Part 3

History shows more than one instance where this road inevitably leads to when once entered upon.

And who are our successful men? The vast majority of them are self-made men who started at the bottom of the ladder.

It is trite to say that inequality of endowment and therefore inequality of results in human beings, as well as in inanimate things, is a law of nature. The capacity for creating, organizing, leading, etc., in short, the possession of those qualities of brain and disposition which beget success, is rare.

It is in the interest of the community, whilst carefully guarding and fostering the rights, the opportunities and the well-being of all of its members, to give liberal incentives to men possessing those gifts to put them to active and intensive use. It is hardly open to doubt that, generally speaking, the work of able men, engaged in serious and legitimate business (I am not speaking of gamblers and parasites), whilst naturally benefiting them, benefits the community a great deal more.

The income of hospitals, orphan asylums, institutions of learning and of art and many other altruistic enterprises depends largely upon the voluntary taxation, aggregating a great many millions annually, to which those men in America who have attained financial success have always willingly submitted themselves--more so, probably than in any other country.

Who is to take care of all of those institutions if extreme taxation compels the rich to cease their contributions?

III

The arguments above set forth apply likewise, though naturally not quite in the same degree, to the proposal of levying an income tax rising to an excessively high level, as, for instance, the suggested tax of fifty per cent. on incomes over $500,000.

There, again, the test should be whether so radical a tax is wise and required by the necessities of the country.

The nations in Europe have been fighting for nearly three years and have been under an infinitely greater financial strain than our country is or will be, yet none of these nations have resorted to extreme taxation of income.

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.

Capital is proverbially timid. It will not take risks, except in the expectation of commensurate reward, and if it sees the danger of its reward being unduly infringed upon by excessively rigorous income taxation, it will anticipate that menace by withdrawing from the field of constructive investment to the greatest extent possible.

So much is this the case that I incline to the belief that taxation so graded as to result in a maximum average of say 33-1/3 per cent. would produce at least as great a revenue as a maximum average of 50 per cent.

It is one of the oldest principles of taxation that an excessive impost destroys its own productivity.

The flood of securities which would be coming for sale in order to escape extreme income taxation would create a grave condition of demoralization in the investment markets of the country, with the resulting inevitable effect upon the country's general business, and upon its capacity to absorb Government loans.

The tax recently enacted by Congress imposing a burden of 8 per cent. on business profits over and above 8 per cent. on the capital employed, regardless of whether such profits have any relation to war conditions or not, is unscientific and unsound.

(Incidentally, it is a strange provision of that law that it applies only to co-partnerships and corporations, whilst an individual engaged in business, however profitable, is not taxed.)

It is unquestionably right and in accordance with both good morals and good economics, to prevent, as far as possible, the enrichment of business and business men through the calamity of war.

But the recently enacted so-called excess profit tax which it is now proposed to augment largely does not accomplish that. It taxes not merely the exceptional profit, i.e., the war profit. It lays a burden not on business due to war, but on all business.