National banking under the Federal Reserve System

Bibliographic data

Monograph

Identifikator:: 1757542345

URN:: urn:nbn:de:zbw-retromon-135097

Document type:: Monograph

Title:: National banking under the Federal Reserve System

Place of publication:: New York

Publisher:: The National City Bank of New York

Year of publication:: 1927

Scope:: 154 S.

Digitisation:: 2021

Collection:: Economics Books

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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Federal reserve act (approved Dec.23,1913)

Collection:: Economics Books

STOCK DIVIDENDS 23 680) ; Evansville Bank ». Britton (105 U. S. 322); Cleveland Trust Co. v. Lander (184 U. 8. 111); Home Savings Bank ». Des Moines (205 U. S. 503); Rogers v. Hennepin County (240 U. S. 184). (2) Bank of Commerce v. Tennessee (161 U. S. 134, 146); Shelby County ov. Union & Planters Bank (161 U. S. 149, 153-154); Wright ». Georgia R. R. & Banking Co. (216 U. S. 420, 425) ; Farrington ». Tennessee (95 U. S. 679); Sturges v. Carter (114 U. S. 511); Tennessee ». Whitworth (117 U. S. 12%: New Orleans v. Houston (119 U. S. 265); New Orleans v. Citizens’ Bank 7. U.'S. 371); Powers ». Detroit, Grand Haven, &e., Ry. Co. (201 U. S. 543). When the question of the nature of the shareholder’s interest in undivided profits came before this court in Gibbons v. Mahon (136 U. S. 549), the ques- tion was carefully considered and explicitly determined. The court pointed out the distinetion between the money earned by the corporation and the share- holder’s income, and ruled expressly that the interest of the shareholder in the accumulated earnings of the corporation, as a part of his share interest, was capital and not income, so long as the earnings were held and invested by the Soman as a part of its corporate property. See Towne v. Eisner (245 U. S. 418). . The case of Collector ». Hubbard (12 Wall, 1), arose under a provision that gains and profits of certain companies should be included in estimating the annual gains, profits, or income of any person entitled to the same, whether divided -or otherwise. The object was to insure the payment of the tax upon the earnings of the corporation. (See Gibbons ». Mahon, 136 U. S. 549, 560.) It was a crude method of reaching the corporate earnings and was the only tax imposed with respect to those earnings. A shareholder was to be taxed upon the increment supposed to have been added to the value of his share by his proportionate interest in the undivided profits. This, as a matter of statutory construction, is clear enough. But it by no means follows that this increment was income to the shareholder, when it becomes necessary to distinguish between a tax on income and a direct tax on the capital invested. The Hubbard case was dealing with the mere fact of the increment and did not, deal with its nature, as the court in the Gibbons case was called upon to deal. The reason why the court in the Hubbard case was not called upon to define the nature of the increment, beyond the fact that it was property, is apparent from the absence of any controversy over a constitutional question, and from the opinion entertained at the time with respect to what was a direct and what was an indirect tax under the Federal Constitution; accepting the view then entertained of direct and indirect taxes, the decision was unassailable. It was not necessary for Mr. Justice Clifford, in the absence of the debate which about 25 years later took place in Pollock ». Farmers’ Loan & Trust Co. (157 U. S. 429; 158 U. 8. 601), to go further. When, however, the court had occasion to deal with the precise question, in Gibbons ». Mahon, it stated its conclusion emphatically, and without the slightest reservation, that whatever increment there was, through undivided profits held and invested by the cor- poration, to the share of the stockholder, was capital and not income. * But the increment in the Hubbard case was nothing but an accretion to capital. It was not a separated, realized gain. It was not income. Hence, under the doctrine of the Pollock case and the doctrine now applicable to all cases where a capital interest is taxed, the tax could not validly be laid except as an apportioned direct tax. (Bailey ». Railroad Co., 22 Wall. 604, and recent cases cited by the Government, distinguished.) Income is the gain, come to fruition, from capital, from labor, or from both combined. This is sound doctrine both in law and in economics. Income of a corporation is not income of a shareholder until distributed. A “stock dividend” is not income. It does not constitute a distribution of anything; it is a mere readjustment of capital. (Stratton’s Independence ». Howbert 231 U. S. 399, 415; Doyle ». Mitchell Bros. Co., 247 U. S. 179, 185; Lynch v. Hornby, 247 U. S. 339, 343; Lynch v. Turrish, 247 U. 8S. 221, 231; Commissioners of Inland Revenue ». Blott (reported in the London Times of July 25, 1919); Seligman, Income Tax, p. 19; “The economic nature of the stock dividend,” by Fairchild, Bulletin of National Tax Association, Vol. III, No. 7, April, 1918, p. 163; Seligman, ‘“Are stock dividends income,” American Economic Review, Vol. IX, No. 3, p. 517; Peabody v. Eisner, 247 U. 8. 347; Towne v. Eisner, 245 U. 8S. 418, 426; Union Trust Co. v. Coleman. 126 N. Y. 433. 438.)

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