Causes of the Panic

39

borrowed money for the carrying of securities, it
would be found that there are an overwhelming
aumber of holders, who, because of this tax, do not
sell. In our daily experience we find it common
that men who are holding securities and desire to
purchase additional securities in the market which
they consider as having an intrinsic value in excess
of the market price, do not feel that they can sell
that which they have, but in the satisfaction of this
desire they borrow either through their brokers or
directly through their bankers funds necessary for
such purposes, thereby placing added burden on the
credit structure.”
This tax on profits on the sale of stocks, bonds,
real estate, and so on, was put into the original
income tax law in 1913. It had no proper part in
such a law, for the simple reason that profits on
such sales represent a growth in capital, not a growth
in income. In successive annual reports, Secretary
Mellon had repeatedly called attention to the fact
that such taxes hinder and prevent business transactions
 which would otherwise take place. If the
law were repealed the loss in revenue would be, in
a degree, counterbalanced by the encouragement
which repeal would give to turning into real profits
the paper profits on securities as fast as they accrue.
These real profits might then be added to the capital
fund of taxpayers, and put to work earning more
money that would be taxable.
Even during the calendar year 1927, when the
long bull market was rising fast, the revenue from