and there is no good reason why they should be selected for the imposition of a special tax. No one denies that the newspapers and periodicals have been chiefly instrumental in sustaining the policy of President Wilson and arousing the country to a realization of its patriotic interest in the Red Cross fund, the Liberty Loan, conscription and food conservation. The cry is raised that periodicals are paying less than the cost of the postal service they receive. This has never yet been proven. The same charge might also be made against the franking privilege, the Rural Free Delivery, river and harbor appropriations, and many others that are regarded as for the public benefit. The fact remains that newspapers and periodicals in Canada pay only half the postal rates charged in the United States and no deficit on this class of matter is reported. KILLING THE GOOSE. AN EXPOSITION OF THE FALLACY OF FLAT Charles Law Watkins in the New York Tribune. America has two arms with which to fight the war against Germany. One, represented by a few thousand men in France and a scant million, mostly in civilian clothes, on this side, is our poorly developed military arm. The other, represented by our hitherto powerful industries, is our muscular financial arm. Ask any of our well informed Allies upon which arm it is they place their immediate reliance for the defeat of Germany. It is not the military arm. Washington, with a blindness which would be ridiculous if it were not likely to be so ruinous, has set about with smug ardor to bind the country's one powerful arm. Within thirty days it has adopted a throttling policy of price regulation and framed an exorbitant income tax law. It has cut off the goose's supply of feed and at the same time made a big basket in which to gather the golden eggs that will never be laid. The prices of the country's basic product-coal-have already been established. A coal dictator has been appointed. The price of $2 a ton allows a profit only to a few of the most favorably situated mines. The dictator is another college professor. Already the production of coal has fallen off and operators have been forced to abandon their plans for increased production. A coal famine is a certainty this coming winter, as many mines have been forced to shut down. In the President's haste to appease a popular clamor for cheaper coal a price decision was reached based on the costs at a small group of Southern mines shipping coal to the navy. Costs in the thin bituminous veins of Pennsylvania, the country's greatest coalproducing state, were not even investigated. Pennsylvania cannot mine $2 coal. EXPERTS NOT CONSULTED. Having settled the bituminous question without consulting one of the thousands of men who have made coal mining their life-work, the government proceeds blithely to arrange the affairs of the copper industry, and will next deal with iron and steel. Investors, bankers and business men, having observed the Administration's real intent and policy in its treatment of coal and copper, are quietly dumping their securities on the market, which is rapidly declining. They are taking the losses these sales involve rather than encounter the financial storm which is sure to break unless the President takes a hurried glance to windward and veers the ship of state on a safer course. The whole policy of a flat price regulation is a fallacy. There are no two plants which can produce the same product at the same cost. Freight rates, labor rates and physical conditions vary too greatly. Any price which is arrived at by averages allows an excessive profit to the low-cost group and imposes a loss upon the highcost group. That is why some coal mine: are being closed down today, and why copper mines will be closed tomorrow, and steel mills later on. The situation is further aggravated by the government's determination to exclude the men interested financially or professionally in any business from the councils and commissions employed in the regulation of that business. Professors and theorists are asked to leave their chairs and desks and to suddenly assume control of gigantic industries whose ramifications could scarcely be mastered in a lifetime. Small wonder that the stockholders become inspired with a sudden desire to dispose of their interests. Small wonder that the executives have cancelled their orders for improvements and betterments. It needs no soothsayer to foresee the inevitable catastrophe. AMERICAN CREDIT THE ALLIES' MAIN SPRING And what will be the effect in Germany of the news of a financial panic in America? The capture of Riga and civil war in Russia will seem like bad tidings in comparison. Today the clockwork of the Allied array is American credit. Our politicians have taken it out in the backyard to see what it is made of. The mainspring is profitsany amateur tinker could tell them that. But Mr. Wilson and his henchmen have a theory that the wheels will spin just as fast without the mainspring. Childhood experience should have taught them that the best clock in the world will not run without its mainspring, even though the face is painted with American flags and decorated with stirring phrases. A continuation of the double-acting, back-kicking policy of severe price regulation plus enormous income taxes will bring on a panic just as surely as Germany brought on the war. It is hanging over Wall Street today, and every one who can read a stock ticker knows it. And if it comes, the Democratic party will shout from one end of the country to the other that it is a deliberate conspiracy of Wall Street to protect its ill-gotten gains. The time has come for the President to reassure American business men as to his future policies and to adjust the impossibly low prices already imposed on certain industries. Otherwise the Kaiser will have very pleasant reading in his morning paper on a day not far off. THE WAR PROFITS TAX. SOME PROVISIONS OF THE PROPOSED LAW CONSIDERED UNFAIR. By Jerome Hanauer. Much has been written and much more has been said recently in reference to the high war profits tax in England and the apparently low tax to be assessed under the Senate bill, but close study of this proposed law conclusively shows that in a very large number of cases the proposed tax will be far in excess of the English tax and that it is not a war profits tax at all, but an additional supertax imposed on income from business, as differentiated from income from other sources. Under the English system the entire earnings of the pre-war period, be they 6 per cent, 10 per cent or, 50 per cent upon the capital employed, are deductible, so that the tax is in effect an excess war profits tax, but the limitation recently agreed upon by the Finance Committee, which will permit of the deduction of pre-war profits only to a maximum of 10 per cent, removes the tax from the classification of war profits taxes and imposes an additional supertax on all those who in pre-war times earned 10 per cent upon the capital employed by them. If a merchant with a capital of $200,000 earned in pre-war times $40,000 per annum, which was never considered excessive, considering that a merchant is expected to turn his capital a number of times every year, he would nevertheless be permitted to deduct only $20,000 in determining his so-called war profits. The proposed tax also seems to be drawn in favor of the business man employing his own capital, as against the interests of the business man finding it necessary to borrow part of his capital. Thus, in the case of two merchants, one having $200,000 capital of his own employed and the other having only $50,000 of his own employed and borrowing $150,000, each having earned $40,000 before the war, the former would be permitted to deduct $20,000 for pre-war earnings, while the latter would be permitted to deduct only $5,000. Should not the bill also be clarified in reference to what is "capital"? A very large number of partnerships, especially smaller ones, having one partner with means and a number of others interested, have only small capitals, and the wealthier partner or partners leave funds on deposit with the partnership. Such deposits are to all effects and purposes capital on which it should be permitted to figure pre-war earnings and taxable earnings. In other words, any moneys which the partners in any enterprise had employed in that enterprise, even though not technically called capital, should be considered such. DOINGS IN CONGRESS. Sept. 6. The great bond issue bill, authorizing $11,538,945,460 in bonds and certificates, passed the House unanimously, Representative Cannon, of Illinois, obtained the adoption of an amendment to exempt from taxation forever interest on bonds not in excess of $5,000. He wanted to make it $10,000, but Democratic Leader Kitchin would not agree to that. The bill authorizes the issuance of $7,538,945,460 worth of convertible 4 per cent bonds, subject to supertaxes and war taxes and to terminate at the discretion of the Secretary of the Treasury. Of this total $4,000,000,000 are for a new Allied loan; $3,000,000,000 to take over the 3 1-2 per cent issue already authorized, and the remaining $538,945,460 to be used for converting certain outstanding bonds, including the Danish West Indies, Alaskan Railway, Panama Canal and naval construction issues. Issuance also is authorized of not more than $2,000,000,000 each of certificates of indebtedness and war savings certificates, to run not more than one year and five years, respectively, at rates of interest to be fixed by the Secretary of the Treasury. These issues are to be subject to the same taxes as the bonds. The bill provides that foreign bonds, taken in exchange for loans, shall not be sold at less than the purchase price. The Senate passed the bond bill on Sept. 15 by a voice vote. An amendment by Senator La Follette to limit the life of the bond issue to 30 years, with privilege of redemption in seven years, was defeated by 39 to 15, the Senate leaving it to the discretion of the Secretary of the Treasury to decide when they ought to be called in. One of Senator La Follette's amendments, providing that the issuance of bonds be put entirely in the hands of the Secretary of the Treasury so as to prevent large blocks being gathered up by bond speculators, was adopted. This amendment authorizes the Secretary of the Treasury to see that in the allotment of bonds general rules shall be made "to apply to all subscribers." All the other amendments offered by Senator La Follette, aimed at fixing rates of interest or time limit of bonds, were rejected. One amendment by Senator La Follette sought to restrict the denomination of bonds to $20 or multiples of that sum. The Secretary of the Treasury is authorized to decide the denomination. Sept. 10. The War Revenue bill, carrying an aggregate tax of $2,406,670,000, was by unanimous agreement voted upon, and was passed by the Senate by 69 to 4. The four Senators against the measure were Gronna, North Dakota; Borah, Idaho; La Follette, Wisconsin; and Norris, Nebraska. The Senate, by 52 to 28, eliminated the entire tax upon sugar, coffee, tea, and cocoa, which, under the Finance Committee schedule, would have yielded $86,000,000. It also threw out the McKellar amendment providing for a zone system of tax for second class mail matter, which was expected to yield $12,600,000. As the bill now stands, all of the extra newspaper and periodical taxes are eliminated, the publications being subject, however, to the corporation taxes. The elimination of this tax threw almost the entire burden of taxation, as embraced in the bill, upon individual incomes, alcoholic beverages, and excess war profits. A substitute bill by Senator La Follette intended to raise $3,500,000,000, with a flat 73 per cent tax or $2,189,000,000, on excess profits, $1,200,000,000 on incomes and the balance on alcoholic beverages, was defeated by 65 to 15. Another amendment by Senator La Follette, calling for a tax of 10 per cent on incomes above $25,000, to give soldiers fighting in France a bonus of $50 a month, was defeated by a voice vote. The Jones amendment to levy a 10 per cent tax upon corporations' undistributed surplus, was adopted on a viva voce vote. A substitute by Senator Jones to eliminate an exemption in the committee's clause of income actually invested and employed was defeated 45 to 35. Under the bill as passed by the Senate the three principal items of taxation are: Incomes, $842,200,000; excess war profits, $1,000,000,000, and distilled spirits, $218,000,000. On transportation, including parcel post, freight, passenger tickets, and telephone, telegraph and cable messages, an aggregate yield is imposed of $141,750, 000. Sept. 12. Without a roll call, the Senate adopted Senator Chamberlain's resolution to draft all friendly aliens in the country for military service under the American flag. The President is authorized to enlist for non-combatant war work all nationals of Germany or its allies living here. It is estimated that the drafting of friendly aliens would call approximately 1,275,000 men to the American colors. Beside these, there are 81,000 enemy aliens in the United States, who could be put to work related to the war, but not as soldiers. The alien draft would conscript all foreigners who have been in the United States a year. Those who claim exemption through treaty would be allowed ninety days to leave the country. Sept. 13. The Senate Suffrage Committee agreed to report favorably the Federal suffrage amendment. It will not be pressed this session. Without debate or objection the Senate passed Senator Shafroth's bill authorizing the Hawaiian legislature to give women who have property and other qualifications of men the right to vote in territorial elections. It also authorizes the Legislature to submit to the territory the question of giving women unrestricted suffrage there. The soldiers' and sailors' insurance bill, amended so as to equalize the allowances of the dependents of enlisted men and officers, passed the House by a vote of 319 to 0. As the bill went to the Senate, privates and officers and their dependents stand on exactly the same basis. Benefits and allowances now provided for are slightly higher than those originally proposed as the minimum for privates and considerably lower than the maximum amounts which officers and their dependents would have received. An amendment raising from $5,000 to $10,000 the maximum amount of optional insurance policies that the government would issue to all of the men in the service was adopted by 141 to 77. The main purposes of the bill are to provide a substitute for the present pension law. If enacted it will apply to men engaged in this war a new system of allotments and compensations to provide for dependents of the soldier and rehabilitate men on their return from the war. Upon enlistment, a soldier or sailor will be entitled to take out from $1000 to $10,000 worth of optional insurance at approximately $8 per $1000. His dependents will be entitled to allotments from the government of from $5 to $50 a month and an equal amount up to $15 a month from his pay. Death or total disability resulting, the dependents of any person in the military or naval service, including women members of the Nurse Corps, would be entitled to compensation ranging from $20 to $70 a month and the insurance. In case of total disability the injured persons would be paid from $50 to $100 a month. The bill was amended to increase compensations for all dependents about 15 per cent. The new rates per month adopted are: Widow, $35; one child, $45; two children, $52.50, and an additional $5 for each child up to four. One motherless child, $20; two, $35; three, $45, and $10 additional for each child up to five. The first year's appropriation is $176,000,000, but it is declared by some that this will not be nearly enough. Representative Gillett of Massachusetts believes that the second year's cost may be near $2,000,000,000. |