TAXATION: Developments

There were two important developments in regard to tax legislation last week:

1) The Ways and Means Committee reported to the House the Mellon tax reduction bill.

2) The proposed Amendment to the Constitution to prevent the issuance of tax-exempt securities was defeated in the House.

Mellon Bill. By a vote of 15 to 3, the Mellon tax reduction bill was reported out by the Ways and Means Committee. Every Republican voted “Yea,” three Democrats voted “No,” eight Democrats voted “Present.” But it must be noted that all of the Republicans do not favor the measure as it stands. In fact, there are four types of opinion in the Committee: 1) Those Republicans who prefer the Mellon bill as it stands, with a maximum surtax of 25%; 2) those Republicans—including Chairman Green—who want a maximum surtax of 32% to 35%; 3) the insurgent Republicans—led by Representative Frear—who want even higher surtaxes and, as well, excess profits taxes; 4) the Democrats who favor a maximum surtax of 44%.

The bill as reported out is substantially the same as that proposed by Secretary Mellon. The only important changes are that it provides a 25% reduction in the taxes to be paid this year on last year’s income, and further defines earned income as everything below $5,000, and nothing above $20,000. It also includes some changes in the administrative features of the law, and exercises a slightly different choice in the nuisance taxes to be eliminated.

Consideration of the bill will be taken up about Feb. 18 and it is generally predicted that in order to secure passage some kind of compromise on the surtax rates—somewhere between 32% and 40%—will be made.

The Tax-Exempt Amendment. There came before the House a resolution for a Constitutional Amendment to prohibit in future the issuance of any securities by States or municipalities which should be free from Federal taxation. Such a resolution requires a two-thirds vote in both Houses and ratification by 36 States before it can become a part of the Constitution. The vote was 247 in favor, 133 opposed —seven less than needed for passage. The vote by parties:

In Favor Opposed

Republicans 176 18

Democrats 69 114

Socialist 1 —

Independent 1 —

Farmer-Labor — 1

247 133

Such an outcome was not unexpected. To deprive local communities of the privilege of issuing tax-exempt bonds, would restrict their borrowing power. This would cut down public building projects and seriously affect local political patronage.

The charges made against the resolution were principally that it would have infringed on State right.

The following is typical of the arguments of those in favor of the resolution: “To vote for tax-exempt securities is to write after the income tax schedule the following amendmnt: ‘Providd, however, that the payment of these taxes is at the option of the taxpayer, and if he does not desire to make this voluntary contribution, his declination meets with the entire approval of the Congress.'”