It is highly important that taxation should not reach a point at which business would be crippled, cash resources unduly curtailed and the incentive to maximum effort and enterprise destroyed. And it should not be forgotten that both theoretically and actually the spending of money by the Government cannot and does not have the same effect on the prosperity of the country as productive use of his funds by the individual.
If all the European nations have stopped during the war at a certain maximum limit of individual income and inheritance taxation, even after four years of war, the reason is surely not that they love rich men more than we do or that they are all less democratic than we are. The reason is that these nations, including the financially wisest and most experienced, recognize the unwisdom and economic ill effect under existing conditions of going beyond that limit.
III
The same observations hold good in the case of our proposed inheritance taxation (maximum proposed here forty per cent., as against twenty per cent. maximum in England and much less in all other countries). And again there are to be added to Federal taxation the rates of state legacy and inheritance taxation.
Inheritance taxation, moreover, has that inevitable element of unfairness that it leaves entirely untouched the wastrel who never laid by a cent in his life, and penalizes him who practiced industry, self-denial and thrift. And it cannot be too often said that the encouragement of thrift and enterprise is of the utmost desirability under the circumstances in which the world finds itself, because it is only by the intensified creation of wealth through savings and production that the world can be re-established on an even keel after the ravages and the waste of the war.
Furthermore, business men, of necessity, have only a limited amount of their capital in liquid or quickly realizable form, and through the absorption by the inheritance tax of a large proportion of such assets, many a business may find itself with insufficient current capital to continue operations after the death of a partner. This effect is not only unfair in itself, but is made doubly so, as being a discrimination in favor of corporations as against private business men and business houses, inasmuch as corporations are, of course, not amenable to inheritance taxation.
Whilst in the case of the rich we discourage saving by the very hugeness of our taxation, or make it impossible, we fail to use the instrument of taxation to promote saving in the case of those with moderate incomes. And the enormous preponderance of saving which could and should be effected does not lie within the possibilities of the relatively small number of people with large means, but of the huge number of people with moderate incomes.
Moreover, while the rich, in consequence of taxation, limitation of profits, etc., have become less able to spend freely since our entrance into the war, workingmen and farmers, through increased wages, steadier employment and higher prices of crops, respectively, have become able to spend more freely.