Modern monetary systems

Bibliographic data

Monograph

Identifikator:: 1753210836

URN:: urn:nbn:de:zbw-retromon-128414

Document type:: Monograph

Author:: Nogaro, Bertrand http://d-nb.info/gnd/117039713

Title:: Modern monetary systems

Place of publication:: London

Publisher:: King

Year of publication:: 1927

Scope:: XII, 236 S.

Digitisation:: 2021

Collection:: Economics Books

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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Part III. Monetary theory and its application in practice

Collection:: Economics Books

STOCK DIVIDENDS 31 a precedent for the guidance of this court when acting under a duty to test an Soi of Congress by the limitations of a written Constitution having superior orce. In Tax Commissioner ». Putnam (1917) (227 Massachusetts, 522), it was held that the forty-fourth amendment to the Constitution of Massachusetts, which conferred upon the legislature full power to tax incomes, “must be interpreted as including every item which by any reasonable understanding can fairly be regarded as income” (pp. 526, 531); and that under it a stock dividend was taxa- ble as income, the court saying (p. 535); ‘‘In essence the thing which has been done is to distribute a symbol representing an accumulation of profits, which instead of being paid out in cash is invested in the business, thus augmenting its durable assets. In this aspect of the case the substance of the transaction is no different from what it would be if a cash dividend had been declared with the privilege of subscription to an equivalent amount of new shares.” We can not accept this reasoning. Evidently, in order to give a sufficiently broad sweep to the new taxing provision, it was deemed necessary to take the symbol for the substance, accumulation for distribution, capital accretion for its opposite; while a case where money is paid into the hand of the stockholder with an option to buy new shares with it, followed by acceptance of the option, was regarded as identical in substance with a case where the stockholder receives no money and hag no option. The Massachusetts court was not under an obligation, like the one which binds us, of applying a constitutional amendment in the light of other constitutional provisions that stand in the way of extending it by construction. Upon the second argument, the Government, recognizing the force of the decision in Towne v. Eisner, supra, and virtually abandoning the contention that a stock dividend increases the interest of the stockholder or otherwise enriches him, insisted as an alternative that by the true construction of the act of 1916 the tax is imposed not upon the stock dividend but rather upon the stock- holder's share of the undivided profits previously accumulated by the corpora- tion; the tax being levied as a matter of convenience at the time such profits become manifest through the stock dividend. If so construed, would the act be constitutional? That Congress has power to tax shareholders upon their property interests in the stock of corporations is beyond question; and that such interests might be valued in view of the condition of the company, including its accumulated and undivided profits, is equally clear. But that this would be taxation of property because of ownership, and hence would require apportionment under the pro- visions of the Constitution, is settled beyond peradventure by previous decisions of this court. The Government relies upon Collector v. Hubbard (1870), (12 Wall. 1, 17), which arose under paragraph 117 of the act of June 30, 1864 (c. 173, 13 Stat. 223, 282), providing that “the gains and profits of all companies, whether incor- porated or partnership, other than the companies specified in this section, shall be included in estimating the annual gains, profits, or income of any person entitled to the same, whether divided or otherwise.” The court held an individual taxable upon his proportion of the earnings of a corporation although not declared as dividends and although invested in assets not in their nature divisible. Con- ceding that the stockholder for certain purposes had no title prior to dividend declared, the court nevertheless said (p. 18): “Grant all that, still it is true that the owner of a share of stock in a corporation holds the share with all its incidents, and that among those incidents is the right to receive all future dividends; that is, his proportional share of all profits not then divided. + Profits are incident to the share to which the owner at once becomes entitled provided he remains a member of the corporation until a dividend is made. Regarded as an incident to the shares, undivided profits are property of the shareholder, and as such are the proper subject of sale, gift, or devise. Undivided profits invested in real estate, machinery, or raw material for the purpose of being manufactured are investments in which the stockholders are interested, and when such profits are actually appropriated to the payment of the debts of the corporation they serve to increase the market value of the shares, whether held by the original sub- seribers or by assignees.” In so far as this seems to uphold the right of Congress 40 tax without apportionment a stockholder’s interest in accumulated earnings prior to dividend declared, it must be regarded as overruled by Pollock ». Farmers’ oan & Trust Co. (158 U. 8. 601, 627, 628, 637). Conceding Collector ». Hubbard was inconsistent with the doctrine of that case, because it sustained a direct tax upon property not apportioned among the States, the Government never-

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