Chapter 4
We will not have it so, we who are Americans by birth or adoption. We reject these impudent pretensions. Changes the American people will make as their need becomes apparent, improvements they welcome, the greatest attainable well-being for all those under our national roof-tree is their aim; but they will do all that in the American way of sane and orderly progress--and in none other.
Against foes within no less than against enemies without they will know how to preserve and protect the splendid structure of light and order which is the great and treasured inheritance of all those who rightly bear the name Americans, of which the stewardship is entrusted to them and which, God willing, they will hand on to their children sound and wholesome, unshaken and undefiled.
The time is ripe and over-ripe to call a halt upon these spreaders of outlandish and pernicious doctrines. The American is indulgent to a fault and slow to wrath. But he is now passing through a time of tension and strain. His teeth are set and his nerves on edge. He sees more closely approaching every day the dark valley through which his sons and brothers must pass and from which too many, alas, will not return. It is an evil time to cross him. He is not in the temper to be trifled with. He is apt very suddenly to bring down the indignant fist of his might upon those who would presume on his habitual mood of easy-going good nature.
When I speak of the militant Bolsheviki in our midst as foes of national unity I mean to include those of American stock who are their allies, comrades or followers--those who put a narrow class interest and a sloppy internationalism above patriotism, with whom class hatred and envy have become a consuming passion, whom visionary obsessions and a false conception of equality have inflamed to the point of irresponsibility. But I am far from meaning to reflect upon those who, while determined Socialists, are patriotic Americans.
I believe the Socialistic state to be an impracticable conception, a utopian dream, human nature being what it is, and the immutable laws of nature being what they are. But there is not a little in Socialistic doctrine and aspirations that is high and noble; there are things, too, that are achievable and desirable.
And to the extent that Socialism is an antidote to and a check upon excessive individualism and holds up to a busy and self-centred and far from perfect world, grievances to be remedied, wrongs to be righted, ideals to be striven for, it is a force distinctly for good.
Still less do I mean to reflect upon the labour union movement, which I regard as an absolutely necessary element in the scheme of our economic life. Its leaders have acted with admirable patriotism in this crisis of the Nation, and on the whole have been a factor against extreme tendencies and irrational aspirations.
Trades unions have not only come to stay, but they are bound, I think, to become an increasingly potent factor in our industrial life. I believe that the most effective preventive against extreme State Socialism is frank, free and far-reaching co-operation between business and trades unions sobered and broadened increasingly by enhanced opportunities, rights and responsibilities.
And I believe that a further and highly important element which can be counted upon in this country to stand against extreme and destructive tendencies is the bulk of the men and women who are engaged in the nation's greatest and most vital interest, agriculture, provided that the persistent agitation of the demagogue among the farming population is adequately met and that due and timely heed and satisfaction are given to their just requirements and aspirations.
V
Business must not deal grudgingly with labour. We business men must not look upon labour unrest and aspirations as temporary "troubles," as a passing phase, but we must give to labour willing and liberal recognition as partner with capital. We must under all circumstances pay as a minimum a decent living wage to everyone who works for a living. We must devise means to cope with the problem of unemployment and to meet the dread advent of sickness, incapacity and old age in the case of those whose means do not permit them to provide for a rainy day.
We must bridge the gulf which now separates the employer and the employee, the business man and the farmer, if the existing order of civilization is to persist. We must welcome progress and seek to further social justice. We must translate into effective action our sympathy for and our recognition of the rights of those whose life, in too many cases, is now a hard and weary struggle to make both ends meet, and who too often are oppressed by the gnawing care of how to find the wherewithal to provide for themselves and their families. We must, by deeds, demonstrate convincingly the genuineness of our desire to see their burden lightened.
We must all join in a sincere and sustained effort towards procuring for the masses of the people more of ease and comfort, more of the rewards and joys of life than they now possess. I believe this is not only our duty but our interest, because if we wish to preserve the fundamental lines of our present social system we must leave nothing practicable undone to make it more satisfactory and more inviting than it is now to the vast majority of those who toil. And I do not mean those only who toil with their hands, but also the professional men, the men and women in modest salaried positions, in short, the workers in every occupation.
Even before the war, a great stirring and ferment was going on in the land. The people were groping, seeking for a new and better condition of things. The war has intensified that movement. It has torn great fissures in the ancient structure of our civilization. To restore it will require the co-operation of all patriotic men of sane and temperate views, whatever may be their occupation or calling or political affiliations.
It cannot be restored just as it was before. The building must be rendered more habitable and attractive to those whose claim for adequate house-room cannot be left unheeded, either justly or safely. Some changes, essential changes, must be made.
I have no fear of the outcome and of the readjustment which must come. I have no fear of the forces of freedom unless they be ignored, repressed, or falsely and selfishly led.
But this is not the time for settling complex social questions. When your house is being invaded by burglars you do not discuss family questions. Let us win the war first. Nothing else must now be permitted to occupy our thoughts and divert our aims.
When we shall have attained victory and peace, then will be the time for us to sit down and reason together and make such changes in political and social conditions as, after full and fair discussion, free from heat and passion, the enlightened public opinion of the country deems requisite.
THE MYTH OF "A RICH MAN'S WAR"
I
Since Pacifism and semi-seditious agitation have become both unpopular and risky, the propagandists of disunion have been at pains in endeavouring to insidiously affect public sentiment by spreading the fiction that America's entrance into the war was fomented by "big business" from selfish reasons and for the purpose of gain. In the same line of thought and purpose they proclaim that this is "a rich man's war and a poor man's fight," and that wealth is being taxed here with undue leniency as compared to the burden laid upon it in other countries.
These assertions are in flat contradiction to the facts.
Nothing is plainer than that business and business men had everything to gain by preserving the conditions which existed during the two and a half years prior to April, 1917, under which many of them made very large profits by furnishing supplies, provisions and financial aid to the Allied nations, taxes were light and this country was rapidly becoming the great economic reservoir of the world.
Nothing is plainer than that any sane business man in this country must have foreseen that if America entered the war these profits would be immensely reduced, and some of them cut off entirely, because our Government would step in and take charge; that it would cut prices right and left, as in fact it has done; that enormous burdens of taxation would have to be imposed, the bulk of which would naturally be borne by the well-to-do; in short, that the unprecedented golden flow into the coffers of business was bound to stop with our joining the war; or, at any rate, to be much diminished.
The best indication of the state of feeling of the financial community is usually the New York Stock Exchange. Well, every time a ship with Americans on board was sunk by a German submarine in the period preceding our entrance into the war, the stock market shivered and prices declined.
When, a little over a year ago, Secretary Lansing declared that we were "on the verge of war," a tremendous smash in prices took place on the Stock Exchange. That does not look, does it, as if rich men were particularly eager to bring on war or cheered by the prospect of having war?
But, it is said, the big financiers of New York were afraid that the money loaned by them to the Allied nations might be lost if these nations were defeated, and therefore they manoeuvred to get America into the war in order to save their investments. A moment's reflection will show the utter absurdity of that charge.
American bankers have loaned to the Allied nations--almost entirely to the two strongest and wealthiest among them, France and England--about two billions of dollars since the war started in 1914.
These two billions of dollars of Allied bonds are not held, however, in the coffers of Eastern bankers, but have been distributed throughout the country and are being owned by thousands of banks and other corporations and individuals.
Moreover, they form an insignificant portion of the total debts of the Allied nations; they are offset a hundredfold by their total assets. Even if those nations were to have lost the war it is utterly inconceivable that they would ever have defaulted upon that particular portion of their debt, because, being their _foreign_ debt, it has a special standing and intrinsic security.
It is upon the punctual payment of its foreign obligations that a nation's credit in the markets of the world largely depends, and the maintenance of their world credit was and is absolutely vital to England and France. Furthermore, the greater portion of these obligations is secured by the deposit of collateral in the shape of American railroad and other bonds, etc., which are more than sufficient in value to cover the debt.
But let us assume for argument's sake that the Allies had been defeated and had defaulted, for the time being, upon these foreign debts; let us assume that the entire amount of Allied bonds placed in America had been held by rich men in New York and the East instead of being distributed, as it is, throughout the country. Why, is it not perfectly manifest that a single year's American war taxation and reduction of profits would take out of the pockets of such assumed holders a vastly greater sum than any possible loss they could have suffered by a default on their Allied bonds, not to mention the heavy taxation which is bound to follow the war for years to come and the shrinkage of fortunes through the decline of all American securities in consequence of our entrance into the war?
Is it not perfectly manifest to the meanest understanding that any business man fomenting our entrance into the war for the purpose of gain must have been entirely bereft of his senses and would have been a fit subject for the appointment of a guardian to take care of himself and his affairs?
II
Now as to the allegations concerning taxation.
1. The largest incomes are taxed far more heavily here than anywhere else in the world.
The maximum rate of income taxation here is 67 per cent. In England it is 42-1/2 per cent. Ours is therefore 50 per cent. higher than England's and the rate in England is the highest prevailing anywhere in Europe. Neither republican France nor democratic England--containing in their cabinets Socialists and representatives of labour--nor autocratic Germany have an income tax rate anywhere near as high as our maximum rate. And in addition to the federal tax we must bear in mind our state and municipal taxes.
2. Moderate and small incomes, on the other hand, are subject to a far smaller rate of taxation here than in England.
In America, incomes of married men up to $2,000 are not subject to any federal income tax at all.
In England the tax on incomes of $1,000 is 4-1/2% " " " " " " " 1,500 is 6-3/4% " " " " " " " 2,000 is 7-7/8%
(These are the rates if the income is derived from salaries or wages; they are still higher if the income is derived from rents or investments.)
The English scale of taxation on incomes of, say, $3,000, $5,000, $10,000 and $15,000, respectively averages as follows, as compared to the American rates for married men:
In In England America.
Income tax rate on $3,000 14% 2/3 of 1% " " " " 5,000 16% 1-1/2% " " " " 10,000 20% 3-1/2% " " " " 15,000 25% 5%
(If we add the so-called "occupational" tax, our total taxation on incomes of $10,000 is 6-3/4 per cent., and on incomes of $15,000, 9-3/4 per cent.)
In other words, our income taxation is more democratic than that of any other country, in that the largest incomes are taxed much more heavily, and the small and moderate incomes much more lightly than anywhere else, and incomes up to $2,000 for married men not taxed at all.
3. It is true, on the other hand, that on very large incomes as distinguished from the largest incomes, our income tax is somewhat lower than the English tax, but the difference by which our tax is lower than the English tax is incomparably more pronounced in the case of small and moderate incomes than of large incomes. Moreover, if we add to our income tax our so-called excess profit tax, which is merely an additional income tax on earnings derived from business, we shall find that the total tax to which rich men are subject is in the great majority of cases heavier here than in England or anywhere else.
4. It is likewise true that the English war excess profit tax is 80 per cent. (less various offsets and allowances) whilst our so-called excess profit tax ranges from 20 per cent. to 60 per cent.
But it is entirely misleading to base a conclusion as to the relative heaviness of the American and British tax merely on a comparison of the rates, because the English tax is assessed on a wholly different basis from the American tax. As a matter of fact, Congress has estimated that the 20 per cent. to 60 per cent. tax on the American basis will produce approximately the same amount in dollars and cents as the 80 per cent. tax is calculated to produce in England. (I know I shall be answered that we have twice the population of England and twice the wealth. But it must be borne in mind that a far larger proportion of our wealth is represented by farms and other non-industrial property, and that a far larger proportion of our people than of the British people are engaged in agricultural pursuits which are not affected by the excess profit tax. I believe it will be found that the total wealth employed in business in America is not so greatly superior to the total wealth similarly employed by Great Britain.)
_The American excess profit law so called taxes all profits derived from business_ over and above a certain moderate percentage, regardless of whether or not such profits are the result of war conditions. The American tax is a general tax on income derived from business, in addition to the regular income tax. _The English tax applies only to excess war profits_; that is, only to the sum by which profits in the war years exceed the average profits on the three years preceding the war, which in England were years of great prosperity.
In other words, the English tax is nominally higher than ours, but it applies only to war profits. The normal profits of business, _i. e._ the profits which business used to make in peace time, are exempted in England. _There, only the excess over peace profits is taxed. Our tax, on the contrary, applies to all profits_ over and above a very moderate rate on the money invested in business.
In short, our law-makers have decreed that normal business profits are taxed here much more heavily than in England, while direct war profits are taxed less heavily. You will agree with me in questioning both the logic and the justice of that method. It would seem that it would be both fairer and wiser and more in accord with public sentiment if the tax on business in general were decreased and, on the other hand, an increased tax were imposed on specific war profits.
5. Our federal inheritance tax is far higher than in England or anywhere else. The maximum rate here on direct descendants is 27-1/2 per cent. as against 20 per cent. in England. In addition we have State inheritance taxes which do not exist in England.
III
Much is being said about the plausible sounding contention that because a portion of the young manhood of the Nation has been conscripted, therefore money also must be conscripted. Why, that is the very thing the Government has been doing. It has conscripted a portion, a relatively small portion, of the men of the Nation. It has conscripted a portion, a large portion, of the incomes of the Nation. If it went too far in conscripting men, the country would be crippled. If it went too far in conscripting incomes and earnings, the country would likewise be crippled.
Those who would go further and conscript not only incomes but capital, I would ask to answer the riddle not only in what equitable and practicable manner they would do it,[1] but what the Nation would gain by it?
[1] It is true that a few years ago a capital levy was made in Germany, but the percentage of that levy was so small as to actually amount to no more than an additional income tax, and that at a time when the regular income tax in Germany was very moderate as measured by the present standards of income taxation.
Only a trifling fraction of a man's property is held in cash. If they conscript a certain percentage of his possessions in stocks and bonds, what would the Government do with them?
Keep them? That would not answer its purpose, because the Government wants cash, not securities.
Sell them? Who is to buy them when everyone's funds are depleted?
If they conscript a certain percentage of a man's real estate or mine or farm or factory, how is that to be expressed and converted into cash?
Are conscripted assets to be used as a basis for the issue of Federal Reserve Bank Notes? That would mean gross inflation with all its attendant evils, dangers and deceptions.
Would they repudiate a percentage of the National Debt? Repudiation is no less dishonourable in a people than in an individual, and the penalty for failure to respect the sanctity of obligations is no different for a nation than for an individual.
The fact is that the Government would gain nothing in the process of capital conscription and the country would be thrown into chaos for the time being. The man who has saved would be penalized; he who has wasted would be favoured. Thrift and constructive effort, resulting in the needful and fructifying accumulation of capital, would be arrested and lastingly discouraged.
I can understand the crude notion of the man who would divide all possessions equally. There would be mighty little coming to anyone by such distribution and it is, of course, an utterly impossible thing to do, but it is an understandable notion. But by the confiscation of capital for Government use neither the Government nor any individual would be benefited.
A vigorously progressive income tax is both economically and socially sound. A capital tax is wholly unsound and economically destructive. It may nevertheless become necessary in the case of some of the belligerent countries to resort to this expedient, but I can conceive of no situation likely to arise which would make it necessary or advisable in this country. More than ever would such a tax be harmful in times of war and post-bellum reconstruction, when beyond almost all other things it is essential to stimulate production and promote thrift, and when everything which tends to have the opposite effect should be rigorously rejected as detrimental to the Nation's strength and well-being.
There is an astonishing lot of hazy thinking on the subject of the uses of capital in the hands of its owners. The rich man can only spend a relatively small sum of money unproductively or selfishly. The money that it is in his power to actually waste is exceedingly limited. The bulk of what he has must be spent and used for productive purposes, just as would be the case if it were spent by the Government, with this difference, however, that, generally speaking, the individual is more painstaking and discriminating in the use of his funds and at the same time bolder, more imaginative, enterprising and constructive than the Government with its necessarily bureaucratic and routine regime possibly could be. Money in the hands of the individual is continuously and feverishly on the search for opportunities, _i. e._ for creative and productive use. In the hands of the Government it is apt to lose a good deal of its fructifying energy and ceaseless striving and to sink instead into placid and somnolent repose.
Taxation presupposes earnings. Our credit structure is based upon values, and values are largely determined by earnings. Shrinkage of values necessarily affects our capacity to provide the Government with the sinews of war.
There need not be and there should not be any conflict between profits and patriotism. I am utterly opposed to those who would utilize their country's war as a means to enrich themselves. Extortionate profits must not be tolerated, but, on the other hand, there should be a reasonably liberal disposition towards business and a willingness to see it make substantial earnings. To deny this is to deny human nature.
Men will give their lives to their country as a matter of plain and natural duty; men, without a moment's hesitation, will quit their business and devote their entire time and energy and effort to the affairs of the Nation, as a great many have done and every one of us stands ready to do, without any thought of compensation. But, generally speaking, men will not take business risks, will not venture, will not be enterprising and constructive, will not take upon themselves the responsibilities, the chance of loss, the strain, the wear and tear and worry and care of intense business activity if they do not have the prospect of adequate monetary reward, even though a large part of that reward is taken away again in the shape of taxation.
IV