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 every one of these tested principles.
II
The characteristic difference between the House Bill and the revenue measures of Great Britain (I am not referring to those of France and Germany, because they are incomparably less drastic than ours or Great Britain's) is, first, that we do not resort to consumption taxes and only to a limited degree to general stamp taxes, and, secondly, that our income tax on small and moderate incomes is far smaller, on large incomes somewhat smaller and on the largest incomes a great deal heavier.
The House rate of taxation on incomes up to, say, $5,000, averages only one-fifth of what it is in England; the House rate of taxation on maximum incomes is approximately fifty per cent. higher than it is in England. Moreover, married men with incomes of less than $2,000 are entirely exempted from taxation in this country. In England all incomes from $650 on are subject to taxation.
I believe, on the whole, our system of gradation is juster than the English system, but I think we are going to an extreme at both ends. And it must be borne in mind that our actual taxation of high incomes is not even measured by the rates fixed in the House Bill, because to them must be added State and municipal taxes. There must further be added what to all intents and purposes is, though a voluntary act, yet in effect for all right-minded citizens tantamount to taxation, namely, a man's habitual expenditures for charity and his contributions to the Red Cross and other war relief works.
The sentimental and thereby the actual effect of extreme income taxation is not confined to the relatively small number of people in possession of very large incomes directly affected by it. The apprehension caused by the contemplation of an excessively high ratio of taxation is contagious and apt to react unfavorably on constructive activity.