developed. Take, for instance, the net losses provision-the provision permitting the taxpayer to take the loss of one year and offset it against the profits of another-when I first proposed it to Congress it was received almost with derision. It is now the law of the land. Take that extraordinary provision by which federal taxpayers are authorized to deduct dollar for dollar against their income and profits tax the taxes paid abroad. If you will think a moment of the spirit of such a provision, you will see that a few years ago it would have been almost impossible to secure it. Or take again, on the opposite side, the attitude of Congress towards gifts the attempt to correct that very serious defect working against the government. The provision which was adopted may be wise or unwise; it was adopted rather against the personal inclinations of the members of Congress, in an honest attempt to fill a big hole in the federal tax law. So I might go on, almost indefinitely, showing evidence of what I might call a nice regard for the equities of tax-making. That seems to me fine, and to be on the whole, typical of the spirit in which federal tax laws have recently been adopted.

There are, of course, a number of instances, I think, of rather obvious political hypocrisy creeping into the tax bill. To use the popular phrase "boneheaded plays ", I have seen many made, and lots of grandstand plays, and lots of instances of rather raw, slapstick work-legislative vaudeville - not lots of them, but some. For instance, take the so-called luxury taxes-taxes on fancy vests and trousers, that cost more than a certain amount, a provision of the law which worked very badly. That got into the federal tax laws in this manner: President Wilson recommended, and struck, properly I think, a sympathetic note in every heart, that during the war we ought to have taxes on luxuries. A very able sub-committee proceeded to investigate the question of taxing luxuries. With the best intentions in the world, they really concluded, down at bottom, that the thing was rather impracticable; that the gain was not worth the candle; that the tax was not, as things go, a practical tax. But public sentiment was strong, so a little arrangement was made a gentlemen's agreement-that a luxury tax schedule should be adopted in the House bill, and that the Senate committee would kill it. That was definitely understood. Well; the program went along very nicely. The House adopted it; the Senate committee killed it, but some senator, noticing on the floor of the senate the omission of this luxury schedule, expressed his opinion that the senate bill, while very much superior to the house bill, was obviously unfair in one respect; it had no luxury tax; so he proposed, as an amendment to the senate bill, the luxury tax schedule. The bill was adopted and passed, as amended. This was not in conference and could not be taken out in conference and is in the tax law, in modified form, to this day.

Another illustration of something of the same kind: In the revenue bill of 1917 the principal chairman in charge was, on the whole, not in favor of federal estate or inheritance taxes, and particularly was not in favor of increased estate or inheritance taxes, but he was a canny gentleman, and he knew that there were in the senate committee, and that there would be in conference as confrerees a number of gentlemen opposed to federal inheritance taxation. He wanted some material with which to trade, so he voted, against his own convictions, I have heard him say, for increased rates, in order to sell it for something later on. Curiously enough, however, in the midst of the war, the senators in question sacrificed their own convictions and did not ask that the estate tax rates be reduced, and that is the explanation of the increase in the estate tax rates, in the bill of 1917. They were higher than the rates which we have today, by the way, as they were put in to trade with, but the other fellow never asked for any trade. Those things happen.

I might name many minor matters, and particularly, if I wished to violate certain confidential relations, I could say some things on important sections in which I think rather more sinister influences have been at work. There have been trades and deals between factions, in one or two places, where I think personal influence, in connection with an important legislator, of certain groups-certain interests has been abused. I can get quite indignant over some of these things; but on the whole, they are minor episodes, they are relatively few in number, and looking at the revenue act as a whole, they are almost negligible. The spirit in which this legislation has been adopted-the intent behind it—the endeavor and the desire-have been, as I see it, almost as good as could possibly be expected, considering the political conditions under which we live and under which these laws are made.

I want to say here just a word about criticisms of federal tax laws, which are so frequent, and which frequently contain so much truth. Political economists, professional tax experts, business men, citizens generally, at times criticize these tax laws very bitterly. Many of these criticisms are entirely sound, but a very great many of them are based upon facts which, to my personal knowledge, were fully in the possession of the members of Congress who participated most actively and effectively in the making of the laws. Usually the critic believes-and I have heard them so state many times-that Congress or the members of the committees don't know these things. Now, in many of such instances, to my personal knowledge those facts were fully before the members of the committee. The difficulty was that they were also in possession of other and conflicting facts. There have been, furthermore, very many instances in which rather over-sure and over-confident critics

have assumed a certain superiority towards the committees, which the fundamental facts did not justify. The committee heard their case; assimilated their argument; and were familiar with their facts. They also heard other arguments; familiarized themselves with conflicting facts, which cut under and were deeper, in my opinion, than those of the critic.

Nevertheless, despite these things, the federal tax laws are very obviously characterized by very grave defects—very grave evils— and my principal object in discussing this question is to try to find out to what extent and in what manner, if at all, they may be remedied.

I shall reserve what seems to be the principal desideratum-if I may use that word in this connection-for the last; omitting that, it seems to me that perhaps the first condition to secure in this regard is a very frank and full admission and realization, on the part of everybody, that the making of tax laws is, down at bottom, essentially a political task. In any event, that is something that has grown on me with the passage of years. Tax laws, on the whole, in their fundamental structure—I don't mean in their detail but in their fundamental structure, and in the big things to which we object and where the deepest defects lie-are not made, in the ordinary sense; they grow out of a certain political soil, which may be enriched, which may be improved, and made to yield a better crop of tax laws, but which has, despite that, in my opinion, and in the words of the economist, certain indestructible and inalienable elements which cannot very easily be changed.

There are, obviously, certain political hypocrisies which can be remedied. Members of Congress frequently vote, not for the best interests of their constituents, not for some measure which will really benefit the people that they represent, but to satisfy some passing whim, or in obedience to some misapprehension. Thus, the situation can be remedied by education, by discussion. There is, of course, a great deal of political misinformation about. Very frequently men, intent only on serving their own interests in their attitude towards proposed tax changes, do not reason accurately: they do not proceed straight from premise to conclusion. That sort of thing may be corrected by education and discussion. But down at bottom there is a deeper truth, which is that in certain fundamentals no amount of education, no amount of discussion, no amount of expert advice can take the place of that political pull and haul, that tug of interests, that clash of sections, that showdown of strength, which is political. The only thing we can do, in my opinion, is to accommodate ourselves to it. In other words, there are certain of these things that some of us regard as defects, which are going to remain in the tax laws, as long as we remain in the minority. Despite that fact, my experience in the making of

tax laws has left me, as I said at the beginning, a profound op::mist. I have been impressed, not with the things that cannot be changed but with the things that may be changed. I have seen proposal after proposal ccme before Congress, to be either openly scoffed at or politely sneered down, and be revived at later sessions, as proposals of the men who were originally their most hostile critics. Education can do a very great deal, and I am inclined to think that in one sense it is the only hope for improved tax-making that is very greatly worth consideration.

I want to stop just here to illustrate the difference between those things which, in my opinion, may be corrected, and those which will have to be endured.

Take this question of the income tax rates: we have income tax rates running up to 58%, as you know, in the federal income tax. I personally believe, and I think the majority of you believe, that with $15,000,000,000 or more of tax-free securities outstanding, and the impossibility of changing that in the near future, even by constitutional amendment, income tax rates which run to 58% defeat themselves. Take the viewpoint of those people who believe in exceedingly high income taxes; reasoning from their standpoint; striving to achieve the object which they want to achieve, it seems to me almost demonstrab'e that you would get better results if those rates were reduced. In my opinion, an income tax with rates of 58%, under existing political conditions, with fifteen billions of tax-free securities outstanding, is inevitably riding to a fall. Speaking dispassionately, and if I may say so, as a tax expert, they are almost certain to demoralize a great tax. We are going to discredit, in my opinion, the federal income tax. don't want to try to prove that point, but let us assume it to be true, for the purpose of the argument. If it be true, the sort of people who believe in highly progressive income taxes, can be persuaded. If I can summon a convincing argument, and if I have the facts-the truth-I can convince them in time, and that can be changed. Education will tell there.

Now, I

But, gentlemen, there is another side of income taxation, which I don't believe is susceptible of ordinary discussion and definition. The federal income tax, as we have it, as I said yesterday, is a class tax of the most extreme form. It touches directly perhaps only five or six per cent of the population, and that is a grave defect. But it is not going to be cured, in my opinion. That goes back to the underlying things which discussion is not going to change in a few years. That is a result of non-physical forces, in my opinion. We have, as you know, a very strikingly unequal distribution of wealth and income in this country; so striking that every time i go over the statistics, they scare me. I believe that this tends to encourage a highly progressive income tax, or something which

will do the same work; an effort crude perhaps, but inevitably designed somehow to limit or ameliorate that difference in the distribution of wealth. I should not be surprised if it would develop that fiscal legislation of this kind-highly progressive income taxes —is the very price we must pay for the preservation of our economic institutions and industrial processes, which result in such striking inequalities. Let us assume industrial processes and economic institutions are good, and that they are beneficent. Now, if they result in the distribution of wealth and income as it exists today, then there are inevitably going to be efforts to ameliorate and correct those results. I don't believe that any amount of discussion of the class character of income taxes, or any amount of stressing the fact that they touch five per cent, is going to persuade the ninety-five per cent not to employ them.

That illustrates the difference; that illustrates realistic facts which I think we must accept, and which personally I have no hope of ever seeing cured. The effort to get surtax rates which will serve truly and effectively the purposes of the people who want highly progressive taxes, is susceptible of elucidation and accomplishment, because people don't want to defeat their own ends. Those persons who want highly progressive taxes don't want to lose the very objects which they are seeking, and in one way or another that, I think, can be attended to.

I have indicated in a general way what seems to me almost the only remedy for the defects in federal taxation, and the only general method of improving federal tax laws, which is available, and that is the remedy of education. We need more educational work; perhaps as much as anything else we need more fundamental facts. As an expert, who within the limitations of his time and strength has endeavored to get at the truth in a disinterested way in this connection, the thing I feel most is the absence of clear-cut facts relating to many of the deepest and most important of federal tax questions. The bureau of internal revenue, in my opinion, should spend ten times as much money as it is spending today in getting fundamental facts. Let them be applied as they may; let them be used for partisan purposes; they will be; all that is part of a larger educational campaign.

Think, for instance, of Mr. Drake who spoke here yesterday: of the rich, almost priceless results of his work of valuation, if it is properly done, and much of it is well done properly done. Those results ought to be disseminated. The returns of the income tax and excess profits tax have facts and information and data, the like of which the history of science and the world have never seen. Some of it is being published; ten times as much should be published, to be utilized by this trade association, by that group of industry, by this educational institution, by that research bureau.