14 FEBRUARY 1920, Page 12


[To THE EDITOR OF THE " SPECTATOR."7 Sia,—Your correspondent Mr. B. 31. Drake seems to have overlooked one great difficulty of a tax on profits over and above a certain percentage on capital. Such a tax would operate most unequally upon the holders of different classes of shares in public companies. For example, A, who has bought at the price of £5 a share £1 shares in a company which has regularly paid 40 per cent. upon its capital, would be most unfairly taxed as compared with B, who has bought at the price of 10s. a share £1 shares in a company paying 4 per cent. on its capital. If the tax were fixed at 50 per cent. on all profits over and above 10 per cent., A would only receive 5 per cent. on his investment, whereas B would continue to receive 8 per, cent. as before. There is no reason why A should be more heavily taxed than B, both having bought their shares on a legitimately founded assumption that the profits on industry would not be unduly taxed at their source. It appears to me that the only fair tax is one levied upon individual incomes irrespec- tive of the sources whence they are derived. A tax upon profits is not only unequal in its incidence, but is likely to conduce to extravagance in the case of companies or firms which earn a high rate of interest on their paid-up capital.—I am, Sir, &c.,