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Show Tax Nerve Gets Sensitive By IIARLEY L. LUTZ i Professor of Public Finance, Princeton University The financial difficulties down in the "City of Brotherly Love" have come to a head in the preparation of the budget for 1939. and the recent J ' I r f I ft i x i developments there have been such as to furnish some reflections that are of general application. The first and most significant fact in the situation sit-uation is that the city faces, for 1939, an accumulated ac-cumulated defl-c defl-c i t of some $25 , 0 0 0,000. Tnis condition is so general that il -ihnnlH I materials. The exploded theory was j the one which held that tax conscious con-scious citizens would always demand better government so as to assure prudent use of their tax dollars. To the amazement of those who held this belief, the irate mobs of voten who stormed the city hall, and who laid down the barrage of petitions, were not demanding governmental reforms and improvements. They were demanding the instant repeal of the tax. Like the man who had a bear by the tail, the council loosened loos-ened the tail hold and jumped for the nearest tree, all in one motion. From this position, a straw vote was announced on a series of proposals pro-posals such as spreading the deficit over the future so as to get It out of the 1939 budget, sale of the city-owned city-owned gas-works, a retail sales tax, an increase of water rents, and an income tax at W7o instead of 3. Curiously enough, the list of straw vote propositions contained nothing on the reduction of spending except for an inquiry as to whether the people peo-ple favored reduction of the interest rates on outstanding debt. This last one is about the limit in idiolic proposals. pro-posals. Of course the people would favor refinancing the debt if it could be done. But if it can be done, why not proceed with it instead of wailing wail-ing for the results of a straw vole? Two things stand out in this tempest tem-pest on the banks of the Delaware. One is that the people of Philadelphia Philadel-phia have evidently been too little conscious of what has been happening happen-ing to their finances in the past. Again there is no occasion for censure, cen-sure, since the people generally have been wholly indifferent to deficits and their consequences. The other thing that stands out is the practical limitation on brotherly love. It evidently evi-dently does not extend to income taxation when it is a case of taxing my income as well as yours. But this applies generally, too, for a straw vote of all the people woufd undoubtedly undoubt-edly bring a large majority in favor of income taxation, while a straw . vote on the willingness to pay Income In-come tax tould produce an equally large majority in opposition. Those who hjve dealt with politicians recognize rec-ognize this us a case of the difference between favoring a proposition "in principle," and being willing to "Q along" ui support of it. bother no one. Least of all does it warrant reproach in view of the highly respectable example that has been set for us all in a city almost near enough to Philadelphia to be seen by one looking southward with a spyglass from the top of the ben Franklin statue above the city hall. The next interesting fact is that the Philadelphia city fathers undertook to do something about this deficit. Since the use of an axe on the appropriations appro-priations would come under the head of cruel and unusual punishments, and since brutality is not consistent with brotherly love, it was decided to get some more revenue. This was what started the fireworks. The council passed an ordinance not long 3go providing for a tax on all incomes in-comes earned or received by residents resi-dents of the city. The response of the electorate conlirmed one theory that has long been held by the parlor variety va-riety of taxation and governmental experts, but it exploded another pet theory held by this group. The theory which received confirmation con-firmation was the one to the effect tiiat direct taxation is always to be preferred because it creates the state of mind known as "tax consciousness." conscious-ness." The income tax ordinance certainly cer-tainly did that, even in advance of any imposition of the tax itself. From the very day on which the ordinance was approved, the city hall was besieged be-sieged by mobs of tax conscious citizens, citi-zens, and buiied undur an avalanche of petitions and other documcntaiy |