If the foregoing reasoning is correct, these conclusions would seem to follow: 1. There ought to be a substantial and progressive increase in the rate of income taxation during the war, together probably with a lowering of the existing limit of income tax exemption. I believe that in practice the best result would be obtained if the rates of taxation were not to exceed a scale producing from maximum incomes an average tax of 33-1/3 per cent., at any rate for the first year of the war. A materially higher rate would not, in my opinion, yield a substantially higher aggregate of revenue to the Government (if as high an aggregate), while at the same time, if only for sentimental reasons, and even though only applied to very large incomes, it would be apt to cause financial dislocation and retard business activity and enterprise. It would seem advisable that such portion of a person's income as is devoted to charitable and kindred purposes should be, if not entirely free from income tax, at least subject to a reduced tax only, so as to counteract the tendency which experience has shown to follow in the wake of heavy taxation, of greatly diminishing charitable contributions. 2. There _ought to be an excess profit tax which might well be at a considerably higher rate than the present 8 per cent., or even the proposed 16 per cent._, but it should only be applicable to the extent that business profits exceed the profits of say a certain average period before the war and thus may justly be held to be attributable to war conditions. In determining the basis for calculating excess profits, an offset which might be fixed at say 10 per cent. per annum, due consideration being given to the question of depreciation and to special circumstances, ought to be allowed on all new capital invested in business since the beginning of the war. I think for the purpose of figuring the excess profit tax the five, four or three years _before America's entrance into the war_ would probably form the most appropriate basis. The aggregate industrial plant of this country, the entire scale and scope of our commerce and its concomitants, have been so completely modified in the course of the European war that a comparison which leaves out of account the years 1915 and 1916 does not seem to me to fit the case. I believe, both from the point of view of economics and of public opinion, a tax of say 32 per cent. or even 40 per cent., or eventually, if needed, a still higher percentage, calculated on a reasonably high average of earnings (that is, an average including 1916) is preferable to a tax of 16 per cent. or 20 per cent. on an inordinately low average.