of disbursements are contemplated for the later years. The largest item is the provision for the "United States Veterans' Bureau," $438,000,000 in 1922 and slightly more in the next year. The Department of Agriculture is scheduled to expend for good roads $105,000,000 in 1922 and $126,000,000 in 1923, while during the past year only $57,000,000 was used for that purpose. With these two readily understandable exceptions, nearly all the very large items of expenses show remarkable decreases in the forecast for the next two years. The Treasury Department spent $406,000,000 in 1921, and sets down only $169,000,000 for each of the following two years. The War Department spent $1,101,000,000 in the current year and is cut down to $389,000,000 in 1922 and $370,000,000 in 1923. The Navy Department, with an outgo of $650,000,000 in 1921, is cut to $479,000,000 next year and $432,000,000 in 1923; undoubtedly as a result of agreements at the Arms Conference the actual reductions in that department will be decidedly larger than those shown in this original budget estimate. The interest on the public debt paid in the present year, $999,000,000, will go down to $975,000,000 for each of the following years. In the meantime, a substantial reduction in the principal of the public debt is provided for year by year, $272,000,000 in 1922 and $284,000,000 in 1923.

Dealing with

to

If the new arrangements to be Our Foreign made with the nations owing Debtors altogether $11,000,000,000 the United States result in any early receipt of interest from them or any of them, the cheerful aspects of this budget forecast will be further enhanced. On December 10, the Senate Finance Committee reported favorably on the funding bill, after several amendments had been made to the original House measure. The bill as it now stands provides for the funding of these debts due us from European nations, under the supervision of a commission of five members, the chairman being the Secretary of the Treasury and his four associates to be approved by Congress. The new legislation will provide that the long-time obligations accepted by us in lieu of the present demand notes shall mature not later than June 15, 1947, and shall bear interest at not less than 5 per cent. The commission is directed not to cancel any part of either the principal or interest of the debts, and it is prohibited from accept

ing bonds of one government in payment for the debts of another. The aggregate sum due us from these debtor nations is now $11,329,281,228, including $394,245,351 in principal and interest of the Russian debt.

But How Will They

Pay?

It is gratifying to have this very important matter put into form and to provide an orderly method of settling with the various debtor nations. It is, indeed, difficult to see how international trade can reach any degree of stability while these great debts and the German reparation obligations are in uncertain form. One cannot conceive that rates of exchange on various national currencies will arrive at any continuous sure level so long as these huge uncertainties overhang the situation. But while it is very good, as far as it goes, to get this funding commission at work with a sure knowledge of the limits Congress will place on accommodations to our debtors, it must be remembered that no one, as yet, has suggested any workable way for such a commission or anyone else to complete its task in the sense of getting either principal or interest actually paid to us from Europe. Eleven billions of debt at the minimum stipulated rate of 5 per cent. means $550,000,000 a year to be paid to us. Theoretically, this could (1) be sent over the water in gold or (2) paid in the excess of Europe's exports of goods to us over our exports of goods to Europe. The first method can be dismissed at once, as we have already taken so much of the gold of the world that there is not enough left for any considerable fraction of these interest payments. As to the second method, instead of a balance of goods imported from Europe, there has been for years an unprecedented balance the other way, and it will be a problem indeed to handle the new tariff bill in such a manner as to allow Europe any chance whatsoever to change her unfavorable trade balance with us to a favorable one. This, however, must be done one way or another if we are to get these interest payments. It is to be noted that the current figures of exports and imports show a remarkable falling off in the balance against Europe as compared with any previous months since the beginning of the war, and it is not inconceivable that with an American tariff program recognizing the facts of the situation, the European countries may gradually regain their productive powers sufficiently to make payments of a substantial character in the form of goods shipped.

Certainly this is true of Great Britain. The New York quotation for the British pound sterling has been rising with spectacular rapidity, reaching $4.23 before the middle. of December, a figure far above any seen in the last two years.

Real Tax Revision Needed

The new revenue bill became law substantially in the form described in recent issues of this REVIEW. No one, not even its authors, is satisfied with it as a final work of tax revision, and there is little doubt but that the Administration will proceed actively next year to a more thorough-going, courageous and intelligent attempt to rearrange our taxes on a peace basis. The two considerable achievements in the bill just passed are the repeal of the excess-profits tax (beginning with the year 1922), and the repeal of the taxes on transportation. A provision of which not much has been heard was made at the last moment in the matter of taxing profits in the sale of "capital assets." It has more importance than the public has given it and much more importance than is represented in the mere relief to individual taxpayers. This new clause deals with situations in which individuals own property held as an investment which has largely appreciated in value over its cost to them. Under the previous revenue laws, the sale of such property entailed the paying of taxes on a year's income figured as the sum of the ordinary income and the profits resulting from the sale. One result of this method, and a bad one, was that a man holding property which could be sold at a very large profit simply did not sell it, because he would have to pay perhaps one-third or one-half of his gain to the government-in many cases even more. This tendency toward at static condition of trade was unfortunate, and clearly prevented various enterprises from proceeding and various improvements from being made. The new law provides that in cases where such investments have been held for two years and more, the owner, on selling them, may be taxed at the rate of only 12 per cent. of his gain, provided that his entire tax payments shall be as much as 121⁄2 per cent. of his entire income.

individual incomes and maintains that 25 per cent. as a maximum surtax, or even 20 per cent., would be far preferable to the present rates of about double as much. Mr. Mellon makes a very excellent presentation of his case and goes far toward convincing any reasonable man that quite aside from the interests of the individual with the large income, the revenues of the nation, business as a whole and particularly the poorer classes themselves would be benefited by lower rates. The very outspoken arguments in this report from the Treasury have obtained widespread attention not only because of their cogency, but because of a natural assumption from them that the Administration. has definitely in mind an effort to get through Congress in 1922 a new revenue bill with some such radical reduction of income tax rates. Mr. Mellon goes even farther and gives it as his opinion-accepting fully the income tax as a wise and necessary feature of modern revenue-raising, and accepting also the grading of rates according to ability to pay-that surtaxes of something like 10 per cent. as a maximum should ultimately be reached in peace times.

High Surtaxes Kill Business

Secretary Mellon has no trouble in showing that the very high surtaxes on individual incomes of recent years have largely failed as revenue producers, and that their failure is progressive. While the net income of all classes of taxpayers increased from $6,300,000,000 in 1916 to $19,800,000,000 in 1919, the incomes of $300,000 and over reported to the government in the same period actually decreased from $707,000,000 to $315,000,000. This very striking showing is largely explained, of course, by the increasing diversion of both the income and principal of very wealthy people to wealthy people to tax-exempt securities. Other ways, too, were found of avoiding payment of such taxes as 65 per cent. "Experience teaches us that means of avoiding taxes which are regarded as excessive or unreasonable will always be found." Not only have very high surtaxes become less and less productive from the standpoint of government revenue; Secretary Mellon goes on to attack the theory that high income taxes really burden the rich and relieve the poor. Through real estate mortgages, capital has formerly been obtainable for building operations from people having large incomes; but with the excessively high surtaxes, people of means cannot afford this kind of investment.

How Taxes Increase

The result is that capital has been shut off from building, Poverty there is great shortage of houses, rents have increased enormously and people of small means have a rent burden never heard of before. These very high taxes appear, too, to hinder and prevent business transactions which would otherwise have taken place and have produced revenue for the government and work and wages for the masses. When taxes are so high that transactions cannot be carried through, the government of course gets no revenue, enterprise, work and wages are stifled and unemployment and poverty increase. Still another serious effect of very high tax rates is destruction of the incentive to risk money, time and effort in undertaking business hazards—with the resulting slowing up of industry and production, and loss of revenue to the government. Secretary Mellon advises cutting down not only the higher income taxes but the estate taxes as well. His experts figure that surtax rates with a minimum of 25 per cent., with corresponding reductions for smaller incomes, would mean the apparent loss of only about $130,000,000 a year and a 20 per cent. maximum rate would involve a loss of about $200,000,000.

Railway Consolidation

The Interstate Commerce Commission's tentative plan for consolidating the railways, prepared by Professor William Z. Ripley, is discussed elsewhere in this issue by Mr. Samuel O. Dunn, the able editor of the Railway Age. No progress is, apparently, being made toward an actual carrying out of this program. All parties in interest seem inclined to go slowly in the matter. The Administration is, of course, intensely occupied with other affairs of large moment. The executives of the existing railway systems are, as a rule, in a skeptical mood and many of them, naturally, are not disposed to be too hastily enthusiastic over any plan that means such a total upheaval of railway organizations, with uncertain effects upon their personal fortunes. The most constructive work being done toward a solution of the problem is that of the National Association of Owners of Railway Securities. This organization represents thousands of individual owners of railway securities as well as a large majority of the holdings of these bonds and stocks in mutual life insurance companies and savings banks. It is claimed that the Association represents in one way

or another some eleven billion dollars out of the total of nearly twenty billion dollars of railway securities.

Unified Railway Terminals

This Association has asked the Commerce Commission to postpone any attempt to carry out the consolidation plan until a board of engineers has had time to make a thorough report on certain phases of the economies hoped for through the combination into a small number of systems. Especially in the matter of unified terminals the Association feels that the railroads have a chance for enormous savings. The terminal factor in the cost of transportation is extraordinarily large, so large as to appear amazing to the layman. In hundreds of instances the same terminal facilities could be used by several different roads, now each using separate ones, and many millions would be saved. for net income if the final process of consolidation were carried out with this in view.

Railway Earnings Better

In the meantime the railroads are showing a decided improvement in their earnings, their net incomes for October being the best for a long time, and good even after one takes into consideration that the mid-autumn month is one in which relatively large seasonal earnings are usually reported. The railways have filed notices of reduction in the wages of practically all classes of employees ranging from 10 to 20 per cent. and will endeavor to convince the Railway Labor Board of the wisdom of the changes. That body has helped them, also, in the last month, by fixing new working rules which, while recognizing collective bargaining and the rights of the unions, practically make the railway plants open shops. The way seems to be clearing for the substantial reduction of railway rates that everyone, railway executives included, feel to be necessary for the health of business. Spokesmen for the railway unions have challenged sharply the statistics of earnings and of capital investments published by the railway heads. These union representatives contend that the earnings reported during this time should be augmented by the additional rate charges the roads would certainly have made if they had not been favored with the Government guarantee, the federal policy having been, of course, not so much to make the roads earn their expenses as to keep rates down.

THE CONFERENCE AT WASHINGTON November 15 - English, French, Italian, and Japanese spokes.cn approve in principle the naval reduction plan of Mr. Hughes, involving the "scrapping" of sixty-six capital ships by the United States, Great Britain, and Japan.

November 16.-China proposes ten basic principles for order in the Far East through Dr. Sze, seeking application of the "open door" policy, territorial integrity of China [including Manchuria and Mongolia], political and administrative independence, abandonment of spheres of influence, and restoration of tariff autonomy.

Admiral Kato proposes Japan be allowed a 70 per cent. naval ratio-compared with Britain and America-instead of only 60 per cent. under the Hughes plan (the respective coast lines in nautical miles are: Britain, 50,938; United States, 40,206; and Japan, 21,948).

November 18.-The United States and Great Britain adhere to the 5-5-3 naval ratio, in spite of Japanese arguments.

Keystone View Co.

MME. YAJIMA, JAPANESE WOMAN PETITIONER FOR PEACE

(At the age of ninety, this Japanese emissary traveled 7500 miles to present the scroll containing 10,000 signatures of Japanese women. She has become famous as the most vigorous and successful exponent of women's equality in Japan. The petition contained a prayer for success of the Washington Conference, and was presented to the President in person)

November 19.-Japan presents her side of the Far Eastern case through Admiral Kato, who expresses good-will toward China, but suggests that Japan help China in arranging foreign relations, while permitting China to readjust internal affairs.

November 21.-The member nations, except China, adopt the four principles of a resolution offered by Mr. Root, ending special privileges in China and guaranteeing her territorial and administrative integrity.

Premier Aristide Briand, of France, analyzes his country's reasons for maintaining a large army, but says a 50 per cent. reduction is contemplated by shortening the military-service period to eighteen months.

November 22.-The Japanese are reported as recognizing Manchuria as a part of China, after having first contended that Chinese territory lay only within the Great Wall.

November 24.-Premier Briand leaves Washington to return to his duties in France, and M. Viviani heads the French delegation.

November 25.-The powers are requested to abolish their separate post offices in China, which now conducts a system of its own, serving 31,325 places; Japan has 124 post offices in China, Britain 12, France 13, the United States 1.

November 26.-The nations at the Conference agree to abolish foreign post offices in China as soon as practicable, the tentative date being January 1, 1923.

November 29.-A committee is appointed to investigate China's courts and report on the advisability of withdrawing foreign courts of assenting powers. . . . China asks removal of all foreign police and troops, telegraphs and wireless systems.

November 30.-China and Japan agree to discuss Shantung under American and British mediation at Washington.

December 4.-A deputation from the Chita Far Eastern Republic arrives at Washington to obtain help in ousting Japanese troops from Siberia, to open trade relations with other countries and to obtain recognition.

December 5.-Japan agrees to waive all preferential rights with regard to foreign assistance in persons, capital, and material in Shantung as stipulated in the Chino-German treaty of March 6, 1898, but desires to hold at least a half interest in the railway.

December 6.-China agrees to refund money spent by Japan on properties in Shantung. Japan will return to China all public property in the Kiau-Chau leasehold. . . . A radio agreement is reached, and China's neutrality is protected in case of war between other Pacific powers.

December 9.-Japan agrees to recede all of Shantung except the Tsingtao-Tsinan railroad,

which China claims neutralizes the cession of other territory.

December 10.-The draft of a Four-Power Treaty on insular possessions and insular dominions in the Pacific is announced by Mr. Lodge; it recognizes existing rights and provides for a joint conference of the four powers-Great Britain, Japan, France, and the United States-if controversy should arise on any Pacific question not settled by diplomacy; if any other power threatens their rights, the contracting powers shall communicate regarding most efficient measures to be taken; the agreement is to remain in force for ten years or longer, and will terminate the Anglo-Japanese Alliance upon ratification.

December 11.-Secretary Hughes announces an agreement with Japan on Yap and other Pacific mandate islands, giving the United States equal rights in cable and wireless service; American missionaries and educators are protected.

Japan consents to January 1, 1923, as the date for removing all foreign post offices from China, which is to be given facilities to search for opium and other contraband in the meantime.

December 13.-The Four-Power Treaty is signed at Washington.

December 14.-It is announced at Tokio that Japan accepts the 5-5-3 naval ratio proposed by Mr. Hughes on November 12.

December 15.-Secretary Hughes announces agreement regarding naval limitation by the United States, Great Britain, and Japan, on substantially the same lines proposed by him on November 12; Japan is to have ten ships of 313,300 tons; Britain twenty, of 582,050 tons; the United States eighteen, of 525,850 tons; and military and naval outposts in the Pacific are to remain in statu quo.

PROCEEDINGS IN CONGRESS

November 16.-The Senate engages in bitter debate over the Ford-Newberry election contest of 1918.

November 17.-The House, voting 201 to 173, accepts the Senate's maximum surtax figure of 50 per cent. on the largest incomes.

November 18.-The Senate passes the AntiBeer bill, 56 to 22, with 12 Republicans opposed; it prohibits use of beer for medicinal purposes. November 19.-The House, voting 279 to 139, passes the Sheppard-Towner bill for the protection of maternity and infancy.

November 21.-The House approves the conference committee's Tax Revision bill, 232 to 109. November 23.-The Senate approves the conference report on the Tax Revision bill, 39 to 29; the special session comes to an end, with failure to complete action on the tariff, railroad funding, foreign debt refunding, the "truth in fabric" bill, and Alaskan railway appropriation.

December 5.-The Sixty-seventh Congress convenes in the first regular session; President Harding sends the first Budget to both houses; it shows a deficit of $167,571,977 under the new tax bill estimates.

December 6.-President Harding delivers his annual message in person, advocating early refunding of foreign debts, regulation of nontaxable securities, coöperative agricultural relief, a flexible tariff, and other reforms; he expresses a desire that the Russian famine be relieved.

The Senate passes a measure directing the Secretary of War to turn over surplus medical and surgical supplies to the American Relief Administration for use in Russia.

The Congressional Record publishes the names of 11,000 draft dodgers.

December 8.-The Senate passes a resolution to investigate the dye industry and "lobby."

The Senate Committee investigating army executions learns that only eleven men who reIceived the death sentence were executed.

December 10.-In the House, Mr. Fordney introduces a bill appropriating $10,000,000 for 10,000,000 bushels of corn and 1,000,000 bushels of seed grain for Russian famine relief.

The House, voting 197 to 90, passes a bill providing for appointment of 22 new federal judges.

December 12.-In the Senate, Mr. Wadsworth (Rep., N. Y.) introduces an Administration bill to establish a Bureau of Civil Aviation in the Department of Commerce to "encourage, foster, and regulate" aviation.

The Senate passes the First Deficiency bill of $106,800,000, adding $3,000,000 to the House

measure.

December 14.-The House doubles the Russian Relief appropriation of the Senate.

AMERICAN POLITICS AND GOVERNMENT November 15.-William E. Pulliam is appointed Receiver General of Customs of the Dominican Republic; he had held the post from 1908 to 1913.

November 16.-In Huerfano County, Colo.,