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Now, Professor Adams says that because a man smokes a twentyfive cent cigar, and wears a necktie, he cannot come in and object to the extravagance of these officers who are spending your money. It is none of his business, and it is none of my business if you smoke a twenty-five cent cigar or buy a Pierce-Arrow automobile; but it is your business and it is my business when the local officers spend our money for taxes; and there is only one way in God's world to reach this tax question, and that is to cut down these extravagant expenditures that are being made in every city and in every county and in every township in the United States. There has been an insane orgy of spending public moneys, and it is going on today. The instance I have given you here is only one out of more than a hundred where we have cut down the prices of school houses and roads. In addition to that we can go right into a tax levy, upon the petition of ten taxpayers, and we can cut the budgets down to where they really ought to be. We took six hundred thousand dollars out of the budget of the City of Indianapolis last year, and they never missed one single dollar. They carried on their city and saved that six hundred thousand dollars for the taxpayers. It is by attention to expenditures of public money that the only sound and safe solution of the taxing problem can be found. I thank you.

CAPTAIN WHITE: The gentleman who is representing the farm bureau spoke about the taxes that the farmers have to pay. I should like to ask him what the taxes on real estate that the farmers paid amounts to.

MR. MCKENZIE: I think I can, fortunately, answer that question. Taxes on real estate are the local taxes. If you will study the report gotten out by the gentleman who addressed us this morning, you will find in that report that the tax on real estate in the State of New York on equalized valuation amounts to two and one-half per cent or better. Now, that is where the bulk of the tax on real estate goes.

CAPTAIN WHITE: Goes to the county?

MR. MCKENZIE: Not all to the county; part of it goes for the support of schools, part of it for the support of roads and for the other local expenses.

CAPTAIN WHITE: All local expenses. Then I ask the gentleman, how does he come here and argue against tax-exempt securities so as to save the farmer his local taxes?

MR. MCKENZIE: The gentleman seems to forget that the farmer not only pays local taxes but, if he is so fortunate as to get into the class of income taxpayers, he also pays that. Here is the fact: If you divide our total tax burden up between federal taxes and

state and local taxes, you will find in the State of New York, for instance, that it is nearly a fifty-fifty proposition, about half for national purposes and half for local and state. In that state probably only about twenty per cent goes for state purposes and the balance goes for the local purposes, to which I have called your attention. We are all living in one country and when the property owners have to pay the bulk of the cost of running the local government, they are paying probably forty per cent of the entire tax bill of the country.

CHAIRMAN ROBERSON: I recognize Mr. Rothschild.

MR. M. D. ROTHSCHILD of New York: I just want to say a word on the question of tax-exempt securities. I am fully in harmony with Mr. Lord's recommendations and I believe for future purposes that the proposed amendment would be a very good addition to our Constitution, but we have with us this body of tax-exempt securities, which has been estimated at anywhere from fifteen to thirty billions of dollars. Fifteen billions of dollars is in itself a sufficiently large sum to very greatly affect the interests of the country, of commerce especially, and the exemption from tax of a part of our population-the very part of the population which ought to bear the full share of taxes-is, I take it, not a very desirable thing. Now these men who invest in tax-free securities instead of investing in regular securities, that is, preferred stocks and bonds, that are not of strictly high grade but which would bring them a reasonable return for the money, would cease these tax-free investments if they no longer paid; in other words, if they did not feel they were in a position where it was necessary to get ten or twelve per cent in order to get as much net as they can today on a taxfree five per cent bond. They way to cure this, I take it, is to bring those people back into the tax fold once more, and to so arrange the surtax on personal incomes that it will not pay a man to buy tax-free securities to escape taxation. You don't get anything by it anyhow, and I take it if those surtaxes were so arranged that the average tax of no man would be more than twenty-five per cent-that is, the lower taxes, and the higher taxes averaging to twenty-five per cent-he would be in a position where a seven per cent preferred stock, with a twenty-five per cent obligation to the government, would still leave five and one-quarter per cent. I am quite sure that the average man, not perhaps a few very timid people, but the average man in business would rather take the five and one-half or six per cent, or a little better investment and let the tax-free security go, than to hold on to it. That I take it is the practical solution, and if the people in this country, who are attempting class legislation at all times who believe that a few people should pay the bulk of the taxes, because they happen to have

the money-if they would get a little sense and get the money where they can, and not build up this class of tax-free citizens, we should all be better off, and this question of tax-free securities would once more sink to where it was a few years ago. They would be the investment of conservative estates, temporary investments for insurance companies, and people who wanted to put their money where they could readily get it out again. It would not be used as an immense reservoir for money which ought to be in use in commerce.

MR. J. L. SAYLER of Illinois: There is one question that has occurred to me in listening to this resolution tonight. Under the law, as it stands in this country at this time, and I think it is based on a decision of the United States Supreme Court in the Minnesota case, a state government has not the right to tax the securities of a territorial government, either the main government or the municipalities or smaller subdivisions under it. Under this resolution as it is written, apparently, a state, if it had an income tax that taxed its own securities, would also have the right to tax the securities of the United States Government; but there still remains a question whether it could tax the securities of the Philippine Islands or Manila, or the subdivisions thereof. That is a point that I think should be cleared up.

CAPTAIN WHITE: How about the securities of another state? MR. SAYLER: Well, one state has the right to tax the securities of another state, that is, they may exempt them or may not, as they see fit, but in a territorial organization they cannot There is one other phase, and that is on this question of surtaxes. In considering the question of the point where an investor will forsake ordinary corporation issues and go over to tax-exempt securities, it is the application of the normal and surtaxes that determine it. If you take, for instance, a case where an investor has an income so that his total normal and surtax rates would be thirty per cent; take his one thousand dollar taxable bond at seven per cent; the income from that one thousand dollar bond would be seventy dollars; if you apply a thirty per cent rate to that, the tax would be twenty-one dollars; subtract twenty-one dollars and you get a fortynine dollar yield; that is, forty-nine dollars net; and that is what determines where an investor would go over to the tax-exempt securities. If you get down to principle; if this income tax principle is correct as applied either to state or nation, then it should go to its logical conclusion, and that is that every bit of a man's income that is in a true sense profit or income in the popular sense of the word, should be included in the base to which the tax is applied. There again you get over to the fact that if the taxexempt securities are brought under this rule, the result is going

to be a lessening of the higher surtax rates and there is the point; the moment you get an investor with taxes so high that he can go over into other forms of securities, or resort to methods under which he will have no tax to pay, that moment the tax is not going to be effective. Therefore, in the consideration of the principles here, you have to consider the demands of industrials and of the public utility field for money, and that the moment you drive out capital, that moment you are going to make it more difficult for the people to borrow the money. It finds expression in the fact that whereas in other days the average investment bonds would be sold, for instance, in fifty thousand and one hundred thousand dollar lots, now you have to seek the small investor, and it has even got to the point that the bond houses find it profitable to sell on the partial payment plan. Furthermore, it has enormously increased the expenses of the industrials and public utilities and other concerns in floating their bond issues. The whole thing is wrapped up in this question, that if there are people who are entitled to special concideration, let them be given consideration in some direct method and not resort to a tax-exempting feature in order to give it to them.

MR. JOHN E. BRINDLEY of Iowa: I want to make just a remark or two, and that is to correct what seems to my mind to be a wrong impression in the minds of some of the delegates here, arising from some remarks made here in the course of this rather heated discussion. I merely want to state that over a number of years I have attended this conference, and there has been no member of it in season and out of season who has used his influence in favor of greater and greater economy in public expenditures than has been the case with Professor Adams, and I want to make that remark because I observe that perhaps a wrong impression was obtained by one of the speakers. I think we all will admit that.

MR. DOYLE of New York (interrupting): I should like to say--
CHAIRMAN ROBERSON: Will you let me finish my statement?

CHAIRMAN ROBERSON: I said that under the rules of the conference no gentleman can have the floor twice until all those desiring to be heard have spoken; and I recognize Mr. Query.

MR. W. J. QUERY of South Carolina: The resolutions committee has been called to meet immediately after this conference has adjourned, and I move you that if all those who have desired to speak have spoken, this conference adjourn until ten o'clock in the morning, so that the committee on resolutions may convene.

PROFESSOR ADAMS: I want to second Mr. Doyle's proposition, that he have full opportunity to get back. It seems to me quite fair.

CHAIRMAN ROBERSON: Under strictly parliamentary rules, of course the motion to adjourn is not subject to discussion.

MR. DOYLE: I don't think it is fair. A government official charges that there is no extravagance in government, and he spoke twice too, and I want to show how the budget of the State of New York has constantly increased. From 1900 it went

CHAIRMAN ROBERSON: Just a moment; there is a motion to adjourn before the conference. In view of that motion, your discussion is out of order.

MR. QUERY: I withdraw the motion for adjournment.


MR. DOYLE: Up to 1900 the expenses of running the State of New York-the state budget-never exceeded fifteen millions. In 1900 the budget of the City of New York was just one hundred millions of dollars; last year the budget was three hundred and fifty millions, six hundred and thirty thousand dollars. This year the departments are asking for four hundred millions of dollars, and you all know what has happened as far as the federal government is concerned; the expenses have doubled and tripled and quadrupled. Now, it is idle for anybody-even so distinguished an expert as the gentleman who spoke to say that there has not been a tremendous increase in the expenses of the governments.

The primary object of all government-and for that reason governments exist among men — is to protect men in the pursuit of their daily vocations, but until recently a union card was more protection than the protection of government. All the other functions of government are surplusage and should be wisely studied and considered before they are adopted. Any new power or function of government ought to be very carefully considered before it is adopted; and yet every new source of revenue, gentlemen, all the new taxes put upon every one of you, in every state of the Union, has been immediately swallowed up by some new function of government, and you all know it.

JUDGE HOUGH of Indiana: You have no right to kick; you wear a necktie.

MR. DOYLE: But I don't smoke.

MR. QUERY: I move we adjourn.

CHAIRMAN ROBERSON: All those favoring adjournment say aye. (Ayes and noes)

Adjournment to Thursday, September 21, 1922, at 10:00 o'clock A. M.


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