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402 _ NATURE OF CAPITAL AND INCOME 
first half year, there is left $908.67, which has impaired 
his capital by $91.33. This being reinvested and yielding in- 
terest, would make a total combined fund of $1000 as before. 
At the end of the second half year, in like manner, the original 
security is worth $815.52, but to this must be added the 
capital invested last year, $91.33, and also the investment this 
year, $93.15, making a total again of $1000; and so on for 
each year. 
If, then, as in England, the tax is paid on the interest 
annually (second column), no injustice is done, providing the 
items in the fourth column are actually reinvested each year, and 
that the interest on such reinvestment in some other form is 
used as income. In other words, each reinvestment is not ae- 
cumulated at compound interest, but made a separate fund 
yielding perpetual interest which is converted into enjoyable 
income as fast as it is received. In this case the man will be re- 
ceiving, from the given security and the others created out of 
his reinvestments, a uniform net income of $20 a year, and 
will maintain his capital at $1000. Consequently the ex- 
emption of “impairment of capital” works no ultimate injustice, 
since ultimately there is no such impairment. 
But as, practically, we can never know to what extent the 
“impairments” are actually reinvested, the justification of tax- 
ing the sums in the first column instead of those in the third 
is entirely on grounds of expediency. Theoretically, the actual 
income from this particular form of capital as represented in 
the third column should be taxed, and afterward whatever is 
reinvested in some other form should earn remission of taxes. 
This method, while impracticable in such detailed application, 
might with advantage be applied to the taxation of an individ- 
ual’s income as a whole. After all the individual components 
are combined —all the income elements, large or small, and all 
the outgo elements, including reinvestments—there will be a 
resultant net income for the individual which, and which alone, 
should be taxed. A system which would accomplish this 
would tax, to this individual, any net impairment of his capital, 
for such impairment would mean large income; but, on the 
other hand, if he were not depleting but laying up capital, it 
would exempt the increase, for such increase would not be part