e, the
Liberty Loan, tax free. But in the face of the figures above
quoted, the question naturally presents itself whether our
traditional policy of making Government issues tax-exempt should
not be discontinued, which, of course, would mean that a materially
higher rate of interest than 3-1/2% would have to be paid for
Government borrowing.

In theory, it seems to me, there can be little doubt that the
balance of arguments is against the tax-exemption of Government
loans. As an abstract proposition little can be said, I think, in
favor of a policy the effect of which gives an advantage to the
rich and well-to-do, militates against the widest possible
distribution of Government issues amongst the people, tends to
facilitate Governmental extravagance by concealing the true cost
and establishes a fictitious basis of national credit.

Thus, for instance, on the $1,000,000,000, or thereabouts, which
our Government has loaned to the Allies at 3-1/2% interest, it is
losing money, because, whilst it nominally borrows this money
through the Liberty Loan at 3-1/2%, the cost to it is actually
considerably higher because it loses the revenue which would accrue
to it from the income tax if the bonds were not tax-exempt.

Let me add that I do not wish to be understood as suggesting that
our Government should charge to the Allied Nations more than the
nominal rate at which it is borrowing. They have been fighting
these three years and bringing unheard of sacrifices for a cause
which we have recognized to be ours no less than theirs, and if we
loan them money somewhat below its actual cost to us that item
weighs but very lightly in the scale, especially also if we
consider the immense monetary profits which our country has reaped
from the sale to them of munitions, material and supplies.

However, as against the theoretical objections, some of which I
have mentioned, to the tax-exemption of Government loans, there are
certain "imponderabilia"--things which cannot be exactly
weighed--in favor of a low rate of interest for Government
borrowing, even if the lowness of the rate is to an extent
fictitious. There are also certain practical reasons for the
maintenance of our traditional policy, and various concrete facts
which must be taken into account. For instance, there is the
proble