9

8.—5

The usual brokerage for the sale of short-term paper is a quarter of 1 per cent., and a commission of one-eighth of 1 per cent, would be a very low rate to estimate the value of these sales. On that basis the profit of the agency to the intermediate credit banks would be 146,895 dollars, less 7,985 dollars for advertising. An analysis of these items discloses tangible savings and earnings by the fiscal agency of 223,227 dollars after deducting charges, to which may be added a very considerable advantage in the market price obtained on subsequent sales by reason of the market operations referred to. The experience fully confirms the wisdom of the Federal land and intermediate credit banks in establishing the fiscal agency. The following quotation from the Year-book of the Department of Agriculture, Washington, 1924, refers to the issue and sale of bonds by the Federal land banks : — " The funds used in making these loans are obtained through the sale of tax-exempt bonds secured by farm mortgages taken for the loans. These bonds are issued in denominations of 40, 100, 500, and 1,000 dollars and even much larger denominations, subject to retirement at the option of the bank ten years after date of issue. Ea.ch bank may issue bonds up to twenty times the amount of its capital and surplus. Every bank is jointly liable for the bonds issued by the twelve banks. While not obligations of the Federal Government, the collateral securing these bonds has the close supervision of the Government. This fact, together with their tax-exempt feature, creates for these bonds a good, market at low interestrates. In fact, they have been selling at yields only slightly above those of some other Government securities. In short, it is apparent that the farmer is obtaining through the Federal farm-loan system farm-mortgage credit at rates that compare favourably with those paid by other industries. In order to build up a broad and dependable market for the bonds, the Federal land banks offer their bonds through bond-houses that have connections in all parts of the country, and likewise through local national farm-loans associations. In order to better co-ordinate the bond-selling activities of all Federal land banks a fiscal agent was appointed in the spring of 1923." Tax-free Securities. The feeling in the United States is against the issue of tax-free securities, although it is generally admitted that it was necessary, if farm-loan bonds were not to be unfairly handicapped, that they should be given the same advantages as those accorded to State and municipal bonds. They were therefore made tax-free ; but all American bankers, financiers, and economists consulted were emphatically in favour of prohibiting further issues of tax-free securities, for reasons which are summarized hereunder : — (1.) Much property escapes taxation, causing great loss of revenue. (2.) Such a system violates the ability principle of taxation, and unfairly discriminates between taxpayers. (3.) Private finance is impeded. (4.) They discourage investment in new enterprises. (5.) They create extravagance in Governments and municipalities. (6.) They privately subsidize certain interests. (7.) They cause money to be withdrawn from private enterprise, increase the rate of interest for enterprises not carried on by the Government, and add to the cost of living. (8.) They cause social unrest. The general effect of the wholesale issue of tax-free securities has been to provide a refuge from taxation for certain classes of taxpayers, but the rest, however, are taxed higher correspondingly to make up the revenue deficiency, and a gross inequality exists. Property and unearned incomes are taxed at a lower rate than earned income, and the rich man is escaping his share of the burden which is being borne by the poor man and those in receipt of moderate incomes. No system of graduated income-tax is likely to be effective so long as practically unlimited quantities of -tax-free securities are obtainable.

2—B. 5.