War Taxation Part 1

War Taxation.

by Otto H. Kahn.

The recent publication of a little pamphlet ent.i.tled "Some Comments on War Taxation" elicited numerous interesting comments by the readers.

The points to which these comments mainly related were the statements contained in the pamphlet that:

_First._ If our neighbor Canada continues her present policy of not taxing incomes, or if she imposes only a moderate tax while rates of income taxation in America are fixed at oppressively and unnecessarily high rates, there can be little question that the ultimate result will be an outflow of capital to Canada, and that men of enterprise will seek that country.

_Second._ Moneyed men not having their capital engaged in active business, if they are so const.i.tuted that their consciences permit them to evade their share of monetary sacrifice, can put their funds into tax-exempt securities.

In reference to the foregoing points, I have written two letters in answer to correspondents. These letters contain an elaboration of certain arguments and viewpoints set forth in the original article on War Taxation and also refer to some additional phases of the subject.

Those who have done me the honor of perusing that article may possibly be interested in reading these letters.

In order that they may be presented as a part of the argument as a whole, the original article with a few additions and slight revisions is printed in the first part of this pamphlet, followed by the letters.

O. H. K.

52 William Street, New York, July 5, 1917.

SOME COMMENTS ON WAR TAXATION

_This is a reprint, somewhat amplified, of an article printed recently in the New York Times. The original article was written before the recommendations of the Ways and Means Committee of the House of Representatives were reported._

In a time of patriotic exaltation and of universal obligation and readiness to make great sacrifices to bring a most just and righteous war to a successful conclusion, the voice of sober argument and matter of fact considerations is apt to grate upon the ears of the people.

That voice is all the less likely to be popular when the arguments it puts forth may easily lend themselves to the interpretation of being actuated by solicitous care for selfish interests.

I am fully aware that by publis.h.i.+ng the following observations I am exposing myself to that interpretation and to criticism of, and attack upon, my motives.

Yet, seeing that certain measures now under consideration threaten to take shape in a way which, from my practical business experience and after mature deliberation, I am bound to regard as faulty and as indeed harmful to the country, I believe it to be right and proper to contribute my views to the public discussion of the subject, for whatever they may be worth.

I can only hope, then, that in what I am going to say I shall be given credit for endeavoring to speak conscientiously and to the best of my knowledge and judgment from the point of view of the welfare of the entire country and not of the welfare merely of the well-to-do.

I shall address myself to the practical aspect and to a few phases only of the question and shall not attempt to enter into the economic theories and the broader and deeper considerations involved.

I shall a.s.sume in my argument that what Congress is seeking to accomplish is to impose taxes justly, effectively and scientifically with the desire to disturb the country's trade and commerce as little as possible and to avoid as much as may be the evils of financial dislocation.

I shall take it for granted that at a time when more than ever the unity of the country should be emphasized, sectional selfishness will find no place in the taxation program, and that, should it be attempted nevertheless, the congressional delegations of the States which would be unjustly affected, would resist, regardless of party affiliations, harmful discrimination against their const.i.tuents and their States.

I shall a.s.sume that it is not the purpose and intent of Congress, under the guise of the necessities of the war situation, to embrace the doctrines of Socialism.

Our present economic system, our present method of wealth distribution may or may not stand in need of change; the fact remains that Congress has no mandate to effect a fundamental change.

The consequence of such a change would be so immensely far-reaching that no government has the right to sanction steps to bring it about until the subject has been fully discussed before the people in all its bearings and the people have p.r.o.nounced judgment through a Presidential or other election.

I will first state what in my opinion ought not to be done:

I

I take it that not many words need be used to expose the fallacy of the argument, heard even in the Halls of Congress: "If men are to be conscripted, wealth also must be conscripted."

_Men will be conscripted to the extent that it is wise and just and needful. So, and no other, should wealth and the country's resources in general be conscripted._

And, are not the children of the well-to-do conscripted equally with the children of the poor?

Indeed, the proportion of the sons of the well-to-do on the actual fighting line is bound to be a predominating one, because vast numbers of wage workers in the industries and on the farms will necessarily have to be retained at their accustomed vocations in order to maintain the output of our factories and farms.

Have the children of the well-to-do been backward in volunteering? Were they not, on the contrary, amongst the very first to offer to serve and to fight?

II

_There appears to prevail amongst not a few people the strange delusion that America's entrance into the war was fomented by moneyed men, in part, at least, from the motive and for the purpose of gain._

_Were there any such men, no public condemnation of them could be too severe, no punishment would be adequate. I am absolutely certain that no such hideous and dastardly calculation found lodgment in the brain of any American, rich or poor._

Moreover, is it not perfectly manifest that any rich man in his senses must have known that his selfish interest was best promoted by the continuance of the conditions of the last three years in which America furnished funds and supplies to Europe at huge profits, whilst our entering the war was bound to diminish those profits very largely (indeed, to entirely eliminate some of them), to interfere with business activity in many lines and to compel the imposition of heavy taxes on wealth?

It is to the credit of our rich men that, though fully realizing the extent of the monetary loss and sacrifices which war between this country and Germany must necessarily bring to them, there were but very few of them who supported the Peace-at-any-Price Party or favored the avoidance of America entering into the war when it had become plain that our partic.i.p.ation in that war could not be avoided with honor and with due regard for our duty to our own country, or to the cause of right and liberty throughout the world.

Yet, somehow, the pacifists seem to have singled out the rich as mainly responsible for the war.

It may be due, consciously or unconsciously, to a resulting feeling of resentment that _the proposal to confiscate during the war all incomes beyond a certain figure is actively promoted by leading pacifists_--a proposal based upon ignorance of, or disregard for, the laws of economics, teachings of history and practical considerations.

If any such scheme were to be adopted, the consequences to the country at large would be far more serious than to the victims of the proposed action.

If such a measure of outright confiscation were seriously apprehended, at a time moreover and under conditions which are far as yet from calling for extreme measures, capital would cease to flow in its accustomed currents and some of it would seek other channels legitimately open to it.

It would certainly cease flowing into constructive use and would instead confine itself, to an extent at least, to munic.i.p.al, state and federal tax-exempt securities. Enterprise would be seriously hampered and in some respects brought to a standstill entirely.

Many thousands of workmen would be thrown out of employment. Many businesses and shops would close.

There would ensue, as a natural consequence and without any conscious determination, a nation-wide strike of constructive activity and enterprise in commerce and finance, because men will not look upon it as a "square deal" if they are to take all the risk and responsibility, all the hard work and ceaseless strain and care of business effort, whilst the Government would _needlessly_ take from them an unduly large share of the fruit of their labor, let alone all of it except an arbitrarily fixed sum.

I say "needlessly" because, _were it really needed, business men would willingly sacrifice their entire income for the country's cause._