circumstances, ought to be allowed on all new capital invested in
business since the beginning of the war.

I think for the purpose of figuring the excess profit tax the five,
four or three years _before America's entrance into the war_ would
probably form the most appropriate basis. The aggregate industrial
plant of this country, the entire scale and scope of our commerce and
its concomitants, have been so completely modified in the course of the
European war that a comparison which leaves out of account the years
1915 and 1916 does not seem to me to fit the case. I believe, both from
the point of view of economics and of public opinion, a tax of say 32
per cent. or even 40 per cent., or eventually, if needed, a still
higher percentage, calculated on a reasonably high average of earnings
(that is, an average including 1916) is preferable to a tax of 16 per
cent. or 20 per cent. on an inordinately low average.

I believe that as between the proposed 16 per cent. profit tax and an
_excess_ profit tax on the British model, at the rate of say twice that
figure--to begin with--the general consensus of opinion would consider
the latter as much the fairer, much the less cumbersome to handle and
collect, and much the less hampering upon business activities. Yet,
statistics seem to show that such an _excess_ profit tax would bring
in a far larger return than the proposed 16 per cent. profit tax. From
figures which were shown to me it would appear that a 40 per cent. tax
on excess profits over and above the average earnings for the past
three years would yield for the present year the amazing total of at
least $800,000,000 (in addition to the yield from the corporate income
tax taken at the rate of 4 per cent.).

These figures are based on the assumption that the aggregate profits
for 1917 will approximately equal those of 1916--a not unreasonable
assumption provided always that unscientific taxation or other unwise
measures do not destroy prosperity. (As a matter of fact, the profits
for the first half of 1917 are likely to exceed those for the same
period of 1916.) The three-year average was selected on the theory that
1914 was an exceedingly poor business year, 1915 was a year of fair
prosperity and in 1916 the full effect of our stupendous war business
had come to raise profits to an exceedingly high level.

3. There are very numerous forms of taxes, stamp-taxes, etc. (such as,
for instance, a 2 cent tax on checks), wh