m of how to deal with the situation that might result from
the withdrawal of deposits from savings banks and similar
institutions, which probably would be liable to occur in case the
Government offered a bond issue at the higher rate it would have to
fix if the inducement of tax-exemption were removed.

There is the problem of the existence of billions of municipal and
state securities which offer to the holder the privilege of freedom
from municipal, state _and Federal_ taxes. I understand that it is
the consensus of opinion of our leading lawyers that under the
legal theory which treats such issues as "instrumentalities of
government" that privilege cannot be abridged and that Congress has
no constitutional power to tax state and municipal issues.

If state and municipal issues to be made during war time retain the
feature of being free from taxation, can the Federal Government
afford to make its war loans taxable, and thereby place itself in a
position where it would have to borrow under conditions which would
put it and its credit at a disadvantage as compared to state and
municipal issues?

The problem is a complex one altogether and, like all economic
questions, requires to be approached in a dispassionate spirit,
giving due consideration to the reasons for and against. The temper
of the stump speaker is not appropriate for dealing with taxation
problems.

Let me add, in conclusion, that I fully agree that it is "sheer
fiscal stupidity" and "socially inexpedient as well" to permit
"mushroom fortunes" to be built out of war profits. I believe there
ought to be imposed a large excess war profits tax on the English
model upon a fair and well conceived average basis of earnings so
calculated as to take account of the vast difference in the
country's industrial plant to-day and before the European war. Such
a tax may not be entirely free from objections in theory, but from
the social and moral point of view it is, I am convinced,
thoroughly sound and proper and called for. Appropriate taxation of
excess profits, together with an adequately though not exorbitantly
heavy income tax would go a long way to prevent the enrichment of a
class through the calamity of war, without at the same time
affecting wages or laming the enterprise and business activities of
the country.