Law-in-Making

The egg of a butterfly grows into a larva, and the larva converts itself into a pupa all bound up in its chrysalis, and finally the bright winged imago emerges. But the egg is separated from the imago by no wider span or stranger transmutations than there are between a tax bill in its first hearings before the Ways and Means Committee and a tax law duly enacted by Congress and signed by the President.

The Process. Last week the Ways and Means Committee set to work in earnest upon the tax reduction law of 1926. From the conflicting opinions now being heard by the Committee, in all probability two bills will be drawn up. Then the Republican and the Democratic caucuses after some internal bickering will agree to them. The Ways and Means Committee will at last make two reports to the House, a majority (Republican) and a minority (Democratic) report. Then for several days the House will argue, and finally some sort of bill, probably with a number of compromises, will be agreed to and sent to the Senate. In the Senate the bill will be sent to the Committe on Finance, there redebated, re-amended and reported out again, probably in two forms, Republican and Democratic. Again there will be argument and amendment and passage of a compromise. Then the bill passed by the House and the bill passed by the Senate, will be sent to a joint Committee to reconcile the differences between them. A final compromise will be made and reported out again to both Houses. Either or both of the Houses (probably the Senate) may reject the compromise and send it back once or several times until a satisfactory compromise is reached. Then both Houses will pass it perfunctorily, it will be engrossed and sent to the President. He will consult with his Cabinet, especially Secretary Mellon. He may then sign it with or without remarks, or he may veto it, in which case it goes back to Congress-- but speculation too far into the future is fruitless.

The Hearing. Last week the Ways and Means Committee was just hearing what various people thought should be embodied in the bill. The position taken by Secretary of the Treasury Mellon and his assistants in hearings during several days, being the Administration proposal, received the most attention--it was the fort to be stormed if possible by the opposition. The chief importance of these early hearings will be to crystallize public opinion and indicate to politicians what compromises are advisable and possible.

The Administration Position. The Treasury believes it will have a surplus of 290 millions for the fiscal year ending June 30, next. So 250 to 300 millions is the amount which taxes may be cut. This amount of surplus revenue may be lopped off, but it should be done in such a way as to effect tax reform as well as tax reduction. The Treasury feels that tax reform should take the form of normal taxes of 5%, and maximum surtaxes of 20%, estimating the loss of revenue in this way as 140 millions for the first year and 100 millions for the second year.

"The Treasury does not propose any definite rates, but it presents to you the certainty that tax reform can go to a 25% maximum normal and surtax without the slightest danger to our future revenues. In fact, such a reform will insure the source from which we expect to get our revenue in the future."

The normal tax on small incomes should be reduced according to either of two suggestions advanced by the Treasury. The effect of these reductions is illustrated by the following table showing the tax paid by the head of a family with no dependents: Income Present Law

3000 $7.50

4,000. 22.50

5,000 37.50

6,000 57.50

7,000 87.50

8,000 127.50

9,000 167.50

10,000 207.50

11,000 277.50

12,000 347.50

Alternative Suggestions $5.00 $5.00 15.00 15.00 25.00 25.00 45.00 40.00 75.00 65.00 105.00 95.00 135.00 125.00 175.00 155.00 275.00 195.00 325.00 245.00 Estate taxes should be reduced this year and repealed next. They are a source of emergency revenue, and in normal times should be left to the states as a source of revenue.

The gift tax should be repealed.

The tax on amusement admissions and dues should be retained "in the interests of the revenue it produces."

Automobile taxes bring in a revenue of 125 millions--35 millions on trucks and 90 millions on pleasure cars. The truck tax might be abolished, but the other retained to compensate the Government for its expenditure on roads.

The tax on jewelry is easy of avoidance and yields only 8 millions or 9 millions. It should probably be abolished. Several other taxes that yield little might well be abolished in the interest of simplicity.

The provision for publication of income taxes paid should be abolished, as recommended by the 65 collectors of Internal Revenue.

There should be a Constitutional Amendment to bar the issuance of tax exempt securities. Meanwhile surtaxes should be lowered to bring more capital into taxable securities.

The provision for a reduction for earned income should be repealed.

Other Proposals. Numerous representatives of private organizations and a few individuals were heard by the Committee. Among the most interesting witnesses were two delegations, one from Texas (home of Representative Garner, ranking Democrat on the Ways and Means Committee), the other from Iowa (home of Chairman Green, ranking Republican). Both delegations opposed the views of the Committee members from their states. Representative Garner said he had never heard of the Texas Tax Club, which the Texans, including the Speaker of the Texas House cf Representatives, claimed to represent. The Iowa Tax Club delegation came in two special cars, and included the Lieutenant Governor and several state senators. They advised the Committee to cut surtaxes and abolish estate and gift taxes rather than play to the galleries. They characterized tho inheritance tax as "picking tho pockets of the dead." Next day Messrs. Green and Garner said that there had been too much political talk and the Committee would stick to economics.

Larger Tax Reductions. The Democratic members of the Committee are known to have in the back of their minds an idea of reducing taxes more than the amount suggested by the Treasury. They would do this by not paying oft the public debt as rapidly as at present. Their plan was not actively presented last week, but it was actively opposed by Secretary Mellon on the stand.

The Governors. One incident of the tax hearings was the appearance of six Governors and the representatives of eleven others, with a petition bearing the names of Governors of 32 states--all urging abolition of the Federal Estate Tax. A representative of the National Committee on Inheritance Taxation likewise appeared with a plan for doing away with inheritance taxation: repeal of the Federal tax in six years, immediate reduction in the tax rate, and a deduction up to 80% of the Federal tax on inheritance taxes paid to states.

The repeated bombardment of the Committee for repeal of Federal estate taxes appeared to produce some results. Chairman Green announced that he was in favor of the plan for abolishing estate taxes in six years.

Other Pleas. Representatives of the automobile industry, the tobacco industry, motion pictures, baseball--all asked reduction or abolition of the taxes affecting them, asserting that they were War measures and should not be retained. The automobile-makers said they could reduce prices on an average of $29 a car if their tax were repealed.