Evening star., 1918-08-22
NORMAL TAX EXEMPT
OF VALUE IN ALL BONDS
BY I. A. FLEMING.

Corporations having bonds out
standing. with the covenant clause in
the mortgage oy which the corpora
tion agrees to pay the normal income
tax. will find this provision decidedly
costly under the provisions of the
new tax measure. which contemplates
a normal tax of 10 or 12 per cent. 1t
really means. in cases where the full
normal tax will be assessed. about
one-half. of one per cent more interest
on the entire bond issue. The pro-
vision contemplated. of making or
8 per cent normal tax on the first
$4,000 Of taxable income. will save
corporations many dollars, but the
extra charge through the impost Of
the heavy normal tax will be an i'm
portant figure.
At the same time. the great i'm
portance of such covenant in
mortgage covering bond issue
should not be overlooked by investors
in making their purchases.
1t would be nothing more than COM
mon sense.
Very many corporations have pro-
vided in the mortgages securing their
bond issues that l per cent norma !
tax should be paid. some per cent
and a very few have arranged or
rather covenanted TO pay 4 per cent.
The recent issue of Potomac Elec-
trio first IS contained a covenant to
pay per cent normal tax. Where no
covenant to pay normal tax at source
exists, it will be practically half of
per cent reduction in an investment.
Short term bonds are being market
ed with considerable freedom at the
present time. as well as short term
notes. and it might be well for in
veStors to make their calculations on
10 per cent normal tax in figuring
their net returns. while at the same
time remembering the one-half rate
on the first $4,000 of taxable income.
The 34 Per Cent Liberty Bonds.
The 81. per cent tax-free liberty
when they sold. very early in the ses-
sion. on the New York Stock Exchange
to 10250.
was s2.000.000, 900. OF this amount
so66. .000. 900 were converted into IS and
AIS. principally the former. SO that
while retaining maturity. etc. they
take the tax features from the con-
Serted issue.
The small supply and the desire to
acquire the tax-free issue by men of
large means is expected gradually
to absorb the floating supply.
The sharp advance in the 3Es was
ohc VI tnc CHlel topics OF COnNerSa-
tion among bankers and brokers. and
the opinion expressed in New York,
that they would sell to ITO or better.
was echoed here.
The 34s haye another privilege
which should not be overlooked. 1t
may be that they will have small value
II the war ends in the near future.
and increased value if il does not
the right to conversion into any fu-
ture issue of liberty bonds remaining
with the a1es. but to no other issue.
while November 9 is the latest date
of conversion of all per cent bonds,
and the 44s have no further rights.
Bond Day on Local Exchange.
This was bond day on the local
stock exchange, a total of 81 900 face
value being traded in, with prices
reasonably strong on everything.
Capital Traction 5s opened at 99k
and closed at s9X; Potomac Electric
issues sold at 971s for the first IS,
331s for the consolidated ss and 9SE
for the negera1 mortgage IS.
The only transaction in stocks was
the sale of twenty shares of Capital
Traction stock at $50.