is capacities and his money to constructive
use in active business.

The idle man possessing capital, much or little, if he is so
constituted that his conscience permits him to evade his share of
monetary sacrifice, can put his money into tax-exempt securities. The
man of means who toils in business or a profession must pay a heavy
income tax, an excess profit tax, etc. To an extent this undesirable
differentiation is probably unavoidable, but it is neither fair nor in
the interest of the community that it be accentuated.

V

It seems to me so manifest as to hardly require argument that a
retroactive income tax, such as has been suggested, is wrong both in
morals and in economics.

If the foregoing reasoning is correct, these conclusions would seem to
follow:

1. There ought to be a substantial and progressive increase in the rate
of income taxation during the war, together probably with a lowering of
the existing limit of income tax exemption. I believe that in practice
the best result would be obtained if the rates of taxation were not to
exceed a scale producing from maximum incomes an average tax of 33-1/3
per cent., at any rate for the first year of the war.

A materially higher rate would not, in my opinion, yield a
substantially higher aggregate of revenue to the Government (if as high
an aggregate), while at the same time, if only for sentimental reasons,
and even though only applied to very large incomes, it would be apt to
cause financial dislocation and retard business activity and
enterprise.

It would seem advisable that such portion of a person's income as is
devoted to charitable and kindred purposes should be, if not entirely
free from income tax, at least subject to a reduced tax only, so as to
counteract the tendency which experience has shown to follow in the
wake of heavy taxation, of greatly diminishing charitable
contributions.

2. There _ought to be an excess profit tax which might well be at a
considerably higher rate than the present 8 per cent., or even the
proposed 16 per cent._, but it should only be applicable to the extent
that business profits exceed the profits of say a certain average
period before the war and thus may justly be held to be attributable to
war conditions.

In determining the basis for calculating excess profits, an offset
which might be fixed at say 10 per cent. per annum, due consideration
being given to the question of depreciation and to special