"An Awful Lot of Money"

A master inopportunist is Ohio's political Malaprop. Senator Robert A. Taft. Last week Mr. Taft came out flatly for the most politically unpalatable of tax bills.

Yet, actually, everybody was out of step but Mr. Taft. His basic point was perfectly true: that the only promising source of further tax revenue is a higher tax rate on lower-income groups. As for increased tax rates on business, said he: "We would only be fooling ourselves. Taxes on business are passed on to the people, but tend to discourage business activity."

Even without levelheaded Robert Taft's say-so, there was grim certainty in the U. S. last week that more people would pay more taxes in 1941 than ever before. The nation, with a sky-reaching public debt now past $44,000,000,000, was faced with a probable $50,000,000,000 defense bill in the next five years, over & above regular annual Government appropriations of some $9,000,000,000.

Everybody would like a pay-as-you-go policy. The virtually insuperable problem: where to get the money. Only two major untapped revenue sources were open. One was the direct means of lowering exemptions and raising rates on lower-income groups, as per Mr. Taft's proposal. Another was the indirect means of ceasing to issue tax-exempt securities. Net total of tax-exempt securities (Federal, State, local) is now some $55,000,000,000.

Treasury Secretary Henry Morgenthau sat in his taxworks fortnight ago, nervously smoking Camels. Suddenly he blurted to newsmen: "If we get out a five-year defense note it will be taxable.'' A newshawk snapped: "As to all taxes?"* Mr. Morgenthau nodded.

Last week the Treasury offered $500,000,000 in wholly taxable defense notes, first such issue in U. S. history--five years' maturity, 1/2% interest. The issue was promptly oversubscribed eight times --an average response.

Mr. Morgenthau's powers as Secretary of the Treasury include the right to issue wholly taxable notes; he may keep it up indefinitely. But by fiscal definition, a note must have a maturity of not more than five years.

To get tax results eventually in any appreciable volume, Mr. Morgenthau must be empowered to stop the granting of tax exemptions on long-term bonds. To make that step he must ask Congress for a new law. To tax State and municipal securities, that law must be broad enough to invade States' rights. Inevitably it will be contested in the courts. His other alternative: to get a new Constitutional amendment, which no one expected would ever be ratified by the States.

Last week he announced that he would ask Congress to remove tax-exemption rights from all future bonds--Federal, State, local. There was no doubt that he would get authorization for issuing completely taxable Federal bonds, but passage of a law affecting State and local securities was another matter. Reason: opposition by municipalities and States'-righters. Townsmen, villagers and politicians girded their lobbyists last week for a death-&-taxes struggle with their Congressmen. Victory has always been on their side: Presidents Harding, Coolidge, Hoover; Treasury Secretaries Andrew Mellon and Ogden Mills all advocated abandonment of tax exemptions, were always defeated. Ignored were Franklin Roosevelt and Henry Morgenthau in 1937, and again last session. But now Messrs. Roosevelt & Morgenthau had a new argument: national defense. Of untaxable securities tabasco-tongued Mr. Morgenthau last week snorted "Slacker money!" and he complained because millionaires could loll in untaxable unholiness in Palm Beach this winter.

If Congress sees things Mr. Morgenthau's way, even interest on U. S. baby bonds ($25 and up) will be as taxable as an unmarried billionaire. Said Mr. Morgenthau glumly: "We have got to raise an awful lot of money."

*No Government security is completely taxable. Some are partially, some totally exempt.

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