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Show I MELLON URGES LOWiAXRATE ON INCOMES OF VIY WEALTHY Extremely High Surtax Encodes Evasion and Brings Less Revenue Each Yr, Says Treasury Treas-ury Secretary Who Suppo Amend- ! ment Against FurthTax v Exempt Securitij I WASHINGTON. Dec. 6. Reduction of the maxJsruim Income surtax rate from the present 60 per cent to not more th.ia 25 per cent nod the closing tip ho Lux as posslblo of existing- avenues ave-nues of escape, from federal taxes aro ursvd by Secretary' Mellon In his annual report, transmitted today to congress. No general revision of tho revenuo laws Is proposed nor are additional ad-ditional taxes sugg-ested, Mr, Mellon expressing the hop of mooting any indicated in-dicated government deficit through collection of back taxes and Income from other sources. The treasury secretary informs congress con-gress that to attempt alone to stop tlui gups through v.'hich there is hji avoidance of tax payments to the government gov-ernment will not bo enough because the existing rates of surtax "put such i heavy pressure on the larger taxpay ers to reduce their taxable incomes ' that new ones Mould suroly be found. He adds that the high rules ' sound productive," but that tho fact remain1 that they are becoming increasingly I Ineffective and arc yielding less and less revenue each year. MI.TIJODS OF EVASION Then bluntlv ho tells concrruss the I time has come to "face the facts Hquarely" and to correct the artificial conditions which now prevail and I which, he asserts, u-re not wholesome from the point of view of business or industrial development,' and, at tho same time, aro Impairing th-r venues of the government The more Important of tin,' methods used by the taxpayers to reduce -ho amount of income subject to taxation are. Ilsttcd by Mr. Mellon as follows Deductlon of losses "n s.il s of cap- ; lta.1 assets, with the failure lo realize on capital gains Exchanges of property and securities securit-ies so far as to avoid taxable gains. Imentment in tax-exempt BCCUrltii I and dlision of property creation of trusts and the like "Not all of these things can be controlled con-trolled by law or regulation." he continued, con-tinued, "and most of them lead to unnatural un-natural and frequently harmful economic eco-nomic results. To reach Hi'- evil the thing most necessary Is the reduction of the surtax rates themseK es. In order or-der to reduce the pressure for avolu-'ance avolu-'ance and maintain the revenues derived de-rived from the surtax lar;k incomes fade "Until some Huch readjustment is (made, the yield of the higher surtaxes will tend. In the ordinary courso of events, to drop toward the vanishing 'point. The wise course is to reform i 'ahe surtaxes now while the system still functions and at the same time to close, so far as possible, the gaps which now exist. On this basis the region re-gion can be made without loss of revenue, and, in the long, run. with material benefit to the revenues" To support his argument that tn-ihlgh tn-ihlgh surtaxes gradually are 'defeatlnc their own purpose." he calls attention that while net Incomes of all classes during the period from 191 16 lo ; 0 increased from 56,298.577.020 in 191u tft 523.736.629,183 in 1920. and th. I number of returns from 437. 0o6 M ;i16 to 7.259.34 4 in 1920,. Ihe MJlbl (of returns of Incomes over $300,000 decreased during the same period ,fr?m l296 in 1916 to 396 in IMJ.and 'the amount of incomes over J300 .000 from 5992.972.PS6 in 1316. to ?-4G,-354, 5S5 In 1920. TAX EXEMPT ISSUES .r .. m,w. nrflnir" orornpt ndop- I i klon of 'the proposed constitutional amendment against the further issuance issu-ance of tax exempt securities. the treasurv secretary says th. se secur t-les. t-les. now reaching the market at the rate of about $1,000,000,000 annual- I lv. form the "outstanding avenue or i escape from the surtaxes .1 ,.w,th these securities available for j investment, fully exempt as they Tv I from federal income surtaxes. MX. Mellon continues, "Investors who would normally put their surplus I ifunds into productive enterprise, are automatically driven under tho pres- I sure of high surtax rates into invest-m.nt invest-m.nt in tax-exempt securities, with the result that the federal government II jloes the revenue, business and Iriaus- try loses tho capital, and funds badly li needed for productive purposes are I diverted Into unproductive and fre- II quently wasteful expenditure. 4 -This is a situation which cannot '1 be permitted to continue without grave J danger to our economic structure, as 1 "well as our system of taxation ' I AXOTHlOt ESCAPE SHOWN I Pointing out that the present law 1 limits the tax on gain In capital trans- 1 actions to 12V per cent of such gain, j but puts no limit on the deduction of 2 losses in such transactions, Mr. Mel-1 Mel-1 Ion urges that the amount by which 4 the tax mav be reduced on account of T losses from th- Mile t aplUl assets j t-hall not exceed LStf per cent of the a aiRount of such loss, "This would, to a large extent. ' he asserts check one of the methods I widely used by taxpuyers at the pres- II nl time for decreasina: their yearly income. The alternative is to reftj ill to recognize oithor capital gain or cap- i Hal loss for Income tax purposes, and 1 it the present situation is allowed to " continue, there Is no doubt that It I would save revenue to adopt this 1 courae. This Is, in fart, the pructlce j which has been followed in England 4 for many years." 1 exchange ABUSES jj As to the avenue of escape afforded 3 in the eectlon of the law doallng with I .xchanges of securities, the treasury 1 urges that tho statute bo amonded so 1 as to limit the cases In which securlt-9 securlt-9 les may be exchanged for other .oour-m .oour-m Ules. without the realization of tuxa- bli Income to those canes where the 1 exchange is in connection with the re-J, re-J, organisation, consolidation, or merger J of one or more corporations. Illustrating the actual workings un- J' der the provicions of the existing law for the exchange of property, held for J investment for other proporty of a like jg kind without tho realization of taxa- l ble income, Mr. Mellon oays a taxpayer -M who purchasos a bond for $1000 which appreciates in value may exchange '" M that bond for another of the value of '3 $1000 together with $100 in cash, I H without the realization of taxable ln- I -3j 'ome '-'W "This provision of tho act is being -V&M widely abused." he adds. OPTIMISTIC OUTLOOK Aside from his recommendations for ta revision. Mr Mellon deals in his ffi-VjB report with conditions generally over gnJB the country and with the operations TrfcJH1 of the various divisions of tho treas-ury. treas-ury. US sounds an optimistic note si-W " nuslness outlook and reports I Kiibstantlal progress both In the re- SjgS&J duction of the public debt and in econ- jl&Kff omy in public expenditures Tb past 12 months, ho says, have fflgfojl been marked by further liquidation bbSm and recovy from depression, and, mors recently, by a substantial rovlv- i ol or buslnlhas been mounting to high.. leveVod labor throughout the countryTagaln full employed. ' The yeat closing with bountiful crops, " the ort continues. 1 and the severe (ies-lon In agriculture hns been redid. Banking conditions generally areunl, mono) p LteC iri reasonable, a t j r in suifl. I-nt credit avail aSfb meet all legitimate , demands ' In tho trey tnc year has been a reduction In tWos d"-bt, amounting to about 5 1.(000,000. a balanced budget for thekal year, 1512 2, showing show-ing a surplus over $300,000,000 above cxpondlcs. nnd substantial progress In theundtng of the short-diited short-diited debt, V8 has now been re-ducod re-ducod to mlcreablc proportions. These deveiopifT.s arc all helpful, and afford thoig for a revival of business and ln M on sound lines 1 SCARCrnhjr 1 1BOU Into this sltun. however, Mr Mellon injects a V of warnln,T HS savs the restrlc-S of immigratlo'i and the general lumption of Industrial Indus-trial activity havcsulte1 In u scar-tit scar-tit - of labor enlrrassing to some lines of business. Uc .nrhlvi that the I railroads are sufijnR from undcr-malntenance undcr-malntenance and adequate e,iulp-ment e,iulp-ment and are fin1r u difficult to I move commodities, meet the dc- I mands of business. s a consequence farm products are )Ung too low at the larm and too hh nt the distributing distrib-uting centers The secretary al.4o,-iares that the inrrense cf $ 1 .000,6000 in the gold holding In this COufy since 1919-ir2 1919-ir2 has j-. tendency loxpand credlv ind create an unnatui rase of mon- l -y for purposes of expdLpn and cred- I Then, too, he calltt( ntlon that in uncertain state in tjrope has im- t'f-'ed the corrective ipcet which usee to 0p. -rate in norii times and nas i-, reduced the buUg power of h r irb ' ountrlos to iptroy or endanger. en-danger. hc forvgn ninrks for many America products. N ED OP T l Tkx Enougl. foroos Qre optlng." he continues. makc us ru,nlf lM "mating th.,rClSp,cts for hr futlir and take care,esit w bu)kUl basis Busin- ln thlR CQ not progress lf.efjmt,.v -)Ut jL foreign man;e U d uduo anB,on now. with rising ost, and r U values would mevt.blv goW tkf seC(Js of reaction and mi.. efflcult the re-e,tabli.hmontlf i0Xg I tionships airoad. ."The treasury ain. ahoV(1 fo keep its house in orde that a sound financial suture Sore will ln the long run. afr(J the V basis for extending neede to Europe and for a healtr;! revjXi of domestic business on cGtrurtiv lines." i rtr wk tmas Cards in , Yon remember all of JJJJf Nids and relatives with exb,sive but you can rsi,VtU of , them a (iKhi5TNG CARD to rxrres j yom. own The iirit of Chris rnas Onr etock of hrls)mi9 cards 9 ready Inspection and n vUs you to come ln Jjjajj your selection iv Chas. Dee Prig Company Hudson Ave. den |