The Washington herald., 1913-11-08
The Safest investments

is impossible to forecast the whims and
attitudes of speculation with any degrel
Of certainty, and he who tries to do .
and backs up his impressions with hh
money usually ends by losing his monet
and acquiring deep sense OF the futilitt
Of knowledge in the speculative market.
This article has to do with what seeml
to be a real change in the channels d
investment in the United States. It
only once in a decade that such a chang!
takes place. The change is always dui
TO some economic phenomena, some deei
and radical change in government, puolii
policy, or International finance. which In.
terposeS an impossible barrier in thu
stream OF investment and practically
forces II out of its banks. The vert
large gold production, for instance, thai
followed the close OF the Boer war, wal
an economic change OF this charactel
which did alter the course OF investmen,
throughout the world very materia1ly
and the effects OF which are still TO bt
observed from any study OF investment.
The present change is peculiar to thu
United States 1t arises out of the fact
that We have placed an income tax law
on our statute books, which places a reli
atively heavy tax upon tho income to b9
secured by the investor OF large means
from the accepted and accredited forms
Of investment that have been most popu>
lar in past generations, and leaves somd
other classes of-investment free of taxes
of this sort. The result Of such a change
is fairly obvious.
Under the income tax law, all people
with large incomes, from whatsoeyet
source derived. are required to pay q
tax varying in degree as their income
exceeds 5000 or $1,000 That portion Of
this tax which is levied upon invest
ments IN, railroad bonds, public utility
bonds. and other corporation bonds Of
any sort WILL in large part, be collected
by the corporation itself.
In other words, the corporation will re1
tain from the amount II sets aside I'd
pay the coupons on the bonds the mini
mum tax imposed by the government;
Returns will be made In various other
ways by the banks and other institutions
which usually collect interest OF this
sort, so that the large investor will ind
himself paying taxes even though Id
does not declare his wealth.
The class of bonds left immune conI
sists Of municipal, State, and government
bonds. This Is very large group Of Sc
curities which in bygone days was much
more popular than it has been for tho
last ten Years or so. 1t seems inevitable
now that so long as the income tax re-
toward municipals. In fact. indications
are that for the past month or more
there has been a great shifting on the
part OF large estates and large individual
investors out Of bonds on which the IN
come tax will be collected into bonds
that are exempt, and this is one o. the
most pronounced tendencies Of the bond
market at the present time and will con-
tinue SO for quite a while.
rErN0D In
come exceeds 100000 is taxed 4 per cenn
upon the amount in excess Of 100000. In
other words, such a person viii derive
from securities which would otherwise
net him 5 per cent no more than he
would derive from the same amount Of
money invested in tax-exempt securities
to yield a shade over 4 "a per cent
Obviously therefore, this new factor In
the investment market will tend to drive
the two classes OF bonds further apart
For instance, a 4 per cent corporation
bond. running for twenty years and sell-
ing at 81 and interest. would yield 8
per cent gross, but it would be no cheap
er to the big investor than q 4 per cent
tax-exempt bond would be selling at
s01-4 and interest
To the small investor, who has not an
income Of over 1900 year, this change
will be OF relatively slight importance.
II is true that in the case of most bonds
the income tax viii be held back from
the small investor as well as from the
large one: but he can have 1t paid back
to him upon his declaration that his In
come is not over 5000 or 1900 II he has
family. The real result to the small
investor will be a favorable one rather
than otherwise. because 1t is largely q
fact that the buying and selling Of bonds
for the very large investment institu-
tons and private investments makes the
prices N the markets. and. for a while
at least, while the shifting OF large es-
tates Is going to meet the income tax
law, the small investor viii undoubtedly
be able TO buy ibis normal investment
securities cheaper than he okherNise
would be able 70 buy ths1A