War Taxation: Some Comments and Letters

by Otto H. Kahn

Even in Great Britain, whose financial burden is the heaviest of all, whose debt is many times the total of ours and who has loaned about $5,000,000,000 to her Allies, the highest income tax rate, the maximum percentage in the graduated scale of taxation, is to-day no more than approximately forty per cent.

In the last budget, introduced a couple of weeks ago, the British Chancellor of the Exchequer declined, so I am informed, to consider an increase in the income tax rate, because of the damaging effect which such increase would be apt to have on the country's business and prosperity.

In France and Germany the burden laid on incomes is much lower than in England. In Canada where war loans have been raised equivalent on the basis of comparative population to what would be more than $10,000,000,000 for America, no Federal Income Tax exists at all.

I doubt whether this latter fact is generally known in this country and whether its significance is receiving the measure of serious consideration which it deserves.

I understand that it is the deliberate policy of the Dominion Government to endeavor to avoid resort to an income tax in order to attract capital to Canada.

There can be little question that if our income taxation is fixed at unduly and unnecessarily high rates, whilst Canada has no or only a very moderate income tax, men of enterprise will seek that country and there will be a large outflow to it of capital in course of time—a development which cannot be without effect upon our own prosperity, resources and economic power.

The financial dislocation, the discouragement and the apprehension caused by unduly heavy taxation of incomes will not only act as a drag on enterprise and constructive activity, but will make it exceedingly difficult, if not impossible, for corporations to sell securities in sufficient volume and thus to obtain adequate funds to conduct their business—especially also as investors will be fearful that high rates of taxation once established will not easily be reduced to normal levels, even when the present emergency is passed.

Extravagance, log-rolling, the unwise and inefficient expenditure of money by governmental bodies are amongst the besetting sins of democracy. The formula once found, the machinery once employed for the raising of huge revenues, are apt to make the way of wasteful governmental spending all too temptingly easy.

It must not be forgotten that taxation must necessarily by that much diminish the surplus income fund of the individual and that both theoretically and actually the spending of money by the government cannot and does not have the same effect upon the country's prosperity and enterprise as productive use of his surplus funds by the individual.

The sentimental, and thereby the actual, effect of extreme taxation will not be confined to the relatively small number of people in possession of very large incomes. The disturbance and fear caused by the contemplation of an excessively high ratio of taxation, even when applied to a relatively few, is bound to spread to those also of more moderate incomes.