Outstanding bonds and notes of the United States, Mar. 1, 1920-Continued. PANAMA CANAL LOAN-(3's OF 1961-REGISTERED. FIRST LIBERTY LOAN 3} PER CENT BONDS OF 1932-1947-COUPON. FIRST LIBERTY LOAN CONVERTED 4 PER CENT BONDS OF 1932–1947—COUPON, 28 95. 1372 94.20-94.40 3 835 Average. 96.4635 Outstanding bonds and notes of the United States, Mar. 1, 1920-Continued. FIRST LIBERTY LOAN CONVERTED 41 PER CENT BONDS OF 1932-1947-COUPON. FIRST LIBERTY LOAN 2D CONVERTED 44 PER CENT BONDS OF 1932-1947-COUPON. SECOND LIBERTY LOAN 4 PER CENT BONDS OF 1927-1942-COUPON. SECOND LIBERTY LOAN CONVERTED 41 PER CENT BONDS OF 1927-1942 Outstanding bonds and notes of the United States, Mar. 1, 1920-Continued. THIRD LIBERTY LOAN 41 PER CENT BONDS OF 1928-COUPON. VICTORY LIBERTY LOAN 4 PER CENT NOTES OF 1922-23. VICTORY LIBERTY LOAN 32 PER CENT NOTES OF 1922-23. Mr. GREEN. From what you have said, I suppose the rate would have to be higher? Mr. LEFFINGWELL. It would. The mere fact that a further large issue was to be made would greatly depreciate all outstanding issues. Mr. HAWLEY. Mr. Leffingwell, it has been proposed that two kinds of taxes be levied on sales, one a general consumption tax to be collected from retail sales, and the other tax to be collected on the goods when sold by the manufacturer, jobber, or wholesaler. Would you comment on those two propositions? Mr. LEFFINGWELL. I think that the reasons for advocating an income tax are the same as for opposing the sales tax. I take it that the increase of the cost of living which must inevitably result from putting out $2,000,000,000 of spending money would be bad enough without raising that money in a way directly calculated to add to the cost of living. Unquestionably every consumption tax has the vice that it burdens most heavily the people least able to bear it. The income of the poor man is altogether absorbed in the things he consumes. A negligible proportion of the income of the rich man goes into the things he consumes. If you undertake to impose a consumption tax you will, in the first place, add to the cost of living to raise the money, and then add to the cost again by putting that much spending power in the form of new money or credit in the hands of the ex-service men. I should say that the operation would in that way be made more burdensome even than it need be. Mr. HAWLEY. Now, it is proposed in another tax proposition that has been submitted that we increase the list of luxuries and levy a luxury tax, a tax which would be paid by those who are well to do. Mr. LEFFINGWELL. I was always very much interested in the luxury tax. Theoretically it is splendid, but practically it doesn't work. You can't collect it. The machinery of collection is more expensive than the productivity of the tax justifies; and you get into inextricable confusion as to what is a luxury. I speak dogmatically. I imagine the committee has its own opinion on this subject, even clearer than mine, based on experience. Mr. GREEN. That has been presented a number of times before the committee, and I may say the committee levied a luxury tax and had all sorts of difficulties along the line you have described. The Senate took out part of it, and there has been much evasion. Mr. LEFFINGWELL. Take the question, What is a luxury? Are tea, coffee, cigars, luxuries? I am not prepared to say that I know of many things that are going to be really productive of large amounts of revenue and of which I think the poor man ought to be deprived. Mr. HAWLEY. Can we raise the tax on tobacco? Mr. LEFFINGWELL. I don't pretend to be an expert on specific taxes. We have about reached the point where most of us regard a moderate amount of tobacco as a necessity. Mr. GARNER. You can get $150.000.000 more than you are getting now on tobacco, but that wouldn't go very far toward paying $2,000,000,000. Mr. GREEN. I agree with Mr. Garner, and I think we ought to get it. Mr. GARNER. Mr. Leffingwell, I don't ask you, or don't request you to commit yourself to the rate of interest that would be neces sary in order to float $2,000,000,000 worth of bonds-and, of course, it is unthinkable that we should sell them for less than par-but you were in here when Gov. Harding was testifying. Gov. Harding was quite emphatic that, under present conditions, his opinion was that you would have to make the rate of interest on 20-year bonds 6 per cent in order to get $2,000,000,000 and sell them at par. I heard Mr. Madden-Martin Madden-who is, I think, one of the best business men in Congress, make the statement on the floor of the House to the same effect. Mr. LEFFINGWELL. I should not be willing, Congressman, to exprss an opinion on that. Mr. GARNER. Taking the hypothesis that you would have to make the rate of interest 6 per cent in order to sell $2,000,000,000 worth of bonds, about how much reduction do you anticipate would result from that sale in the present outstanding indebtedness of the United States? Mr. LEFFINGWELL. Whatever rate you establish for any new issue of securities, all the other issues will adjust themselves to that interest basis. In other words, they will depreciate until they record an appropriate interest basis adjusted to the interest basis of the new issue. Mr. GARNER. That probably would reduce some of them under the present market value by 2 to 3 per cent. Mr. LEFFINGWELL. I should like to add this, Congressman: You assume that there is an interest rate which will sell $2,000,000,000 of bonds. Now, I want to say that in my judgment there isn't any thinkable interest rate which will automatically sell $2,000,000,000 of anything. If you contemplate the sale of $2,000,000,000 of longtime bonds, you must contemplate also the creation or re-creation of an organization like that of the Liberty loans and a nation-wide campaign to float it. Two billion dollars, remember, is the amount of the first Liberty loan. We must not lose our sense of proportion. We have got used to big figures. The Treasury was the first to recognize that the things we could do in war-time we could not do in peace-time. I should like to see somebody now tell everybody to keep his motor car home on Sunday-just one Sunday-or to do without white bread. The things we were doing in war-time were possible because it was war-time and because there were 100,000,000 people looking for ways to take their part in the war. If you know how to re-create the Liberty loan organization, which consisted of 2,000,000 patriotic men and women giving their time without compensation or hope of reward to the Government, if you know how to replace that machine, then you know how to sell $2,000,000,000 of securities. But don't think for a minute that $2,000,000,000 of securities can be devised in such terms that they will sell themselves. That operation does not exist in the world of finance. Mr. GARNER. In other words, you have to revivify the patriotic spirit of the American people in order to sell $2,000,000,000 worth of any money? Mr. LEFFINGWELL. Yes, sir; nothing sells itself. As a very great banker said to me, when we were discussing the probable course of the market in one of the Liberty issues after the offering-I had 173925-20- -31 |