WAR REVENUE BILL
AMENDMENT TO ALLOW DEDUCTIONS FROM TAXABLE
NCOME OF GIFTS AND DONATIONS FOR CHARITABLE,
EDUCATIONAL AND RELIGIOUS PURPOSES
SPEECH
OF
HON. HENRY F. HOLLIS
OF NEW HAMPSHIRE
|N THE
SENATE OF THE UNITED STATES
FRIDAY, SEPTEMBER 7, 1917
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WASL11NGTON
CO ºn NMENT DIRINTING OFFICE
1917
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SPEECH -
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H0 N. HENRY F. HOLLIS,
The Senafe had under consideration the bill (H. R. 4280) to provide
revenue to defray war expenses, and for other purposes.
Mr. HOLLIS. Mr. President, in this connection I desire to - - -
call attention to an amendment which I shall offer before we
vote this afternoon to this effect: -
SEC. - That section 5 of such act of September 8, 1916, is hereby
amended by adding at the end of subdivision (a) a further paragraph
No. 9, to read as follows: y
“Ninth. Contributions, or gifts actually made within the year to
corpºrations or associations organized and operated exclusively for
religious, charitable, scientific, or educational purposes, or to societies
for the prevention of cruelty to children or animals, no part of the
net, income of which inures to the benefit of any private stockholder or
individual, to an amount not in excess of 20 per cent of the taxpayer's
taxable net, income as computed without the benefit of this paragraph.
Such contributions or gifts shall be allowable as deductions only if
verified under rules and regulations prescribed by the Commissioner of -
Internal Revenue, with the approval of the Secretary of the Treasury.” º
The effect of that amendment will be to permit a wealthy
man to contribute to charitable, educational, and scientific insti- --
tutions, and then when he comes, to make up his income-tax
returns to make a deduction from his gross income of the amount -
that he has contributed for those purposes, not to exceed 20
per cent of his entire net income. I believe that the Senate
will see the necessity for voting that exemption in war times.
. I have myself been on the other side of this proposition that
colleges, hospitals, and charitable institutions should be sup-
ported by private contributions. I myself had the privilege of
going to a large school. Before I went there I supported myself
entirely for two years. I went there and received a tremendous -
amount of benefit; I enjoyed my experience there; but what I
contributed in tuition did not begin to pay my share of the
expense, and I never felt comfortable that I had been there -
because of private bounty. I have tried since I graduated to
make it up by contributions to class funds and teachers' funds,
and so on, so that I feel that I am square with the college; but -
I should have felt much better if I had gone to an institution -
which was supported by public taxes. So I am on the other
end of this proposition ordinarily; but what have we done? :
We have permitted these institutions to grow up and become
firmly established on the plan of depending upon private con- --
tributions. Now, however, the war affects those institutions
more seriously than it does any other character of institution.
The soldiers we draw come very largely from our colleges. I
have seen no estimate, but I should imagine that fully one-half
of the students will be taken out of the large institutions because
- of the war, and it is going to be a very serious problem whether
they can be kept open at all. I understand ex-President Taft
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has written to the committee stating that, in his judgment,
institutions like Hampton Institute will be seriously handi-
capped unless this amendment is adopted.
It will work in this way: Usually people contribute to chari-
ties and educational objects out of their surplus. After they
have done everything else they want to do, after they have edu-
cated their children and traveled and spent their money on
everything they really want or think they want, then, if they
have something left over, they will contribute it to a college
or to the Red Cross or for some scientific purposes. Now,
when war comes and we impose these very heavy taxes on in-
comes, that will be the first place where the wealthy men will be
tempted to economize, namely, in donations to charity. They
will say, “ Charity begins at home.”
I should not favor allowing any man to deduct all of his
contributions to these objects fron; his income-tax return, but
if we limit it to 20 per cent of his income we can not be doing
much harm to the Public Treasury. -
Look at it in this way: For every dollar that a man con-
tributes for these public charities, educational, scientific, or
otherwise, the public gets 100 per cent; it is all devoted to that
purpose. If it were undertaken to support such institutions
through the Federal Government or local governments and the
taxes were imposed for the amount they would only get the
percentage, 5 per cent, 10 per cent, 20 per cent, or 40 per cent,
as the case might be. Instead of getting the full amount they
would get a third or a quarter or a fifth. * * *
Mr. President, I have many letters from men who have been
prominent in charitable work, from men in the Red Cross As-
sociation, from all of the larger colleges, and from many chari-
ties in all sections of the country. I ask that I be permitted
to insert in the RECORD without reading, instead of these letters,
editorials in favor of this amendment from the Washington
Post, the New York Times, The Survey, and the Boston Tran-
script. - -
Mr. SMOOT. Mr. President, do I understand the Senator
to say that these letters refer to the amendment in relation to
the donations which may be made for charitable purposes?
Mr. HOLLIS. Yes; they refer to that.
Mr. SMOOT. And they have no reference to the Senator's
pending income-tax amendment?
Mr. HOLLIS. They do not relate to the income-tax amend-
ment. I will say frankly the reason I am speaking about the
second amendment now is that I do not know that I shall get
an opportunity to speak upon it before the vote is taken, and
I desire to explain it. I ask that the editorials to which I have
referred may be printed in the RECORD.
The PRESIDING OFFICER. Without objection, it is so
ordered.
The editorials referred to are as follows:
[Frºm the Washington Post, Aug. 25, 1917.]
ExEMPTING CHARITY.
The Senate was expected to reduce somewhat the high income-tax
rates which the House approved in adopting the Lenroot amendment.
It has, however, voted to retain the Lenroot rates in the war-revenue
act, and may even increase them. This gives added importance to the
amendment to exempt from the tax, by means of allowable deductions,
gifts for charitable, educational, and religious purposes, which the
Senate must soon vote upon and which it will do well to adopt. Such
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deductions are limited to one-fifth of the individual's otherwise tax-
able income. -
The proposal means that, while the individual is asked to give up a
large part of his income to the Government, which will determine what
is to be done with it or how it is to be spent, and presumably in this
emergency will devote it chiefly to effective measures for winning the
war, he will still have the privilege of giving up one-fifth of his
total income to war purposes, the Red Cross relief, or to humani-
tarian, educational, or public objects which he may elect and in which
he may exercise a choice as to how the money shall be spent.
If the Government takes all, or nearly all, of one's disposable or
*P* income, it must undertake the responsibility for spending it,
and it must then support all those works of charity and mercy and
all the educational and religious works which in this country have
heretofore been supported by private benevolence.
It would be a mistake to change abruptly the traditional policy
under the stress of war conditions. This country can not abandon; or
impoverish the great structure of private charity and education that
has been one of the most notable achievements of American civiliza-
tion. Therefore with every additional dollar the Government finds it
necessary to , take in taxation, it becomes increasingly necessary, to
accept the principle of the pending ametidment and leave untaxed that
§§ of º citizen's income which he may give voluntarily to the
public good.
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[From the New York Times, Aug. 24, 1917.]
THE CONSCRIPTION OF WEALTH.
The emotionalists at Washington and elsewhere, especially those who
are opposed to the war, have had a great deal to say about “taxing
wealth '' and “ the conscription of wealth.” Every tax is a tax on
wealth or income. Every tax is a conscription of wealth or income.
Taxation is not a subject for rhetoric, fine frenzies, or phrases. The
expenses of the Government being greatly increased by the war, taxa:
tion must be greatly increased. uring the Civil War, after 1862, and
for some three years after its close, the internal-revenue receipts were
greater than the customs receipts. These are the two main sources of
Government revenue. The case was the same in the Spanish War.
Normally the customs receipts have exceeded the internal-revenue re-
ceipts, though in the last few years the conditions have been reversed
on account of the inheritance tax and the income tax. The latter
urged by many of its advocates as an “emergency tax,” was imposed
before the emergency arose. Now, when there is supreme emergency,
it is right that the tax should be increased. It is right that the taxes
on large incomes should be increased.
It is the prevailing theory of taxation that every person's payment
to the Government should correspond with his resources. Increased
income taxes are sound economically to the extent that they will fur-
nish a great revenue. If they are increased to such an extent that
trade and industry, the productive sources of income, are injured, they
are unsound and pernicious. -
These are sober truisms to be kept in mind in judging the Senate's
action on Wednesday in overturning the Senate Finance Committee's
income-tax schedule except as to incomes under $60,000 and providing
an ascending graduated scale from 13.75 per cent on incomes between
$60,000 and $80,000 to 50 per cent on $1,000,000 or over. Since the
amendment of Senator GERRY providing a supertax of 35 per cent on
incomes from $500,000 to $750,000, or 45 per cent on those from
$750,000 to $1,000,000, of 50 per cent on those above that sum, was
passed by a vote of 74 to 0, it is to be concluded that the Senate has
Ano compunctions as to the amount of “conscription ” to which great
incomes should be subject. In one day the Senate voted to add
$75,000,000 to the income taxes, which, as laid in the Senate scheme
at present, are expected to reach the enormous sum of $850,000,000.
The Senate gave up the other day the $12,000,000 it was proposed to
raise on stamp and parcel-post taxes, easily borne and widely dis-
tributed. A small “ conscription,” but a just one, the congressional
objection to which is unfathomable.
On large incomes the tax seems to be laid on the principle “ of all
the traffic will bear.” Senator Lodge's caution against too swift im-
osition of rigorous income taxes was eminently wise. We are but
ust beginning what may be a long struggle. We should be careful
not to exhaust the sources of revenue. e must not rely on taxation
too largely for war expenses or make taxes so high that they can not
be made higher at need later.
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º There is a necessary social effect to this taxation of great incomes.
It diminishes or dries up the springs of philanthropic eleemosynary and -
- cducational life. he foreign calls on charity and benevolence since the -
- war began have reduced contributions to American educational and ---
humane works. The presidents of the colleges, whose incomes from --
tuition and dormitory fees will be notably lessened by the war service -
of so many collegians, so many ... rich men's sons,” and sons of the well
to do, are in grave perplexity. A rich man can spend only so much on
himself and his family. Out of his surplus come his regular gifts for
ublic purposes. This is a consideration to be regarded in income-tax
egislation. Not that, in the common defense much or all property affd
life may not be required of a citizen. Only in laying income or any
other kind of taxation let prejudice and passion be put aside. As a
matter of economics and finance is a particular amount of tax desirable
and necessary?
Rich men are doing and willing to do their part in this war. They
are ready to pay, some of them have already paid, their children's lives
to the defense of democracy; and they should be taxed, and are willing
to be taxed, high. They ought not to be maligned in addition. The
few men at Washington who habitually insult wealth and “ the rich"
are trying to divide a country in which all patriots should be united.
It will not escape attention that the bitterest plutophobes are usually
opponents of the war or seekers of a dishonest and fatal peace. -
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UNIVERSITY OF MICHIGAN -
iſſill
3 9015 078589655 -
[From “Social forces in war time,” by Edward T. Devine, The Survey,
July 7, 1917.]
ExFMPTION OF CONTRIBUTIONS.
The Hollis amendment to the war-revenue bill, authorizing the deduc-
tion of gifts to educational and charitable corporations from gross in-
come along with certain other deductions, such as taxes and bad debts,
does not create a new form of special privilege or a new subsidy. It does
not enable a wealthy man to secure a lower income-tax rate, nor does it
violate any established principle of taxation. There is no presumption
that any lessening of revenues attributable to this amendment would
increase the burdens of those who have small incomes. The difference
may quite as well be made up by increasing the tax on war profits.
hat the Hollis amendment does is to save the revenue bill from
penalizing gifts to colleges, churches, and charitable agencies. By means
of this exemption contributions to recognized religious, charitable, and
educational institutions are put on the same basis, as the loss of money
in business, or the payment of money in taxes. Since the taxpayer, or
the bad investor, or the donor does not have the use of the money, he is
not asked to pay the income tax on it. In the first case it is taken from
him by the State : in the second, he loses it involuntarily ; in the third,
he parts with it voluntarily for a public or social purpose. In no one
of the three does he in fact have the money from which to deduct
the amount of the income tax. If required to pay it in the third case,
as he is not in the other two, he must take it from some other source.
I'very gift to º in other words, costs the donor not only
the amount of his gift but a substantial sum in addition.
Of course the added expense can be deducted, if the donor chooses,
from the amount which he had intended to give; but in that case it
ceases to be an income tax and is instead a tax on the philanthropic
institutions. The time may come when the Government will have to
choose between national defense, on the one hand, and the continuance
of educational and Fº institutions. We may have to turn
our schools and hospitals and playgrounds into battleships and ammuni-
tion. That time has not yet come even in France. To begin the war tax
with burdens on universities, settlements, and other voluntary social
agencies is analogous to the wonderful scheme for making industries
more efficient by removing the legislative protection of women and
children and thereby reducing the productive power of labor.
[From the Boston Transcript, June 29, 1917.1 º
Do NOT PENALIzlº GENEROSITY. .
In simple justice and for the national welfare the United States Sen-
ate should promptly write the Hollis amendment into the taxation bill.
This would remove the absurdity of exacting a tax even on that share
of a man's income which he devotes not at all to himself, but to the -
pressing needs of educational and charitable institutions which operate --
without private profit. "The exaction of such a tax is, at this time,
worse than an absurdity. Under the conditions obtaining to-day, it
would be a form of calamity. It passes beyond individuals and strikes
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at America's whole organization for social progress and education, the
relief of distress, and the remedy of evils.
In America, as periºaps nowhere else in the world, educational and
philanthropic institutions have been built up and maintained by private
subscription. This has been due in part to the rapid growth of the
country, but still more to the splendid tradition of individual and
volunteer service which has been established here. In many countries
of slower development the government has assumed most of the bur-
dens of work for the people's welfare, one by one as the need appeared.
Upon the occurrence of war the governments so charged remain respon-
sible. They have incurred the obligation and must still find ways to
meet it as best they are able. Even so, the responsibility continues in
America, if anything enhanced and not decreased by the war, but it
continues at the charge of the many private agencies which have as-
sumed the work. Unlike the Government, moreover, these agencies can
not raise their necessary funds by fiat or taxation. They must con-
tinue to depend in large part upon private gifts. Meanwhile the Gov-
ernment's special needs for the conduct of war will be cutting sharply
into this very source of supply on which so much of our welfare depends.
In this predicament the very least which the United States Govern-
ment can do is to leave these sources of supply as wide open as still .
may be possible. It should not continue to tax men and women upon
that part of their income which they freely give to the Nation's social
and educational work. It should not put a penalty upon generosity.
In all the privately endowed colleges boards of trustees have not only
to face a probable decrease in the total of gifts received but they will
also have less from tuition fees—thanks to the loyal help they have
given in urging students to enter the Government's services for war.
At Harvard next year's deficit is roughly figured at $200,000. The
urgency of the situation is plain. Not a day should be lost in accept-
ing and passing the Hollis amendment.
º [From the Washington Post, Aug. 1, 1917.]
-- º POPULARIZING TAx Burri) ENs.
The Senate Finance Committee must add several hundred million
dollars—perhaps a billion—to the revenue bill which it is expected to
report, this week. That means increasing the rates of the war-income
tax, the war excess-profits tax, finding new objects of taxation, or
issuing more bonds. The needs of the Government outlined by Secre-
tary McAdoo must be met. There are billions to be had for the war,
but not a dollar for waste or extravagance. The people will pay cheer-
fully any sum, no matter, how large, which the Government can spend
wisely and economically in the vigorous and successful prosecution of
the war. There is patriotism enough to assure that, but the ensuin
taxes will be popular or unpopular in proportion as the people fee
that Congress is scrupulously careful to safeguard economy and efficiency
in public expenditures and is }. and fair in distributing the burden
of the tax as between individuals upon whom it must ultimately fall.
A case in point is presented in support of the two amendments which,
respectively, allow deductions from taxable income of gifts to education.
charity, and religion, and exempts from the Federal estate tax bequests
and legacies for the same purposes. The increased demand for revenue
is an added reason for and not against granting these deductions and
exemptions, which may mean a loss of from $5,000,000 to $100,000,000
of revenue annually to the Government. |--
It is good social psychology; Dr. Lindsay argues, to assume that five or
ten times the loss, whatever it may be, can be levied in increased taxes
upon the taxable portion of the same incomes or estates, and will be
more cheerfully paid by reason of the simple act of justice and con-
sideration implied in the granting of the deductions and exemptions.
The primary purpose of the amendments is, of course, to safeguard
the continuance of the valuable public work of educational, charitable,
and religious institutions in this hour of need and to enable them to
meet the new demands the war will make on them. Only secondarily
do they consider the incidental effect of the deductions and exemptions
upon the donors or contributors whose generosity and public service
they so justly recognize....This ought not to be overlooked when burdens
of such magnitude are piling up. Generosity and fairness on the part of
Congress will beget liberality and cheerfulness on the part of the
taxpayers.
The Senate Finance Committee in its eagerness to get added revenue
will show farsighted statesmanship and not be lacking in an appre-
ciation of sound social psychology iſ it gives up the revenue it would
lose by adopting the proposed amendments. It can easily capitalize in
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this bill or in others soon to follow the good will such action will -
create in the minds of taxpayers. It will thereby make a good invest-
ment,
[From the Washington Post, July 12, 1917.]
CONSCRIPTION OF INCOME.
The Hollis amendment to the revenue bill, which would exempt chari-
table, scientific, educational, and religious bequests from the income tax,
wisely follows the terms of the similar exemption contained in the
existing taxes on corporations. In order that "an individual may not
avoid taxation completely by giving his whole income to a charitable
institution, the Hollis amendment provides that the exemption shall
apply oniy to 20 per cent of the income.
f a man with a $2,000,000 income wished to give 20 per cent of it to
charity, the Government under the proposed exemption might lose a
little revenue, but it would be infinitesimal compared with the amount
that would be given to the public.
Back of the present taxation program lies the theory that wealth as
well as man power must be conscripted for the war. This is a sound
theory. But just as the selective feature is the very essence of con-
Scription of man power, so it should be regarded as the important fea-
ture of conscription of income.
In conscripting men the Government takes careful account of the
work they are now doing. The Government does not call out men who
are needed in the war industries. It will not call men on whom families
are absolutely dependent for support. The basic idea is to avoid un-
necessary burdens. . If men with dependent families were taken by the
Army, the burden of supporting those families would fall on the State.
The same rule should apply to the income tax. Where necessary
public institutions are supported by private subscription, the State is
saved much money. Voluntary contributions to the Red Cross, for in-
stance, have saved the Government $100,000,000, and eventually will save
the Government much more. Where money is already performing use-
ful service for the Government, it ought to be exempted. It would be
disastrous if any educational and charitable institution aiding the Nation
in peace and war should fail because of a near-sighted policy of Congress.
Shall the Government frame its tax measures so far as possible to
}. the tax upon the luxuries of the rich rather than upon the bene-
- actions of the rich 2 The argument is not that benefactions should be
encouraged by legislation, but that they should not be discouraged by
penalties. To say to the man who gives $10,000 to the Red Cross that
he must pay a penalty on the gift is to discourage private generosity and
throw the burden upon the shoulders of the Government itself.
Mr. SIMMONS. Mr. President - -
The PRESIDING OFFICER. Does the Senator from New
Hampshire yield to the Senator from North Carolina?
- Mr. HOLLIS. I yield.
Mr. SIMMIONS. I should like to ask the Senator if he would
have any objection to reducing the limitation in his second amend-
ment to 15 per cent instead of 20 per cent? I refer to the amend-
ment which he has just been discussing, with reference to -
donations to charitable and educational institutions. The Sen-
ator provides in that amendment a limitation of 20 per cent. -
I ask the Senator if he would be willing to reduce the limitation
to 15 per cent? -
Mr. HOLLIS. If the committee will accept it, I will; other-
wise I prefer not to do so. -
Mr. SIMMONS. I am inclined to accept it for the committee,
if the Senator will reduce the limitation to 15 per cent.
Mr. SMOOT. I suggest to the Senator from North Carolina
that he accept it right now. -
Mr. SIMMONS. I will accept it now if the Senator will con-
sent to reduce the limit to 15 per cent.
Mr. HOLLIS. Very well; I will do that.
Mr. SIMMONS. Then, on behalf of the committee, I
that amendment.
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unanimously agreed to.
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The PRESIDING OFFICER. That amendment is not now
before the Senate. The pending amendment is the amendment
of the Senator from New Hampshire relating to the income tax.
Mr. SIMMONS. The amendment in regard to donations to
charities, and so forth, is not now before the Senate, but I was
simply in advance suggesting that I would accept it at the
proper time. -
Mr. HOLLIS, I will offer it with the 15 per cent limit.
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Mr. HOLLIS. I now offer the amendment that the chairman
of the committee said he would accept.
Mr. SIMMONS. I will ask the Senator if he has changed the
amendment so as to make it 15 per cent instead of 20?
Mr. HOLLIS. I have done so.
Mr. SIMMONS. Then I accept the amendment. * *
The PRESIDING OFFICER. The amendment Will be stated.
The SECRETARY. Add at the end of the title a new section, as
follows:
SEc. —. That section tº of such act of September 8, 1916, is hereby
amended by adding at the end of subdivision (a) a further paragraph
numbered 9, to read as follows:
“Ninth. Contributions or gifts actually made within the year to cor-
porations or associations organized and operated exclusively for re-
ligious, charitable, scientific, or educational purposes, or to societies for
the prevention of cruelty to children or animals, no part of the net
income of which inures to the benefit of any private stockholder or
individual, to an amount not in excess of 15 per cent of the taxpayer's
taxable net income as computed without the benefit of this paragraph.
Such contributions or gifts shall be allowable as deductions only if veri-
fied under rules and regulations prescribed by the Commissioner of
Internal Revenue, with the approval of the Secretary of the Treasury.”
The PRESIDING OFFICER. The question is on agreeing to
the amendment of the Senator from New Hampshire [Mr.
Hollis].
Mr. HOLLIS. I ask for the yeas and nays.
The yeas and nays were not ordered, and the amendment was
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