor- rowed money is the same as with an individual. It is at best a temporary expedient. Continuous spending in excess of income ends in bankruptcy fust as certainly for the nation as for the individual. | The Government's only source of | income is the taxes which it levies upon the people. Devaluation of the dollar, repudiation of the gold clause in Government bonds and the ma- nipulation of silver have produced some figures which the Treasury labels | “profits” and treats as income. But such extraordinary financial methods provide only limited help and only so Jong as adequately managed and con- trolied. Ultimately we must return to the fundamental proposition that in the long run the Government's income must match the outgo, and the only income is from taxes. Hence the ne- | cessity of a new and increased levy of | taxes has been staring us in the face | ever since we embarked upon the pres- ent extensive spending program. From the outset increased taxation was an inescapable consequence, and we have now come to the point where the tax question is squarely before Congress | and before the country. and where a | new tax bill is being pressed for im- mediate passage. I think it unfortunate that the question of new taxes has not been presented to Congress as a revenue measure, rather than as a reform measure. The tax recommendations in the President’s message, upon which he desires immediate action, are not calculated to yield the Government large income. Their primary purpose 1s social and economic reform, and to remedy what the President conceives to be defects in our present system of taxation. The President declares, and ¥ quote from his message to Congress: | “Our revenue laws have operated in | many ways to the unfair advantage of the few and have done little to pre- vent an unjust concentration of wealth | and economic power.” Elsewhere in | his message he speaks of “encouraging & wider distribution of wealth” and of a duty resting upon the Government to restrict very high incomes by very high taxes. The doctrine which the President expounds is first that there is an unjust concentration of wealth, to which proposition many agree, and that means of breaking it down are through confiscatory tax levies. That wealth is unequally distributed in this country and in every country, outside of Soviet Russia, is a self-evident fact. “That in our own country we have seen undue concentration of wealth in the hands of a few and have seen grave . abuses of great weaith cannot be de- nied. That governmental privileges and lax corporate laws are in part responsible must be conceded. We should try to remedy these abuses, and we are trying to remedy them. We should eliminate special privileges. We should seek to equalize opportu- ! mity and to insure a fair distribution of the rewards of labor and capital. No Plan Is Practical. But none of the proposals for re- ! distribution of wealth, of which we | have recently heard so much, is sound or practical. As was well said by an outstanding liberal and leading advo- cate of advanced labor and social wel- fare legislation, “the misuse of statis- tics with calm disregard of realities which are involved in these proposals should have discredited them months ago in the minds of all persons who are capable of even a moderate exer- cise of their thinking faculties.” The so-called redistribution of wealth pro- 1 posals in reality would result in a re- distribution of poverty. They would in reality annihilate wealth, which « when properly managed provides em- ' ployment, increases production. and adds to the Nation’s advancement and resources. It would mean State so- cialism, with all that that implies. + Let us limit wealth, let us limit profits, let us curb monopolies and do away with special privilege, but let us main- + tain America as a land of liberty, a land of opportunity, a land of de- mocracy. My purpose tonight, however, is to confine my talk to a consideration of the specific tax proposals before the Congress. It has been well said , that the power to tax is the power to destroy. Some of the present tax proposals may prove to be a striking exemplification of this axiom. How- ever, in view of what we learn in- directly from the executive session of the Ways and Means Committee of the House, I do not anticipate a tax + bill that seeks to punish or coerce any group. But even if we conclude that ! there is too great a concentration of wealth and economic power, and that it is the duty of the Government to curb it, the means to be pursued should not be through hastily con- ceived and arbitrarily decreed con- fiscatory taxes. If the present Congress is to write ignd enact & new- tax bill, let us aim for tax revenue, which the Govern- ment so sorely needs. Let us proceed to do no injustice to -any class. Let us levy increased taxes ‘on the rich only because it is just and ‘equitable for the rich to assume more ‘of the burdens of government. he concluded, i | only about 12 per cent. proposls /message to Congress, that you may Judge for yourselves as to their THE- EVENING STAR, WASHINGTON, D. C, FRIDAY, JULY 26, 1935. Hits “Share Wealth” 1923. This shows that the depression has affected the so-called well-to-do and middle class. Out of 3,660,105 re- turns filed in 1935, only 1,731,116 showed taxable income; more than 94 per cent of the persons of work- ing age in the United States did not pay any income tax in 1933. Political considerations have actuated exemp- tions for as many as possible at the lower end of the scale. If we fixed $50,000 income as the dividing mark | between moderate wealth and extreme wealth, we find that this group above !850,000 income paid about one-third of its income in taxes. Moreover, this group represents about 51 per cent or more than one-half of the total in- come tax paid by the individuals. Per. sons with income under $5000 paid about 11 per cent of the total taxes; those with incomes between $5.000 and $10,000 paid 9 per cent of the total taxes; those between $10,000 and $25,- 000 paid 14 per cent of the total taxes. These figures indicate that while per- sons with incomes at $50,000 a year or over will, of course, find the amount they have to pay substantially in- creased, it will not yield enough money to balance the Federal budget even if all the incomes of these classes were confiscated. ‘The alternative is ngturally going | to be, sooner or later, to start crying SENATOR WALSH. consequences. Definite comments, of course, cannot be made until the exact schedule of rates is disclosed | The President’s first proposal is to | leave the present Federal estate, or| death, taxes just as they are. but to add a new inheritance tax, on a pro- gressively rising scale, to be paid by the 'heirs or legatees out of the amounts which they receive after de- duction of the debts'and after de- duction of the death taxes. To bar any escape from these new inheri- tance taxes through the avenue of | gifts during life, it is proposed to very ; largely increase existing gift taxes. | The present Federal estate taxes— the death taxes—do not apply at all to estates of small amount, nor bear | too heavily on estates of moderate size. Thus, on an estate of half a million dollars, the present Federal estate tax is not over $60,000. The| Federal Government at most takes | From the | standpoint of tax revenue, the estates of moderate size offer a possible re- source and. of course, will be given | increased rates in future revisions | when the cbjective of tax legislation | is revenue raising. But the President, when discussing new inheritance tax levies, refers to “great accumulations of wealth,” and to “vast fortunes.” His words have | been taken to refer to the Morgans | and the Vanderbilts and the Astors | and the Fords. Let us see what are | the facts, for previous Congresses have | not, as they should not, extended | favoritism to the rich. Under the tax | laws already in effect the Federal! estate taxes—the death taxes—on a | fortune of $10,000,000 amount, at a maximum, to $4,387,600, and on a| fortune of $50,000,000 amount to more than 28 million dollars at the maxi- mum—well over half the total estate, and on $100,000,000 may amount to $56.000,000. These taxes are obviously very large. Conversion Is Minor Detail. What the President seemingly has in mind is the fact that even as in the case of a $10,000,000 fortune the Government, as of now, takes almost | one-half in taxes. Yet the heirs have | the $5,000,000 left and the President recommends a tax on these inheri- tances—similar to that now levied by the several States. Just how a 5, 10 or 25 million dollar estate comprising real estate, manufacturing enterprises, bonds, mortgages and stocks is to be converted into cash for payment into the Treasury of the United States is seemingly a minor detail to be pro- vided for when Congress writes the new tax bill. To prevent the Govern- ment taking over these estates it is proposed that this tax may be paid in installments ex!emflng over 12 years. Of course, actually, the question of turning into cash vast fortunes repre- sented by skyscrapers and steamships and mills and mines and factories and tenements, in a country where large incomes are to be rigidly suppressed, presents very grave practical diffi- culties unless the Government itself is to be the purchaser. I do not intend to convey the idea that a Federal tax in addition to the State taxes already levied, and steadily being increased by the States, on large inheritances may not be justi- fled. Yet I insist great caution must be exercised, for it is entirely possible to write an inheritance tax schedule at rates so confiscatory as to be both socially and economically unsound, and as a practical matter utterly un- workable—unless we want complete State socialism. Let me illustrate what may happen if we resort to confiscatory taxes. Up to the time of the present depression I have observed in my travels through Massachusetts, typical of all other States, a large number of beautiful ahd prosperous small communities, many of them real beauty spots, situated along the shore, lakes, rivers and country side. Many people were employed in these communities, yet there were ‘no stores, commercial houses or factories there, They were employed on the estates of the so- called rich as farm hands, gardeners, household servants, employes in the stables, dairies and greenhouses. I have in mind one community where there were members of four families who were known to be rich, occupying separate estates, all of whom together employed at least 200 people. It is not necessary to add that the working conditions and wages paid and the home life of these employes were far beyond and above that of the in- dustrial workers. Are these opportuni- ties to be employed to become extinct? Are these communities to become de- serted villages? Many Already for Sale. In my judgment, if- we do not pro- ceed with extreme caution, all this source of employment—in the past representing a small army of con- tented workers—will be wiped out. Indeed they are fast being wiped out. These estates are everywhere for sale fiscates through estate and inheri- tance taxes by both the State and Federal Government workers. Yet, if a proposal to locate a sweatshop factory employing 25 or 50 tmployes was made, the community would welcome it and rejoice that op- portunity for employment for its in- habitants was possible. How para- doxical to advocate in one breath means to Increase industrial employment and plead in another breath the specious doctrine of “soak the rich” which, when prompted by punitive motives, | will deprive large numbers of em- ployes of their present jobs and send them into the overcrowded industrial centers to compete for jobs under the so-called slave systems of modern in- dustrial life. ‘The second tax proposal is for an increase in the rate of tax on very large incomes. Under the present law there is a normal tax of 4 per cent, plus a surtax, on a graduated scale—the larger the income, the larger the per- centage of tax—which reaches a maxi- mum of 59 per cent on incomes jn excess of a million dollars. Thus on incomes {n the million dol- lar a year category, the total Federal income tax under existing law is 63 per cent—almost two-thirds of the total net taxable income, and bear in mind that most States collect a State income tax in addition. But the Presi- dent makes the point that under the present law the 59 per cent surtax at the million-dollar mark does not in- crease beyond that mark. He points out that the man with a $5,000,000 annual income—and in prosperous | years there has sometimes been one such man—pays the same rate of tax as thie man whose income is one mil- lion dollars. In each case the Fed- eral Government collects in income taxes not quite two-thirds of the total net taxable income. 46 Million Dollar Incomes. Since it was in this connection that he had referred to the fact that the present surtax rate did not continue to rise after the million-dollar mark was reached, it has been quite generally assumed that what the President had in mind was an increase in the sur- tax on incomes over a million dollars. | According to the latest available tax | compilation, there were 46 persons whose tax returns filed in 1934, for| 1933, showed incomes of one million | dollars and over. In the preceding | year there were 20 persons in this cat- | egory. The revenue yield from any | category would be negligible. This proposal to increase income taxes on very large incomes may be justified as a means of obtaining a social objective. On the basis of a possible maximum of 80 per cent, estimates of the total additional revenue from this proposal range from 20 to 40 million dollars annually—much less than a single day’s expenditures of the Federal Gov- | ernment at the present time. The | President has not proposed at this time | any increase in the lower income tax | brackets. It is pertinent to observe that fewer | heavier taxes right down the line from 1 850,000 to the lower incomes—some- | thing which will produce a consider- | able protest when the pinch comes. | If the present rate of spending con- | tinues, or if business is not quickly | put on its feet, the needed tax reve- | nues cannot be obtained without se- vere and painful taxation for every- body, including meny of the 94 per cent of persons of working age who | today pay no taxes at all to the Fed- eral Government on their incomes. I Rich Don't Have the Funds. new tax legislation at this session. This reluctance has been in part due to a realization that the administra- tion tax proposals did not envisage a revenue measure, but rather a reform measure, and in part due to a realiza- tion that to do justice to the Govern- ment and to the taxpayers the prep- aration and consideration of any tax bill was a matter requiring many weeks and months of study and scrutiny, and should of necessity be far more extensive in scope than now suggested. It was, of course, impossible that a tax bill, whether revenue taxes or re- form taxes, of the magnitude now be- fore us could be attended to in a few days. In response to the President’s very earnest insistence, however, a tax bill is now in process of evolution. Many members of Congress have advocated that the present bill be confined to the three categories of taxes proposed in the President’s message, even though by so doing the revenue re- quirements of the Government will be far from adequate. If that course be followed, and it is to be, it merely postpones the inevit- able day of reckoning. We are ap- proaching the day, if that day has not indeed already arrived, when we must assume & tremendously increased burden of taxation to match our tre- mendously increased cost of govern- ment—an increase which will materi- ally increase taxes in all classes of in- come from the smallest to the highest. I have profound confidence in the essential integrity and essential intelli- gence of the American people. I firmly believe that the Congress stands | ready to co-operate in an honest effort | to place the fiscal affairs of their | Government in good order. Means Economy and Taxation. | wasteful and unessential expendi- That means curtailment of every Income tax reform, if we are 10| tyre on the one hand and increased | have it, must and will ultimately start | taxation on the other hand—taxes de- | at this end of the scale, for addi- | gigned to raise revenue on as fair and tional tax reveaue, if it is to be ob- | equitable basis as it is possible to tained in any substantial amount,| gevise. must come by increases in the middle | 1 am opposed, and I beiieve all and lower brackets. The claims that | gtraight-thinking Americans are op- we can spend billions of dollars for | posed, to any tax plan which is not relief of the unemployed, for gigantic | pased on justice, rather than preju- public works, for homesteads and | gjce—which does not require all who housing and rehablitation—and that| enjoy the benefits of government to after borrowing the money 1OW, We | pay their share of the tax burdens ac- can get the cash later on, to pay the | cording to their means. huge debt, out of the pockets of the | personally, I am prepared to stay | rich, however much desirable, 15 2 here in Washington as long as is nec- | snare and a delusion, for the money | essary to consider tax legislation. i is inopportune to consider and enact ® tax bill. In my judgment, it is im- possible to do justice to a tax bill at the tag end of the present long and onerous session. In view of its relatively small tax yleld, there is no urgency for this kind of a tax bill. It it were an at- tempt to balance the budget through increase tax revenues, the element of time might be controlling. In my judgment, Congress should adjourn and the committees of the House and Senate work on a tax bill for the remainder of the year, so that when Congress reconvenes, next Jan- uary, revenue tax legislation may be the first order of business. Outlaws Eat Dogs, Horses. Communists who are surrendering to government troops in the vicinity of Mowhsien, China, are bringing har- rowing tales of the suffering experi- enced in their ranks because of lack of food and supplies, according to an official statement issued at Chengtu, Reports quoted in the communique declare the outlaws are eating horses “Sweeten it with Domino” is not there. | However, I believe the present time | The President also recommends, in | iz view of the fact that we have estab- lished the principle of graduated tax- | ation in respect to personal incomes, | gifts and estates, that we apply the same principle to corporate incomes. This proposal, at first blush, appears | | reasonable, yet it may work serious in- | equalities. It ignores the fact that a | corporation income is in reality merely | & joint and combined income of the | stockholders in the enterprise—merely a percentage of their individual in-| vestments. Thus, in a very large cor- | poration the total income in dollars may be very large, yet represents a very low rate of return on the capital invested. Conversely, a small corpora- tion may earn a very high rate of re- turn, even though the total income in dollars is not large. A business | corporation with a total capital of | $5,000 might show a profit of $5,000 | in a single year—100 per cent profit. Yet the tax on this corporation, ac-| | cording to the plan proposed would be | | & lower rate than the tax upon the| | income*of a large corporation whose net profits ‘were exceedingly small. | The present method of taxing the incomes of corporations is a uniform corporation tax of 133 per cent of net profits. The President proposes a graduated scale, ranging from 10% shortly thereafter month). The . . delivery The very latest and complete news of the day comes to you in the last edition of The Star—the Night Final. printed at 6 p.m. and delivered to your home The Night Final is for 55 cents a month (or, together with The Sunday Star, 70 cents a Call National 5000. Say yeu want the Night Final to be delivered regularly to your home. Delivery will start immediately. Star per cent to 16% per cent. Experts of the Government state that this change will not yield any increased tax rev- enue. It merely shifts the burden of the tax. The big corporation, having | a large net income although repre- senting a small percentage of return | to its stockholders, will be taxed much higher than the small corporation with | |i||| a net income of a much larger per- ||| centage of profit. This injustice I be- lieve could be removed by a uniform tax levied upon the net income of all EISEMAN’S SEVENTH AND F REPUBLICANS TO MAKE DRIVE IN ARLINGTON Outing on Schedule of Club Ac- tivities to Boost Fuli State of Candidates. By a Staff Correspondent of The Star. ARLINGTON COURT HOUSE, Va., July 26.—An aggressive campaign be- hind a full slate of candidates to be nominated at a county convention is the aim of the Arlington County Re- | publican Club. A series of ciub activi- | A-7" ties, including an outing, are to be are ranged to stimulate party interest, ac- cording to plans advanced at a meeting of the club Tuesday night at Powhatan Springs Lodge. The club adopted a resolution sup- porting the calling of the convention and urging all Republicans to take no part in the approaching Democratic primary. It was voted to hold meet- ings every two weeks until the general election on November 6. A Publicity Committee under chairmanship of Mrs. Margerye W. 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