22 



HARDWOOD RECORD 



OctobiT 10. 11121 



^aggregating all the way from two to five times in excess of the 

 total tax that would bo paid by the large integrited interests con- 

 ducting all operations. And it is impossible to conceive of such 

 an unjust measure receiving siii)port from any quarter. 

 Deductibles Give Equity 



As stated, a sales or consumjition tax is the most scientific, equita- 

 ble and simple method, providing pyramiding is avoided by allow- 

 ing as deductibles all purchases of materials entering into the cost 

 of the product offered for sale, and upon which the tax has been 

 paid. Under this plan, if the total sales of a merchant or manu- 

 facturer in a given time amount to $1,000,000 and during the same 

 time the purchases of materials entering into his product amount 

 to .$6011,000, tlien the tax would lie against the difference between 

 the sales and jnirchase price, wliich would be $400,000. Tlius iden- 

 tically the same tax would apply on the finished product, whether 

 passing through the hands of a half dozen separate companies, or 

 if all operations were conducted by one corporation. This plan is 

 so simple as to be readily understood by anyone. 



The Manufacturers' National Tax Committee in making their 

 recommendations have evidently sought to overcome this serious 

 phase of the Smoot plan by providing a single tax to be applied at a 

 specific point in the process of manufacture. 



It is proposed to levy a manufacturers' tax of 3 per cent upon 

 finished commodities at a single point, when consumed or used with- 

 out further process of manufacture. First let us analyze the 

 )iroducts of the tree. Where is the man who can define finished 

 }>roduets or the period of development where the tax should be 

 paid? Would the tax apply upon the log when cut? Because it 

 must be borne in mind that a large per cent of the trees cut are 

 used for poles and piling, etc., and on such product would the tax 

 be applied before or after creosotiug or treating and preparing for 

 use? The same question would arise as to railroad ties, and the 

 same uncertainty as to manufactured lumber. 



The recommendation is that the tax shall lie against every com- 

 modity manufactured, produced or imported when sold, leased or 

 licensed for consumption or use without further process of manu- 

 facture. After being manufactured some lumber is sold to retail 

 lumber dealers, and in some eases partially fabricated by the retail 

 lumber dealer, but finally fabricated by the carpenter on the job. 

 Other lumber is sold to what is known as a cutting plant, at which 

 point it is cut into exact sizes for doors and windows, after which 

 it is shipped to manufacturers, where a further process of manu- 

 facture takes place, and later sold to a contractor, and in many 

 cases partially fabricated on the job. 



When Could Lumber Be Taxed? 



So that in the case of lumber, if the tax is to lie against the 

 finished product, it would be impossible to determine at the time the 

 material is sold as to the ultimate use of same, or the point at 

 which the tax would be levied. 



Scores of other questions co\ild be raised with respect to lumber 

 products, and the same is true to an even greater extent in the case 

 of all other basic industries. 



For example: The druggist purchases supplies from which drinks 

 are prepared. Would the tax lie against the supplies so purchased 

 or the finished product as sold by the druggist? Would the tax lie 

 against the manufacturer of duckings or the finished awnings; 

 against cloth manufacturers or the finished garments; against auto 

 parts or finished automobiles; against wheat or flour or bread, and 

 ten thousand other items equally indefinite? 



Furthermore, there are comparatively few simon-pure manufac- 

 turers. The great majority of those engaged in the manufacturing 

 business deal more or less in other manufactured itenre; so that 

 any attempt to levy a tax upon items wholly manufactured by most 

 concerns would involve the separation of sales into the various 

 classes so as to determine as to that part of their sales upon which 

 the tax would be applied. 



And as I see it, the recommendations of the committee would 

 rather increase instead of decrease the present confusion in tax 

 matters. 



The committee very wisely suggests widening the tax base; that 



is to say, to distribute the tax to more products; and yet a literal 

 application of the committee's recommendations would tremen- 

 dously increase the burden or taxes upon the few, which would be 

 the manufacturers. 



I am wholly unable to understand the general disposition to place 

 the burden of the tax upon what might be called the jiroducers of 

 tangibles. By tangibles I mean merchandise of all kinds. There is 

 no reason or justice in excludiug service corporations, such as com- 

 mon carriers, brokers, bankers, etc. Every legitimate business, 

 whether it be a banker, broker, commission man, public carrier, or 

 what not, is a part of the necessary economic system, just aa much 

 as the producers of wood and iron. I am inclined to attribute the 

 omission of that character of business from the tax burden to the 

 mistaken idea that it is difScult or impossible to arrive at a basis 

 that would l)e equitable and simple in operation. 

 Tax Intangibles Through Payroll 



More than 95 per cent of tlic value of tangibles, that is to say, 

 merchandise and commodities of all kinds, is represented in labor — 

 that is to say, the cost of the raw material represents approximately 

 5 per cent of the total cost. So that in establishing a tax rate upon 

 tangibles or comimodities, the tax is really based upon the aggregate 

 labor in the various processes; and, as stated, service charges are 

 just as much a necessity as the manufacturers of wood and iron; 

 and the sales made by service corporations represent the value 

 created by labor, and such sales should be subject to identically 

 the same tax as is imposed in the ease of sales of commodities; the 

 only difference in arriving at the tax basis being in the case of 

 tangibles the tax should apply upon the total difference between 

 the sales and purchase price, and in the case of intangibles and 

 service of all kinds, the tax should apply upon the payroll. The 

 reason for basing the tax on tangibles upon the difference between 

 the sales and purchase price instead of the payroll as in the case 

 of intangibles is so that the tax will lie against all existing prop- 

 erty and will be collected when the property is sold. 



So that every employer of labor should be subject to a tax upon 

 the total payroll (including domestic servants), except as stated, 

 in the ease of tangibles — that is commodities — the tax would apply 

 upon the difference between the sales and purchase price. 



The reason for basing the tax upon the payroll in the case of 

 intangibles is, first, in the case of bankers and brokers and com- 

 mission men, etc., where the margins are small and the turnover 

 large, it would be simple and practicable to apply the tax on the 

 total payroll rather than on the difference between the sales and 

 purchase price. The other reason being to charge a tax upon 

 domestic and personal servants. 



So that if the desire is to widen the taxing basis, I should like 

 to ask why it should not be widened to include the intangibles as 

 suggested, instead of saddling the entire load upon commodities? 



A tax as suggested, distributed over all commodities and all 

 operations, would spread it so thin that it would be a burden to 

 no one. 



Further concerning recommendations by the committee; I note 

 the reduction of the sur-tax for the purpose of diverting capital 

 from non-taxable securities to the industrials. It should be borne 

 in mind that this would affect only such capital represented by 

 incomes in the higher bracket, and would result in shifting the 

 burden from the few with a large income to the many with a 

 smaller income; and in this connection I would suggest that indus- 

 tr3' can be readily financed if our tax laws are stabilized on an 

 equitable and economical basis, and political sandbagging brought 

 to an end. 



Concerning the so-called authoritative estimate of the revenue 

 from the five sources suggested by the committee: First, $1,275,- 

 000,000 from personal and corporate income tax, with a maximum 

 sur-tax of 32 per cent. This is evidently predicated largely upon 

 the return for 1920, and is very much in excess in my opinion of 

 the income that will be derived from that source this season. 



The aniouut suggested from tobacco taxes is perhaps dependable; 

 but the same conditions that affect the personal and corporate 

 income tax will also reduce the income from inheritance taxes. 



