War tax

“ It has been also said, or rather it is intimated, that the framers of the constitution intended that the power to lay direct taxes should only be exercised in time of war, or in great emergencies, and that a tax on incomes is not justified in times of peace. Is it to be understood that the courts may annul an act of congress imposing a tax on incomes whenever, in their judgment, such legislation is not demanded by any public emergency or pressing necessity? Is a tax on incomes permissible in a time of war, but unconstitutional in a time of peace? ”

“ Economics are stubborn things and cannot be successfully dealt with emotionally. I yield to no one in my sympathy for those who have to struggle to make both ends meet and in my desire to see their difficulties lightened. I quite agree that the financial burden of the war should be made to weigh as little as possible upon the shoulders of the poor and those of small means. Will a two-cent tax on checks be a burden upon the poor and those of small means? Will a five-cent tax on single purchases (excepting foodstuffs) of $5? Will an excess-profit tax on the lines which I propose? ”

“ It is unquestionably right and in accordance with both good morals and good economics, to prevent, as far as possible, the enrichment of business and business men through the calamity of war.
But the recently enacted so-called excess profit tax which it is now proposed to augment largely does not accomplish that. It taxes not merely the exceptional profit, i.e., the war profit. It lays a burden not on business due to war, but on all business. ”

“ The American excess profit law so-called taxes all profits derived from business over and above a certain moderate percentage, regardless of whether or not such profits are the result of war conditions. The American tax is a general tax on income derived from business, in addition to the regular income tax. The English tax applies only to excess war profits; that is, only to the sum by which profits in the war years exceed the profits on the three years preceding the war, which in England were years of great prosperity. ”

“ While no general revision of the tax structure can be made until the war ends on all fronts, the Congress should be prepared to provide tax modifications at the end of the war in Europe, designed to encourage capital to invest in new enterprises and to provide jobs. As an integral part of this program to maintain high employment, we must, after the war is over, reduce or eliminate taxes which bear too heavily on consumption.
The war will leave deep disturbances in the world economy, in our national economy, in many communities, in many families, and in many individuals. ”

“ The policy which exempted these articles from duty during peace, and when the revenue to be derived from them was not needed, ceases to exist when the country is engaged in war and requires the use of all of its available resources. It is a tax which would be so generally diffused among the people that it would be felt oppressively by none and be complained of by none. It is believed that there are not in the list of imported articles any which are more properly the subject of war duties than tea and coffee. ”

“ There ought to be an excess profit tax which might well be at a considerably higher rate than the present 8 per cent., or even the proposed 16 per cent., but it should only be applicable to the extent that business profits exceed the profits of say a certain average period before the war and thus may justly be held to be attributable to war conditions. ”

“ If only the income tax did not make the position of fathers of families so unjust, the whole arrangement would look, at first sight, quite fair, though rather absurd and clumsy, involving all this subscribing and taxing and paying back instead of an outright tax and having done with it. But in fact a very grave inequity is involved by this business of borrowing for war, and laid upon just the people whom we ought, above all, to treat most fairly, namely, those who fight for us. ”

“ There ought to be a substantial and progressive increase in the rate of income taxation during the war, together probably with a lowering of the existing limit of income tax exemption. I believe that in practice the best result would be obtained if the rates of taxation were not to exceed a scale producing from maximum incomes an average tax of 33-1/3 per cent., at any rate for the first year of the war. ”

“ That is sufficiently obvious; but the fact must be preliminarily emphasised because it is quite commonly assumed that the mere imposition of a tax of 50 or 60 or 75 per cent automatically solves the problem of war profits. As a matter of fact, taxation so far from solving the problem leaves it essentially unchanged, and really connives at and recognises the practice. The problem remains, in spite of taxation, that one section of the nation is enriched by a process which necessitates the misery and death of other sections. ”

“ While the partial diminution of the Income Tax is a matter of congratulation, I am strongly of opinion that it is the duty of the Government, by means of well-considered reductions in our expenditure, to make provision for the final extinction of a Tax, valuable in time of war, but unjust as a permanent burden on the energies and property of the Country during a period of Peace. ”

“ A great part of this commerce is classed as among that which yields the greatest import tax, which means that internal taxes must be imposed on the people to make up for the money necessary to meet with the yearly loss occasioned during the continuance of the war. ”

“ The flood of securities which would be coming for sale in order to escape extreme income taxation would create a grave condition of demoralization in the investment markets of the country, with the resulting inevitable effect upon the country's general business, and upon its capacity to absorb Government loans.
IV
The tax recently enacted by Congress imposing a burden of 8 per cent. on business profits over and above 8 per cent. on the capital employed, regardless of whether such profits have any relation to war conditions or not, is unscientific and unsound. ”

“ In principle, direct taxation of business activities should be avoided as much as possible, apart from a war profit excess tax.
Care should be taken lest the wealthy man least entitled to preferential consideration, i.e., he who neither works nor takes business risks or business responsibilities, be favored as against the man who puts his brains, his capacities and his money to constructive use in active business. ”

“ Some individuals have accumulated through the war years considerable fortunes, while others of our countrymen were offering their lives on the altar of freedom. As a measure to effect social justice as well as to obtain desperately needed revenue, I propose the imposition of a war profits tax based on taxable income and the increase in capital assets from 1941 to 1945. ”

“ If you add to these considerations the circumstance that, owing to the intervention of our Government in financing and otherwise providing for the Allies, the commissions and profits of those who have heretofore dealt with the Allies will be largely cut off; that business will, quite rightly, be subjected to a large excess profits tax; that capital for years to come will have to pay increased taxes to provide for the debt incurred through the war, for pensions, etc. ”

“ The vast expenses of war must be met by corresponding taxes, whether by duties on merchandise or direct taxes on real estate; yet they fall most heavily on the poor. Whatever duty the merchant pays to the customhouse, he adds the amount to the price of his goods, so that the consumer actually pays the tax. ”

“ The American decision to ignore pre-war profits was made deliberately by the framers of the law on the grounds that a deduction based upon invested capital is simpler, better designed to serve as the basis of a permanent tax, and more equitable in that it prevents taxpayers from securing immunity from taxation during the war on the ground that they had been unusually prosperous before the war. ”

“ Presented in this guise the war tax would not be objected to by the Socialists, who will be able, in accordance with their usual tactics, to reject the principle of the military law and at the same time to pass the votes which assure its being carried into effect. ”

“ At first sight it is a great achievement to have increased our total revenue from £200 millions before the war to £842 millions, the amount which we are expected to receive during the current year on the basis of the proposed additions to taxation, without taking into account any revenue from the suggested luxury tax. But, as I have already pointed out, the comparison of war pounds with pre-war pounds is in itself deceptive. The pounds that we are paying to-day in taxation are by no means the pounds that we paid before the war ”

“ Taking, for the sake of illustration, an equality in the two periods, and the cost of an imported yard of cloth in time of war to be nine and a half dollars, and in time of peace to be seven dollars, whilst the same could at all times be manufactured at home for eight dollars, it is evident that a tariff of one dollar and a quarter on the imported yard would protect the home manufacture in time of peace, and avoid a tax of one dollar and a half imposed by a state of war. ”

“ To the last demand of such payment made by them the United States, although suffering less by their depredations than many other nations, returned the explicit answer that we preferred war to tribute, and thus opened the way to the relief of the commerce of the world from an ignominious tax, so long submitted to by the more powerful nations of Europe. ”

“ The effect of income tax is one of the most serious economic subjects, because it directly touches the production of wealth. There is little objection to income tax for emergencies of war, because if merely nominal (1d. in the pound) during peace, the true amount taxable will be well known, and a sudden increase will be truly collected and will not have distinct economic effects if only used for a year or two. ”

“ The income tax alone will serve to show the enormous increase in tribute. From .04 per cent on small incomes to 13 per cent on large ones before the war it has risen to 1 per cent on small incomes to over 411⁄2 per cent on big ones. Again, 60 per cent of all excess profits earned since the war are surrendered to the State. ”

“ When it is raised by taxation the sacrifice is obvious, and, in nearly all cases, inevitable: we pay our larger war taxes and so we have less to spend on ourselves, and so we go without things. A few people raise money to pay taxes during war by borrowing or drafts on capital, but they are probably so exceptional that their case need not be considered. We transfer our buying power to the Government to be used for the fighters, and so we set free the labour and material that used to go in providing us with comforts and pleasures ”

“ But here is a great industry exempt from the excess profit and war profit tax and apparently not effectively reached by the income tax, which is entirely natural, because in this case the income tax can neither be retained at the source nor are the large body of the farmers, many of whom do not keep and cannot be expected to keep books, in a position to determine their taxable income. ”

“ But again, when war comes, it is quite certain that a large share of the war taxes will be laid upon property: and that, in war, property will bear a [Pg 518] larger share of our total taxation than in peace. From this it seems to follow at once that, up to the point at which endurance is practicable, payment by war-taxes rather than by taxes in peace is for the interest of the people at large. I am not one of those who think that our system of taxation, taken as a whole, is an over-liberal one towards them. ”

“ This is a tax case involving the right of the War Production Board to certify that only part of the actual cost of wartime facilities, constructed by a taxpayer at the instance of the Government, was necessary in the national defense and hence subject to accelerated amortization under § 124 (f) of the Internal Revenue Code of 1939. ”

“ At the present time, when all the military resources of the country are strained to the utmost, it is necessary to lay an equal stress upon the financial resources of the country. For this purpose, it is necessary not only to realize loans and issue paper currency, the burden of which will fall upon future generations, but to shift a part of this burden upon those living to-day by the introduction of an extraordinary military tax, which would serve to bring into the treasury a considerable sum of money that would cover at least a part of the war expenses. ”

“ If these burdens are to be thrust on the national purse, and (should the buccaneers have their way) if the permanent war expenditure must be doubled, and little wars at ten and twenty millions each are inevitable as well, then in all fairness the classes who make these wars and profit by them must pay for them. We have taken a great stride towards democracy, and two of the first taxes with which the new democracy will deal are the income-tax and the land-tax. ”

“ It would involve an enormously costly and tedious process of valuation, its yield would be problematical, and it might easily deal a blow at the incentive to save on which the supply of capital after the war entirely depends. A much higher rate of income tax, especially on large incomes, is another solution of the problem, and it also might obviously have most unfortunate effects upon the elasticity of industry. ”