Now as to the allegations concerning taxation: 1. The largest incomes
are taxed far more heavily here than anywhere else in the world.
The maximum rate of income taxation here is 67%. In England it is 42½%.
Ours is therefore 50% higher than England’s and the rate in England is
the highest prevailing anywhere in Europe. Neither republican France nor
democratic England—containing in their cabinets Socialists and
representatives of labor—nor autocratic Germany have an income tax rate
anywhere near as high as our maximum rate. And in addition to the
federal tax we must bear in mind our state and municipal taxes.
2. Moderate and small incomes, on the other hand, are subject to a far
smaller rate of taxation here than in England.
In America, incomes of married men up to $2,000 are not subject to any
federal income tax at all.
In England the tax on incomes of $1,000 is 4½%
In England the tax on incomes of 1,500 is 6¾%
In England the tax on incomes of 2,000 is 7⅞%
(These are the rates if the income is derived from salaries or wages;
they are still higher if the income is derived from rents or
investments.)
The English scale of taxation on incomes of, say, $3,000, $5,000,
$10,000 and $15,000, respectively averages as follows, as compared to
the American rates for married men:
In England In America
Income tax rate on $3,000 14% ⅔ of 1%
Income tax rate on 5,000 16% 1½%
Income tax rate on 10,000 20% 3½%
Income tax rate on 15,000 25% 5%
(If we add the so-called “occupational” tax, our total taxation on
incomes of $10,000 is 6¾%, and on incomes of $15,000, 9¾%.)
In other words, our income taxation is more democratic than that of any
other country, in that the largest incomes are taxed much more heavily,
and the small and moderate incomes much more lightly than anywhere else,
and incomes up to $2,000 for married men not taxed at all.
3. It is true, on the other hand, that on very large incomes as
distinguished from the largest incomes, our income tax is somewhat lower
than the English tax, but the difference by which our tax is lower than
the English tax is incomparably more pronounced in the case of small and
moderate incomes than of large incomes. Moreover, if we add to our
income tax our so-called excess profit tax, which is merely an
additional income tax on earnings derived from business, we shall find
that the total tax to which rich men are subject is in the great
majority of cases heavier here than in England or anywhere else.
4. It is likewise true that the English war excess profit tax is 80%
(less various offsets and allowances) whilst our so-called excess profit
tax ranges from 20% to 60%.
But it is entirely misleading to base a conclusion as to the relative
heaviness of the American and British tax merely on a comparison of the
rates, because the English tax is assessed on a wholly different basis
from the American tax. As a matter of fact, Congress has estimated that
the 20% to 60% tax on the American basis will produce approximately the
same amount in dollars and cents as the 80% tax is calculated to produce
in England. (I know I shall be answered that we have twice the
population of England and twice the wealth. But it must be borne in mind
that a far larger proportion of our wealth is represented by farms and
other non-industrial property and that a far larger proportion of our
people than of the British people are engaged in agricultural pursuits
which are not affected by the excess profit tax. I believe it will be
found that the total wealth employed in business in America is not so
greatly superior to the total wealth similarly employed by Great
Britain.)
_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.
In other words, the English tax is nominally higher than ours, but it
applies only to war profits. The normal profits of business, i. e., the
profits which business used to make in peace time, are exempted in
England. _There, only the excess over peace profits is taxed. Our tax,
on the contrary, applies to all profits_ over and above a very moderate
rate on the money invested in business.
In short, our law-makers have decreed that normal business profits are
taxed here much more heavily than in England, while direct war profits
are taxed less heavily. You will agree with me in questioning both the
logic and the justice of that method. It would seem that it would be
both fairer and wiser and more in accord with public sentiment if the
tax on business in general were decreased and, on the other hand, an
increased tax were imposed on specific war profits.
5. Our federal inheritance tax is far higher than it is in England or
anywhere else. The maximum rate here on direct descendants is 27½% as
against 20% in England. In addition to that we have State inheritance
taxes which do not exist in England.
6. Of her total actual war expenditures (exclusive of loans to her
Allies and interest on war loans), England has raised less than 15% by
taxation (France and Germany far less), while America is about to raise
by taxation approximately 28% of her total war requirements (exclusive
of loans to the Allied nations and of the amount to be invested in
mercantile ships, which, being a productive investment, cannot properly
be classed among war expenditures.)