TAXATION: A Couzens Plan’

James Couzens, senior U. S. Senator from Michigan, was invited by the Baltimore Bar Association to speak before it. Last week, he spoke.

James Couzens, senior U. S. Senator from Michigan, a year ago (TIME, Jan. 21, 1924) opposed the Mellon Plan, which proposed to reduce income surtaxes to 25% maximum. Since then, he has fought with the Treasury on many policies of taxation. A senatorial Committee of which he is the head is just closing a prolonged investigation of the Bureau of Internal Revenue (tax collection).

James Couzens, senior U. S. Senator from Michigan, last week proposed to the Baltimore Bar Association a tax reduction plan of his own.

The Plan consisted of the following items:

1) Repeal the “nuisance” taxes: on cameras, films, firearms, shells, cigar-holders, pipes, slot machines, mah jong sets, sculpture, paintings, jewelry, bowling alleys, shooting galleries, yachts, playing cards. Also taxes on automobiles, motor vehicles and accessories.

2) Exempt from income taxes all persons whose incomes are under $5,000.

3) Reduce maximum surtaxes to 20% (half of the present).

4) Possibly abandon all taxes on capital gains and deductions for capital losses.

The Argument for these reductions is based on a forthcoming Treasury surplus. Mr. Couzens guessed, since the amount of surplus is not yet known or exactly predictable, that it would be about $400,000,000. He estimated that about $166,000,000 of this would disappear with the reduction of the “nuisance” taxes, something less than $10,000,000 by the exemption of incomes under $5,000 and the remainder by the reduction of surtaxes. The abandonment of taxes on capital gains and losses might even operate to increase Federal revenue. In detail, the argument concerning the proposed changes is:

1) Many of the “nuisance” taxes yield small revenue and are great annoyances.The taxes on motor vehicles and parts are transportation taxes. Therefore, Mr. Couzens said, let these be abandoned.

2) Of about 7,000,000 people who pay income taxes, 91% are those with incomes under $5,000; their taxes amount to only about $100,000,000. These people need tax reduction most. Abolishing their taxes will take away much of the work of collecting the income tax, since they make 91% of the returns. If it is argued that everyone ought to contribute directly to the support of the Government, then let it be known that there are now 30,000,000 wage earners who pay no income tax and what difference will a few million more make? So argued Mr. Couzens. But the newspapers of the East were quick to snap this up. “Al ready,” they said, “the East pays more than its share of taxes and this would make that situation worse.” It was calculated that, under the $5,000 exemption, 37% of the income-tax payers would be found in New York, Pennsylvania, New Jersey; 21% in the Middle West; 11% in New England; 10% in the South; and only about 20% in all the territory west of the Mississippi River. New York alone would have actually al most 10,000 more tax payers than all the country west of the Mississippi. The logical conclusion to this train of argument: “If taxes are to be collected only where it is easiest to do so, why not in the interest of simplification abandon the collection of income taxes west of the Mississippi?” 3) “After the aforementioned taxes have been repealed and exemptions made … I think a perfectly equitable plan would be to reduce . . . surtax rates 50%. . . . Now some may say that this is the Mellon Plan, but it doesn’t make any particular difference to me whose plan they call it. . . .”—Mr. Couzens. 4) Until this year, capital losses were allowable as deductions, whereas capital gains were taxable up to 12½%. The Couzens committee investigating the Internal Revenue Bureau examined the returns of 101 wealthy individuals for the years 1916 to 1923 inclusive, found that the profits taxes were $7,770,000 and the losses deducted $38,407,000, showing a loss to the Government. In the income-tax law in force this year, for the first time capital losses may be deducted only to the extent of 12½%—the same extent as that to which capital gains may be taxed. This remedies this condition at least in part; but Mr. Couzens proposed “considering” the abolition of both this tax and this deduction. Regular Republicans pointed out that, in November, 1923, Secretary Mellon wrote in his tax-reduction recommendation: “It is believed that it would be sounder taxation policy generally not to recognize either capital gain or capital loss for purposes of income tax.” “Ah,” exclaimed Mr. Mellon’s supporters, “Couzens, the arch critic, has yielded to Mellon’s idea—for low surtaxes—for no tax on capital gain and no deduction on capital loss!”