Any scheme of taxation which imposes an unnecessary burden upon commercial enterprise and thereby handicaps the nation in its business activities—especially in world competition with other nations—is unsound and bound to be gravely detrimental, both to the business men and still more to the wage-worker; in fact, to every element of the population.
It is worth noting that England, the conduct of whose finances, based upon the experience of many generations as the leading financial power, has always been a model for other nations to follow, has imposed an excess profit tax on business during the war merely to the extent that such profits are attributable to the war, i.e., to the extent that they exceed the profits of normal years.
In principle, direct taxation of business activities should be avoided as much as possible, apart from a war profit excess tax.
Care should be taken lest the wealthy man least entitled to preferential consideration, i.e., he who neither works nor takes business risks or business responsibilities, be favored as against the man who puts his brains, his capacities and his money to constructive use in active business.
The idle man possessing capital, much or little, if he is so constituted that his conscience permits him to evade his share of monetary sacrifice, can put his money into tax-exempt securities. The man of means who toils in business or a profession must pay a heavy income tax, an excess profit tax, etc. To an extent this undesirable differentiation is probably unavoidable, but it is neither fair nor in the interest of the community that it be accentuated.
V
It seems to me so manifest as to hardly require argument that a retroactive income tax, such as has been suggested, is wrong both in morals and in economics.
If the foregoing reasoning is correct, these conclusions would seem to follow:
1. There ought to be a substantial and progressive increase in the rate of income taxation during the war, together probably with a lowering of the existing limit of income tax exemption. I believe that in practice the best result would be obtained if the rates of taxation were not to exceed a scale producing from maximum incomes an average tax of 33-1/3 per cent., at any rate for the first year of the war.
A materially higher rate would not, in my opinion, yield a substantially higher aggregate of revenue to the Government (if as high an aggregate), while at the same time, if only for sentimental reasons, and even though only applied to very large incomes, it would be apt to cause financial dislocation and retard business activity and enterprise.