" " " " 150,000
5.02% " " " " " 100,000

The investment in, say, New York City Bonds, being tax-exempt, at
their present yield of 4.20%, would represent the following rates
of income as compared to investments in taxable securities:

PER ANNUM
11.05% in respect of incomes over $2,000,000
10.76% " " " " " 1,500,000
10.50% " " " " " 1,000,000
9.38% " " " " " 500,000
8.48% " " " " " 300,000
7.74% " " " " " 250,000
7.12% " " " " " 200,000
6.46% " " " " " 150,000
6.02% " " " " " 100,000

Of course, all these figures hold good only for the period during
which the proposed rates of income taxation would prevail. As the
income tax rate decreases, the yield from tax-exempt securities
diminishes proportionately.

The volume of tax-exempt securities at present outstanding,
including the new "Liberty Loan," is estimated at not less than
$8,000,000,000.

The ability of corporations to find a ready market for their
securities is a prerequisite for the continuance of business
prosperity or, indeed, of adequate business activity. I need not
elaborate the effect which the comparison of the income yield from
tax-exempt securities as against taxable securities under an
excessively high income tax schedule--even if confined to larger
incomes--must necessarily have upon the eligibility of corporate
securities for investment purposes. The conclusion seems
unescapable that the resulting degree of disinclination to invest
in such securities coupled with the impulse to dispose of existing
holdings would bring about liquidation, severe shrinkage of values
and more or less pronounced demoralization in the investment
market--a condition of things which could not fail in a measure to
affect adversely the country's business in general, and which could
only partially be counteracted by Government expenditures, however
large.

As to your observations concerning the principle of tax-exempt
issues, I believe the Government acted wisely, considering all the
elements of the situation, in making its first great war issu