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UTORS

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Tools of Industry

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...: 637

General Badoglio Agrees with Dr. Tigert 631 Our Rural Schools ..

631 Help to the Farmers...

631 The Farmer Now Buys Gradually... 632 At Last the Disabled Men Have a Chance....

632 Tax Adjustment.

632 The Loss of What is Past..

633 Cartoons of the Week Dyes and Potash ...

... 634 Upper Silesia : The League Council to Arbitrate .

635 Famine, Child of Economic Folly.. 635 Teleky and Tittoni.....

636 Thoroughness and Interest...

636
People Are the Same Everywhere.... 637
The Irish Tangle ....
From Foreign Correspondents of The

Outlook :
England at Play.....

638 Special Correspondence from London by

Charles Henry Meltzer
England at Work.....

639 Special Correspondence from London by

Francis Rogers
Why France Will Back Up America

at the Washington Conference ... 640 Special Correspondence from Paris by

Stéphane Lauzanne
Puzzled Japan.....

641 Special Correspondence from Tokyo by

Henry W. Kinney Pictorial Photography....

642 By Henry Hoyt Moore Snap-Shots of My Contemporaries : Alice Freeman Palmer..

644 By Lyman Abbott The Training Ground of British States.

647 By Beverley Nichols Expelled from School...

648 By Winfield Brown Jogging Up “Jography :" A Story in Contrasts...

651 By William B. Ashley Bolsheyism in Education...

653 By James Annan Ayers Pearl River: An Educational Idea in Action...

655 By Wallace Buttrick The Book Table : Creative Art in Fiction...... 658

By R. D. Townsend The New Books....

659 The Child and the Movie..

660 By Dorothy C. Fox Contributors' Gallery .....

660 Financial Department.

662 By the Way

667 BY SUBSCRIPTION $5.00 A YEAR. Single copies

15 cents each. For foreign subscription to countries in the Postal Union, $6.56.

Address all communications to THE OUTLOOK COMPANY 381 Fourth Avenue

New York City

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The Financial Department is prepared to furnish information regarding standard investment securities, but cannot undertake to advise the purchase of any specific security. It will give to inquirers facts of record or information resulting from expert investigation, and a nominal charge of one dollar per inquiry will be made for this special service. All letters of inquiry should be addressed to The OUTLOOK FINANCIAL DEPARTMENT, 381 Fourth Avenue, New York.

SALES TAXES
BY HUGH SATTERLEE

OF THE NEW YORK BAR

C

TONGRESS, as a practical matter, is limited to three forms

of taxation, namely, import taxes or customs duties, the

income tax, and indirect or excise taxes. For several years the Federal Government will probably need to spend in the neighborhood of $4,000,000,000 annually. The problem is how to levy the taxes available to Congress so as to raise the required amount, whether it be this or some other estimate, with a maximum of certainty, equality, and simplicity.

With the Republican party in power the tariff is sure of full

utilization. But there is a point, soon reached, beyond which high rates prevent importation and produce no revenue. It is a safe guess that customs duties can be relied upon for not much more than $400,000,000.

For 1920 the income tax and the 'excess profits tax, which is an income tax, alone produced $4,000,000,000, but the est imate of their yield for the next year or so, even if continued at the same rates, promises less than $2,000,000,000. Moreover, with substantial unanimity the co try demands that the excess

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Speeding the passage

to markets overseas T:

reasons the higher rates of surtax on individual incomes should be revised downward. On the other hand, in an attempt to equalize the taxes on individuals and on corporations, some form of additional income tax will probably be imposed on corporations to offset the surtax on individuals. The proposal which seems to have the most backing is to increase the income tax on corporations from 10 per cent to 15 per cent. But, in any event, unless the rates of tax on individuals with moderate and small incomes be increased, the income tax on individuals and corporations will do well to yield $1,850,000,000.

Having assumed a possible $2,250,000,000 from the tariff and the income tax, we are constrained to resort to indirect or excise taxes for the collection of the balance of the required amount, which would be $1,750,000,000 if the total estimate were $4,000,000,000. Of such taxes the Supreme Court has said that "excises are taxes laid upon the manufac. ture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.” Aside from the tax on inheritances, which is in a class by itself, excise taxes may practically all be classed as occupation taxes or sales taxes.

For 1920 the estate tax produced $100,000,000; the capital stock tax, which is an occupation tax on the privilege of doing business as a corporation, together with more than twenty-five trivial license taxes on brokers, circus proprietors, etc., produced another $100,000,000; and sales taxes about seventy-five things produced $1,200,000,000. These taxes, if retained, would probably yield nearly the same amount for 1921. But the sentiment is strong that inheritance taxation should be left to the States, and the capital stock tax is administratively unworkable as well as imposed upon an anomalous basis. The lesser occupation taxes are not worth the trouble of collection.

We now approach the fiercely fought field of sales taxation. With an annual yield from existing sales taxes of nearly $1,200,000,000, and with the income tax, the other principal source of revenue, becoming less productive, it must be evident that the man who rails against every form of sales tax is wasting his breath. In truth, the problem is not whether we shall tax sales, but how we shall tax them.

Sales may be and are being taxed in a bewildering variety of ways. Sales of specified commodities may be taxed at different rates when made by the manufacturer, producer, or importer, as in the case of automobiles, cameras, and candy, or to a consumer or user, as in the case of carpets, jewelry, and medicinal articles, or by any one to any one, as in the case of works of art. Sales of specified capital assets may be taxed at different rates, as in the case of real estate conveyances. Sales of the use of specified kinds of property may be taxed at different rates when made by the lessor, as in the case of pleasure boats, motion

on

THERE WAS A GOLDEN ERA when our

swift clipper ships were acknowledged by all nations as the pacemakers of international commerce—ships built, owned, chartered and sailed by splendid types of American manhood.

The descendants of these men upheld the glory of fine marine traditions during pre-war days when our national colors nearly vanished from the seas for lack of federal support. To them must go much credit for developing the Port of Boston to its present high efficiency.

Benjamin T. Reed, first president of The Warren Bank, which afterwards became The National Shawmut Bank, was secretary of the citizens' committee which successfully solicited Samuel Cunard in 1839 to establish Boston as a terminal for his projected trans-Atlantic steamship line. Since that year, The National Shawmut Bank has been a leader in many movements to improve the port facilities and expedite the handling of merchandise.

Ten hours closer to Europe than is New York; Special inquiries one of the finest harbors in the world, berth space concerning Boston at piers for forty large ocean steamers; ample Port facilities are cordially invited. storage and mechanical devices; three important

railroads with freight terminals at deep waterthese are among the many advantages of the Port of Boston. Another is the very comprehensive service this bank furnishes to exporters, importers and shipping interests wherever located.

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THE NATIONAL SHAWMUT BANK

of BOSTON Resources exceed $200.000.000

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rentals or compensation for personal services. But sales of stocks and securities present difficult features, and some exceptional treatment would have to be accorded them. There are reasons for so doing, but they require elucidation and might not prevail against a demagogue's obvious line of attack.

For practical present purposes per. haps proposal V offers the best rallyingground for the opponents of proposal I, and the discussion will be confined to these two programmes. Suppose we compare proposals I and V from the standpoint in turn of certainty, of equality, and of simplicity.

A tax is certain if there can be no doubt of its application. In the case of the specific sales taxes, as already intimated, it is often almost impossible to tell whether a given article is in a class of taxable articles, or, if so, in what class, and whether a particular sale of a taxable article is taxable. For instance, ordinary coats are not taxed, but hunting coats are taxed to the manufacturer at one rate and smoking coats to the user at another.

On the other hand, the turnover tax on commodities would apply to all sales of all goods, wares, and merchandise. It would make no difference whether a seller were a manufacturer or a retailer or whether the buyer were a consumer or a middleman. The difficulty of determining whether an article was a particular kind of commodity would be resolved into the comparatively simple mental operation of determining whether it was any kind of commodity.

Equality, which furnishes the second test of merit, is a goal that no tax ever quite attained, but one tax may approach closer than another. The specific sales taxes are imposed at varying rates on specified articles, while other articles are

not taxed. The enterprise that makes thermos bottles pays a tax on its products; the enterprise that makes fireless cookers pays none. The manufacturer of skates pays 10 per cent; the manufacturer of chewing-gum pays 3 per cent. The turnover tax, on the other hand, would apply at a uniform rate of 1 per cent or less to the sale of every article.

Of course the consumer eventually pays the tax, in any event. All sales taxes, specific or general, are consumption taxes. A well-founded suspicion exists that the excess profits tax and the income tax are often loaded in overflowing measure on the consumer. Certainly the tariff is a consumption tax. Until a tax shall be invented that will not burden the ultimate consumer the cant and rant about consumption tajes might as well be forgotten,

Where the inequality exists, then, be tween a merchant who sells articles subject to a high specific sales tax and another merchant who sells untaxed articles is not in that the former ultimately bears the tax levied on his goods, but in that prospective purchasers tend instead to buy untaxed articles which satisfy the same general need. The taxed merchant loses business. On the other hand, where every commodity is taxed at a low rate, there is no tendency to rur.

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FINANCIAL DEPARTMENT

(Continued) tions, or by the lessee, or by any one to any one, as in the case of admissions. Sales of choses in action may be taxed at different rates when made by the cre. ator or issuer, as in the case of corporate securities, insurance, and future deliveries of produce, or to a transferee, as in the case of stock, or by any one to any one. Sales of services may be taxed at different rates when made of one's own services, or of another's, or of both one's own and another's services, as in the case of transportation and telegraph and telephone service. In any of the above species the tax may be imposed on the seller or on the buyer, and may be required to be paid by rendering returns or by affixing stamps.

It would be hopeless to try to describe all the possible types of sales taxes. Fortunately, there are not more than five general proposals which boast any backing. These severally contemplate:

I. Specific sales taxes—that is, separate taxes on sales of specified articles when made by or to specified persons. In other words, the present system or lack of system would be continued and extended.

II. A manufacturers' sales tax—that is, a uniform tax on sales of all articles when made by the manufacturer, producer, or importer.

III. A retail sales ta.--that is, a ini.

form tax on sales of all articles when made to a consumer or user.

IV. A turnover or gross sales taxthat is, a uniform tax on all sales of commodities, capital assets, the use of property, choses in action and services, when made by any one to any one.

V. A turnover tax on commoditiesthat is, a uniform tax at a rate of 1 per cent or less on all sales of goods, wares, and merchandise when made by any one to any one, with probably an exemption for administrative convenience of sales not exceeding $6,000 annually.

At first glance proposals II and III sound attractive, but the ineradicable vice inherent in them, as well as in proposal I, is that it is often practically impossible to determine who is the manufacturer or producer of a given article and who is a consumer or user. Who is the manufacturer of a watchthe maker of the works, or the maker of the case, or the jeweler who puts them together? Who is the consumer of sugar in the case of a sale partly for use on the purchaser's table and partly for use in the manufacture of candy to be sold?

Proposal IV has more merit. It uncompromisingly treats all alike. The thought of a turnover tax on capital assets should not be alarming. In fact, the stamp tax of 1/10 of 1 per cent on conveyances of real estate is such a tax. Nor is there serious objection to taxing

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Comfort

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EXPERIENCE IN SERVING
INDUSTRIAL AMERICA
HB strategic location of Chicago finds

expression in the diversified business

of The Continental and Commercial Banks. Contact is easily maintained with every business center and every kind of banking facility is offered. A connection with these banks will save time and money.

Inquiries will receive prompt attention.
The CONTINENTAL and

COMMERCIAL

BANKS

CHICAGO Complete Banking Service More than $55,000,000 Invested Capital

tail the buying of any particular commodity.

With one exception the objections commonly urged against the turnover tax apply with equal or greater force to specific sales taxes. It is said that in a falling market the merchant could not pass along the tax. Sometimes, no doubt, he must sell at a loss, but he should be able normally to shift a 1 per cent turnover tax if he can shift his rent or a 10 per cent specific sales tax. Or it is said that the turnover tax would revolutionize business practice and encourage evasion. The avoidance of a 1 per cent tax would scarcely be worth the trouble of elaborate tax-dodging devices. Surely there would be more incentive to evade a 10 per cent specific sales tax.

The most plausible argument against the turnover tax is based on the turnover feature, from which most of its advantages are derived. If a shoe manufacturer sells directly to the consumer, one tax being paid, another shoe manufacturer and the retailer to whom he sells are at a serious disadvantage, so it is said, because between them they pay two taxes. Of course they do not pay twice as much tax, for the selling price to the retailer, on which one tax is based, would be less than the retailer's price to the consumer, on which the second tax is based. In fact, even where a number of turnovers occur it has been computed that seldom, if ever, does the aggregate tax exceed 314 per cent of the final selling price.

But the sufficient answer to this charge of possible discrimination is that, taking everything into consideration, it is unimportant. If a manufacturer and : retailer can now compete with a manu. facturer who sells to the public, as they can and do, earning their double profits and paying their theoretically double overhead expenses, a difference of a fraction of one per cent in the tax can be readily adjusted. Methods of doing business are a matter of choice, dependent upon location and a variety of other factors, the least of which would be this difference. The Harvard Bureau of Business Research in a survey of 197 retail shoe stores found that the percentage of operating expenses to net sales ranged from 13.62 per cent to 35.63 per cent, a variation of 22 per cent.

At best equality is relative. Consider the monstrous discriminations of the excess profits tax, which was sponsored by the most bitter opponents of the turnaver tax! Is a cpecific sales tax of 10

The First National Bank

of Boston

Transacts commercial banking

business of every nature

Make it your New England Bank

Capital, Surplus and Profits

$37,500,000

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