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Published online by Cambridge University Press: 02 September 2013
The battle over the tax-exempt security between the federal and the state and local governments has entered a new phase. Not content with merely taxing the income of new federal securities issued after March 1, 1941, the President, in his budget message to Congress of January 6, 1942, recommended legislation which would tax future state and local government securities, and the Secretary of the Treasury, in a speech in Cleveland on January 24, 1942, declared that it was high time to tax the income of outstanding issues as well. Up to this point, it had been the policy of the Administration to request only that the income tax be applied to future state and local government obligations.
1 The pros and cons of the tax-exempt security were recently debated by Mr. Epstein and Mr. Edward H. Foley, Jr., General Counsel of the Treasury, in the National Municipal Review, under the heading, “Shall We Tax Government Bonds?” See Vol. 30, pp. 674–688 (Dec., 1941).
2 The sources and nature of the state and local objections to the federal taxation of their securities were clearly indicated in Hearings on the Taxation of Governmental Securities and Salaries before the Special Senate Committee, 76th Cong., 1st Sess. 1939, and in Hearings on Proposed Legislation Relating to Tax Exempt Securities before the Committee on Ways and Means, 76th Cong., 1st Sess., 1939.
3 Hearings before the Committee on Ways and Means, p. 47.
4 Secretary of the Treasury, Annual Report, 1940, p. 68.
5 Bureau of the Census, Financial Statistics of States, 1938 Google Scholar, Tables 14 and 17.
6 Bureau of the Census, Financial Statistics of Cities, 1938, Tables 14 and 22.Google ScholarPubMed
7 The data were assembled for the period 1921–39. See Temporary National Economic Committee, Monograph No. 20, 1940 (Taxation, Recovery, and Defense), p. 219.
8 From Bureau of the Census, State and Local Government Debt: 1940, pp. 15 and 31Google Scholar, and Treasury Department, Bulletin, Aug., 1941, p. 18.Google ScholarPubMed
9 The various estimates were cited in Taxation of Governmental Securities and Salaries, a report of the Special Committee of the U. S. Senate, 76th Cong., 3rd Sess., 1940, pp. 4–5.
10 Ibid., p. 4.
11 Ibid., p. 5.
12 Hillhouse, A. M., “Intergovernmental Tax Exemption,” Municipal Year Book, 1939, pp. 345–381.Google Scholar
13 Bulletin of the Treasury Department, Dec., 1941, p. 25, and Nov., 1941, p. 25.
14 Secretary of the Treasury, Annual Report, 1941, pp. 46–48.
15 The editors of the New York Times have been moved to denounce Secretary Morgenthau's, proposal as “a highly controversial plan of doubtful constitutionality, cloudy ethics, and, by his own admission, likely to yield only a drop in the bucket of war-time needs.” New York Times, Feb. 4, 1942, p. 18.Google Scholar
16 The Taxing Power of the Federal and State Governments, a report to the Joint Committee on Internal Revenue Taxation, 1936, p. 62.
17 Bureau of the Census, Financial Statistics of Cities, 1937, pp. 52–54.Google Scholar
18 Bureau of the Census, State Tax Collection, 1940, p. 13.Google ScholarPubMed
19 Treasury Bulletin, Aug., 1939, p. 4.
20 From Revenue Revision of 1941, Hearings before the Committee on Ways and Means, 77th Cong., 1st Sess., Vol. I, p. 657. (These estimates do not allow for revenues from taxing governmental securities, since the Treasury did not include them.)
21 The purposes of state and local borrowing are revealed in the publications of the Bureau of the Census, Financial Statistics of States and Financial Statistics of Cities.
22 In one of the most recent statements by a high Treasury official, it was reiterated that the doctrine of intergovernmental immunity from income taxes of a non-discriminatory nature upon public securities is without a constitutional foundation. No hint was given, however, that, if this argument is valid, immunity from non-discriminatory property taxes would likewise appear to be without a constitutional basis. See the article by Foley, Edward H. Jr., General Counsel of the Treasury, “Shall We Tax Government Bonds?,” National Municipal Review, Vol. 30, pp. 674 and 681–688 (Dec., 1941).CrossRefGoogle Scholar
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