House Jugglers

Before breath-bated galleries the House of Representatives last week completed its great tax-juggling act. For three exciting weeks its tossings and catchings-- and droppings--had kept the legislative air alive with fur coats and chewing gum, diamond rings and matches, motor trucks and penny candy, yachts and 3-c- stamps, radios and bottled "pop." Hundred-million-dollar levies were twirled around like so many rubber balls. As in a knife-throwing exhibition, it pitched sharp imposts at individuals and industries. It juggled normal rates, surtax rates, corporation rates, gift rates, inheritance rates, stock rates, dividend rates into a high and hazy jumble. Then it bundled all its handiwork up into one conglomerate bill, which it passed by vote of 327-to-64 and sent to the Senate with the hope that it would raise in new revenue the billion-odd dollars necessary to balance the 1933 budget.

Long Road. Despite the House's headlined performance this tax legislation still had a long road to travel before final enactment. This week the Senate Finance Committee was to start unscrambling the House bill. Because most Senators are highly opinionated on taxation, the committee will undoubtedly do much revising and rewriting. Later this month the measure will be solemnly escorted to the Senate floor by Utah's Smoot. There another protracted demonstration of tax juggling will ensue before the bill is finally passed weeks later. Next will come the inter-chamber conference at which Senators and Congressmen will haggle over whose juggling is better. In working out a compromise, they will be limited only by the provisions of the two bills, outside of which they cannot go for new and extraneous levies. If a final tax bill is ready for President Hoover's signature by June 1, Congress will pat itself on the back for having done a good quick job.

Plea in Homespun. That the House was able to finish its tax bill last week was due chiefly to a speech by Speaker Garner. He had held aloof the week before when a "soak-the-rich" coalition knocked out the Sales Tax and left the house groggy and disorganized. The Press howled its disapproval. Securities declined. Government bonds dropped. Was the House, after all. going to shirk the duty of increasing taxation sufficiently to balance the Budget? It appeared possible until Speaker Garner in his old grey suit went down into the well and began to address the House.

His plea was a simple homespun one-- the Budget must be balanced: no matter what kind of taxes had to be imposed. As for the Sales Tax, he was opposed to that but he would levy it "or any other kind" to balance the Budget. His face grew red and his voice sharp as he told his colleagues that it was their ''paramount duty" to supply revenue to maintain the Government's financial integrity. If the Budget was not balanced, he warned, foreigners would withdraw their deposits from the U. S., the dollar would be driven off the gold standard, every bank in the land would be closed in 60 days and ''a financial panic that has never been equaled in this republic" would follow.

As a dramatic touch suggestive of religious revivals in the deep country, Speaker Garner called on all those "willing to go along to try to balance the Budget" to rise. To their feet came all but a dozen sulky members. When he called for "those who do not want to balance the Budget," not a man got up. "I think," declared Speaker Garner triumphantly, "that ought to restore to the American people confidence in our country. ... I think more of my country than I do of any theory of taxation and the country is in a condition where the worst taxes you could levy would be better than no taxes at all."

Speaker Garner's speech was prolix. It reeked with the banalities of the politician. It brought forth no new facts or arguments. It was, by no stretch of the imagination, an historic oration. But it did have one great quality--earnestness--and with that alone the Speaker was able to sweep the House back to order and action. The Ways & Means Committee hastily evolved a new set of tax schemes to fill the void left by the Sales Tax. Leaders of the late insurgency fell over themselves to pledge support to this substitute program. United by the Garner speech and perhaps a little mortified at its earlier behavior, the House buckled down and adopted that program before the lobbies of interested industries could swing into action.

Major results of the House's tax juggling:

Individual Incomes. Normal rates were upped to 2% (first $4,000 of net income), 4% (second $4,000) and 7% (all over $8,000). Personal exemptions were reduced to $1.000 for single taxpayers, $2,500 for married. The surtax rate was started with 1% at more than $6,000 net income (instead of at the present $10,500 level) and scaled upward to a maximum of 40% on more than $100,000. The House finally knocked out the 65% maximum surtax on incomes of more than $5,000,000 after the Treasury had convinced it that such a rate would only drive capital into tax-exempt securities. The principal effects of these new tax rates which were expected to raise $122,000,000 more revenue were to bring a million or so small-salaried citizens within the law's scope (the Treasury calls it "broadening the tax base") and to cut more heavily into the earnings of the middle class.

Dividends from stock now pay no normal tax on the theory that a corporate income tax has already been collected from the enterprises in which the capital is invested. The House overturned (180-to-105) this theory by slapping the normal tax rate on all dividends in an effort to raise another $88,000,000.

Under the present law's profit & loss provision a taxpayer who lost capital assets in stock or real estate transactions could deduct them from his taxable in come. The House plugged up this escape when it provided that a taxpayer could not deduct losses in excess of his profits within the same year. Example : a speculator loses $90,000 on one stock and gains $10,000 on another. This year he could trim $80,000 loss from his tax return; next year he can trim only $10,000. If his profits are nil, his deductions are nil. The Treasury estimates $100,000,000 more revenue from this House hole-plugging.

Corporation Incomes. The House juggled the rate from 12% up to 13 1/2%. If a corporation with subsidiaries files a consolidated return for all its holdings -- so that losses cancel out profits -- it must pay a rate of 15%. Estimated additional revenue: $43,000,000.

Gifts & Inheritance. Under the House bill a rich man would do better to give his estate to his heirs before his death than to bequeath it to them afterwards. The gift tax climbs to 33 1/2% on $10,000,000 or more. The estate tax runs up to 45% on the same amount. The parent who deeds his children $10,000,000 makes them pay the U. S. $2,312,125 as a gift tax, whereas the same man's heirs would have to pay an estate tax of $3,116,000. From these two tax increases $30,000,000 or less is expected.

"Sales" Taxes. Before passing the final bill, the House again rejected (236-to-160) a general Sales Tax on manufacturers. Nevertheless under the guise of excises, it did juggle into the bill a long list of sales taxes on specific products -- 4-c- per gal. on lubricating oil (to yield $35,000,000); 10% on cosmetics ($20,000,000); on furs ($15,000,000); on jewelry ($15,000,000); on sporting goods and cameras ($6,500,000); on yachts & motor boats ($500,000); on firearms and ammunition ($2,500,000). Matches were to be taxed 4-c- per 1,000 to raise $11,000,000, chewing gum and candy 5% to bring in another $15,000,000, mechanical refrigerators, radios and phonographs 5% for another $17,000,000.

Upon automobiles was placed a 3 % levy and upon trucks 2%, for an estimated return of $48,000,000. Taxes on the "makings" of home brew and wine promised a $46,000,000 yield, whereas soft drinks were to contribute only $10,000,000. The Treasury anticipated $40,000,000 in revenue from a 10% tax on amusement admissions over 45-c-.

Communications. For the last year the Post Office Department has been begging Congress to increase the first-class postal rate to make that letter service self-sustaining. So unpopular was the request that not a single Congressman could be found to introduce the necessary legislation. Yet last week the House upped the rate from 2-c- to 3-c- without a struggle. Estimated yield: $135,000,000.

Likewise the Treasury was to collect $33,000,000 by a 5-c--to-10-c- tax on telephone & telegraph messages costing 31-c- or more.

Securities et al. The House's tax bill pressed so hard on security trades that there was wild talk last week that the New York Stock Exchange would emigrate to Canada. The traders' major grievance was against a 1/4% tax on all stock sales to give the Treasury $70,000,000 in extra revenue. The levy is to be not less than 4-c- per share and also applies to stock borrowings. A trader today selling 100 shares of $100 stock pays the U. S. $2, the State $4 and a clearing fee of $1.50-- a total of $7.50. The same transaction under the House bill would net the U. S. $25 and run the total charge up to $30.50. Security experts predicted that such a Federal tax would drive the public from the market and stockbrokers into retirement. The day the House adopted (207-to-39) this levy over the vain protests of New York Congressmen, the stockmarket slumped badly. To prevent evasion the House tagged on an amendment to make the tax applicable to stock deals for U. S. citizens executed outside the country.

Bond sales were to be taxed 1/8% (estimated yield, $25,000,000), real estate conveyances, 50-c- per $500 ($10,000,000), and future contracts in the produce markets 5-c- per $100 ($6,000,000). The security holder who escaped these levies by keeping his assets in a safety deposit box would have to pay 10% to the U. S. on the box's rental.

Balanced? Last year the Government rolled up its first post-War deficit of $900,000,000--and nothing was done about it. When the Treasury casts up its books June 30, it anticipates a second deficit of some $2,500,000,000--about which also nothing will be done. This two-year debit of $3,400,000,000 is simply lumped in as an increase in the Public Debt while the Government lives on borrowed money. This method of national finance cannot go on. If the Treasury tried to push its borrowings too far, without retrenchments, the world at large might become apprehensive of its financial condition. There would arise the spectre of default, even though remote. Foreign investors would dump their dollar securities. Gold would flow out of the country. Even to its own citizens the Government would be financially suspect. This would become evident in a fall in the market value of all Government bonds. Other bonds, already at low prices, would fall even further. Then would come the wholesale bank failures and general panic of which Speaker Garner warned. For Credit, mainspring of modern business, would have crumpled.

To prevent a third successive deficit was the purpose of the House tax bill. The Treasury has calculated that for 1933 it would go about $1,681,000,000 into the red. Of this amount $440,000,000 represents the annual statutory reduction of the Public Debt. The Administration's design is to borrow that amount, thus keeping the Public Debt stationary, and to level up the Government's actual cash receipts and expenditures. To do that $1,241,000,000 in new revenue must be raised.

But would the House tax bill raise that amount? There was some doubt about it last week. The Ways & Means Committee estimated that its measure would produce $1,032,400,000 extra cash; reductions in budgeted expenditures for 1933 were figured at another $200,000,000 and minor postal rate increases at $30,500,000. Thus by increasing receipts and cutting expenditures the Treasury would receive a total of $1,262,900,000 more than it now is getting, or $21,900,000 above Budget-balancing requirements.

Secretary of the Treasury Mills disagreed with these figures. He thought the House bill would produce only $997,400,000 in new revenue and estimated Budget economies at only $125,000,000. If he was right, the Budget would still be off balance by some $88,100,000. Speaker Garner raised the cry of "partisan politics" against his good friend Secretary Mills, accused him of "juggling" figures to suit his own economic prejudices. But most of Washington knew that the dispute was largely academic because estimating revenue at long range is largely guessing in the dark, with the chief factors of economic life beyond prediction. The House at least had made a bold and brave attempt to balance the Budget. The psychological value of that was worth almost as much as the billion dollars in new revenue.

This file is automatically generated by a robot program, so reader's discretion is required.