New Rabbit

At one of their White House press conferences last week, newshawks sensed something extraordinary about President Roosevelt. He behaved as if he were privy to some enormous secret joke which made him feel particularly good. But for all their fishing with well-baited questions the correspondents could get nothing more from him than that he might be sending still another special message to Congress that afternoon. Thus it was no great surprise when White House Messenger Latta trotted into the Capitol at 2 o'clock that same day with a Presidential document under his arm, trotted out again. What was surprising was that the Roosevelt message should be held back for more than two hours until Senator Pat Harrison could get the Social Security Bill through the Senate (see p. 10). Then Congressmen, quite ignorant of the President's intentions, settled back to hear what he might have to say.

As the fiscal year draws to its close, it becomes our duty to consider the broad question of tax methods and policies. . . . If a Government is to be prudent, its taxes must produce ample revenues without discouraging enterprise.

Many a Congressional eyebrow went sharply up because no one had expected a new tax bill to be thrust on Congress so late in the session. But if Congressmen were surprised by a tax message at this time, they were more surprised by its contents:

Proposals, Wealth in the modern world does not come merely from individual effort. . . . The individual . . . utilizes the many processes and forces of mass production. . . . As Andrew Carnegie put it "where wealth accrues honorably, the people are always silent partners." . . . The transmission from generation to generation of vast fortunes by will, inheritance or gift is not consistent with the ideals and sentiments of the American people. . . ,

I recommend, therefore, that in addition to the present estate taxes, there should be levied an inheritance, succession and legacy tax in respect to all very large amounts received by any one legatee or beneficiary; and to prevent, so far as possible, evasions of this tax, I recommend further the imposition of gift taxes suited to this end.

. . . I strongly urge that the proceeds of this tax should be specifically segregated and applied, as they accrue, to the reduction of the national debt. By so doing, we shall progressively lighten the tax burden of the average taxpayer, and, incidentally, assist in our approach to a balanced budget.

The application of the principle of a graduated [income] tax now stops at $1,000,000 of annual income. In other words, while the rate for a man with a $6,000 income is double the rate for one with a $4,000 income, a man having a $5,000,000 annual income pays the same rate as one whose income is $1,000,000. Social unrest and a deepening sense of unfairness are dangers to our national life which we must minimize by rigorous methods. . . .

The advantages and protections conferred upon corporations by government increase in value as the size of the corporation increases. . . . I, therefore, recommend the substitution of a corporation income tax graduated according to the size of corporation income in place of the present uniform corporation income tax of 13 1/4%. The rate for smaller corporations might well be reduced to 10 3/4%, and the rates graduated upward to a rate of 16 1/4% on net income in the case of the largest corporations, with such classifications of business enterprises as the public interest may suggest to the Congress.

Provisions should, of course, be made to prevent evasion of such graduated tax on corporate incomes through the device of numerous subsidiaries. . . . The most effective method of preventing such evasions would be a tax on dividends received by corporations. . . . Ultimately we should seek through taxation the simplification of our corporate structures through the elimination of unnecessary holding companies in all lines of business.

I renew, at this time, the recommendations made by my predecessors for the submission and ratification of a Constitutional Amendment whereby the Federal Government will be permitted to tax the income on subsequently issued State and local securities and likewise for the taxation by State and local governments of future issues of Federal securities.

Balanced Budget? Save for his suggestion on corporate income taxes, Franklin Roosevelt did not offer any specific tax figures, but word soon got around the Capitol that what he had in mind was a tax on legacies over $10,000,000, higher income taxes on incomes over $1,000,000 a year. Newshawks, overanxious to whip up a good story, blindly jumped at the figure of $1,000,000,000 a year in new taxes. However, an extra billion in taxes would make up less than one-third of the current federal deficit. Moreover, the billion-dollar figure was taken over bodily from an estimate by Senator La Follette from a tax program he advocates--a program which would begin by reducing income tax exemptions from $2,500 to $2,000 for married persons and end by boosting taxes on small as well as large incomes and inheritances.

The number of persons in the U. S. with incomes of $1,000,000 a year and over was 231 in 1926, 46 in 1933. Under the present tax law a person with an income of $1,000,000 already pays $573,000 in normal and surtaxes and 63% of any income over $1,000,000. If the Government could squeeze an extra $250,000 tax out of each million-a-year man it might gain at most an extra $12,000,000 during Depression, and perhaps $60,000,000 in "normal" times. Similarly with estate taxes. Estates of $10,000,000 already pay $4,416,000 tax and 60% of any amount in excess of $10,000,000. If the Government could squeeze an extra $2,500,000 out of each estate, its extra annual revenue would amount to $30,000,000--provided one man with $10,000,000 or more could be counted on to die each month of the year. Even to amateur tax experts it became painfully apparent that the very rich would not balance the New Deal's budget with its four-billion-a-year deficit or pay off much of the U. S.'s 29 billion public debt.

Share the Wealth.

What flabbergasted Congressmen in Franklin Roosevelt's message more than its budget-balancing gesture was its philosophy. Though few Congressmen were articulate enough to say so, most of them were sufficiently shrewd to sense that he was breaking with U. S. taxing tradition. The ancient idea that taxes in a Democracy are a means by which citizens, more or less according to their capacity, chip in to the common pot to pay the cost of government, was laid aside. The new Roosevelt theory seemed to be that taxes are a device to achieve a social end which has little to do with paying the bills. From the New Deal standpoint this device would entitle a majority of the country to help themselves from those who have more than the average. The name of this theory, redistribution of wealth, appeared for the first time as the major motive for a tax proposal by a President of the U. S.

"I would sure liked to have seen Huey's face," remarked Will Rogers, a man of millions himself, "when he was woke up in the middle of the night by the President, who said, 'Lay over, Huey, I want to get in with you.'" Senator Long actually made his briefest speech in the Senate after the reading of the President's message: "I just want to say 'Amen.'"

Politics. Why President Roosevelt should have taken this tax stand at this time remained a prime subject of debate during the rest of the Washington week. Some hard-hearted critics insisted that he had spitefully fashioned this tax club as a weapon with which to punish rich Republicans and crusty corporations that had sneered and jeered at the New Deal. Others suspected him of timing the flash of his tax plan in the headlines so as to divert public attention from the collapse of most of his work relief schemes (see col. 2). Still others insisted that by pulling a 1935 rabbit out of his 1933 hat he was once more playing the smartest kind of politics to cut the ground from under the Longs, the La Follettes, the Coughlins until after next year's campaign. Obviously higher taxes for multimillionaires would hit only a few hundred voters while the principle on which they were proposed should win the support of countless thousands of voters. And the fact that there was no real chance of getting the States to agree to a Constitutional Amendment which would permit the U. S. Government to tax their tax-exempt bonds left the back door still wide open for the ultra-rich to escape increased Federal taxation.

Most befuddling for Congressmen was the question of when the President expected them to act on his tax proposals--now or next year. Only clue in his message was one sentence: "These complicated and difficult questions cannot adequately be debated in the time remaining in the present session of this Congress." Democratic leaders in both houses at first thought he did not mean this year. Radicals insisted he did. Twenty-two Senators headed by Wisconsin's La Follette signed a round robin declaring that Congress should stay in session until the new taxes are enacted. After five days of stewing President Roosevelt summoned Speaker Byrns, Vice President Garner, Senator Harrison, Majority Leader Robinson and Chairman Doughton of the House Ways & Means Committee to the White House. After nearly three hours' debate, Senator Robinson emerged to announce that the President had decided to push the tax program through this session of Congress. He proposed to attach it to a joint resolution extending certain "nuisance" taxes which must be passed this week to avoid their expiration.

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