Now to Business!

Every important group in Congress has its tax reduction plan drawn--the Mellon plan, Frear plan, Garner plan have all been given to the public (TIME, Jan. 14). Now Congressmen are settling down to argument, or rather to adopting a plan on its merits and on its estimated popularity. The chief developments :

P: During the week Secretary Mellon declared that in the opinion of actuaries in his Department a maximum surtax Of 15%-10% lower than he proposes-- would produce the greatest amount of revenue for the Government.

P:Representative Frear of Wisconsin, Republican insurgent, proposed that Congress should pass a bill taxing those state securities which are now exempt, under the phrase of the Income Tax Amendment to the Constitution which permits taxation of income "from whatever source derived," and demanded of Secretary Mellon why this could not be done.

P:A. W. Gregg, a treasury expert working under the Ways and Means Committee, prepared a digest of legal opinion to show that such a bill in spite of the apparently clear phraseology of the Amendment would be declared unconstitutional by the courts.

P:Secretary Mellon replied to Mr.

Frear that the latter's proposed bill would be unwise and unjust aside from its legal aspect, because: 1) It would be unfair for the Federal Government to tax state securities without giving State Governments the right to tax Federal securities.

2) It would be unfair because it would tax securities already issued.

This would cause a drop in their price of about $173 on a $1,000 bond, which would amount to confiscation of that much of the owner's property.

3) It would be unwise because the status of such state and municipal securities would be in doubt for many months until a Supreme Court decision was rendered and during that time would completely destroy the market for such securities.

4) It would be unwise because, if the act were declared illegal, the Federal Government would have to refund millions of dollars illegally collected in the meantime, with a serious result to Government finances.

P:A resolution for an amendment to the Constitution was favorably reported by the Ways and Means Committee. This resolution would empower the Federal and State Government mutually to tax the income of one another's securities issued after the ratification of the Amendment.

P:Government Actuary Joseph S. McCoy replied to inquiries made by Senator Capper as to whether decreases in the maximum tax rates actually produced more revenue:

1) When in 1919 the total maximum tax rate was reduced from 77% to 73% there was the following year an increase of $140,000,000 in revenue.

2) When in 1921 the total maximum tax rate was decreased from 73% to 58% (the present) there was the following year an increase of $320,000,000 in revenue.

P:The Treasury Department published statistics on the total amount of tax exempt securities outstanding, $14,670,000,000. Of this amount $12,309,000,000 is in the hands of private interests and individuals.

P:A Republican caucus in the House voted viva voce, with little dissent, that the Ways and Means Committee should report out a tax reduction bill by Feb. 11, giving it precedence over a bonus bill. The caucus also voted down resolutions directing the Committee necessarily to report a bonus bill.

P: Senator Couzens of Michigan, in two letters to Secretary Mellon attacked the latter's arguments for lower income surtaxes and challenged him to a public debate on the question, which was hardly fair since Mr. Mellon is notoriously platform-shy. Mr. Couzens contended:

1) That there is no shortage of capital in industry traceable to the high surtaxes' forcing money into tax exempt securities.

2) That the falling off of surtax revenues in 1921 (the last year of the 73% maximum tax) was not due to more investment in tax exempt securities but to losses sustained by business in that year.

3) That the amount of tax exempt securities outstanding is not great enough to have much effect on revenues, being only about 8% of total securities. [This figure of Mr. Couzens' must be revised in the light of the above figures of tax exempt securities. Mr. Couzens calculated in the belief that $11,000,000,000 of tax exempt securities were outstanding.]

4) That many men who invest in tax-exempt securities do so not in order to escape taxes but in order to escape business responsibilities and risks.

5) That the purposes for which money is raised by state and municipal securities are not "non-productive."

P: Republican leaders in the House began to cast about for a compromise on which they and the Democrats could unite. The regular Republicans must have support from other sources if their tax reduction bill is to pass. A compromise on which the regular Republicans and more conservative Democrats can agree is in some quarters regarded as inevitable.