Expediency

There is disagreement among the overlords of the public purse. The insurgents and radicals in Congress, finding popularity in the slogan "Soak the rich," want to increase income surtaxes and restore excess profits taxes; the Democrats are willing to fall in with almost any program that will "soak the Republicans"; and the Republicans would like to reduce taxes, if they dare. The fight of the three Parties will take place when Congress opens. Already there is a contest on between the Republicans, those who dare to try reduction of taxes and those who do not.

Senator Smoot, who is due to inherit the Chairmanship of the Senate Finance Committee, went about Washington conferring with the President and Secretary Mellon. The President declined to commit himself. Secretary Mellon wants to reduce income surtaxes and wants the Administration to sponsor a tax bill for that purpose in the next Congress. Senator Smoot agrees that taxes should be reduced but is opposed to any attempt by the Administration in that direction during the following Congress.

Mr. Mellon's argument: The Treasury will have a surplus this year. Income surtaxes should be scaled down from the present maximum of 50% to a maximum of 25%. This would not result in a corresponding reduction of Government income because capital would leave tax-exempt channels and be placed in taxable investments; e. g., if a man's tax rate, now 50%, were changed to 25%, a 6% industrial security would yield 4.5% as opposed to, say, 4% for tax-free securities, and he would invest in the former.

The advantages of the change to lower surtaxes resulting from the withdrawal of capital from tax-free investments:

1) More capital for the expansion of productive industry.

2) Less extravagance on the part of local governments which now find it extremely easy to borrow on their tax-exempt securities.

3) Lower taxes more equably distributed.

Although he has not completed a definite tax plan, for many months Secretary Mellon has urged the Administration to ask the next Congress for a 25% maximum surtax in accordance with this general plan.

Senator Smoot's argument: The Government will have a surplus of $500,000,000 this year. Taxes ought to be reduced by exempting all incomes of $3,000 and less; scaling off $100,000,000 of taxes on incomes from $3,000 to $6,000; scaling off $100,000,000 of taxes on incomes from $6,000 to $10,000; reduction of maximum surtaxes to 331/3%; abolition of the "nuisance" taxes on candy, jewelry, etc.

"But," said the Senator, "with the situation now existing in Congress it is certain that any attempt to change tax laws would open a veritable Pandora's box of troubles." In this Representative Green of Iowa, who is to be Chairman of the House Ways and Means Committee, agrees.

These two gentlemen with their "regular" Republican supporters can kill radical tax measures in committee. But once they send out on the floors of the Senate and House bills of the Administration, the radicals and Democrats can amend and alter them to their hearts' content. The result would be bad for the Republican Party and unsettling to business. "For expediency's sake,," say Messrs. Smoot and Green, " we ought not to try to do what we ought but can't."

And just around the corner ever lurks the soldier bonus. "As sure as God lives and the sun rises in the morning," Senator Smoot has said, "the bonus will be passed." If so, discussion of tax reduction is sweet futility.