Government Ownership of Railroads, and War Taxation

 OTTO H. KAHN

 AN ADDRESS BEFORE THE NATIONAL INDUSTRIAL CONFERENCE BOARD NEW YORK, OCTOBER 10, 1918

I

_GOVERNMENT OWNERSHIP OF RAILROADS_

Paternalistic control, even when entirely benevolent in intent, isgenerally harmful in effect. It is apt to be doubly so when, assometimes occurs, it is punitive in intent. 

The history of our railroads in the last ten years is a case in point. 

In their early youth our railroads were allowed to grow up like spoiled, wilful, untamed children. They were given pretty nearly everything theyasked for, and what they were not given freely they were apt to getsomehow, anyhow. They fought amongst themselves and in doing so wereliable to do harm to persons and objects in the neighborhood. They wereoverbearing and inconsiderate and did not show proper respect to theirparent, i. E. , the people. 

But the fond parent, seeing how strong and sturdy they were and on thewhole, how hustling and effective in their work, and how, with all theirfaults of temper and demeanor, they made themselves so useful around thehouse that he could not really get along without them, only smiledcomplacently at their occasional mischief or looked the other way. Moreover, he was really too busy with other matters to give properattention to their education and upbringing. 

As the railroads grew towards man's estate and married and begot otherrailroads, they gradually sloughed off the roughness and objectionableways of their early youth, and though they did not sprout wings, andthough once in a while they still did shock the community, they wereamazingly capable at their work and really rendered service ofinestimable value. 

But meanwhile, for various reasons and owing to sundry influences, thefather had grown testy and rather sour on them. He cut their allowance, he restrained them in various ways, some wise, some less so, he changedhis will in their disfavor, he showed marked preference to otherchildren of his. And one fine day, partly because he was annoyed at thediscovery of some wrongdoing in which, despite his repeated warnings, afew of the railroads had indulged (though the overwhelming majority wereblameless) and partly at the prompting of plausible self-seekers orwell-meaning specialists in the improvement of everybody andeverything--one fine day he lost his temper and with it his sense ofproportion. He struck blindly at the railroads, he appointed guardians(called commissions) to whom they would have to report daily, who wouldprescribe certain rigid rules of conduct for them, who would henceforthdetermine their allowance and supervise their method of spending it, etc. 

And these commissions, naturally wishing to act in the spirit of theparent who had designated them, but actually being, as guardians areliable to be, more harsh and severe and unrelenting than he would havebeen or really meant to be, put the railroads on a starvation diet andotherwise so exercised their functions, with good intent, doubtless, inmost cases, that after a while those railroads, formerly so vigorous andcapable, became quite emaciated and several of them succumbed under thestrain of the regime imposed upon them. And then, seeing their conditionand having need, owing to special emergencies, of railroad serviceswhich required great physical strength and endurance, one fine morningthe parent determined upon the drastic step of taking things into hisown hands. And so forth. . . . 

II

To drop the style of story-telling: Individual enterprise has given uswhat is admittedly the most efficient railroad system in the world. Ithas done so whilst making our average capitalization per mile of roadless, the scale of wages higher, the average rates lower, the serviceand conveniences offered to the shipper and the traveler greater than inany other of the principal countries. 

It must be admitted that in the pioneer period of railroad development, and for some years thereafter, numerous things were done, and althoughgenerally known to be done, were tolerated by the Government and thepublic, which should never have been permitted. But during the secondadministration and upon the courageous initiative of PresidentRoosevelt these evils and abuses were resolutely tackled and a definiteand effective stop put to most of them. Means were provided by salutarylegislation, fortified by decisions of the Supreme Court, for adequatesupervision and regulation of railroads. 

The railroads promptly fell in line with the countrywide summons for amore exacting standard of business ethics. The spirit and practices ofrailroad administration became standardized, so to speak, at a morallevel certainly not inferior to that of any other calling. It is true, certain regrettable abuses and incidents of misconduct still came tolight in subsequent years, but these were sporadic instances, by nomeans characteristic of railroading methods and practices in general, condemned by the great body of those responsible for the conduct of ourrailroads, no less than by the public at large, and entirely capable ofbeing dealt with by the existing law, possibly amended in nonessentialfeatures, and by the force of public opinion. 

Unfortunately, the law enacted under President Roosevelt'sadministration was not allowed to stand for a sufficient length of timeto test its effects. The enactment of new railroad legislation in 1909, largely shaped by Congressmen and Senators of very radical tendenciesand hostile to the railroads, and acquiesced in by President Taft withill-advised and opportunist complacency, established, for the first timein America, paternalistic control over the railroads. It was anunscientific and ill-devised statute, gravely defective in importantrespects and bearing evidence of having been shaped in heat, hurry andanger. Mr. Taft himself, it seems, has since recognized its faultiness, for he has repeatedly and publicly protested against theover-regulation, the starvation and the oppression of the railroad whichwere the inevitable and easy-to-be-foreseen consequences of itsenactment. 

The States, to extent that they had not already anticipated it, were notslow to follow the precedent set by the Federal Government. Theresulting structure of Federal and State laws under which the railroadswere compelled to carry on their business, was little short of alegislative monstrosity. 

III

You all know the result. The spirit of enterprise in railroading waskilled. Subjected to an obsolete and incongruous national policy, hampered, confined, harassed by multifarious, minute, narrow, andsometimes flatly contradictory regulations and restrictions, State andFederal, starved as to rates in the face of steadily mounting costs oflabor and materials--that great industry began to fall away. Initiativeon the part of those in charge became chilled, the free flow ofinvestment capital was halted, creative ability was stopped, growth wasstifled, credit was crippled. 

The theory of governmental regulation and supervision was entirelyright. No fair-minded man would quarrel with that. The railroads hadexercised great, and in certain respects undoubtedly excessive power fora long time, and all power tends to breed abuses and requireslimitations and restraints. But the practical application of that theorywas wholly at fault and in defiance of both economic law and commonsense. It was bound to lead to a crisis. 

It is not the railroads that have broken down, it is our railroadlegislation and commissions which have broken down. 

And now the Government, in the emergency of war, probably wisely and, inview of the prevailing circumstances, necessarily, has assumed theoperation of the railroads. 

The Director General of Railroads, rightly and courageously, proceededto do immediately that which the railroads for years had again and againasked in vain to be permitted to do--only more so. 

Freight rates were raised twenty-five per cent. , passenger rates invarying degrees up to fifty per cent. Many wasteful and needlesspractices heretofore compulsorily imposed were done away with. 

Passenger train service, for the abolition of some of which therailroads had petitioned unsuccessfully for years, was cut to the extentof an aggregate train mileage of over 47, 000, 000. 

The system of pooling for which since years many of the railroads had invain endeavored to obtain legal sanction was promptly adopted with thenatural result of greater simplicity and directness of service and ofconsiderable savings. 

The whole theory under which intelligent, effective and systematicco-operation between the different railways had been made impossibleformerly, was thrown into the scrap heap. 

Incidentally, certain services and conveniences were abolished, of whichthe railroad managements would never have sought to deprive the public, and the very suggestion of the abrogation of which would have led toindignant and quickly effective protest had it been attempted in thedays of private control. 

Lest this remark might be misunderstood, let me say that I have no wordof criticism against Mr. McAdoo's administration of the railroads, asfar as I have been able to observe it. 

I think, on the contrary, that he is entitled to great praise and thathe has handled the formidable and complex task confided to him with ahigh degree of ability, fine courage, indefatigable energy, and with theevident determination to keep the running of the railroads clear ofpolitics and to make them above all things effective instruments in ourwar effort. 

IV

For a concise statement of the results accomplished elsewhere undergovernment ownership I would recommend you to obtain from the PublicPrinter, and to read, a short pamphlet entitled "Historical Sketch ofGovernment Ownership of Railroads in Foreign Countries, " presented tothe Joint Committee of Congress on Interstate Commerce by the greatEnglish authority, Mr. W. M. Acworth. It will well repay you the halfhour spent in its perusal. You will learn from it that, prior to thewar, about fifty per cent. Of the railways in Europe were staterailways; that in practically every case of the substitution ofgovernment for private operation (with the exception, subject to certainreservations, of Germany) the service deteriorated, the discipline andconsequently the punctuality and safety of train service diminished, politics came to be a factor in the administration and the cost ofoperations increased vastly. (The net revenue, for example, of TheWestern Railway of France in the worst year of private ownership was$13, 750, 000, in the fourth year of government operation it fell to$5, 350, 000. ) He quotes the eminent French economist, Leroy-Beaulieu, asfollows:

 "One may readily see how dangerous to the liberty of citizens the extension of the industrial regime of the State would be, where the number of functionaries would be indefinitely multiplied. . . . From all points of view the experience of State railways in France is unfavorable as was foreseen by all those who had reflected upon the bad results given by the other industrial undertakings of the State. . . . The State, above all, under an elective government, cannot be a good commercial manager. . . . The experience which we have recently gained has provoked a very lively movement, not only against acquisition of the railways by the State, but against all extension of State industry. I hope . . . That not only we, but our neighbors also may profit by the lesson of these facts. "

Mr. Acworth mentions as a characteristic indication that after years ofsad experience with governmentally owned and operated railways, theItalian Government, just before the war, started on the new departure(or rather returned to the old system) of granting a concession to aprivate enterprise which was to take over a portion of the existingstate railway, build an extension with the aid of state subsidies, _andthen work on its own account both sections as one undertaking underprivate management_. 

I may add, as a fact within my own knowledge, that shortly before theoutbreak of the war the Belgian Government was studying the question ofreturning its state railways to private enterprise and management. 

Mr. Acworth relates a resolution _unanimously_ passed by the FrenchSenate a few years after the State had taken over certain lines, beginning: "The deplorable situation of the State system, the insecurityand irregularity of its workings. " He gives figures demonstrating theinvariably greater efficiency, economy and superiority of service ofprivate management as compared to State management in countries wherethese two systems are in operation side by side. He treats of the effectof the conflicting interests, sectional and otherwise, which necessarilycome into play under government control when the question arises wherenew lines are to be built and what extensions to be made of existinglines. 

He asks: "Can it be expected that they (these questions) will bedecided rightly by a minister responsible to a democratic legislature, each member of which, naturally and rightly, makes the best case he canfor his own constituents, while he is quite ignorant, even if notcareless, of the interests, not only of his neighbor's constituency, butof the public at large?" And he replied: "The answer is written large inrailway history. . . . The facts show that Parliamentary interference hasmeant running the railways, not for the benefit of the people at large, but to satisfy local and sectional or even personal interests. " Hemaintains that in a country governed on the Prussian principles railroadoperation and planning may be conducted by the Government with a fairdegree of success, as an executive function, but in democraticcountries, he points out that in normal times "it is the legislativebranch of the government which not only decides policy but dictatesalways in main outline, often down to the detail of a particularappointment or a special rate, how the policy shall be carried out. "

For corroboration of this latter statement we need only turn to thearray of statutes in our own States, which not only fix certain railroadrates by legislative enactment, but deal with such details as the repairof equipment, the minimum movement of freight cars, the kind ofheadlights to be used on locomotives, the safety appliances to beinstalled, etc. --and all this in the face of the fact that these Stateshave Public Service Commissions whose function it is to supervise andregulate the railroads. 

The reason why the system of state railways in Germany was largely freefrom most, though by no means all, of the unfavorable features andresults produced by government ownership and operation elsewhere, isinherent in the habits and conditions created in that country bygenerations of autocratic and bureaucratic government. But Mr. Acworthpoints out very acutely that while German manufacturers, merchants, financiers, physicians, scientists, etc. , "have taught the world a gooddeal in the twenty years preceding the war, German railway men havetaught the world nothing. " And he asks: "Why is this?" His answer is:"Because they were state officials, and, as such, bureaucrats androutiniers, and without incentive to invent and progress themselves orto encourage or welcome or even accept inventions and progress. 

It is the private railways of England and France, and particularly ofAmerica, which have led the world in improvements and new ideas, whilstit would be difficult to mention a single reform or invention for whichthe world is indebted to the state railways of Germany. "

The question of the disposition to be made of the railroads after thewar is one of the most important and far-reaching of the post-bellumquestions which will confront us. It will be one of the great testquestions, the answer to which will determine whither we are bound. 

V

And, it seems to me, one of the duties of business men is to informthemselves accurately and carefully on this subject, so as to be readyto take their due and legitimate part in shaping public opinion, andindeed to start on that task now, before public opinion, one-sidedlyinformed and fed of set purpose with adroitly colored statements of halftruths, crystallizes into definite judgment. 

My concern is not for the stock and bond holders. They will, I have nodoubt, be properly and fairly taken care of in case the Government weredefinitely to acquire the railroads. Indeed, it may well be, that fromthe standpoint of their selfish interests, a reasonable guarantee orother fixed compensation by the Government would be preferable to thefinancial risks and uncertainties under private railroad operation inthe new and untried era which we shall enter after the war. I know, indeed, that not a few large holders of railroad securities take thisview and therefore have this preference. 

Nor do I speak as one who believes that the railroad situation can berestored just as it was before the war. The function, responsibility andobligation of the railroads as a whole are primarily to serve theinterests and economic requirements of the nation. The disjointedoperation of the railroads, each one considering merely its own system(and being under the law practically prevented from doing otherwise)will, I am sure, not be permitted again. 

The relinquishment of certain features of our existing legislation, theaddition of others, a more clearly defined and purposeful relationshipof the nation to the railroads, involving amongst other things possiblysome financial interest of the Government in the results of railroadoperations, are certain to come from our experiences under Governmentoperation and from a fresh study of the subject, in case the railroads, as I hope, are returned to private management. 

Personally I believe that in its underlying principle, the systemgradually evolved in America but never as yet given a fair chance foradequate translation into practical execution, is an almost ideal one. If preserves for the country, in the conduct of its railroads, theinestimable advantage of private initiative, efficiency, resourcefulnessand financial responsibility, while at the same time throughgovernmental regulation and supervision it emphasizes the semi-publiccharacter and duties of railroads, protects the community's rights andjust claims and guards against those evils and excesses of unrestrainedindividualism which experience has indicated. 

It is, I am profoundly convinced, a far better system than governmentownership of railroads, which, wherever tested, has proved itsinferiority except, to an extent, in the Germany on which the PrussianJunker planted his heel and of which he made a scourge and a horribleexample to the world; and the very reasons which have made staterailways measurably successful in _that_ Germany are the reasons whichwould make government ownership and operation in America a menace to ourfree institutions, a detriment to our racial characteristics and a graveeconomic disservice. 

I

_PUNITIVE PATERNALISM IN TAXATION_

I have spoken of the treatment of our railroads in the past ten years as"punitive paternalism. " In some respects this same term may be appliedto our existing and proposed war taxation. 

Of course, the burden of meeting the cost of the war must be laidaccording to capacity to bear it. It would be crass selfishness to wishit laid otherwise and fatuous folly to endeavor to have it laidotherwise. 

We all agree that the principal single sources of war revenue mustnecessarily be business and accumulated capital, but these sourcesshould not be used excessively and to the exclusion of others. Thestructure of taxation should be harmonious and symmetrical. No part ofit should be so planned as to produce an unscientific and dangerousstrain. 

The science of taxation consists in raising the largest obtainableamount of needed revenue in the most equitable manner, with the leasteconomic disturbance and, as far as possible, with the effect ofpromoting thrift. 

The House Bill proposes to raise from income, excess or war profit andinheritance taxes $5, 686, 000, 000 out of an estimated total of$8, 182, 000, 000. In other words, almost seventy per cent. Of ourstupendous total taxation is to come from these few sources. It seems tome that the effect and meaning of this is to penalize capital, to finebusiness success, as well as thrift and self-denial practised in thepast, thereby tending to discourage saving. 

The House Bill fails, on the other hand, to impose certain taxes theeffect of which is to promote saving. Intentionally or not, yeteffectively, it penalizes certain callings and sections of the countryand favors others. 

Let me say at the outset that my criticism does not refer to theprinciple of an eighty per cent. War profits tax. Indeed, I have fromthe very beginning advocated a high tax on war profits. To permitindividuals and corporations to enrich themselves out of the dreadfulcalamity of war is repugnant to one's sense of justice and gravelydetrimental to the war morale of the people. 

Strictly from the economic point of view, the eighty per cent. Warprofits tax is not entirely free from objection. Whether England didwisely on the whole in fixing the tax at quite so high a rate is adebatable point, and is being questioned by some economists of highstanding in that country, not from the point of view of tenderness forthe beneficiaries from war profits, but from that of national advantage. 

Moreover, conditions in America and England are not quite identical andI believe it to be a justifiable statement that British industry isbetter able to stand so high a tax than American industry, for reasonsinherent in the respective business situations and methods. 

However, everything considered, circumstances being what they are, Ibelieve the enactment of the proposed eighty per cent. War profits taxto be expedient, provided that, like in England, the standard ofcomparison with pre-war profits is fairly fixed and due and fairallowance made, in determining taxable profits, for such bona fide itemsof depreciation and other write-offs as a reasonably conservativebusiness man would ordinarily take into account before arriving at netprofits. 

Amongst the principles of correct and effective taxation, which areaxiomatic, are these:

 1. No tax should be so burdensome as to extinguish or seriously jeopardize the source from which it derives its productivity. In other words, do not be so eager to secure every possible golden egg, that you kill the goose which lays them. 

 2. In war time, when the practice of thrift is of more vital importance than ever to the nation, one of the most valuable by-products which taxation should aim to secure is to compel reduction in individual expenditures. 

 3. Taxation should be as widely diffused as possible, at however small a rate the minimum contribution may be fixed, if only to give the greatest possible number of citizens an interest to watch governmental expenditure, and an incentive to curb governmental extravagance. 

It may safely be asserted that our war taxation runs counter to everyone of these tested principles. 

II

The characteristic difference between the House Bill and the revenuemeasures of Great Britain (I am not referring to those of France andGermany, because they are incomparably less drastic than ours or GreatBritain's) is, first, that we do not resort to consumption taxes andonly to a limited degree to general stamp taxes, and, secondly, that ourincome tax on small and moderate incomes is far smaller, on largeincomes somewhat smaller and on the largest incomes a great dealheavier. 

The House rate of taxation on incomes up to, say, $5, 000, averages onlyone-fifth of what it is in England; the House rate of taxation onmaximum incomes is approximately fifty per cent. Higher than it is inEngland. Moreover, married men with incomes of less than $2, 000 areentirely exempted from taxation in this country. In England all incomesfrom $650 on are subject to taxation. 

I believe, on the whole, our system of gradation is juster than theEnglish system, but I think we are going to an extreme at both ends. Andit must be borne in mind that our actual taxation of high incomes is noteven measured by the rates fixed in the House Bill, because to them mustbe added State and municipal taxes. There must further be added what toall intents and purposes is, though a voluntary act, yet in effect forall right-minded citizens tantamount to taxation, namely, a man'shabitual expenditures for charity and his contributions to the Red Crossand other war relief works. 

The sentimental and thereby the actual effect of extreme incometaxation is not confined to the relatively small number of people inpossession of very large incomes directly affected by it. Theapprehension caused by the contemplation of an excessively high ratio oftaxation is contagious and apt to react unfavorably on constructiveactivity. 

It is highly important that taxation should not reach a point at whichbusiness would be crippled, cash resources unduly curtailed and theincentive to maximum effort and enterprise destroyed. And it should notbe forgotten that both theoretically and actually the spending of moneyby the Government cannot and does not have the same effect on theprosperity of the country as productive use of his funds by theindividual. 

If all the European nations have stopped during the war at a certainmaximum limit of individual income and inheritance taxation, even afterfour years of war, the reason is surely not that they love rich men morethan we do or that they are all less democratic than we are. The reasonis that these nations, including the financially wisest and mostexperienced, recognize the unwisdom and economic ill effect underexisting conditions of going beyond that limit. 

III

The same observations hold good in the case of our proposed inheritancetaxation (maximum proposed here forty per cent. , as against twenty percent. Maximum in England and much less in all other countries). Andagain there are to be added to Federal taxation the rates of statelegacy and inheritance taxation. 

Inheritance taxation, moreover, has that inevitable element ofunfairness that it leaves entirely untouched the wastrel who never laidby a cent in his life, and penalizes him who practiced industry, self-denial and thrift. And it cannot be too often said that theencouragement of thrift and enterprise is of the utmost desirabilityunder the circumstances in which the world finds itself, because it isonly by the intensified creation of wealth through savings andproduction that the world can be re-established on an even keel afterthe ravages and the waste of the war. 

Furthermore, business men, of necessity, have only a limited amount oftheir capital in liquid or quickly realizable form, and through theabsorption by the inheritance tax of a large proportion of such assets, many a business may find itself with insufficient current capital tocontinue operations after the death of a partner. This effect is notonly unfair in itself, but is made doubly so, as being a discriminationin favor of corporations as against private business men and businesshouses, inasmuch as corporations are, of course, not amenable toinheritance taxation. 

Whilst in the case of the rich we discourage saving by the very hugenessof our taxation, or make it impossible, we fail to use the instrumentof taxation to promote saving in the case of those with moderateincomes. And the enormous preponderance of saving which could and shouldbe effected does not lie within the possibilities of the relativelysmall number of people with large means, but of the huge number ofpeople with moderate incomes. 

Moreover, while the rich, in consequence of taxation, limitation ofprofits, etc. , have become less able to spend freely since our entranceinto the war, workingmen and farmers, through increased wages, steadieremployment and higher prices of crops, respectively, have become able tospend more freely. 

Workingmen are in receipt of wages never approached in pre-war times, many of them making incomes a good deal higher than the averageprofessional man, while the profits of business, generally speaking, arerather on a declining scale and certain branches of business have beenbrought virtually or even completely to a standstill. 

Of our total national income, conservatively estimated at, say, $40, 000, 000, 000 for the last year before our entrance into the war, i. E. , the year 1916, it is safe to say that not more than $2, 000, 000, 000went to those with incomes of, say, $15, 000 and above, whilst$38, 000, 000, 000 went to those with lower incomes. 

A carefully compiled statement issued by the Bankers Trust Company ofNew York estimates the total individual incomes of the nation for thefiscal year ending June 30, 1919, at about $53, 000, 000, 000, andcalculates that families with incomes of $15, 000 or less receive$48, 250, 000 of that total; or, applying the calculation to families withincomes of $5, 000 or less, it is found that they receive $46, 000, 000, 000of that total. 

IV

Whilst the House Bill imposes luxury and semi-luxury taxes, it fails--asI have mentioned before--to resort to consumption taxes of a generalkind--a deliberate but, in my opinion, unwarrantable omission. 

My advocacy of consumption and similar taxes, such as stamp taxes ofmany kinds, is not actuated by any desire to relieve those with largeincomes from the maximum of contribution which may wisely and fairly beimposed on them. I advocate consumption and general stamp taxes--such asevery other belligerent country without exception has found it well toimpose--because of the well attested fact that while productive of verylarge revenues in the aggregate, they are easily borne, causing nostrain or dislocation, and automatically collected; and because of thefurther fact that they tend to induce economy than which nothing is moreimportant at this time and which, as far as I can observe, is not beingpractised by the rank and file of our people to a degree comparable towhat it is in England and France. 

The tendency of the House Bill is to rely mostly on heavy taxation--insome respects unprecedentedly heavy--of a relatively limited selectionof items. I am--as I have already said--in favor of the highest possiblewar profits tax and of at least as high a rate of income and inheritancetaxation during the war as exist in any other country. But apart fromthese and a few other items which can naturally support very heavytaxation, such, for instance, as cigars and tobacco, I believe that themaximum of revenue and the minimum of economic disadvantage anddislocation can be secured not by the very heavy taxation of arelatively limited selection, but by comparatively light taxationdistributed over a vast number of items. I believe such taxes would beproductive enough to make good the impending revenue losses fromProhibition. 

I think, for instance, the imposition of a tax of one per cent. On everysingle purchase exceeding, say, two dollars (the tax to be borne by thepurchaser, not by the seller) would be productive of a large amount ofrevenue and be harmful to none. A similar tax was imposed in the courseof the Civil War and appears to have functioned so well and met withsuch ready acceptance that it was not repealed until several years afterthe close of that war. 

There is apparently small limit to the zeal of many politicians andothers when it is a question of taxing business and business men, especially those guilty of success. We are, I believe, justified ininquiring to what extent there is a relation between this tendency andpolitical considerations which ought to be remote from the treatment ofeconomic subjects such as taxation. 

Let us take, as an instance, the case of the farmer. I do not pretend tojudge whether in these war times the farmers of the country are bearingan equitable share of taxation in proportion to other callings or not. Icertainly recognize that they are entitled to be dealt with liberally, even generously, for I know the rigors of the farmers' life, the ups anddowns of their industry's productivity, and fully appreciate that theirwork lies at the very basis of national existence. Everything that canfairly make for the contentment, well being and prosperity of thefarmer is to be wholeheartedly welcomed and promoted. 

Yet, we cannot avoid noticing that the average value of farm lands inthis country is estimated to have increased between 1900 and 1918 morethan 200 per cent. , that the value of farm products has been vastlyenhanced, but that according to the latest published details of incometax returns, the farmer contributes but a very small percentage to thetotal income tax collected. Of twenty-two selected occupations thefarmers' class contributes the least in the aggregate, although it isnumerically the largest class in the country. 

Let it be clearly understood that I have not the remotest thought ofsuggesting "tax dodging" on the part of the farmers. I know well howfully they are doing their part towards winning the war, and amentirely certain that they are just as ready to carry patrioticallytheir due share of the financial cost of achieving victory as thesplendid young fellows taken from the farms, many of whom I met inEurope, have been ready to bear their full share of the cost in life andlimb of achieving victory. 

The point of my question is not the action and attitude of the farmer. But here is a great industry exempt from the excess profit and warprofit tax and apparently not effectively reached by the income tax, which is entirely natural, because in this case the income tax canneither be retained at the source nor are the large body of the farmers, many of whom do not keep and cannot be expected to keep books, in aposition to determine their taxable income. 

Is it conceivable that the politicians who are so rigorous in theirwatchfulness that no business profit shall escape the tax-gatherer, would not devise means to lay an effective tax if the same situationexisted in a business industry?

The point of my question is, taking the case of the farmers as aninstance, whether in framing our system and method of taxation, thesteady aim has been to ascertain impartially what is equitable andwisely productive of revenue and to act accordingly, or whetherconsiderations of the anticipated effect of taxation measures upon thefortunes of individual legislators or of their party, have beenpermitted unduly to sway their deliberations and conclusions. 

V

Turning aside from this interrogation mark, I will only add, inreturning to our general scheme of taxation, that there are numeroustaxes of a tried and tested and socially just kind--some of them appliedin this country during the Civil War and the Spanish War--which wouldraise a very large amount of revenue and yet would be little felt by theindividual. Some of them have been suggested to our legislators, buthave not found favor in their eyes. Their non-imposition, taken togetherwith the entire character of our taxation program, the burden of whichfalls to an enormously preponderant extent upon the mainly industrialStates and the business classes, not only proportionately, which, ofcourse, is just, but discriminatingly, which is not just, seems hardlyexplainable except on the theory that the intention of those who wereprimarily in charge of framing that program was punitive and correctiveand that they were influenced--though I am willing to believeunconsciously--by sectional and vocational partiality. 

The fact that the revenue bill was passed in the House by a unanimousvote does not mean, of course, that it met with unanimous approval onthe part of Congressmen. The debate shows this. The bill, as reportedafter months of labor, either had to be approved practically as it stoodor rejected and returned to the Committee. It is not possible for a bodyof 400 men to deal in a detailed manner with a subject so complex as ataxation measure of the magnitude of the present one. 

The bill could not be made over or materially amended in the House. Inview of the urgency of the emergency and the vital need to raise the sumasked for by the Treasury, no patriotic course was open to the House butto accept the bill and pass it up to the Senate. 

I know it is not popular to say things in criticism of war burdens of afinancial nature. One's motives are liable to be misunderstood ormisinterpreted and he is very apt to have it scornfully pointed out tohim how small relatively is the sacrifice asked of him, compared withthe sacrifice of position, prospects, and life itself, so willingly andproudly offered by the young manhood of the land. 

It is a natural and effective rejoinder, but it is not a sound orlogical one. Heaven knows, my heart goes out to our splendid boys, andmy admiration for their conduct and achievements and my reverence forthe spirit which animates them knows no bounds. But I am acquaintedwith hundreds of business men who bemoan their gray hair and theirresponsibilities, which prevent them from having the privilege offighting our foe arms in hand. 

And I know no American business man worthy of the name, who would notwillingly give his life and all his possessions if the country's safetyand honor required that sacrifice. 

Transcriber's Notes: Passages in italics indicated by underscore _italics_. 

 Additional spacing after the block quotes is intentional to indicate both the end of a quotation and the beginning of a new paragraph as presented in the original text.