I. N. James, Shall Taxes Be Equal?, Shall there be a Privileged Class Exempt from Taxation?

KYR-0001-009-0057.xml

Accession Number

KYR-0001-009-0057

Document Genre

Pamphlet

Repository

Kentucky Department for Libraries and Archives

Collection

Office of the Governor, Thomas E. Bramlette: Governor's Official Correspondence File, 1863-1867

Item Location

BR1-261 to BR1-262

Date of Creation

n.d.

Hon Thos. E. Bramlette
with the compliments of the writer

I N James jr

SHALL TAXES BE EQUAL?

Shall there be a Privileged Class Exempt from Taxation?

TO THE TAX PAYERS AND VOTERS OF OHIO.

When a question of politics comes home to "men's business and bosoms" they will look into it closely. When Mr. A., who lives in the country on his farm of a hundred acres, valued at $5,000, comes into town to pay his taxes, he finds that they are in round numbers one hundred dollars. If he finds Mr. B. at the Treasurer's desk — who rents a house in town and whom he knows has twice as much as A. is worth, invested in Government bonds — paying his taxes with nine dollars and eleven cents on a few hundred dollars worth of household furniture, it is very apt to make him think.

If Mr. C., who has a house and store in town in which he lives and does business, finds that his State taxes are a hundred dollars a year — besides his license that he gets from the United States to carry on business — while his next door neighbor, Mr. D., draws $600 a year in gold on bonds, boards at a hotel and pays no taxes at all, Mr. C. will very probably have his curiosity excited about the details of this singular system of taxation. If Mr. G. has a shop in which he carries on mechanical or manufacturing business, and also a house and lot in which he lives, and on both of which he pays taxes to the amount of forty dollars a year, he is apt to wonder why his wealthy friend H., who has his money in bonds, should enjoy the same protection of person and property for nothing — or for the payment of a small income tax on what he has over $10,000. And Mr. G. will be apt to think it especially unreasonable if he recollects that while he was off in the army he had to send his wife twenty dollars of his pay every six months to keep his home from being sold for taxes, while Mr. H. was not in the army at all, but was at home making a good thing out of the war by investing his money in bonds which gave him 6 per cent. interest in gold, when gold was at 250. And Mr. A. and Mr. C., and Mr. G. will all be disposed to investigate the matter and see whether it is required by any prinicple of sound policy or good faith that taxation should be so un-equal.

This is exactly what we propose to examine. The Hon. John Sherman, United States Senator from Ohio; Gen. Cox, the candidate of the Republican party of Governor, and other speakers of the same party in the present canvass, have told the people that any modification of this unequal system of taxation, was repudiation and breach of the public faith: that Congress had provided that these bonds should not be taxed, and that taxing them now would be a violation of the contract. If this were true, it would be a cogent reason for leaving things as they are, for the public faith once pledged, whether rightfully or wrongfully, should be maintained unbroken. But it is not true. Congress never provided that these bonds should be exempted from taxation: and the assertion that it did so is little creditable either to the intelligence or the fairness of men occupying the position of Mr. Sherman and Gen. Cox. Congress did provide that they should not be taxed by States, counties or municipal corporations. And they could not have been so taxed even without such a provision. A State cannot tax the bonds of the United States: because if it could it might tax them to an extent that would destroy their value and defeat the power conferred on the United States by the Constitution to borrow money.

But it never was provided that they should not be taxed by Congress itself. On the contrary, Congress has twice exercised the power already of taxing them: first in levying a tax of 1 ¹/₂ per cent. on all incomes derived from United States Bonds, when all other incomes bore a tax of 3 per cent.; and later by omitting this provision when the income tax was raised and laying a tax of 5 per cent. on all incomes, including those from bonds, (except on incomes of over $10,000, which pay a tax of 10 per cent.) This disposes of the outcry about taxation being a breach of faith or repudiation. No party talks of repudiating the debt. The only question is who shall pay it and the interest on it. Shall it fall on the labor and production of the country, while the capital is to a large extent exempt?

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The amount of public wealth invested in these bonds is in the neighborhood of two thousand millions of dollars. The amount of bonds bearing gold interest is stated at one thousand one hundred and eight millions of dollars, in round numbers, and the third series of 7-30 bonds (three hundred millions in each series) is now being sold. This vast amount of property has been withdrawn from taxation. It was formerly invested in real estate, lent on bonds and mortgages, or employed in business in some way — in each case bearing its share of the burdens of taxation and contributing at the same time to the productive capital of the country. Now it is exempted from taxation. On what do the burdens it used to bear fall? On the remaining capital and wealth of the country, which has now to bear its own burdens and those of the bondholders too. The very class which can as a general thing best afford to pay taxes — those who have surplus means to invest in bonds — is the very class exempted. Is this reasonable? We would excite no unworthy prejudice against capital or wealth. It is the legitimate result of the industry of the country and the representative of national and individual prosperity. But there is neither reason nor justice in relieving this vast mass of private property almost wholly from taxation and throwing it upon the active capital — the business, and the real estate of the county.

We sometimes hear it said by the holders of bonds that there is no injustice in exempting them from taxation, because every one had an equal chance to invest in them, and might have done so if they wished. But this is not so. All persons can not invest their money in this way, and never could have done so. The great mass of the property of the people, especially in a new commerical county like ours, must always be in real estate of employed in some kind of business. — Some farmers may have money to invest in bonds, and some merchants and mechanics and professional men — but they are a small part of the whole number, and even these generally have much more property in other forms than they have in bonds. But the great mass of the business and producing classes of the country don't own bonds, and can't. The man who carries on a farm, the merchant or manufacturer or mechanic, who carries on business, have use for all their means in their business and have no surplus to dispose of in that way. And are they to be told that their lands and their homes and stores and shops and means of business, are to be taxed for the benefit of their more favored neighbor?

But this system of exempting bonds from taxation not only imposes an unjust burden upon tax payers; it works a serious interference with the business of the country. Formerly if a man in the course of his business had occasion to effect a loan he could do so without difficulty by going to a man who had money to lend and offering him satisfactory security and a fair interest. Now suppose he goes to the same man and ask a loan of $1000 on the same terms what answer will he receive? No, Sir, I would willingly accommodate you, but I can do better by putting my money in Government bonds. If I put $1000 in bonds I will get $60 a year in gold, which will be equivalent to between $80 and $90 in currency at present rates, which is more interest by over 2 per cent. than I can legally bind you to pay, and I have to pay no tax. If I lend you $1000, my interest on it will be $60 in currency, and I will have to pay nearly $20 of that for taxes. "I can't lend to you, sir." So the man of business has to go without or borrow at a ruinous rate of interest.

The grand argument of those who advocate the exemption of bonds from taxation is, that it would be repudiation — a breach of the National faith; but this claim we have seen to be groundless. The only other argument urged in favor of the system with any show of reason, is that it would be a hardship on persons of small means who have invested in bonds, to diminish their income by taxing it. The Government funds have been spoken of as the poor man's savings bank; the depository of the widows' and the orphans' mite — as if to invest it with a sort of sacredness. But is there any reason why the bonds of one woman of small means should be exempt and the cottage and cow of another taxed? Are persons of limited menas whose money is invested in bonds, any more entitled to assistance from the Government, by being relieved from paying taxes, than persons of like small means whose investments are in anything else? Let us look at the practical operation of the thing a little.

A lady of moderate means has all her money, say five thousand dollars, invested in Government bonds. She receives $300 a year in gold, worth say $425 in paper, and pays no taxes whatever. Another lady has the same amount invested before the war on bond and mortgage of property in Ohio. — She will receive at the same rate of interest (which is all she can collect by law) $300 in paper, out of which she must pay from seventy-five to one hundred dollars taxes, according to the locality of her investment.

Suppose the guardian of orphan children has invested their money four years ago on a long loan, secured by mortgage or otherwise. Nearly one-third of the annual income intended for their support and education must be paid annually to the State for taxes.

Again, the poor man's house, however poor, is taxed. His personal property, his horse, and pigs and cow, the means of his own and his children's livelihood, if they exceed fifty dollars in value, all are taxed. The owner of United States bonds can hold any amount of them — up to ten thousand dollars — without paying any taxes on them at all.

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But we hear no complaint about taxing these persons of small means. On the contrary, General Cox tells us that this grossly unequal system is all right and must remain just as it is.

Reduced to its element, the proposition of the advocates of exemption is simply this: "You must not tax the man who owns a hundred thousand dollars of Government bonds, because if you do you must tax the one thousand or five hundred held by a man or woman of limited means." Well, then, according to exactly the same reasoning, you must not tax the man who owns ten thousand acres of land, because if you do, you must tax the cottage of the soldier's widow.

But who held these bonds — the great mass of them? Are they owned, to any great extent, by men who can't afford to pay taxes on them? We can tell pretty certainly by whom they are not held. They are not held to any appreciable extent by that great mass of the people known as the laboring classes — men and women who earn their bread by their daily labor — though very many of this class own the houses they live in, or enough personal property to be required to pay taxes. They are not held to any very large extent by the next class in the scale of wealth — the men in business and of moderate means, the farmers, the mechanics, the merchants and professional men. They generally find use, as we remarked above, for all their means either in their business, the support of their families, or the establishment and imporvement of their homes. There are not many heavy bondholders among the hundreds of thousands of soldiers returning — many of them maimed and broken in health — to civil life to seek an occupation and the means of living. By whom, then, are the mass of the bonds held?

First, by the banks. Some fifteen hundred banks have been established by authority of Congress since the beginning of the war, which are all required to purchase United States bonds as the basis of their circulation. What amount of bonds are thus held by the banks we have not the means of determining, but it is very large. Numbers of these banks are got up merely to enjoy the gold interest on these bonds. A few gentlemen of wealth establish a bank with a capital of say one hundred thousand dollars. The whole of this they can put into bonds on which they will draw $6000 in gold or near $9000 in paper — merely for the bonds which they leave as security for their circulation, and have all the benefits of their circulation and the regular profits of their banking business in addition. Of course they don't want to pay any taxes on the hundred thousand dollars of bonds, which bring the six thousand dollars in gold; and they will very generally see in the proposition to make them do so a flagrant disregard of the best interests of the country.

Second — A large amount of bonds are held by men of large means, who resort to them as an investment of their surplus capital and a means of income.

Third — A great many institutions and corporations of various kinds have invested their capital in bonds, for the sake of the gold interest and the exemption from taxes.

Fourth — A vast amount of bonds have been taken up by creditors of the Government; contractors, furnishers of supplies and others who have thus converted their certificates of indebtedness. For instance, a man who has furnished a thousand barrels of pork or five thousand overcoats for the army, receives for his pay a certificate of indebtedness. These certificates being at a slight discount in the market — being worth, say 95 cents on the dollar — are converted by their holder at their face into bonds, and the contractor or the speculator in vouchers becomes a bondholder, and to that extent a member of that privileged class whose taxes are paid by other people.

In addition to the classes above named a considerable amount of the bonds are scattered in various amounts among the people of more moderate means: but that a vast preponderance of the debt is held by the classes named above — the banks and other corporations — the men of wealth and the Government contractors, there can be no doubt. As a mass it is eminently the property of the wealthy classes. We would excite no jealousy of it on that account. We would excite no hostility to it on any account. It was borrowed on the faith of the nation, and let it be paid, principal and interest. We simply demand justice and equality in distributing the burdens of taxation necessary to pay this debt. We demand that the holders of bonds shall not be erected into a privileged class — exempt from the taxes which the great mass of the people — the bone and sinew of the nation — have to pay. The expenses of the war have imposed a great burden of debt upon us. The Republican party propose that one class of the people shall hold the securities and draw the interest, while another class pays the interest and the taxes. The Democratic party propose that all men should be taxed alike on what they have.

Let the public burdens fall equally upon all, and all will be equally interested in economy in the expenditures of the Government. Exempt the creditors form taxation on their bonds, and you immediately establish a class interested in the continuance of a permanent public debt, and indifferent how great are the public expenditures or how high the taxes, so that their interest is regularly paid in gold. Senator Sherman talks to the people in his public speeches as if the debt were rather a small affair, which the taxes, if left as they are, would pay up, principal and interest, in the life of the present generation, with any special inconvenience. Doubtless this is the way many of the Senator's bondhold-

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ing constituents feel about it. But we are doubtful whether the solder who has spent from one to four years in the field at thirteen or sixteen dollars a month, who draws no gold interest, and finds the price of every article enhanced and high taxes to pay on his little property, will view the matter in the same light.

And this brings to mind another argument gravely advanced, which it seems hardly possible to meet with anything but ridicule and contempt. It is the argument of the self-styled patriot. "We, the loyal people," says he, "furnished this money to the Government when it was in sore need. To make us pay taxes on what we have thus invested, would be the extreme of ingratitude, 'disloyalty' and bad faith." To hear him talk one might suppose his purchase of bonds was an act of patriotic self-sacrifice — a loan to the Government without interest or security. He does not enlarge upon the fact — the disinterested man — that his patriotic offering has brought him from eight to sixteen per cent. per annum (according to the value of gold) net profit on his investment, and enabled him to hold so much of his property exempt from taxation by the State. Nor does he allude to the fact that he bought every hundred dollar bond he holds (and on which he draws interest payable in gold) at a price varying from $45 upwards, accoring to the vaule of the paper with which he bought it as compared with the gold in which his interest is to be paid.

There is one other aspect of this system (and the last to which we shall allude), in which its evils are not perhaps so palpable, but in which they are for that very reason the more dangerous. We alude to its effect upon the future workings of our Government. The owners of bonds — thanks to the legislation of the Republican party — hold a vast amount of property exempt from taxation, and they have a great interest in preventing any legislation which may disturb
this exemption. It will be a sad day for the purity of our free institutions when a gigantic moneyed power becomes enlisted in the political contests of the county. Those who are old enough to remember the contest between General Jackson and the Bank of the United States, will remember with what earnestness the people were warned — and with what effect too — against the corrupting influence of such a financial power in the hands of a political party. But the old United States Bank with its few branches was a mere pigmy as an engine of corruption, compared with this Hydra, which has sprung up and threatens to fasten itself upon the country. If we do not wish to see our elections become mere contests of purse and power in place of reason and argument; if we do not wish to see votes bought and sold in open market; if we wish to preserve the public virtue and the purity of the ballot-box, this monstrous system must be met at the outset and overthrown. Once allow the moneyed corporations and the capitalists who hold the great bulk of these securities to become firmly established in their privileges, and they will cling like the "old man of the sea" round the necks of business and laboring — the fighting and voting classes of the community.

The position of the Democratic party on this subject is too strong to be assailed by argument. It is therefore assailed by vituperation. The threadbare epithets of "copperhead" and "traitor," with the new cry of "repudiation," are freely distributed in the hope that they may still, as in the past, have some efficacy in convincing weak or narrow minds in the absence of truth and reason. But the day for such devices has about gone by. Men will not allow themselves to be misled by a catchword, against the dictates of their reason, but will act and vote in accordance with their true interests and their sense of what is just and right.

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