Word: tax-exempt
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...Taxpayers subject to the higher rates cannot afford, for example, to invest in American railroads or industries or embark upon new enterprises in the face of taxes that wiill take 50% or more of any return, that may be realized. These taxpayers are withdrawing their capital from productive business and investing it instead in tax-exempt securities...
...growth of tax-exempt securities, which has resulted directly from the high rates of surtax, is at the same time encouraging extravagance and reckless expenditure on the part of local authorities...
...Limit the deductions from gross income for interest paid during the year and for losses not of a business character to the amount the sum of these items exceeds tax-exempt income of the taxpayer...
...Mellon's argument: The Treasury will have a surplus this year. Income surtaxes should be scaled down from the present maximum of 50% to a maximum of 25%. This would not result in a corresponding reduction of Government income because capital would leave tax-exempt channels and be placed in taxable investments; e. g., if a man's tax rate, now 50%, were changed to 25%, a 6% industrial security would yield 4.5% as opposed to, say, 4% for tax-free securities, and he would invest in the former...
...Less extravagance on the part of local governments which now find it extremely easy to borrow on their tax-exempt securities...