Attack at Arthurdale

Mrs. Franklin D. Roosevelt had a date to address a high-school graduating class in northern West Virginia--at Arthurdale, the subsistence homestead community closest to her heart. But in her husband's chest welled up something which he wanted to get off to all the People. He announced that he would fill Mrs. Roosevelt's engagement, using a national radio hookup. Before he left Washington last week, newshawks knew what was on his chest: the 1938 Tax Bill, still lying unsigned, un-vetoed at the White House.

Instead of speaking, Mrs. Roosevelt attended the commencement hop. In a gay print dress and highest spirits, she square-danced, Virginia-reeled and trucked with partners young & old (see cut). The President roamed in his car through the Arthurdale project, stroked the muzzle of the community's prize cow, said: "That's a West Virginia moose."

At the commencement exercises, the graduating class--13 hill children in grey caps & gowns--were waiting for him on the Community Building stage decked with mountain laurel. Their parents and friends clustered around as Franklin Roosevelt greeted them and, over their heads, addressed all school graduating classes, all the People.

He told them that the cost of social pioneer ventures like Arthurdale "we justifiably charge off as the inevitable cost of all progress."* A better investment for taxpayers he could not conceive than "able, alert, competent and up-to-date people." And now, "How should taxes be paid?"

In its new tax bill, he regretted to say, Congress had flouted two "very fundamental principles" of Government: 1) In alleviating for small businesses the tax on undistributed profits, it had reopened the loophole for Big Business to avoid taxes. "The penalty for withholding dividends from stockholders is so small--only 2 1/2 % at the most--that it is doubtful whether it will wholly eliminate the old tax avoidance practices of the past." 2) "This new bill wholly eliminates the progressive tax principle with respect to ... capital profits ; it taxes small capital profits and large capital profits at exactly the same rate."

The President pictured to the subsistence homesteaders a stock profit of $5,000 which he or they had made over more than two years. Ranging it alongside a $500,000 stock profit made by some other man, he told them that the new tax law would require the $500,000 man "to pay a tax of only 15%. just as you and I would. . . . Nobody, by any stretch of the imagination, can say that this new provision maintains the principle of payment in proportion to ability to pay."

For these reasons, he said, he gravely disapproved the new Tax Bill. But it did have some good features. "Therefore, for the first time since I have been President ... I am going to let the act go into effect at midnight tonight without my approval.

"By so doing I call the definite attention of the American people to those unwise parts of the bill . . . one of which may restore in the future certain forms of tax avoidance, and of concentrated investment power, which we had begun to end, and the other a definite abandonment of a principle of tax policy long ago accepted as part of our American system."

Arthurdale gave Franklin Roosevelt a rousing hand for his memorable speech, but in Washington there was a different reaction. Judging by what he had said, the President, it seemed, had not read the new Tax Bill, or had not understood it. Among those most deeply concerned was hard-working Senator Pat Harrison of Mississippi, Democratic chairman of the Senate Finance Committee. Members of both houses flocked into the Senate Chamber next day to hear Pat Harrison insist that "American principles and Government principles of long standing" had not been abandoned in the Tax Bill which he had helped to write.

"We wanted to do something, if a tax factor could do it, that might assist in dispelling fear in the hearts of some people and restoring confidence in the mind of the American business man," said Senator Harrison, but the President's speech made it sound like "a monstrous tax bill," designed to let big taxpayers escape; on the contrary the first thing the bill did was positive--it erased the inequity of the old tax law by letting small businesses pay debts and meet deficits before levying on their undistributed profits, and by exempting all businesses earning less than $25,000.

Said he of the undistributed profits tax: "There is no great American principle about this. ... It came to us in 1936. Mr. [Herman] Oliphant, representing the Treasury, was very zealous and persistent about it. I presume he had sold it to the President."

Said he of capital gains taxes: "It is not an old American principle we are abandoning. . . . [Not until 1913 were long-term capital gains taxed, and then with a $20,-ooo exemption.] With reference to the illustration which the President gave, he was just misinformed. I have no doubt about that, because I know the President is sincere in his utterances."**

P:To Hyde Park, N. Y. for the weekend went Squire Franklin Roosevelt. There he viewed 42 new acres he had bought, off Cream Street on the edge of town, since his last trip home. That evening he was host to royalty: Prince Louis Ferdinand Hohenzollern and his bride, the former Grand Duchess Kyra Romanoff. When he took them to church on Sunday morning, he was tickled by a parable read by the Rev. Frank R. Wilson. It was an essay by a school girl on Manhattan's East Side. Its subject: "True greatness." Its text:

"Once there was a woman that had done a big washing and hung it on the line. The line broke and let it fall down in the mud, but she didn't say a word: only did it all over again, and this time spread it on the grass, where it couldn't fall.

"But that night a dog ran over it with its muddy feet. [Here the President began to grin.] When she saw what was done she sat down and didn't cry a bit. All she said was, 'Ain't it queer that he didn't miss nothin?' That was true greatness, but it is only people who have done washing that know it."

*The Government spent $2,500,000 on Arthurdale. The average income of the 165 families settled there is estimated to have risen from $467 to $1,020 a year.

** On a $500,000 capital gain the tax would, as the President said, be 15%. In the case of the $5,000 stock profit made by the President or the Arthursdale homesteaders who were married, if they had no other income that year they would pay no tax at all. If they had $5,000 salary plus $5,000 stock profit, their tax would be $80 (normal) plus $140 (capital gain)--or less than 3% on their profit. If the salary were $10,000, the tax on the $5,000 profit would be less than 5%. Not unless their capital gain brought their total income to more than $20,000, when the surtax becomes 15%, would the $5,000 profiteers pay as much as the $500,000 profiteer.

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