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7 _~ Lo ¥ 7 f 8-11-38 SHALL MUNICIPAL SALARIES AND BONDS BE TAXED? All city officials today are considering very practically two ques- tions which until recently have been largely theoretical, The first of these questions is whether the salaries of mnicipal officialea and employees and the income from mnicipal bonds should be subject to federal taxation; and the second, whether federal taxes on municipal salaries, 1f imposed, can and should be made retroactive. Here are the reasons, given in chronological order, why city offi- ciala are giving eo mch attention to these two questions: The President's Message. On April 25, 1938, President Roosevelt sent a special message to Congress. in which he recommended that proper legis- lative action be taken at once to terminate the tax exempt status of governmen- tal bonds and governmental salaries, "Such legislation," said the President, "would subject all future state and local bonds to existing federal taxes, and it would confer similar powers on states in relation to future federal issues, At the same time such a statute would subject state and local employees to existing federal income taxes, and confer on the states the equivalent power to tax the salaries of federal employees," The Port Authority Case. On May 16, the U. S. Supreme Court gave its decision in Helvering vs, Gerhardt, commonly referred to as the Port Authority case because Gerhardt is an employee of the Port of New York Author- ity. Briefly, the court decided that Gerhardt's income and the incomes of his two assistants are subject to federal income tax, In its reasoning the court showed a decided disposition to question and to change its previous reasoning-- reasoniug which has led to the creation of reciprocal tax exemption for the ee eee a Balaries a na bonds of federal, state, and local govermments. In other words, since the Port Authority decision, many state and minicipal officials have begun to wonder whether the decision is broad enough to apply to the salaries of all municipal officers and employees. GY][-(S2.° SE LT