Rock Island Argus. (Rock Island, Ill.) 1893-1920, 1920-03-20
E1itnrial Dtgrat
An Independent analysis II Leading Co..
rent Events - Rejected n tho Phi
lie Press Of the Country
Whv "Melon." Are Not Income

It pushes lots OF people to hear from the
supreme court that when corporation cuts
big melon" the stockholders do not have to
nav income taxes on it. II man owns stock
in q prosperous enterprise which decides to
distribute its surplus in the form Of stock
dividend" why should he not have to report
uch a dividend as taxable income. just - Il
he had received it in cash?
"The cutting OF an apple into four parts in
stead of two does not increase the size Of the
apple" says the Boston Post Qnd. Dem) by
way OF illustration. $50. the division Of
corporations assets into 100000 shares instead
of $4,000 shares does not increase the value OF
the shares, nor give the shareholder larger
eouitv in the assets" In the same way, the
sum and New York Herald 0nd.) points out
that eff a man owns dollar bill and splits it
into two silver half dollars or into four quar-:
ters. or into ten dimes, or divides it as many
times as you please. he has not a penny more
and not a penny less than when it was in the
single dollar bill"
Thus stock dividends represent really CAPT
tai and not income, or, as the Chicago Daily
News Und) describes it. the promise or pos
sibilitv of income The fact that the stock
dividend is a gift-a 'melon'-does not alter
the essential feature of the situation, since
the gift takes the form OF a paper title to dlvl-
dends, should they be earned" II dividends
are paid the stock, OF course they are
taxable.
The effect of this decision is "in the direc-
ton of removing hampering burdens and re-
strictions from capital and freeing it to engage
in the development of the country's indus
tries" in the opinion of the New York Mail
Qnd.), and the Mail goes on to say:
ITO tax investments, in addition to taxing
earnings in the form of dividends, is the surest
way to discourage enterprise block expansion.
and make the road to prosperity difficult. To
realize that fact it is not necessary to go fur
Their than the consideration that, in order to
pay an income tax on a share Of stock given
him in lieu of dividend, it would be necessary
for the holder to invade his savings from other
sources or sell his share, perhaps at a loss. ="
The far-reaching effect Of the decision is
illustrated by the Wheeling Register Oem.),
which notes that:
For instance the American Car and Foun-
dry with total of s31 ,324,521 undivided profits
is ready to declare stock dividends equal to
$104 q share Morris & Co., packers, are hold
ing $50 S23,S64 or SLIGO per share; the Stand
ard Gil companies of Indiana, New York and
Ohio have big dividends on which the tax as
earnings has been paid and can be distributed
as stock dividends, while the Republic Iron
and Steel, National Biscuit, Pittsburgh Coal
and many other industries are in similar posi-.
tons which means that the courts decree is
bound to send prices sky-high in the market
as there will now be sharp buying in order
to grab blocks of the common stock OF those
companies upon which stock dividends are
sure to be paid"
But If the correctness Of the decision ap-
pears obvious from the arguments above quot
ed, it must be remembered that four of the
nine supreme court justices dissented, and held
that stock dividends were taxable. Many news
papers agree with the minority of the court
CAS- judges disagree, so will individuals dis
agree" observes the Minneapolis Journal Und.
Rep.
The decision "is based on neither sound
law nor sensible logic" declares the Sioux
City Journal (Rep). which further expresses
the opinion that "it will enable every corpora
ton to dodge the payment of income tax its
stock for its stockholders" and the Nashville
Banner Qnd) believes the decision will I'M
doubtedly prove unpopular" Sharply critical,
also, is the Pittsburgh Press Und):
"The supreme court is evidently deter
mined" says the Press, that wealth must be
cherished The legal pendulum which
seemed to be swinging few years ago strong
ly against privilege now seems to be swinging
back hard"
The Fargo Courier-News Non. Part
league) dissents SO strongly that it is even
moved to suggest some popular curb on the
supreme court" 1t continues:
"a constitutional amendment should he in
itiated, restoring the original intent Of the
constitution that congress should be superior
to the supreme court, not its inferior. No other
nation in the world permits a small legal
autocracy to veto at its will the mandates Of
! the elected representatives of the people"