OftolKT 10. 1921 



HARDWOOD RECORD 



21 



Proposing a Workable Sales Tax 



By F. J. Moss 

 President of the Millwork Cost Bureau 



The moiiiiii!/ newspapers of Scptimbir JO carried front page stories of 

 the opposition that had developed in the Hctuite to numerous features of 

 the pending tax bill. A-inoni/ other things, it teas said th-at because of 

 general d ssatisfaction loith rarious features of the bill the nuivemcnt for 

 the Smuot 3 per cent manufacturers' sales tax, which is designed to 

 repliiCi- both the excess profits tax and obnoxious misocllan-eous taxes, 

 appeared to be ijuinlng some strennth. On, October 3 Senator Neic, Indiana, 

 stated that he is doing what he can to push the Smoot tax, while Repub- 

 lican House Ijcader Mandcll served notice on licpublican Senate leaders 

 that the House will not accept a stiles tax in any form. 



I}wsmueli as the >Smoof plan, icith its 3 per cent manufacturers' sales 

 tax, embodies the recommendtitions of the Manufacturers' National Tax 

 Co7nmittec to the Senate Committee on Finance, J/r. ilos.t' criticism of 

 the Manufacturers' Tax Committee report, during which he offers a sub- 

 stitute for the Smoot plan, i^t a worthii contribution to the nation-wide 

 discussion of the new Federal taxation profjram. For several reasons Mr. 

 Moss is unusuallt/ well qualified to write upon this notoriously obtuse sub- 

 ject. To begin with, he han made a hobby of political economy and he 



was the principal founder, and since its ineeplion in I91Z has been the itrest- 

 dent, of the ^tiltwork Cost Ilureau, a leadership which has demanded a 

 fine knowledge of economics. Also, he ix chairman of the tax committee 

 of the -issoeiated Industries of Missouri, a position which rouehrs for his 

 understanding of tax questions ; and president of the .\meriran Sash rf 

 Door Company, Kansas City, Mo. These facts indicate that he is able to 

 discuss a taxation question from the standpoint not only of the student, 

 but of the practical business man. Therefore, what he has to say in this 

 instance is much more worthy of attention than the maunderings of a. 

 mere doctrinaire. 



In this critiiHsm Mr. Moss points out the eomplete impracticability of 

 a gross sales tax, because of its pyramiding of taxes, and urges that the 

 only workable tax on sales is a consumption tax with deductibles, that is, 

 a tax which provides for deduction from the amount taxed in each sale of 

 a manufaetured commodity of the amount upon which tax was paid upon 

 the immediately preceding turnover. Thus the pyramiding of taxes, which 

 would tend to ultimately eliminate all except the larger industries which 

 produce a commodity from the raw material to the finished product, is 

 precluded. — The Editor. 



Even if it were possible to interpret the recommendations of the 

 Manufacturers' National Tax Committee, which was filed with the 

 Senate Committee on Finance in support of the proposed Smoot 

 plan as a substitute for the House Tax Bill (H. B. 8245), the effect 

 would be to saddle a 3 per cent tax upon manufaetured products 

 sold as such, such tax to be paid upon the sales price, lose or win, 

 while other businesses would be called upon to pay a tax only in 

 the event of a profit being made. I favor a tax upon gross sales 

 (after deducting purchases upon which a tax has been paid). How-- 

 ever, there is no sense or justice in taxing the products of manu- 

 facturers, at the same time relieving all other business from the 

 tax burden, except only upon their profits. If other lines of busi- 

 ness are a necessity or have a right to existence, then they should 

 bear their portion of the tax burden. I grant that ultimately the 

 burden upon manufactured products will be passed on to the con- 

 sumer, but the same statement can be made with respect to other 

 businesses; and the first principle of equitable taxation should con- 

 template an equal distribution of taxes to all classes of business. 



It has been said that wo are a nation of economic illiterates, and 

 it is claimed by the Manufacturers' National Tax Committee, in 

 endorsing the Smoot bill they are voicing the opinion of substan- 

 tially one hundred thousauM members with a normal employing 

 capacity of approximately five inilliou persons, would furnish the 

 best possible proof of the charge tliat the study of economics in 

 America is a lost science. 



I am forced to the conclusion, however, that the committee in 

 question, after a very superficial study of the problem, and arriv- 

 ing at a conclusion, have assumed to speak for others, few if any of 

 whom would be in accord with the conclusions of the committee 

 after a careful study of the subject. 



I propose to discuss this matter quite frankly, even at tlie risk 

 of being criticised, in the hope of arousing sufficient interest on the 

 part of American business men to a sense of their duty of a correct 

 understanding and vigorous action in this all-important matter. 



A prominent statistician has made the statement that the enforce- 

 ment and administration of the present national tax system repre- 

 sents a cost to the American people of more than one billion dollars 

 per annum; and if the direct expense to the government and the 

 time and money expended by the taxpayers is taken into account, 

 there is no question of doubt but the statistician is well within the 

 facts. This amount represents the total governmental expense 

 prior to the war, and one-fourth of the revenue that is now deemed 

 necessary and one-half of what would be necessary under a scien- 

 tific, econoinical tax law. So much for the bill of expense due to 



neglect. But it is said that the tax proposition is too com]ilex for 

 the average citizen to follow and understand. 

 Reason Is Snubbed 



This conclusion is jierfectly natural under the present sj-stem. 

 The rule of reason has not been applied, and the average citizen 

 immediately concludes that the problem is too intricate, and he 

 leaves it to others to work out, with the result that the tax is estab- 

 lished with respect to the resistance or pull exerted by the different 

 interests and the effect it will have upon the voter. Political jug- 

 gling and misrepresentations, either for the purpose of convincing 

 the voter that he is being especially favored in tax matters, or 

 responding to the interests in position to bring the greatest 

 pressure to bear. 



It so happens that I am engaged in the manufacture and distribu- 

 tion of a commodity, so. that any comment on my part bearing upon 

 the question of taxes upon luxuries must be considered without 

 prejudice. We hear the demand on every side for an increase of 

 the tax upon luxuries, without seeming to realize that luxuries are 

 the product of the best brain and brawn, and represent labor almost 

 in their entirety; so that the purchasci-s of luxuries are the best 

 customers of those who have labor to sell, and any tax measure that 

 would result in the curtailment: of the demand for luxuries would 

 result in unemployment and force the workers in tlie higher arts 

 into direct competition with less skilled labor at a lower wage. 



Concerning the report of the committee in condemnation of House 

 Bill H. R. 8245, I agree in every particular, to which might be added 

 the charge that it would work a great hardship in favor of the large 

 integrited companies as against approximately 98 per cent of the 

 smaller manufacturers. 



But, bad as the House bill is, the bill introduced and supported 

 liy Senator Smoot contemplates a gross sales tax which, it applied 

 as intended, would work a greater hardship than all of tlie many 

 .ibsurd, unjust features of House Bill H. R. 8245. A sales or con- 

 sumption tax is the only just or scientific basis, providing it is so 

 applied as to avoid pyramiding of taxes upon certain manufacturers 

 or products. A gross sales tax applied to all sales, as contemplated 

 in the original Smoot bill would ultimately result in the complete 

 elimination of practically all manufacturers and merchants except 

 a few of the very large corporate interests, which by reason of 

 conducting all operations from the raw material to the finished 

 product and the consumer, would be subject to but one tax, while 

 the same materials passing through the hands of separate interests 

 for each operation, and subject to a tax when passing from the hands 

 of one independent operator to another, would carry a tax burden 



